SB 50-EMPLOYMENT TAX FOR EDUCATION FACILITIES  1:32:20 PM CHAIR BISHOP announced the consideration of SENATE BILL NO. 50, "An Act imposing an annual educational facilities maintenance and construction tax on net earnings from self-employment and wages; relating to the administration and enforcement of the educational facilities maintenance and construction tax; and providing for an effective date." CHAIR BISHOP noted that the bill was heard last year and there was a new committee substitute. 1:32:31 PM SENATOR STEVENS moved to adopt the work draft committee substitute (CS) for SB 50, work order 31-LS0383\S, as the working document. CHAIR BISHOP objected for discussion purposes. 1:33:33 PM DARWIN PETERSON, Staff, Senator Click Bishop, Alaska State Legislature, Juneau, Alaska, introduced himself. CHAIR BISHOP, speaking as sponsor, provided context for the bill. He related that this was the third time he tried to get the bill passed, after many others worked to reinstate the school head tax. He reviewed the history of the school head tax, which was in effect from territorial days until 1980 when it was repealed. Initially the head tax was $10, and adjusted for inflation it would be $30 today, which would generate about $13 million per year. He reviewed the backlog in deferred maintenance for facilities and reported that maintenance and capital maintenance costs have risen to $149 million, and $142 million, respectively, for facilities throughout the state. He offered his belief that it was time to address deferred maintenance in schools. MR. PETERSON stated that the only change in Version S was the new effective date, which is now January 1, 2021. 1:36:26 PM CHAIR BISHOP found no objection and Version S was adopted. [The Chair treated it as though he had removed his objection.] MR. PETERSON paraphrased from the sponsor statement: From 1919-1980, Alaska had an annual employment head tax for the purpose of collecting revenues to fund schools. The tax went through numerous transformations, but it always charged an equal amount to each employed individual. When it was repealed in 1980, the tax was $10 per person which has the equivalent value of $30 today. SB 50 proposes to revive the repealed head tax on employed individuals, both resident and nonresident, with income from a source in Alaska. The "Alaska Education Facilities, Maintenance, and Construction Tax" would collect $30 from each person employed in the state. The tax would be withheld from an employee's first paycheck each year while self- employed individuals would be required to remit payment to the Alaska Department of Revenue. The tax would be deductible on an individual's federal income tax return. According to the most recent statistics from the Alaska Department of Labor and Workforce Development and the U.S. Census Bureau, there are approximately 441,596 employed individuals in Alaska. Roughly 20 [percent] of those workers who earn their living in Alaska do not reside here resulting in $2.5 billion in nonresident income that leaves Alaska's economy each year and, in most cases, gets taxed by a nonresident's home state. It is estimated that this tax would generate $13 million each year. The revenue collected would be deposited into the state's general fund and accounted for separately to pay for the growing maintenance and construction needs of Alaska's schools. MR. PETERSON added that self-employed individuals would have to self-report. Of the 441,596 individuals affected by the tax, 407,255 are firm figures, including 85,000 non-residents. The number of self-employed individuals is more difficult to determine, he said. The fiscal note estimated 28,000 self- employed individuals. The most recent U.S. Census Bureau, American Community Survey data shows 34,314 self-employed workers in 2017. If so, this would add an additional $190,000 in additional revenues. The fiscal note reflects over $13 million per year in revenue that would be deposited into the general fund, accounted for separately, to pay for the growing maintenance and construction needs in Alaska's schools. According to the Department of Education and Early Development (DEED), the state's share for the FY 2021 major school maintenance list totals $149 million and the FY 2021 school construction totals $142 million for an overall total of just under $300 million. He listed the supporting resolutions in members' packets from the Yukon-Koyukuk School District, the Denali Borough, the Denali Borough School District, Southeast Island School District, Fairbanks North Star Borough, the Alaska Board of Education, the City of Fairbanks, Tanana City School District, the Nenana City School District, and the Iditarod Area School District. He reported letters of support from the National Education Association of Alaska, the Alaska Superintendents Association, and the Alaska Municipal League in members' packets. 