SB 13 INCREASE TOBACCO TAXES COCHAIR SHARP noted Amendment #2 had been adopted previously, but a "cleaned up" version from Legal Services was in members' files. Amendment #1 was before the committee. SENATOR TORGERSON MOVED Amendment #1. COCHAIR PEARCE objected. Amendment #1 FAILED by a 2-4 vote. SENATOR ADAMS MOVED to rescind previous action in adopting Amendment #2. Without objection, Amendment #2 was RESCINDED. SENATOR PHILLIPS MOVED the "cleaned up" version of Amendment #2 from Legal Services. Without objection, Amendment #2 was ADOPTED. SENATOR WILKEN addressed the committee regarding Section 4 of the HESS CS. COCHAIR PEARCE MOVED CSSB 13(FIN) from committee, then WITHDREW her motion. SENATOR PHILLIPS MOVED Amendment #3. COCHAIR PEARCE objected. Amendment #3 failed by a 1-5 vote. COCHAIR PEARCE MOVED CSSB 13(FIN) from committee with individual recommendations and appropriate fiscal notes. Without objection, CSSB 13(FIN) was REPORTED OUT with a forthcoming fiscal note from the Department of Revenue. SENATE BILL NO. 13 "An Act relating to taxes on cigarettes and tobacco products, and to the use of the proceeds of those taxes; and providing for an effective date." COCHAIR SHARP recapped the previous action on SB 13. He brought attention to Amendment #2, which had been adopted. A new "cleaned up" version of the amendment was in committee files for consideration. SENATOR TORGERSON MOVED Amendment #1. COCHAIR PEARCE objected. SENATOR TORGERSON explained that the amendment puts a question before the voters for approval in the 1998 election. Section 11 refers to the tax reverting back to the general fund if a court challenge were successful regarding dedication of the tax for education. If challenged, the money may be put in escrow, making it unavailable until after the court hearing. This placed it before the voters in a ballot proposition and removed the legal questions in trying to dedicate it. There were opposing opinions regarding the constitutionality of dedicating the tax and this was a third option. In response to a question from SENATOR PHILLIPS, he explained that if the amendment were adopted, there wouldn't be a need for much of the language in Section 11. A roll call vote was taken on the MOTION to adopt Amendment IN FAVOR: Torgerson, Parnell OPPOSED: Phillips, Adams, Pearce, Sharp Amendment #1 FAILED by a 2 to 4 vote. SENATOR ADAMS MOVED to rescind previous action in adopting Amendment #2. Without objection, Amendment #2 was RESCINDED. SENATOR PHILLIPS MOVED Amendment #2, version LS0159/Q.1. Without objection, Amendment #2 was ADOPTED. SENATOR WILKEN addressed the committee. He commented that the Senate Health, Education and Social Services Committee proposed a school construction savings account. Should the tax law be judged unconstitutional, the money would go directly into the general fund. The proposal would be a safety net. It would remove the immediate drop into the general fund and it would address the temporary nature of the tax. If the tax was successful, it would eventually drop to zero. If the money were put into a school savings account, there would be an endowment to construct public schools. He encouraged the committee to consider reinstating the proposal into SB 13. COCHAIR PEARCE MOVED the bill from committee with individual recommendations. SENATOR PHILLIPS questioned SENATOR WILKEN about the proposal. COCHAIR SHARP pointed out that the Finance Committee version removed the automatic CPI escalators. COCHAIR PEARCE withdrew her MOTION. SENATOR PHILLIPS MOVED the section containing the school construction savings fund for discussion purposes, which would be Amendment #4. COCHAIR PEARCE objected. SENATOR ADAMS requested testimony from Jack Chenoweth regarding the constitutionality of dedicating the fund. JACK CHENOWETH, Legislative Legal Counsel, Legislative Affairs Agency, explained the provisions referred to by Senator Wilken. He further explained that the way the Finance Committee CS was drafted, the proceeds of the increase in the cigarette tax would be directly paid into the school fund, a dedicated fund that existed before statehood. If a challenge were entered based on the loss of the dedication because of the increase in the rate of the tax, the increase would go to a non-dedicated fund. COCHAIR SHARP clarified that there was also the ramification that the money going into that account would accumulate, called for inflation proofing, and only the amount left over would be available to spend. MR. CHENOWETH confirmed that. COCHAIR PEARCE appreciated the concerns expressed and supported the tobacco tax, but didn't feel it was necessary to develop a special fund to set aside the money. There was more state money being spent per year to combat the effects of tobacco products than the tax would ever bring in. She didn't believe the legislature should tie its hands more than necessary in terms of how they make spending decisions and did not see a need to include that section in the bill. SENATOR PHILLIPS wanted to make sure that in voting for the tax it went for something other than general funds. He reiterated his motion to adopt Amendment #3. COCHAIR SHARP believed the original dedication would hold up and be used for school construction and maintenance. He stated his opposition to the amendment based on the fact that the money would still be subject to legislative appropriation. There was additional discussion and clarification about the effect of the amendment. A roll call vote was taken on the MOTION to adopt Amendment IN FAVOR: Phillips OPPOSED: Parnell, Adams, Torgerson, Pearce, Sharp Amendment #3 FAILED by a 1 to 5 vote. COCHAIR PEARCE MOVED the bill from committee with individual recommendations. Without objection, CSSB 13(FIN) was REPORTED OUT with a forthcoming fiscal note from the Department of Revenue (41.5).