HB 329-DEDICATED TRANSPORT FUND/PUB TRANSPORT  2:01:09 PM CHAIR P. WILSON announced that the final order of business would be HOUSE BILL NO. 329, "An Act relating to the transportation infrastructure fund, to local public transportation, to motor fuel taxes, and to the motor vehicle registration fee; and providing for an effective date." 2:03:09 PM CHAIR P. WILSON explained that HB 329 is up for a second hearing. She provided some answers to questions raised. She stated that meetings are subject to the Open Meetings Act, and Brian Kane suggested submitting the report to the council, the governor, and the legislature. She further stated all of DOT&PF's meetings are subject to the Open Meetings Act. Another question was how many states have dedicated funds, and how other states are addressing transportation funding. She offered that she has made a formal request to National Conference of State Legislatures (NCSL), but also provided members with handout, containing research from Illinois that indicates at least 15 states have dedicated funds for transit. 2:04:25 PM CHAIR P. WILSON advised members that she is working to define the terms "rural" and "urban". She recalled that a variety of definitions currently exist for the terms in various programs. REPRESENTATIVE GRUENBERG recalled a debate in the 1980s. He recalled that a former representative included a bridge as being listed as urban. 2:07:25 PM TOM GEORGE, Alaska Representative, Aircraft Owners & Pilots Association (AOPA), stated that the AOPA represents the private pilots rather than the commercial pilots. Nationally, the AOPA has 415,000 members, of which 4,300 private pilots belong to the AOPA in Alaska. While he is a member of the Governor's Aviation Advisory Board, he is only speaking today on behalf of the AOPA. He offered to strongly support the concept of state funding for transportation infrastructure, particularly due to reductions in federal funding. His organization is just starting to study the bill so he offered to make initial comments. He recalled other states have dedicated transportation funds, and some are multimodal, such as in Maryland, which have been successful. He suggested flexibility in the percentages of funding for each mode, that in some instances it might not be prudent to limit roads to only 60 percent. He acknowledged frustrations with the current DOT&PF process to prioritize and allocate federal funds, and would like to explore a less contentious way to allocate funds. He expressed interest in working with the committee and commended it for its leadership. In closing, he thanked Ms. Klein for her service, and stressed the importance of keeping the aviation presence in the DOT&PF. 2:10:07 PM REPRESENTATIVE GRUENBERG expressed his concern that HB 329 is contingent on passage of a constitutional amendment. He referred to page 9, lines 14-16, of Section 14. He offered his belief that the language could remain as is, but if the constitutional amendment does not pass, the committee's work would be fruitless, or the committee could develop an alternate plan to proceed in the event that the constitutional amendment does not pass. He inquired as to whether the sponsor would like to consider placing an alternate plan in this bill or create a second bill. He stated that he introduced a bill that is available, HB 330, and has no pride of authorship. He recommended that an alternate plan be developed. 2:12:13 PM REPRESENTATIVE T. WILSON offered her belief that the discussion of a dedicated transportation fund is worthwhile, whether it passes or not. The public needs to know that funding transportation projects is important. CHAIR P. WILSON expressed concern that to present two approaches to establish a dedicated transportation fund might confuse the public on the ballot proposition. She agreed that the discussion is important. REPRESENTATIVE PETERSEN recommended not mentioning the term "permanent fund" when referring to the dedicated transportation fund and to use the term "dedicated" or "long-term" transportation fund so as not to confuse the public. REPRESENTATIVE MUNOZ related that the bill contains a contingency that states the bill has no effect if the constitutional amendment to establish a dedicated transportation fund is not approved by the voters. 2:15:14 PM REPRESENTATIVE GRUENBERG stated that Section 14 indicates that except for Section 10 of the bill the rest of the bill would not take effect unless the constitutional amendment passes. He suggested that a constitutional amendment must pass the legislature with a two-thirds vote of each body and a majority of voters must vote to pass the constitutional amendment this year during the November election. Thus, the constitutional amendment must pass these two hurdles. In terms of timing, he thought it would be helpful for the committee to develop an alternate plan. Otherwise, it would take time for the next legislature to pass another bill to create a transportation fund. 2:17:58 PM CHAIR P. WILSON recalled the legislature established an education fund and responded that the process is a simple one. REPRESENTATIVE GRUENBERG recalled that the education fund has become somewhat of a "slush fund". He suggested that if the legislature developed a transportation fund statutorily, that it would be important to encourage the funds be used to address transportation needs. 