HB 102-SUSPENDING MOTOR FUEL TAX    CHAIR P. WILSON announced that the next order of business would be HOUSE BILL NO. 102, "An Act suspending the motor fuel tax; and providing for an effective date." 1:28:46 PM MARC LUIKEN, Commissioner, Department of Transportation & Public Facilities (DOT&PF), introduced Johanna Bales from the Department of Revenue (DOR). He said that the proposed tax suspension is one of many measures the governor is putting forth to improve the economic health of Alaskans. Suspending the motor fuel tax demonstrates a consistent tax policy, just as modifying Alaska's Clear & Equitable Share (ACES) would potentially lower the tax burden on oil companies. The governor would like to lower the tax burden for individual Alaskans, as well, he said. He related that suspending the motor fuel tax would provide immediate tax relief for every citizen in every community throughout the state. He explained that the amount saved would vary depending on the type of fuel purchased but most consumers should save up to $.08 per gallon when fueling their vehicles or airplanes. Many Alaska communities deal with the highest energy costs in the nation. This proposed bill represents one step this administration is taking to improve Alaskans' daily living expenses. This bill would provide a temporary reduction in the cost of motor fuel while efforts continue to find long-term solutions to higher energy costs. Some people have speculated that suspending the motor fuel tax may impact Alaska's federal funding for transportation. However, the state's motor fuel tax has no relationship to Federal Highway Administration (FHWA) funds. Thus, suspending the motor fuel tax will have no impact on Alaska's current federal highway or airport funding levels. Additionally, Alaskans also fund significantly more for transportation than is collected in the state motor fuel tax revenues, he said. 1:31:04 PM COMMISSIONER LUIKEN explained that in the proposed FY 12 budget, $328.5 million is set aside for the DOT&PF's operating budget and another $117 million in general fund dollars will supplement the capital budget. He concluded that figure represents almost 12 times more than is collected in the motor fuel tax. The federal tax, which is also paid at the pump, contributes to the Federal Highway Administration Trust Fund (FHWA). These funds are redistributed back to the states via formulas set forth in the federal bills related to highways and airport improvement. He advised that these formulas have nothing to do with whether a state collects a separate motor fuel tax since there is no federal requirement for states to collect a gas tax to support transportation. He asked whether the Congress would retaliate for Alaska suspending this motor fuel tax and answered that "it's unlikely." He pointed out that at least four states have suspended their motor fuel taxes prior to the most recent surface transportation bill, Safe, Accountable, Flexible and Efficient Transportation Equity Act of 2004 (Safetea Lu), which went into effect in 2005. He remarked that those states saw an increase in federal highway aid. He commented on a recent Juneau Empire article, addressing this subject. The article quoted as saying, "It's difficult to assert that Alaska needs more money when it contributes little itself and is seeking to reduce that." He referred to charts in member's packets. 1:32:49 PM COMMISSIONER LUIKEN offered that this chart demonstrates that Alaskans have consistently funded transportation out of the state's general funds in lieu of funding other worthy state interests. The chart shows that since Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) went into effect in 2005, the state has funded over $300 million for transportation in five of the six years, peaking in FY 07 at $600 million. He related suspending the motor fuel tax would affect the state's budget in that it may equate to a decrement in the budget. He referred to the capital budget, reporting that 76 percent is derived from federal receipts. The remaining 24 percent is derived from the state's general fund and other sources such as the International Airport System (IAS) receipts, bonds, Alaska Industrial Development and Export Authority (AIDEA) dividend funds and Highway Working Capital funds for the state equipment fleet. The general fund and the state capital budget are derived from the same source that funds 56 percent of the DOT&PF's operating budget. He said that is what it is: a general fund. He referred again to the newspaper article indicated that the state would be forfeiting $40 million in state transportation funding. However, he argued that since no direct link between the motor fuel tax revenue and the DOT&PF's budget. He concluded that one could not make a link between the motor fuel tax and the DOT&PF's budget. He asserted that suspending the motor fuel tax in 2008 did not impact the department's budget nor will it impact the DOT&PF's budget now. In fact, suspending the motor fuel tax would significantly impact Alaska's economy. It will benefit many of our largest industries, including the largest employer, the fishing industry. The United Fisherman of Alaska (UFA) indicated suspending the motor fuel tax would benefit to thousands of fishermen statewide. Trucking and aviation industries