CS FOR HOUSE BILL NO. 63(2d RLS) "An Act amending the definition of `motor fuel' under the state's motor fuel tax to add, as a part of the tax exemption set out in that definition, exemption from the tax for fuel sold for use in jet propulsion aircraft operating in flights that continue from foreign countries, subject to termination of the exemption for that fuel if a refiner operating a refinery at which the fuel was produced fails to comply with terms of a voluntary agreement entered into by the refiner to use Alaska residents, contractors, and suppliers to provide goods and services when the refinery's capacity is expanded, t o add exemption from the tax for certain number 6 `residual fuel oil,' also known as bunker fuel, and to delete the exemption from the tax for fuel that is at least 10 percent alcohol by volume; and repealing ch. 42, SLA 1994, the Act providing for the imposition of a different tax levy on residual fuel oil used in and on certain watercraft until June 30, 1998; and providing for an effective date." Paul Bowers, Director, Statewide Aviation, Leasing, Department of Transportation and Public Facilities was invited to join the committee. He explained the department's standing on the bill. Senator Adams referred to SB 256 of last year and said concerning the aviation tax he was worried about how this might affect rural aviation. Mr. Bowers responded and noted that PFC's would not be affected. All taxes collected at the airport would be used for capital projects at the specific airport. Senator Donley asked if the Governor supported the alcohol exemption on page 4, line 29. Mr. Bowers said he did not know this status. He did feel, however, everyone should pay the same amount of tax. Senator Donley said it was an inequity removing the tax on aviation fuel. Mr. Bowers indicated that last year they dealt with the problem of inequity, but there was no way to stop fuel coming in through the foreign trade zone. Bob Bartholomew, Deputy Director, Division of Income and Excise Audit, Department of Revenue, was invited to join the committee. He explained the legal opinion and said under this opinion the State would lose the challenge on tax. It was "preempted by Federal law". Senator Torgerson asked if incoming fuel to the foreign trade zone could be restricted and Mr. Bartholomew said it had not been asked. Mr. Bowers, however, informed that the Department of Transportation had asked if restrictions could be placed on the incoming fuel but they go nowhere on that issue. Co-chair Sharp said that the ethanol exemption had resulted in a loss the last three years of over $17 million. Senator Pearce asked if we were being sold fuel even if we did not need it and Co-chair Sharp indicated "yes". Senator Pearce said we should only purchase ethanol gas as needed. Jeff Cook, MAPCO, was invited to join the committee. He explained MAPCO's understanding of the bill. He said there was an eight cent state credit. The cost for ethanol was $1.35. They could inject MTB at the truck. The credit would equal the cost of the project to blend. Senator Donley inquired the mandatory period and Mr. Cook said it was November through March. Mark Necessary, TESORO, was invited to join the committee. He said their standing was different than MAPCO. They do have the flexibility to manufacture octane and they do export some gasoline. Ultimately, the market will dictate what will happen. Senator Donley requested TESORO provide certain information. He noted the price would go up in Anchorage. Mr. Cook said that ethanol also had a fluctuating price. The Anchorage market, specifically, had a tremendous fluctuation and the prices may vary from station to station. Senator Phillips said he noted higher MAPCO prices in poorer sections. Senator Pearce moved CSHB 63(2d RLS) with individual recommendations and accompanying fiscal notes. Senator Donley objected. AMEND #1 moved by Senator Donley failed by a vote of 3 - 3 (Torgerson, Pearce, Sharp). AMEND #2 moved by Senator Donley failed by a vote of 3 - 3 (Torgerson, Pearce, Sharp). AMEND #3 moved by Senator Donley failed by a vote of 2 - 4 (Torgerson, Parnell, Pearce, Sharp). There followed miscellaneous discussion by the committee members. Senator Phillips said he was not interested in a bill providing a special tax break. He said it was one of the worst pieces of legislation he had seen especially since everyone was opposed to it. Senator Donley said deletion of the tax exemption was unfair to Anchorage. He felt it was a very ill advised bill. It would be extremely devastating to trucking and transportation in Anchorage. The City of Anchorage provided its' own services and it was not fair to say they live with this 20% increase. The bill contained many inequities. Co-chair Sharp asked the roll be called and by a vote of 5 - 2 (Donley, Phillips) HB 63(2d RLS) was reported out with individual recommendations and accompanying fiscal notes. Senator Pearce introduced SCR 16 and read the sponsor statement. There were four new bargaining agreements. She explained her amendment #1 and noted the change on page 2, line 1. Senator Pearce moved amendment #1 and without objection it was adopted. Senator Parnell moved CSSCR 16(FIN) and by a vote of 5 - 2 (Donley, Adams) it was reported out with individual recommendations and accompanying zero fiscal note from the Senate Finance Committee. Co-chair Sharp called SB 159.