2:18:57 PM REPRESENTATIVE GRUENBERG, in response to Chair Wilson, suggested the committee may need legal advice and might want a legal opinion to identify the constitutional limitations for the committee if it decided to create a transportation fund in statute. 2:19:56 PM CHAIR P. WILSON, in response to Representative Johansen, related that she previously mentioned the education fund. REPRESENTATIVE GRUENBERG recalled a fund exists that is not a constitutional dedicated fund but is a separate account in the general fund to be used for education. He characterized it as a sub-account in the general fund, but nothing requires it to be used for education. No penalty exists and the funds do not lapse. He suggested a value to exploring the legal limits. 2:21:19 PM REPRESENTATIVE JOHANSEN said he was disturbed by the term "slush fund," which has negative implications, but he understood the mechanics. He referred to page 1, lines 7-8, to the legislative intent. He asked for ramifications if the legislature did not appropriate the $1 billion. CHAIR P. WILSON explained another bill, an appropriation bill, would provide the vehicle for the funding. 2:22:29 PM REPRESENTATIVE JOHANSEN referred to Section 3, on page 2, lines 1l-12. He inquired as to whether the Municipal Harbor Facility Grant Fund would be capitalized as specified using the Fisheries Business Tax. 2:23:10 PM REBECCA ROONEY, Staff, stated the intent was not to leave small funds that had potential funding from the collection of the motor fuel tax unfunded. The intent is to move the Municipal Harbor Facility Grant Fund to another section. She referred to page 3, lines 25-26, which read, "(4) eight percent of the appropriations from the fund may be used for projects related to harbor facilities and state-owned marine facilities and for deposit into the Municipal Harbor Facility Grant Fund (AS 29.60.800)." She stated the Fisheries Business Tax was left alone. 2:24:33 PM REPRESENTATIVE JOHANSEN related that the Fisheries Business Tax specifically is a tax on commercial activities fishermen. He expressed concern that the commercial fishermen may be singled out as a possible source of funding. MS. ROONEY stated that the Fisheries Business Tax language is not new language in the statute, but is probably referenced in this section since commercial fishermen use the harbor facilities. REPRESENTATIVE JOHANSEN referred to page 2, line 7, and suggested he might offer an amendment to remove the language. It would then read, "There is established the Municipal Harbor Facility Grant Fund consisting of money appropriated to the fund." He offered to discuss this further with the sponsor. 2:25:56 PM REPRESENTATIVE GRUENBERG related his understanding that currently, funds from the watercraft fuel tax can be deposited to the Municipal Harbor Facility Grant Fund. Under HB 329, the funding would be deposited to the dedicated transportation fund, and then be disbursed to the Municipal Harbor Facility Grant Fund. He cautioned that the possible amendment would prohibit money from the Fisheries Business Tax from being deposited into the Municipal Harbor Facility Grant Fund. He suggested that may be a step back. CHAIR P. WILSON recalled the Municipal Harbor Facility Grant Fund was established by Senator Bill Thomas several years ago. 2:27:16 PM BRIAN KANE, Attorney, Legislative Legal Counsel, Legislative Legal and Research Services, Legislative Affairs Agency, explained that basically Section 3, the Watercraft Fuel Tax Account will not be in existence if this bill passes. Thus, in Section 3, the money that would be separately accounted for is the Fisheries Business Tax. This is accounted for separately so to identify the balance that could be appropriated to the Municipal Harbor Facility Grant Fund. 2:28:21 PM CHAIR P. WILSON recalled that the Watercraft Fuel Tax would be deposited to the dedicated transportation fund due to the Alaska Marine Highway System. 