SB 165-EDUCATION TAX ON EMPLOYMENT  CHAIRMAN PHILLIPS announced SB 165 to be up for consideration. MR. SEAN RILED, Staff to Senator Austerman, said: The purpose of this bill would be to generate revenue that would be geared towards education. There would be $100 per person taken out in two consecutive pay checks per year for anyone that is working in the state of Alaska. This would also incorporate all the people that are from out-of-state, generating quite a bit of additional income that would go into the general fund. The reason this bill is here is to generate more income for education. The legislature has given our schools a clear message - that they want our schools to continue to get and set high standards for our students. This will be facilitated through a competency exam. To be able to implement this program, we need to give our educators the tools with which they can implement that program. I do fully agree that you don't take money and throw it at a problem and hope that it will go away, but I do believe that the money that the school tax bill will generate would offer the tools with which to implement that program and also to help some of the education programs we presently have. MR. RILEY continued: Children are our future. I think it's important to remember that we need to fund these areas. As President Hamilton [UAA] said many times before the legislature, "We don't want to see a brain drain going to the Lower 48. We want to keep our people here and by providing good educational programs and good infrastructure, we can do that. Some day, those same children that we will be educating here and giving the best education to will be passing bills for taking care of us when we become older people and passing good legislation. By showing good support in that regard at this early stage would be helping the state and helping ourselves at the same time. Whenever anyone comes before the legislature to pass legislation, the second question everyone asks is, "How are we going to fund this?" Historically, we've already had this tax in place. It's nothing new to us. It's something we've worked with before and can continue to work with. One of the good aspects about this tax is that it goes after some of the people who come up here and reap the harvest of the resources and the infrastructure of Alaska and take their money down south where they end up paying state income tax. Since we have no state income tax and we have no state tax, the only way we're generating money to offset our deficit budget is from the CBR and unless we want to drain that completely, we need to take steps in that regard to start instituting a way to start paying for some of these programs. This would be a small step in that regard to make plans for Alaska's future. Number 1900 SENATOR LEMAN corrected Mr. Riley's assertion that we have no state income tax. He said we have a state income tax, but not a state personal income tax or a state sales tax. "For instance, on fuel, that is a tax that's applied generally throughout the state with a few exceptions. MR. RILEY thanked him for the correction and added that the point he was trying to make is that Alaska is very unique in that they are generating money for their budget from places other than the people themselves. SENATOR LEMAN said that since the tax of $100 per head is due on those employed and those self employed by February 1, he assumed that a self employed person on a form supplied by the Department of Revenue would submit $100 before February 1 and fulfill that requirement, but what if the self employed person does not earn income before February 1? MR. RILEY replied that the mechanism for that would be that the tax, itself, is not due until the following year after you had already worked through that one year. MR. MIKE MILLIGAN, Kodiak, supported SB 165. He thought the greatest problem facing Alaska now is that we have developed into a culture of give-me. "We expect a check from the government. We have to begin now reducing the rate of deficit spending." Mr. Milligan said that we need to put more money into education and the question is how to pay for it and this bill begins to deal with the problem. MR. RICHARD WALBERTS, Kodiak, said he is for public education, but opposed SB 165. He can't support it, because it's an unfair tax, especially to low-income people. He thought that schools receive more than enough money to teach basic academics. MR. BEN ARDINGER, Kodiak businessman, said he serves on the Committee for Better Education and supports SB 165. They are striving to get the music program reinstated at the elementary level and they need the money. He said the people he talks to are all for it, but they want to make sure it goes for education. MAYOR GABRIELLE LEDOUX, Kodiak Island Borough, said the Kodiak Assembly supports this bill and has passed a resolution stating so. She supports this bill personally. "Our schools are having difficulty. They are having difficulty with maintenance. They are having difficulty with large classrooms. We're close to the cap; other school districts are already there." She realizes this is a regressive tax, but said, "At some point, we have to figure there is no such thing as a free lunch. This is our first step to a long-range fiscal plan and that's why I support it." MR. GREG RAZO, Kodiak Island Borough Assembly, said