SENATE BILL NO. 86 "An Act relating to a refined fuel surcharge; relating to the motor fuel tax; relating to a qualified dealer license; and providing for an effective date." 11:32:54 AM Co-Chair MacKinnon relayed that public testimony had previously been heard on the legislation. Vice-Chair Micciche relayed that the legislation would supplement the Spill Prevention and Response (SPAR) fund [under the Department of Environmental Conservation]. There was currently an inadequate amount of funding coming from the production of oil and gas. The legislation was a "user pays or spiller pays" bill that would take $.0095 per gallon at the distribution level and provided adequate funding for the response fund. He detailed that the state had primacy for spill prevention and response and the bill would enable the state to continue with the level of service it had been delivering for many years. 11:34:13 AM Co-Chair MacKinnon asked for verification that the cost was under one penny. Vice-Chair Micciche replied in the affirmative. Senator Dunleavy asked for verification that the cost would be one penny per gallon. Vice-Chair Micciche clarified that it would be less than one penny per gallon. Senator Dunleavy asked what the average cost would be for individuals using fuel oil to heat their homes. Vice-Chair Micciche answered that the cost would equal approximately $4.00 per year for the average Alaskan; however, the larger users such as mines and businesses would pick up the majority of the load. For example, if 500 gallons of oil was used per year, the cost would be under $5.00. Senator Dunleavy surmised that the surcharge would apply to everyone, including nonprofits such as schools. Vice-Chair Micciche replied that there were some exemptions in the bill, but the surcharge would apply to everyone other than the state. 11:35:47 AM AT EASE 11:36:02 AM RECONVENED Vice-Chair Micciche relayed that the hope was that the cost would not be passed down, but it was not possible to guarantee that the surcharge would go to the distributors. However, there were five exemptions in the legislation including fuel sold to a federal or state government agency for official use, fuel refined and used outside of the United States, liquefied petroleum gas (propane and aviation fuel), and fuel sold or transferred between qualified dealers. Senator Dunleavy wondered if school districts fell under the state agency category. Vice-Chair Micciche did not know [Note: answer was provided after the following "at ease"]. 11:36:51 AM AT EASE 11:40:03 AM RECONVENED Vice-Chair Micciche, in response to a question from Senator Dunleavy, stated that the surcharge went to the dealer level; however, fuel sold to a federal or state government did not include local governments as an exemption. Co-Chair MacKinnon asked for detail on the bill's fiscal notes. Vice-Chair Micciche spoke to the bill's fiscal notes, beginning with a zero fiscal note from the Department of Environmental Conservation (FY 16 through FY 21). He relayed that there would be no fiscal impact to the Division of Spill Prevention and Response for implementation of the legislation. Senator Bishop communicated that the legislation would alleviate the projected revenue shortfall for FY 16 at approximately $7 million. Vice-Chair Micciche addressed a zero fiscal note from the Department of Revenue (DOR)(FY 16 through FY 21). There would be a change in revenue, at an expected $.0095; the change would bring in $7,600,000 million in FY 16 with a 2 percent increase across FY 17 through FY 21 ($7,750,000, $7,900,000, $8,050,000, $8,200,000, and $8,350,000 respectively). The estimated supplemental in FY 15 was $50,000; there was no estimated capital in FY 16. He relayed that the $50,000 would cover the costs of updating systems, form, and draft regulations for the new surcharge. 11:43:24 AM Co-Chair MacKinnon asked if DOR had anything to add to the fiscal analysis of the bill. KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE, confirmed that there were no continuing costs; any changes would be absorbed within the department's operations and excise tax group under the Tax Division. There was a relatively small startup cost to adapt some of the documents and systems to the new surcharge. Co-Chair MacKinnon wondered if the projected revenue would be recurring into the future. She asked for verification that the bill did not include a sunset clause. Mr. Alper replied in the affirmative. He explained the expectation that as long as fuel was consumed in Alaska it would be subject to the surcharge. Co-Chair MacKinnon asked if the fund was currently solvent. Mr. Alper replied that the SPAR fund was anticipated to have shortfalls in the current fiscal year. He added that under the legislation the money would be deposited into the general fund and subject to appropriation it would be transferred into the SPAR fund. He remarked that a fiscal note from the Legislative Finance Division described some of the mechanisms; the issue was outside the scope of the Tax Division. 11:45:40 AM Vice-Chair Micciche relayed that the fund was $800,000 short in the current fiscal year and the shortfall became substantial in following years. He did not believe the state should pay for the solvency of the fund. Vice-Chair Micciche stated that the last fiscal note was from the Legislative Finance Division for the Senate Finance Committee. The note addressed the need for a supplemental appropriation and appropriated the revenue generated in FY 16 to the ONH fund, resulting in a net zero impact on the fiscal gap. He commented that currently the note included a .8 percent surcharge, which had been changed to .95 percent to factor in exemptions provided for aviation fuels. He noted that currently the DOR numbers were more accurate. He detailed that FY 16 through FY 21 showed $7.5 million, which would be the amount for the fund to remain solvent. The change in revenues showed $7.5 million per year with a 2 percent increase through FY 21. Co-Chair MacKinnon asked what would happen if the fund was over funded. She understood there were outstanding settlements the fund was waiting to receive. Vice-Chair Micciche responded that all of the money would be deposited into the prevention account, which funded all of the smaller spills. He referenced dry cleaning fluid spills and old gas stations that were no longer in operation and had no one to pay for the cleanup. The surcharge had been kept at a lower level to avoid funding more than required. 11:49:08 AM AT EASE 11:49:43 AM RECONVENED Vice-Chair Micciche relayed that all funds were subject to appropriation. He stated that in the event the SPAR fund was over funded the goal was to provide only the amount needed to adequately fund the agency. Vice-Chair Micciche MOVED to REPORT CSSB 86(FIN) out of committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CSSB 86(FIN) was REPORTED out of committee with a "do pass" recommendation and with one previously published zero fiscal note: FN 1(REV); one new fiscal impact note from the Senate Finance Committee for the Department of Environmental Conservation; and one new fiscal impact note from the Department of Environmental Conservation. 11:50:44 AM AT EASE 11:51:51 AM RECONVENED