2:28:51 PM REPRESENTATIVE JOHANSEN asked if this bill is enacted and the constitutional amendment passes, if anything precludes the legislature from appropriating money to the dedicated transportation fund. MR. KANE responded that if HB 329 passes, that provisions in the resolution provide an option for fees and taxes to be deposited into the fund, as well as an option for additional funds to be appropriated to the dedicated transportation fund. 2:29:40 PM REPRESENTATIVE MUNOZ understood that in Section 3 of HB 329, the Municipal Harbor Facility Grant Fund would remain in place while the Watercraft Fuel Tax Account would be removed. MR. KANE answered yes. In further response to Representative Munoz, he responded that the option to have the Municipal Harbor Facility Grant Fund receive funds from the Fisheries Business Tax is not mandatory. The funds will be separately accounted for with an option for the legislature to appropriate funds to the Municipal Harbor Facility Grant Fund. MR. KANE, in response to Chair Wilson, related that the Fisheries Business Tax Fund will be deposited to the general fund, except for monies directed to dedicated transportation fund. In further response to Chair Wilson, he explained that under the bill the only change is that less money will be separately accounted for since the Watercraft Fuel Tax Account (WFTA) will be deleted and the funds that normally would be deposited to the WFTA will be directed to the dedicated transportation fund. He was unsure if the WFTA is referenced in other statutes. He offered to research the matter. CHAIR P. WILSON indicated that it was not her intention to divert funds from commercial fishermen, but wanted to insure that the harbors can be maintained for the Alaska Marine Highway System, barges, or other businesses. 2:32:30 PM REPRESENTATIVE JOHANSEN referred to page 4, line 29, and asked for the timing on the capital projects. He recalled that the capital projects are submitted in late summer or fall and this subsection would require the advisory council to provide a report on December 31 of each year. 2:33:04 PM JEFF OTTESEN, Director, Division of Program Development, Department of Transportation & Public Facilities (DOT&PF), answered that was correct, that the Capital Improvement Budget (CIB) process begins in late summer to identify projects to request general fund authority or federal funds, federal aviation or highways. The CIB process includes preparing the project lists, working with the Office of Management and Budget (OMB). The general fund projects are scrutinized and cut. The revised list is submitted to the Governor and is included in the Governor's Budget request to the legislature. This list would be developed by the decision-making body, the Transportation Infrastructure Fund Advisory Council (TIFAC), which uses a different source of funding. He was unsure whether any conflict exists, but the timeframe differs from the CIB process. In response to Chair Wilson, he agreed it would be better if the timeframes were the same. He offered to provide the date that the DOT&PF submits requests to OMB. 2:36:12 PM REPRESENTATIVE JOHANSEN referred to page 4, lines 11-28, and asked about the process to select the composition of the TIFAC. He recalled that usually the presiding officers of the legislature make appointments. He also asked whether the specific cite listed in subsection (c) is correct for travel and per diem expenses for legislative members. 2:37:23 PM CHAIR P. WILSON agreed that usually the appointments are made by the presiding officers of the legislature, that it could be changed, as she is open to what makes sense to the committee. 2:38:16 PM REPRESENTATIVE MUNOZ expressed concern that including legislators as members of the TIFAC as a part of the decision- making process for projects is risky, since they represent their districts and may lose sight of the statewide perspective. She suggested substituting the director of the AMHS, Aviation, or their designees since they would represent the modes. 2:39:05 PM CHAIR P. WILSON expressed her neutrality in the matter, stating that that impartiality would probably depend on the person. REPRESENTATIVE MUNOZ expressed a preference for the regional representation, but thought that including a director from each of the major transportation sectors would be preferable to including elected officials. 2:40:21 PM REPRESENTATIVE JOHANSEN pointed out that the proposed TIFAC would only function as an advisory board, but that the decision making process would remain with the department and the legislature. 2:41:00 PM REPRESENTATIVE GRUENBERG recalled that the committee should consider the current tax on cruise ship passengers, which should be reviewed. He recalled that a recent U.S. Court of Appeals decision questioned the constitutionality on whether a ferry system could charge a small fee to its commuters. He further recalled that the court considered and judged the appropriateness of the ferry expenditures. He suggested this may be a good way to enshrine this in state law. He offered his belief that the funds could be not be used for dredging since dredging was not specifically required for the ferries to operate. 