HB 59 - MOTOR FUEL TAX CHAIRMAN HALCRO announced the first and only order of business as House Bill 59, "An Act relating to the motor fuel tax; and providing for an effective date." Number 0059 DENNIS POSHARD, Legislative Liaison/Special Assistant, Office of the Commissioner, Department of Transportation & Public Facilities [DOT/PF], came before the committee to present the bill. He explained HB 59 was one of a package of bills that was introduced by the Governor last year as part of a long-range financial plan. The bill takes a user-pays approach towards highway construction and maintenance funding. It takes the current tax rate of 8 cents per gallon and increases it to 17 cents per gallon. Alaska's current rate of 8 cents per gallon is the lowest in the nation; it hasn't increased since 1961. Mr. Poshard cited that tax rates per gallon across the nation range from the lowest at 8 cents in Alaska to the highest at 35.8 cents in Hawaii. If this tax increase should pass, he said, Alaska would be 45th in the nation. He noted that each increase per cent generates approximately $2.9 million. MR. POSHARD further stated that the need for this bill stems from the [federal] Transportation Equity Act for the 21st Century [TEA-21]. When the Act was passed, the state's general fund match requirement went up substantially - from around $190 to $200 million per year to around $350 to $400 million per year. The state's match need went up as well - from around $25 to $30 million to $50.6 [million]. This year, it should be around $48 to $49 million. The bill, therefore, is a way to raise revenues to pay for the state's match, and to continue to construct adequate transportation facilities. If there is anything left over in the account the way the bill reads, the secondary use would be for maintenance. The department has a sizable deferred maintenance list and its general fund maintenance dollars have been cut annually. Number 0377 CHAIRMAN HALCRO stated he agrees to some extent with Mr. Poshard's comment in relation to the tax being a user-pays [approach], but he wonders how it could be justified to those who pay for the tax at the pump when some of it would go to support the ferry system. In that case, it's not really a user-pays [approach]. MR. POSHARD replied the Marine Highway System is part of the state's capital budget every year. There is no question that this money would - potentially - pay the state's match for those types of projects. Furthermore, the Federal Highway Administration recognizes the marine highway - the lifeline of transportation in Southeast Alaska - as part of the National Highway System. Number 0475 CHAIRMAN HALCRO asked Mr. Poshard whether he has looked at the fact that Alaskans pay anywhere from 10 cents to 25 cents per gallon more than other states. MR. POSHARD replied he wouldn't want to elaborate on any theories as to why that is true. He believes, however, that the Department of Law is openly investigating that issue now. Number 0566 KEVIN RITCHIE, Alaska Municipal League [AML], came before the committee to testify. He stated the highest priority of the AML and the Alaska Conference of Mayors is to assist the state in developing a long-range fiscal plan that involves municipalities, and part of that plan is a gas tax. The AML doesn't have a position on how high the gas tax ought to be, but it does have a position on how the proceeds of the tax should be used. According to examples from around the nation, when the people know how the revenues generated from a tax will be used and they approve of that use, they are much more likely to approve a tax increase. He cited an example in Sitka, whereby three-quarters of the people approved a recent sales tax increase because they were told what the revenues generated would be used for, and because it included a sunset. In the case of the gas tax, Alaska is one of a few states that doesn't share [the revenues from] the gas tax with its municipalities, when 43.5 percent of the lane miles are municipal. Mr. Ritchie further noted that, when a tax payer goes to a gas pump, that tax payer is burning gas partly on municipal and state roads. The public, however, considers the roads as one system. Number 0775 REPRESENTATIVE JOHN COWDERY asked Mr. Ritchie what would be wrong with each community putting a sales tax on gasoline to fit their needs? That approach seems more equitable and democratic. The recent initiative on capping the property tax gives him "heartburn," for he has communities that don't have any property tax or a tax base. He thinks it should be a local issue, which is similar to his opinion on the gas tax. MR. RITCHIE replied the AML hardly agrees on the issue of a tax cap. The AML believes it is a local issue. Most of the communities in the state have a tax cap or revenue cap already in place. He cited Sitka has a six mill property tax cap