and consumers will also profit, he said. The DOT&PF received letters of support from the Alaska Air Carriers Association, indicating the economic benefits this suspension of the motor fuel tax would have on hundreds of Alaska's rural commercial air carriers. Additionally, Alaska Airlines provided a letter of support for this bill, as did the National Federation of Independent Businesses. He said, "The bottom line: right now there is no compelling need to collect a motor fuel tax - at this time." Suspension of the tax benefit every Alaskan in every community, while some will gain more than others, but it will be meaningful to all since this money is returned to Alaskans' pockets, he also said. 1:36:01 PM JOHANNA BALES, Deputy Director, Tax Division, Anchorage Office, Department of Revenue (DOR), stated that technically this bill would suspend the motor fuel tax for two fiscal years beginning with July 1, 2011 and ending June 30, 2013. She explained that motor fuel dealers would still need to report their highway fuel sales in order for the state to meet its reporting requirements to the FHWA on fuel consumption in Alaska, or its FHWA funding could be affected. This bill does ensure that the DOR would continue to receive is reports. She noted that Alaska's current motor fuel tax for highway use is set at $.08, $.05 for marine, $.043 for jet fuel, and $.037 for aviation fuel. At $.08 cents per gallon, the excise tax is the second lowest in nation, yet the fuel pump costs are the second highest in the nation. She remarked that it is only more expensive to purchase fuel in Hawaii. She said "Obviously, it's not our tax that is making Alaskans pay a lot, but this little amount of tax, if suspended, would put about $40 million back into our economy to help Alaskans." In response to Chair Wilson, she explained that 60 percent of the revenue collected from aviation fuel tax is shared with municipal airports. She noted that the governor has requested an appropriation to replace any revenue airports may lose as a result of the tax suspension. In further response to Chair Wilson, she said the anticipated loss in aviation fuel tax to municipalities is not reflected in the fiscal note. She related that request would be handled during the budget process. She explained the DOR's fiscal note has a notation explaining the special appropriation to municipalities. 1:38:24 PM CHAIR P. WILSON asked for an overall cost to the state to suspend the motor fuel tax. MS. BALES answered that in terms of loss of revenue and the $140,000 in municipal sharing, that the overall cost to implement HB 102 would be approximately $39,140,000, since the state receives approximately $39 million in fuel taxes. In further response to Chair Wilson, she responded that all of the motor fuel tax goes directly to the general fund. 1:39:48 PM REPRESENTATIVE JOHNSON pointed out that his packet does not show any letters of support. COMMISSIONER LUIKEN offered to submit them to the committee. In further response to Representative Johnson, the commissioner offered to contact the governor's office for any letters in opposition to HB 102. 1:40:24 PM REPRESENTATIVE MUNOZ related her understanding that airports receive a portion of this tax, including Juneau and Ketchikan. She asked whether the governor including funding to the facilities during prior years when the aviation tax was suspended. MS. BALES related the governor has indicated his assurance that an appropriation would be requested in the operating budget, noting that in 2008, airports received an appropriation for the period when the aviation tax was suspended. 1:41:00 PM CHAIR P. WILSON asked whether funding for this proposal was included in the Governor's FY 12 budget. MS. BALES related her understanding that the appropriation is not included in the FY12 operating budget. She also offered to check whether the request is included in the amended budget. 1:41:24 PM REPRESENTATIVE PRUITT asked for ways the state would "make up" for this lost revenue. MS. BALES answered that the state current collects a significant amount of oil taxes and the treasury is "fairly healthy." She offered her belief that the governor feels that any losses would be recovered by oil taxes received in the past several years due to the high price of oil, which "incidentally" is one of the reasons that Alaskans are paying higher prices at the pump. REPRESENTATIVE PRUITT asked whether the current budget would spend $25 million from savings. MS. BALES said she was uncertain. 1:42:35 PM CHAIR P. WILSON offered her belief that thus far the state plans to use its savings account to fund a portion of the proposed FY 12 budget. She asked for the total amount of any costs to proposals that are geared to help Alaska be considered a business friendly state. MS. BALES offered to put together some information for the committee, but she did not have any figures at this time for effects of proposed legislation. 