2:45:01 PM REPRESENTATIVE GRUENBERG recalled another court case in Louisiana in which the U.S. Court of Appeals upheld that taxes collected from ships using the Mississippi River that could be used to provide fire-fighting services for ships. He suggested using a similar concept on the Alaska Marine Highway System (AMHS) could also benefit fishing industry. 2:46:06 PM CHAIR P. WILSON, in response to Representative Gruenberg, related her understanding the suggestion is to put similar concepts in statute to prevent a lawsuit. REPRESENTATIVE GRUENBERG agreed, stating that setting provisions in statute on specific uses of taxes collected could inoculate the state, and allow revenues to benefit coastal communities. CHAIR P. WILSON offered to check into this with the attorney general. 2:47:10 PM REPRESENTATIVE JOHANSEN expressed concern over any hearings on the constitutionality of the "head tax" since the state is currently in litigation on the taxes collected on cruise ship passengers. REPRESENTATIVE GRUENBERG agreed it would need to be confidential. REPRESENTATIVE JOHANSEN maintained that he would not take part in any discussion of the legality or constitutionality of the cruise ship "head tax." 2:47:54 PM REPRESENTATIVE T. WILSON asked how the allocation was arrived at for each mode. CHAIR P. WILSON responded that the allocation approximated the current expenditure. She stated she is open to suggestions. The allocation process should provide flexibility. 2:48:43 PM REPRESENTATIVE T. WILSON suggested using a matrix similar to one currently used by the DOT&PF for its other projects. In some years the state might spend more on airports, and she wanted to insure that the state maintains its flexibility. She referred to page 3, lines 9-10, to subsection (b), and asked if capital projects for transportation also included deferred maintenance costs. MS. ROONEY recalled discussions with the DOT&PF, that the major deferred maintenance is provided from the CIB, but the CIB funding would not be used for snow plowing or day-to-day maintenance. 2:50:55 PM REPRESENTATIVE T. WILSON asked whether a dollar amount defines the difference between a maintenance and capital project. MR. OTTESEN answered technically no. However, a maintenance project is typically performed to keep the asset or facility operational. Capital projects are generally large scale maintenance projects, such as the systematic repairs to guardrail on a large stretch of highway. 2:52:13 PM MR. OTTESEN, in response to Chair Wilson, clarified that deferred maintenance is just maintenance that has not been performed over time. He characterized the difference between maintenance and deferred maintenance as gray area, even for our federal partners to determine. CHAIR P. WILSON offered that she would not envision the proposed dedicated transportation fund being used for routine maintenance. REPRESENTATIVE T. WILSON pointed out that it is important not to put off maintenance projects, since what is maintenance today could become a capital project later on. 2:53:27 PM MR. OTTESEN clarified that routinely the CIB contains projects that might be considered maintenance by the federal government, but is funded in the CIB using general fund dollars. REPRESENTATIVE T. WILSON asked what types of projects could be funded in the proposed dedicated transportation fund. MR. OTTESEN offered one example as the Dalton Highway. The DOT&PF may initially resurface the Dalton Highway and it later need more gravel for resurfacing. The federal partners would allow federal funding for the initial project, but does not allow the state to stockpile gravel for resurfacing. The state typically would use general funds for stockpiling gravel, but this provides a perfect example of how the proposed dedicated transportation fund could be used. 2:55:08 PM REPRESENTATIVE GRUENBERG expressed concern regarding the Anchorage transit funding. He referred to page 3, to lines 27- 29, to paragraph (5), which allocates five percent of appropriations from the proposed dedicated transportation fund for projects related to local community transportation and transit. He assumed that paragraph refers to public transit projects. MR. OTTESEN said he believed it refers to public transit projects. REPRESENTATIVE GRUENBERG suggested a larger percentage for transit, and asked Chair Wilson to flag the item for consideration. CHAIR P. WILSON related that the AMATS will receive funding for transit. She stated she would flag the item but will work for an equitable allocation, noting a matrix may provide a better methodology. REPRESENTATIVE P. WILSON, in response to Representative Gruenberg, responded that a matrix would be a scoring method for projects. 