by charter, but they don't want other parts of the state to tell them how to assess their system. In the case of a gas tax, very few states have a gas tax that varies by municipality because in theory there could be a variety of different tax systems all linked by the same road. From a long-range standpoint, he suggested looking at a uniform gas [tax]. Number 0905 REPRESENTATIVE BILL HUDSON asked whether there is any information on the background of the gas tax, especially as it relates to each municipality. He was wondering whether there is anything in statute relating to this issue. MR. POSHARD replied he doesn't have any background information with him. He does know that the gas tax hasn't changed since 1961, but he can't profess to know the background of when it was established. Number 0954 REPRESENTATIVE HUDSON stated it would be very important to look at the background in terms of why it is a uniform tax levied by the state rather than by each community. Number 0998 REPRESENTATIVE COWDERY noted not every community [in the state] has a road system. REPRESENTATIVE HUDSON replied they all have at least a mile of road. Number 1017 CHAIRMAN HALCRO asked Mr. Ritchie whether his earlier testimony indicated that 43.5 percent of the gas tax should be shared with local governments, since 43.5 percent of the lane miles are municipal. He's not sure how Mr. Ritchie can take a position like that when both state and federal dollars have to be figured for local infrastructure. He cited the $18 million new overpass in his legislative district benefits the Municipality of Anchorage, yet his property taxes have not increased. MR. RITCHIE replied it is just a factual basis to start from. The AML and the Conference of Mayors looked at the overall concept of revenue sharing, and a gas tax would be part of that. He cited it started at $2,500 per mile and is now down to $250 per mile. This gas tax, he said, would make a great deal of sense in creating a new revenue sharing program rather than just pulling revenues out of the general fund. Number 1146 CHAIRMAN HALCRO stated part of his mill rate goes toward the Anchorage Road Service Area. He asked Mr. Ritchie whether that is consistent with communities throughout the state that have property taxes. MR. RITCHIE replied, "Yes." That is the only way roads are maintained right now. In the past, the state indirectly shared [revenues from] the gas tax through a small road revenue sharing program. In essence, a little bit of state money now goes towards maintaining state roads, which is why the AML feels that the public would be more accepting of a gas tax that would maintain the entire [road] system. Number 1226 CHAIRMAN HALCRO referred to page 4, lines 1-4, of the bill, and noted that the language gives DOT/PF the latitude to use the funds from everything to surveys, administration and related matters. He is concerned that the money from the gas tax might not go into maintenance. He agrees that the people would accept an increase if they specifically knew it would go towards maintaining state and municipal roads. MR. RITCHIE replied the AML would like to discuss that language. He noted that there is a debate in the state about dedicating funds, and the AML feels that the public has become more sophisticated about their local and state governments. He further noted that the tax measures that fail usually don't give the public a sense of need. Number 1335 CHAIRMAN HALCRO referred to page 3, lines 28-31, of the bill, and noted that DOT/PF would first use the funds for matching federal-aid highway money for planning, design and construction, while road paving and deferred maintenance projects would be secondary. MR. RITCHIE replied, when the public views the gas tax, they probably just imagine a good road to drive on, which includes maintenance. Number 1406 FRANK DILLON, Executive Vice President, Alaska Trucking Association, testified via teleconference from Anchorage. The trucking industry - conceptually - supports an increase in the gas tax. However, the details in HB 59 - as drafted - are currently unacceptable. First of all, matching federal funds are funds that have been collected from motor fuel users. In Alaska, he cited each tractor-trailer contributes about $6,400 a year to the state and federal governments. All of the money that is sent to the federal government comes back to the state several times over the amount for a variety of reasons: the alignment of the state's congressional delegation, the uniqueness of the state, and the ability of the state to carry that argument forward through the continued funding formulas. But, when talking about getting more matching money by raising taxes, that also means raising local or state taxes in order to match what somebody has already paid. It's all tax money. The industry is not objecting to raising the fuel tax; the industry