CS FOR HOUSE BILL NO. 216(FIN) "An Act relating to and limiting municipal taxation of refined fuel and wholesale sales of fuel, and to the bulk fuel revolving loan fund." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken said this bill "is a municipal taxation on refined fuel products sponsored by [the] House Labor and Commerce Committee, chaired by Representative Tom Anderson. HB 216 clarifies local municipalities taxing authority for refined fuels sold both within and outside the local jurisdiction." REPRESENTATIVE TOM ANDERSON testified that this bill clarifies local taxing authority for refined fuels sold both within and outside of a local jurisdiction. He recalled an initiative petition in the Fairbanks North Star Borough to implement a two-cent per gallon transfer tax. He expressed that "fortunately" the voters "overwhelmingly" defeated the proposed tax by a margin of 62 percent to 38 percent. Afterwards, he stated, the industry and businesses recognized that clarification is necessary to limit the number of municipalities that could tax the same fuel. Representative Anderson exampled refined fuel shipped via the Alaska Railroad from Interior Alaska to Anchorage for use in Southcentral and Southeast markets. Before reaching Anchorage, he counted eight different governmental taxing entities this fuel travels through. He pointed out that conceivably, each jurisdiction could impose a tax on this fuel. He opined that the "exorbitance to the consumer" would be such that the fuel would not be purchased. He predicted that this type of taxation would result in Alaska residents paying local government costs for municipalities in which they do not reside. Representative Anderson gave a hypothetical example of a transfer tax implemented by the Port of Anchorage on all freight landed at the Port. He remarked that the cost of products traveling through the Port would increase and residents of other communities would pay Municipality of Anchorage expenses. Representative Anderson stated that this bill clarifies local government's rights to tax any fuel consumed within their government boundaries, although prohibits taxation of value added products refined and shipped outside the jurisdiction. Representative Anderson noted an agreement reached with the Municipal League of Alaska, which is reflected in the House Finance committee substitute. He assured this legislation would not affect those small communities that currently impose transfer taxes. Representative Anderson also pointed out the committee substitute contains an amendment sponsored by Representative Carl Morgan that would increase the loan amount for the bulk fuel revolving loan fund to one borrower in any fiscal year from $200,000 to $300,000. Representative Anderson relayed Representative Morgan's intent to provide adequate funding to meet the increasing costs associated with construction and replacement of bulk fuel facilities, particularly in Rural Alaska. Senator Hoffman asked if any local governments that presently implement a transfer tax would be impacted by this legislation. Representative Anderson listed three, one of which is Cold Bay, and he assured these communities would not be affected. Senator Hoffman asked if other communities implementing a transfer tax that have not been identified would remain unaffected as well. Representative Anderson answered they would not because this bill contains a grandfather clause and would only apply to future situation. Senator Bunde asked if it is "bad public policy" to allow future transfer taxation, why local governments that currently impose these taxes should be allowed to continue the practice. Representative Anderson responded the intent is to be proactive as a result of the aforementioned ballot initiative in the Fairbanks North Star Borough. He suggested that the existing taxing authority could be repealed but requested it be considered in separate legislation. Senator B. Stevens referenced Section 8 on page three of the committee substitute, noting that the previous session the authorized loan amounts from of the bulk fuel revolving loan fund was increased from $100,000 to $200,000 and questioned the proposed increase one year later. He understood the sponsor's argument that the increased amounts are necessary for construction expenses, but informed that use of the funds is only allowed "for the purchase of fuel" and for "communities with populations of less than 2,000 people." He asked how the integrity of the loan fund would be protected with an ability to draw from that fund increased by 300 percent in less than one year. Senator B. Stevens he also asked the number of communities with populations of less than 2,000 have the ability to purchase sufficient quantities of fuel to repay a $300,000 loan. Representative Anderson admitted this provision was inserted in the bill after the House Labor and Commerce Committee considered the bill and he was therefore unfamiliar with all the details. Senator B. Stevens asked the status of the loan fund. JOSH APPLEBEE, Staff to Representative Anderson, testified that Representative Morgan sponsored Section 8 as a result of rising fuel prices. Senator Hoffman listed two other factors: upgrades of facilities that are holding larger capacities, and attempts for communities to establish regionalized facilities to allow for bulk purchases at lower costs. Senator B. Stevens expressed concern of the balance of the fund and the impact of the increase from $100,000 to $300,000 loan amounts. He cautioned that a few communities could exhaust the loan capacity in a given year. Co-Chair Wilken requested staff to research the balance of the fund and indicated the matter would be revisited. JEFF COOK, Vice President, External Affairs, Williams Alaska Petroleum, testified via teleconference from an off net location, that the company owns the largest oil refinery, which refines approximately 70,000 barrels per day. He informed that about 90 percent of the finished product is shipped via rail to Anchorage traveling through a number of municipalities. He expressed that multiple taxes would hamper continued expansions necessary to meet the demands of the entire State. He indicated that the company considered proposing this legislation the previous session, however decided to wait until residents of the Fairbanks North Star Borough voted on the issue. He told of support for this legislation from the Alaska Municipal League of Alaska, the Alaska Oil and Gas Association and the three refineries operating in the State: Williams Alaska Petroleum, Petrostar Corporation and Tesoro Petroleum Corporation. He emphasized the need for these refiners to maintain a competitive position and to provide Alaskans with competitively priced fuel. Mr. Cook commented on the provisions of Section 8 relating to the Storage Tank Assistance Revolving Loan fund, stating that repayment has historically been good. He explained this is because the program allows loan amounts of 90 percent of the value of fuel, and because many communities purchase fuel once per year and draw repayment funds from the sale of that fuel over the course of that year. Senator Bunde understood the problem of multiple taxation, and asked whether the continuation of the transfer tax imposed by the three communities would cause hardship. Mr. Cook replied that the original version of the bill contained a blanket restriction; however it was learned that repealing the tax would cause hardship for the three communities and it was therefore determined that passage of the overall bill was more important than the loss incurred in these communities. Representative Anderson expressed he had no opinion on the provisions of Section 8 of the committee substitute, reiterating that the increased loan amount was the request of Representative Morgan. Senator Bunde asked the names of the two communities other than Cold Bay that would have a transfer tax grandfathered by the passage of this legislation. Mr. Cook was unsure. Co-Chair Wilken asked if Senate committees have made any changes to the bill. Representative Anderson answered no. Co-Chair Wilken requested further information regarding the communities that currently impose a transfer tax, as well as a profile of the Storage Tank Assistance Revolving Loan Fund. Senator Taylor recalled testimony before the Committee regarding a proposed fuel tax, attesting that the community of Unalaska transferred over 60 percent of all the fuel sold in the State. SFC 03 # 103, Side A 08:12 PM Senator Taylor suggested Unalaska could be one of the communities that currently impose a transfer tax. Co-Chair Wilken requested additional information. Co-Chair Wilken ordered the bill HELD in Committee.