SENATE BILL NO. 347 "An Act relating to taxation." This was the second hearing for this bill in the Senate Finance Committee. Co-Chair Donley stated the Committee has been working with the Department of Revenue to address technical drafting needs; however, a title change could be addressed. Senator Hoffman stated the title "should be left as broad as possible" in order for other measures to be added to address the state's fiscal gap. AT EASE 9:24 AM / 9:27 AM Amendment #1: This amendment changes the bill title to read as follows. "An act relating to alcoholic beverages." Senator Leman moved for adoption. Senator Hoffman objected. A roll call was taken on the motion. IN FAVOR: Senator Green, Senator Austerman, Senator Leman, Senator Ward, Co-Chair Donley, Senator Wilken OPPOSED: Senator Hoffman ABSENT: Co-Chair Kelly, Senator Olson The motion PASSED (6-1-2) AT EASE 9:36 AM/ 9:38 AM Amendment #2: This amendment amends the title to read as follows. "An act relating to alcoholic beverages; and providing for an effective date." This amendment also inserts a new section on page 3, following line 4 to read as follows. *Sec. 5. The uncodified law of the State of Alaska is amended by adding a new section to read: CONDITIONAL EFFECT. This Act takes effect only if a version of SJR 23, proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit and a spending limit, is passed by the legislature and approved by the voters during the 2002 general election. *Sec.6. If this Act takes effect under sec.5, it takes effect on January 1, 2003. Senator Ward stated this amendment would send "a clear message" to the voters of Alaska, that if the budget is passed with a two percent increase as currently projected, it "would trigger an alcohol tax" and perhaps other taxes including a sales tax. He stated that the alcohol tax increase in this bill would go into effect if the people of the State approved a constitutional spending limit as specified in SJR 23. Senator Ward reiterated that the people of the State want to have "restraints" in government, and he wants to let people know that "the State of Alaska is going to live within its means." He furthered, "at the end of this year, we're going to reach into the budget reserve account, and still not live within our means." He continued that SJR 23 would give the voters a chance to vote on a constitutional spending limit, and he stressed that if the citizens of the State approve a limit, the Legislature is going to have to prioritize projects and make difficult decisions about which projects to fund. Senator Ward voiced appreciation for the efforts of those people working to "promote sobriety and reduce the terrible" effects of alcohol. He continued that the "affects of alcohol are a lot more devastating than cigarettes." He opined the Legislature "passed a cigarette tax, and all that happened was more government," and "more government is one of the most harmful things that is happening to Alaska right now…it is making people dependent, they believe there is an obligation of cradle to grave, and it causes harm. We need to get a handle on government" and help encourage growth in our economy. He summarized this alcohol tax, without a spending limit, "doesn't reduce, it doesn't restrict, and it just takes more spending and puts it on top of an open checking account." Senator Ward moved for the adoption of Amendment #2. Senator Wilken objected to the motion. Senator Austerman noted there is other legislation that addresses "larger based taxes," and this amendment, if passed, should be reworded to include passage of SJR 23 "and/or SJR 33." He explained that SJR 33 would impose a limit on the level of income or sales taxes. Senator Hoffman questioned the effectiveness of SJR 23. He stated the Legislature needs to "bridge the gap" and work toward "gaining the people's trust" by responsibly using the revenue generated from taxes. He continued that "this amendment seems meaningless, as it just affects whether this tax goes into effect or not." Senator Ward responded that Senator Hoffman is correct in saying the Legislature needs to work to gain people's trust, and he declared, "I don't trust us to reduce the budget." He stressed he would not be introducing this amendment if he believed the Legislature or the Administration could live within its means. Senator Ward stated this discussion involves "creating money" by taking money from people who drink alcohol. He voiced his support for this tax; however, believes the money generated would be "spent on more government just like the tobacco money was," and he believes this amendment would help make the government operate within its means. Senator Leman stated he does not support this amendment, as this bill and SJR 23 are both important measures, and combining them might "complicate" efforts. He remarked he is confident the voters would approve SJR 23. He voiced support of Senator Ward's comments, but did not believe this would be the best way to proceed. Senator Hoffman stated the Legislature has made efforts to control spending, and noted the State of Alaska was the only state to reduce government in the 1990's. Senator Ward remarked that Alaska spends more "public money" per capita than any other state. He stressed that the Legislature should reduce the size of government now before the state's resources are depleted. He reiterated that Alaska is "spending too much," and a spending limit is necessary to make the government reduce spending. Senator Austerman voiced appreciation of the discussion and stressed the need for the state to have a long-term fiscal plan. He asserted the Legislature must work "as a group to prioritize," and warned that until spending is prioritized, the Legislature would never be able to live within the means of a budget. He contended that these types of conversations would continue every year if a long-term plan is not in place. Co-Chair Donley voiced appreciation for all the comments; however, noted he does not wish to "link" this bill with SJR 23. A roll call was taken on the motion. IN FAVOR: Senator Green, Senator Ward OPPOSED: Senator Hoffman, Senator Leman, Senator Wilken, Senator Austerman, Co-Chair Donley ABSENT: Co-Chair Kelly, Senator Olson The motion FAILED (5-2-2) Senator Leman suggested the Committee consider taxing low alcohol content beverages, including ciders, at a separate rate; however, if that were the case, the Committee should hear testimony before taking any action. Senator Green asked if the revenue generated from this bill would fund a specific program or would be deposited into the general fund. AT EASE 9:54 AM / 9:55 AM Co-Chair Donley responded that revenues generated from this tax would be general funds. Senator Wilken inquired as to how the calculations on the chart distributed by Co-Chair Donley titled "% Proposed Tax of Total $4.25 Drink Price" [copy on file] were determined. Senator Austerman stated the chart appears to reflect the percentage increase per drink generated by the proposed tax. Senator Wilken noted that retailer margins and patrons costs need to be factored into the percentage increase. He calculated that under existing law, the tax is approximately 4.3 percent of the cost of a $4.00 drink, and under the new law, it would be about 13 percent. He stated the cost of a $4.00 drink, with the retail margin factored at 100 percent and the patron costs factored in, would increase approximately 10 percent. Senator Leman made a motion to move SB 347 as amended from Committee with the accompanying fiscal note. Senator Hoffman objected to the bill based on the title restriction and the targeting of a single industry for taxation. Senator Leman stated there are "other vehicles" in the House of Representatives and in the Senate pertaining to Alaska's fiscal challenge. Senator Austerman again stressed the need for a long-range plan; however, voiced support for this bill because of the "industry set of woes the State of Alaska has, driven by the consumption of alcohol." He stated this tax could help address these expenses. Senator Hoffman, referring to Senator Leman's comment "that there are other vehicles out there;" stated that if he were assured that other tax measures were forthcoming and would be passed, he might withdraw his objection. Senator Green stressed her opposition to this discussion inferring that the revenue generated from this tax would support programs "that combat alcoholism" instead of being designated as general funds. She stated that taxes are intended to raise revenue, not to "penalize" people. SFC 02 # 33, Side B 10:02 AM Senator Austerman agreed that the revenue generated from this tax would be general fund money; which could fund a wide variety of alcohol related programs. A roll call was taken on the motion. IN FAVOR: Senator Leman, Senator Austerman, Senator Green, Senator Wilken, Co-Chair Donley OPPOSED: Senator Hoffman ABSENT: Senator Ward, Senator Olson, Co-Chair Kelly The motion PASSED (5-1-3) CS SB 347(FIN) was REPORTED from Committee with a new fiscal note dated 3/10/02 in the amount of $74.5 from the Department of Revenue.