is objecting to using it for matching federal funds instead of using it for maintenance. He noted that the Deferred Maintenance Task Force identified several hundred million dollars worth of highway deficiencies that have immediate safety implications, but there is no real way to address it with federal funding because of the constraints and hoops placed on the funds when they are given back to the state. In addition, he cannot say that the industry would support a direct revenue sharing concept that Mr. Ritchie put forward in his testimony; it seems that people are already circling the money as if it was a done deal. He reiterated that the industry is concerned about how the revenues would be spent. The focus, he further reiterated, should be on maintenance and repair work to enhance safety and longevity of an existing roadway on an existing right-of-way. Number 1605 CHAIRMAN HALCRO stated he hears complaints about general fund dollars being available only for maintenance; federal highway funds are for new roads, not to repair old ones. He wonders why the state wouldn't want to seize an increase in the gas tax as an opportunity to make maintenance the primary objective instead of as an opportunity to match more federal funds to design and build more roads. MR. POSHARD replied HB 59 was drafted and conceived shortly after TEA-21, and during a time when the legislature had committed to cutting general fund dollars. The bill was seen, therefore, as a mechanism to raise enough capital to match an extra $24 million, of which, the legislature went ahead and appropriated in order not to turn back federal dollars. The department is certainly willing to sit down and discuss the issue of where the money should go; it is a policy call. MR. POSHARD further stated, in response to a concern expressed earlier by Representative Hudson regarding a state versus local tax, there are areas in the state that don't have a local government to collect the gas tax, yet there are major highways that run through them. He called it an equity issue. Furthermore, there is some efficiency in having the Department of Revenue collect the gas tax on a statewide basis rather than having the department collect it from each individual gas station. Number 1786 CHAIRMAN HALCRO asked Mr. Poshard whether the department would have a problem with the bill being amended to limit the use of the funds generated to maintenance between the rights-of-way or to ferries and ferry terminals. MR. POSHARD replied he doesn't want to commit the commissioner to one thing or another; he would talk to him about it. He suspects that the department would be willing to amend the language to specifically say what the money would be used for. Number 1821 CHAIRMAN HALCRO referred to page 4, lines 6-10, of the bill, and noted that the language "if" versus "when" leaves the department with a lot of latitude for projects by contract. He would like to see the entire paragraph deleted, otherwise the department can make an arbitrary decision on when to contract. MR. POSHARD replied most of the language that Chairman Halcro is referring to is in existing statute. The department chose not to bother changing it when drafting the bill. He noted that the department contracts out over 50 percent of its design work, and that the design engineers are performing as project managers. He further noted that, when TEA-21 passed, the workload for the department nearly doubled, yet the department received only one PCN [Position Control Number]. As a result, the department has chosen to contract-out. Number 1945 CHAIRMAN HALCRO stated, during the summer, when the overpass at Minnesota and International Airport Roads was being constructed, he drove by at 1:00 p.m. and counted seven orange DOT/PF pickup trucks parked in a row, yet the project was being done by a private contractor. It concerns him that seven department workers or more, depending on how many were in each truck, were needed to "look over the contractor's shoulder." MR. POSHARD replied he can't comment on exactly what was occurring that day; but from his experience there aren't routinely seven project managers on-site. There are times when there might be the project manager and the occasional inspector(s). He set forth that it could have been a day when DOT/PF management was touring and inspecting the project; after all, it was a pretty big project. Number 2017 CHAIRMAN HALCRO referred to page 4, lines 21-22, of the bill, and noted that the language identifies a refund due to specific users. He asked Mr. Poshard to explain why a refund is given. MR. POSHARD replied that according to his understanding there is a refund given for non-highway usage. He cited ATVs [all terrain vehicles] and snowmobiles as examples. There is no need to improve the roads for those types of vehicles. A refund, therefore, is to provide relief for