2:56:54 PM REPRESENTATIVE PETERSEN referred to page 4, lines 29-31, to language previously discussed. He inquired as to whether the report would be submitted early enough to allow the Governor to include projects in the CIB. CHAIR P. WILSON answered that she did not envision the Governor's participation. She explained that the Governor considers general fund projects. The proposed dedicated transportation fund would be a separate matter, she stated. 2:58:11 PM REPRESENTATIVE JOHANSEN suggested that the process should track or be synchronized to achieve a smooth process. Since millions of dollars are involved, the TIFAC could also inform the governor of the proposed dedicated transportation fund priorities instead of keeping the two project lists completely separate. CHAIR P. WILSON answered she has noted the request. 2:58:57 PM REPRESENTATIVE MUNOZ referred to the revenue sources. She related that 60 percent of the aviation proceeds are refunded to municipalities. She asked for the total aviation revenues collected. JERRY BURNETT, Deputy Commissioner, Department of Revenue (DOR), stated that the tax on 60 percent of the fuel sold at municipal airports is shared back to municipalities. Currently, approximately $125,000 is the total amount shared back, although he was unsure of the total sales. The majority of the $125,000 is shared back to the Juneau International Airport (JNU). MR. BURNETT, in response to Representative Munoz, agreed that the structure would not change under the proposed bill. In further response to Representative Munoz, Mr. Burnett answered that the Juneau International Airport is not a state-owned airport and that the airport receives its funding from planning fees and direct federal grants. REPRESENTATIVE MUNOZ understood that the state participates in a share of the projects for municipal airports. She recalled it might be 3 to 5 percent MS. KLEIN answered that the municipal airports do not participate through the state but can apply directly to the FAA. Additionally, their sponsor, typically the municipality or the DOT&PF, would also apply for the AIP grants on their behalf. REPRESENTATIVE MUNOZ inquired as to whether the 96 percent could be shared. 3:02:01 PM MS. KLEIN clarified that the share depends on the type of project. Terminal projects are treated differently than runway projects. The sponsor would still need to provide matching funds, she stated. For example, the Juneau International Airport would need to provide its own matching funds whereas the state airport would not. REPRESENTATIVE MUNOZ asked whether municipalities have any opportunities to receive state support. MS. KLEIN answered that the state will participate in some terminal projects to provide the matching funds since other funds for certificated airports do not exist and municipal airports do not have sufficient passengers to raise the revenues. In some rare instances the state will participate by providing matching funds for municipal airport terminal projects. 3:03:22 PM REPRESENTATIVE GRUENBERG referred to page 3, lines 1-4. He understood that the funding for the proposed dedicated transportation fund will be removed by appropriation. He pointed out that the Governor would participate in the process since he/she would need to sign the bill. He asked whether the appropriations will be segregated and would be a separate appropriation from the general fund. He asked if that was the sponsor's intent. CHAIR P. WILSON agreed that was her intent. She referred to page 4, lines 1-4, which requires the DOR to determine the market value of the fund and invest the fund. She asked Mr. Burnett whether the DOR performs this function with other funds. MR. BURNETT answered yes, and listed some examples, including the Children's Trust Fund and the Public School Trust Fund. He offered that the DOR manages about 100 funds with various payout rules. 3:05:10 PM CHAIR P. WILSON related that the fiscal note has not yet been prepared. MR. BURNETT responded that the fiscal note was prepared today. He explained that the DOR would attempt to achieve a real rate of return of 5 percent, which would require a mix of equities and fixed income securities, perhaps a ratio of 55 to 45. The DOR would charge contractual fees against that since external management would manage the equities. He estimated the fees based on $1 billion in appropriations would equal $424 thousand per year, and based on today's market conditions would expect to produce a spendable income of $50 million the first year. He also estimated, based on the permanent fund and constitutional budget reserve, that a similar asset like the dedicated transportation fund over 20 years would probably incur losses in 15 to 20 percent of the time, but the probability that the earnings would be double the anticipated projections would be about the same percentage.. He related that he has not had an opportunity to assess the exact probabilities for the dedicated transportation fund. 3:07:29 PM [HB 329 was held over.] 3:08:25 PM