1:44:25 PM BOB HAJDUKOVICH, Chief Executive Officer (CEO), ERA Aviation, explained that Era Aviation represents four airlines in the state: Era Aviation, Frontier Flying Service, Hagland Aviation Services, and Arctic Circle Air Service. These airlines are wholly owned by Alaskan investors and currently transport over 60 percent of rural passengers, transport 55 percent of the bypass mail to rural communities in Alaska and consume 5.6 million gallons of jet fuel and 500,000 gallons of aviation gasoline. This bill would have a direct impact on these airlines of over $200,000 per year. He said, "At this point, anything helps." He offered his belief that the direction is right, that the governor hopes to save money for Alaskans and is less concerned about the impact on Alaska's savings fund at the moment. He recalled earlier comments on proposed legislation that would affect new business in Alaska. He pointed out that his business is a foundational service that is a necessity in Alaska, in particular in rural communities. Currently, the price per barrel is $.88 over last year, which directly affects the airlines profits by $5 million based on 5.6 million gallons of jet fuel. He equated this increase to translate to $8.21 per passenger, per leg, based on the 600,000 passengers transported annually. 1:47:11 PM MR. HAJDUKOVICH remarked that the $202,000 seems like a drop in the bucket compared to $5 million expense increase in fuel costs, but it is significant since the offset is received in higher oil prices the state receives. The direct benefit for the proposed tax decrease is that it directly impacts Alaskans, not to the state coffers, which is critical. He said he has not seen oil prices driven by supply and demand for well over ten years. He said if the industry was more elastic the increased costs could be passed through to its customers. He also remarked that the airlines would see ebbs and flows in oil prices and prices would be changed to reflect the ebb and flow. However, the airlines have seen a progressive increase and no change in the supply or demand, or for rural communities to adapt to oil prices. He recalled a catastrophic situation, about a year and a half ago, in which oil prices peaked, noting the villages are still trying to recover. He acknowledged that the delegation wants the administration to "ante up" but he said it is the consumer who bears the cost increases, not the state. His company represents the consumers, the users of the fuel. He remarked that the governor is trying to show that it is open for business and pushing back some of the funding to the consumers is critical, he stated. He predicted that the national political scene is not going to change appreciably, that the congressional delegation will have uphill battle trying to find funding for Alaska. He offered that "we have to look after ourselves to an extent..." 1:49:24 PM MR. HAJDUKOVICH remarked that he visited Juneau last week and was disturbed by a comment he overheard, which was that the state is fortunate that while production is down, the price of oil is high, with little to no recognition that as an end user that the industry has a "break even" point. Further, the industry could tip over since it is not possible to pass on $150 per barrel oil prices structure. He recalled oil prices were $39 ten years ago, that the industry could handle $75 per barrel prices. He reported a disturbing meeting he held with U.S. Postal Service (USPS) earlier today over the future of the bypass mail system. He reported that the USPS is losing $10 billion per year and spends $100 million in Alaska, and lose $70 million on that investment in Alaska. He suggested that Alaska would find continuing pressure at the federal level to find ways to be aggressive to cut funds considered to be earmarks or subsidies to Alaska. He concluded that the state needs to keep its economy moving in the right direction. He said, "Businesses that are current need to stay in business so we can be there for that uptick in the trend, so that hopefully when we're open for business for drilling or resource development, we'll still be here to take advantage of those opportunities." 1:51:02 PM CHAIR P. WILSON recalled for the past four years the delegation members have reported that other states perceive that Alaska has not paid its fair share of its transportation funds. The delegation encouraged Alaska to show it was "stepping up to the plate" to provide its share. She remarked that other states view the state's share of funds, which are returned to the state in FHWA funding. She further recalled that Alaska has been receiving more per capita than any other state. Even though the motor fuel tax has no correlation to the FHWA funds, other states do not view it that way. She anticipates that Alaska will be receiving less in federal funds than it has in the past. 1:53:03 PM REPRESENTATIVE FEIGE recalled years ago, he traveled through West Virginia, and it seemed every highway was named the Robert C. Byrd Memorial Highway. He remarked that many of our federal funds were as a result of the late U.S. Senator Ted Stevens, just as the West Virginia highway was named after its senior senator. He stated that the funding system has operated in this way, and some states receive a disproportionate amount. He agreed with the previous speaker, Mr. Hajdukovich, that suspending the motor fuel tax would have a positive impact on Alaskans, and while some income would be lost on that "side of the pot" the state can recoup the revenues. 1:55:10 PM CHAIR P. WILSON, after first determining no one else wished to testify, closed public testimony on HB 102. [HB 102 was held over.]