those users. Number 2069 REPRESENTATIVE HUDSON stated that the motor fuel tax is for vehicles driven on the highways. It is not for stationary, diesel, marine or aviation [engines]. Those users fall under a separate regime. CHAIRMAN HALCRO stated he understands that aircraft and watercraft are not in this category, and asked whether or not ATVs and snowmobiles would receive a lower price. ROBYNN J. WILSON, Revenue Auditor, Income & Excise Audit Division, Department of Revenue, came before the committee to answer Chairman Halcro's question. She stated that most of the off-road refunds apply to construction and mining equipment. She cited bulldozers and generators as examples. Number 2116 CHAIRMAN HALCRO asked Ms. Wilson how that is determined. For example, what if he purchased gas for a piece of mining equipment at the pump? MS. WILSON replied the statute allows for the user to get a refund. She explained that the user needs to file a claim for refund with the Department of Revenue, provide documentation that the tax was paid, and describe the type of equipment the fuel was used in. She also noted that the vehicles in areas of the state that don't require a license enjoy an off-road refund as well. Number 2155 CHAIRMAN HALCRO asked Mr. Poshard whether that applies to communities under a certain population or under a certain amount of road miles. MR. POSHARD replied he's not certain. It's a question for the Division of Motor Vehicles [Department of Administration]. Number 2175 REPRESENTATIVE HUDSON asked Mr. Poshard where the [refund] from 6 cents [a gallon] to 13 cents [a gallon] came from. MR. POSHARD replied that according to his recollection at the time the bill was drafted the state was keeping 2 cents per gallon for off-highway use doubling its keep to 4 cents, which is where that figure came from. REPRESENTATIVE HUDSON asked Mr. Poshard whether it's a correlation of what the state was doing before. MR. POSHARD replied yes, essentially. REPRESENTATIVE HUDSON said, "6 to 8 and 13 to 17." MR. POSHARD replied, "Correct." Number 2225 CHAIRMAN HALCRO asked, How much does the state get back in fuel tax refunds? UNIDENTIFIED SPEAKER replied, from the audience, he doesn't have that information with him; he will get it to him. CHAIRMAN HALCRO said it doesn't seem very fair that some people are exempt. His constituents may or may not ever have the need to use the Marine Highway System, yet they are paying a tax to fund it. He asked, Why shouldn't somebody who lives in a community without roads not have to follow the same suit? Number 2250 REPRESENTATIVE ALBERT KOOKESH asked, Why does somebody like him have to pay the motor fuel tax, when he's never going to drive on the roads in Anchorage or Fairbanks? It's the same correlation. Number 2267 REPRESENTATIVE HUDSON stated it's important to recognize the state transportation system in its entirety. Thousands of people get on a ferry in Southeast Alaska and travel to Anchorage or Fairbanks. It's important to remember that the Marine Highway System is part of the blacktop; it just happens to move. The state should, therefore, be looking at everybody who is expending gasoline and driving on the roads when collecting taxes. He reiterated the people who are getting on the ferries are driving vehicles, they just happen to be on a shuttle to a highway. He doesn't want the committee to get too bogged down on trying to isolate what the monies can or cannot be used for. Number 2310 CHAIRMAN HALCRO asked, If there are going to be exemptions, where should they stop? REPRESENTATIVE HUDSON replied exemptions are for those who are not essentially using the highways. It's a correlational relationship to the proportion of fuel being consumed. REPRESENTATIVE KOOKESH said trying to piecemeal the Marine Highway System only adds to the confusion. It should be looked at as a statewide system rather than differentiating between users. He said, "It's our system. It really belongs to all of us. And, if I never drive on a[n] Anchorage or Fairbanks highway, it still belongs to me and I have to pay my share." Number 2360 MR. POSHARD noted that this issue is not only about where individuals drive, as Mr. Dillon would testify to, it's about moving goods efficiently. This issue, he said, is about having trucks move efficiently from Anchorage to Fairbanks or from Anchorage to Glennallen, which is a very important part of the state's transportation system. Number 2385 CHAIRMAN HALCRO stated he agrees 100 percent with Mr. Poshard's comments, which explains his questions about exemptions - to ensure that everybody shares fairly. CHAIRMAN HALCRO closed the meeting to public testimony. He announced that the bill would be held over. In the meantime, he would engage in discussions with Mr. Poshard and the Department of Transportation & Public Facilities to ensure that the maintenance aspect is primary.