he ran with a commitment to education as part of his platform. He said the local community is interested in quality schools, but they are having a hard time achieving that when they have over 10 years of lack of inflation proofing for education funding from the state. He said: We have heard recently with the tax cap initiative how concerned people around the state are at the increasing burden of local property tax. That burden is going to do nothing but continue unless we receive assistance from both the state and federal government. MR. RAZO said the citizens of Alaska are ready to see a new approach to state funding. MS. MARILY DAVIDSON, Kodiak, supported SB 165. The local school district support high quality education and those efforts are being impaired by the fiscal restraints that are the result of a shrinking budget. "We need to fund, not the minimum necessary for education, but a high quality education for all Alaskan students so they can be competitive in whatever avenue the choose as they finish their standard school career…" MR. DAVID JONES, Director of Finance, Kodiak School District, said he is also a parent and a non-tax payer in Kodiak. He has addressed the legislature a number of times expressing the need for money to provide an adequate education. As a parent in Kodiak, he pays a property tax and a 6 percent sales tax. In October, the state sends his family a permanent fund dividend. He is willing to pay for the services he receives from the government. MS. PAT BRANSON, Kodiak Island Assembly, said that she has no children, but believes the schools are temples of learning and, "It is most important that we provide the proper amount of funding in a diverse manner for quality education throughout the state." Property owners are the ones who bear the burden of school funding and if the legislature doesn't look for other sources of long-range funding, their local government will have to continue raising property taxes, Ms. Branson said. Number 2300 MR. MIKE WILLIAMS, Department of Revenue, said he would answer questions. SENATOR LEMAN asked if wouldn't make sense for people to pay the amount out of the Permanent Fund portion so that it wouldn't be taxable, because the language now has them paying taxes on their full dividend, plus paying another $100. MR. WILLIAMS replied that there is some concern on the method of reducing a PFD because there would be tax implications on a personal level. "You would have a proposed statute that would propose a tax and, if you have used the PFD to offset that act, it could be considered to be debt relief. That debt relief in itself would be taxable to the individual." SENATOR LEMAN asked if it could be designed in a way that it would avoid that? He thought it might be possible to "grab that money before it enters the dividend distribution stream and that would be the offset." TAPE 01-17, SIDE B    CHAIRMAN PHILLIPS said the fiscal note looked like it was about $700,000, "which raises some flags." MR. WILLIAMS responded that he would have to research Senator Leman's question. MR. KEVIN RITCHIE, Alaska Municipal League, said they do not have a position on this bill, but their top priority is a long-range financial plan for the state of Alaska and their second priority is funding education. "This is obviously one option that could be considered in terms of developing a long-range financial plan. And of course, the plan may come together incrementally. So we encourage you to keep moving such bills forward and at some point consider them. Just to let you know that Alaskans United Against the Cap, a group of 90 partner organizations that worked to defeat the tax cap, will be working in various communities to talk about the various options for creating a long-range financial plan for the state." SENATOR LEMAN encouraged him and his organization to come up with some suggestions on how to do it and work within the organizations, because he was convinced this would be "grass routes led" rather than more top down. SENATOR DAVIS said she appreciated his testimony and a lot of things would have to happen when they begin to talk about a long- range plan and if they don't happen at the legislature, they are going to have to come through grass routes efforts. She plans to, "Take it to the public." She asked him to keep the legislature informed about what they are doing. MR. CARL ROSE, Executive Director, Association of Alaska School Boards, supported SB 165. He said they know revenues have been reduced and that essential services have costs attached. "We have a window of four to five years to fashion some kind of plan that will project us into the future successfully. Our other option is to slam head-long into the wall in four years." He said that it will entail talk about revenue streams like this bill and perhaps and sales tax, personal income tax or some kind of investment for the purpose of generating revenue. MR. RILEY said he had been in committee meetings before where this committee's chairman recognized the need for long-term fiscal planning and this was an opportunity to take the first step in that direction. SENATOR LEMAN said he was concerned about the fiscal note, but would look at it in the Finance Committee. SENATOR DAVIS moved to pass SB 165 from committee with individual recommendations. There were no objections and it was so ordered.