1:40:07 PM SENATOR GRAY-JACKSON asked why there wasn't support from the Anchorage School District (ASD). MR. PETERSON answered that he didn't know. SENATOR GRAY-JACKSON said she would follow up and make a call to the ASD. SENATOR STEVENS stated support for receiving help from out-of- state workers. He noted this means that nonresident self- employed fishermen will pay this tax. He asked how it would work since these individuals do not receive a salary. MR. PETERSON replied the bill requires self-employed individuals who are nonresidents who earn income in Alaska to self-report the $30 per year. SENATOR STEVENS asked for confirmation that fishermen are included in the $190,000 as well as North Slope workers or anyone who works in the state. MR. PETERSON answered yes. He added that residents who earn income in Alaska or outside of Alaska would be required to pay the $30 head tax. 1:42:03 PM SENATOR COSTELLO asked how the maintenance list is prioritized. MR. PETERSON replied DEED prepares the list annually according to specific criteria. He referred to the list in members' packets for FY 2021, which was just released yesterday. Each project is ranked, but the list is typically fairly static. It has not changed much from last year. SENATOR COSTELLO asked if there is accommodation for regional equity. MR. PETERSON asked if her question related to how the funds are spent. SENATOR COSTELLO said her question relates to which communities receive the funds. MR. PETERSON replied nothing in the bill provides for disbursement. The legislature will decide on appropriations. 1:43:28 PM SENATOR STEVENS noted that first on the [FY 2021 Capital Improvement Projects (CIP)] list is a $10 million request [by the Southeast Island School District] for "Hollis, [K-12 School Replacement."] The second request [is from the Lower Kuskokwim School District] for $60 million [for the "Anna Tobeluk Memorial K-12 School."] He commented that putting $13 million in won't solve the problem but it will help. 1:43:52 PM At ease 1:44:10 PM CHAIR BISHOP reconvened the meeting and opened public testimony on SB 50. 1:44:25 PM TOM KLAAMEYER, President, Anchorage Education Association, Anchorage, Alaska, stated that he was asked to testify on behalf of the 13,000 members in support of SB 50. He related that the National Education Association (NEA) president, Tim Parker, also sends regrets that he was not able to attend today to speak in support of SB 50. MR. KLAAMEYER said investing this revenue in maintenance and construction for public education facilities is a practical way of supporting education while maintaining structures. Hundreds of public school facilities were built prior to 1980 and many of them need maintenance and repairs to address public health and life safety issues. He concluded that the state faces many budget and fiscal challenges, but SB 50 is a simple, straightforward, and modest way to engage Alaskans and non- Alaskans who earn their living in the state to support a system of high quality public schools. 1:46:16 PM WILLIAM HARRINGTON, representing self, Anchorage, Alaska, spoke in opposition to SB 50 because it will disproportionately affect those in the lower income class. He suggested a sliding scale that would charge higher income wage earners three times more than low-income individuals. He further suggested exemptions for seniors and the poor be included. SENATOR STEVENS asked staff to respond to the question about whether retirees would pay. MR. PETERSON said no; it would just apply to net income for the self-employed or those earning wages and salaries. 1:48:51 PM BETH SHORT-RHOADS, representing self, Sitka, Alaska, spoke in support of SB 50 saying this is a modest amount for employed people to pay. 1:49:30 PM SCOTT MACMANUS, Superintendent, Alaska Gateway School District, Tok, Alaska, spoke in support of SB 50. He noted that the school board passed a supporting resolution, which he read: WHEREAS, the current budget deficit of the State of Alaska constrains the state's ability to address deferred maintenance and school construction needs; and WHEREAS, from 1919 to 1980, Alaska, as a Territory and a State, imposed an annual employment head tax for the purpose of funding schools; and WHEREAS, when repealed in 1980, the tax was $10 per person, which has the equivalent value of $30 today, when adjusted; and WHEREAS, SB 50, support proposed by Senator Bishop revives the employment head tax imposed on both residents and nonresidents; and WHEREAS, this tax is expected to raise $13 million annually; and WHEREAS, these new funds will be accounted for separately and used to pay for the growing maintenance, construction, and deferred maintenance needs of Alaska's schools. THEREFORE, BE IT RESOLVED that the Board of the Alaska Gateway School District strongly supports Senator Bishop's efforts in promoting SB 50 to address the capital needs of Alaska's schools and encourages the legislature as a whole to also support SB 50. The resolution was signed by board president Peter Talus and copies were in the bill packets. MR. MCMANUS said he personally supports the legislation. 1:51:46 PM LISA PARADY, Executive Director, Alaska Council of School Administrators (ACSA), Juneau, Alaska, spoke in support of SB 50. She explained that ACSA members work annually on joint position statements that prioritize important educational issues. One consistent issue is the critical importance of the state developing a long-term sustainable fiscal plan with a diversified revenue stream. The ACSA is pleased that the proposed head tax would increase revenue by about $13 million. Importantly, it would capture a portion of the $2.5 billion of nonresident income that currently leaves the state from the 20 percent of workers who work here, but do not reside in Alaska. She echoed the previous comments about aging infrastructure. The ACSA is working in partnership with the Alaska Municipal League to quantify the overarching needs and work with the legislature to prioritize how to address the state's aging infrastructure, she said. 1:55:10 PM CLAY WALKER, Mayor, Denali Borough, Healy, Alaska, thanked the chair for his leadership in addressing this critical statewide issue. He said the Denali Borough has three schools that are over 40 years old with aging infrastructure and increasing major maintenance needs. He noted that the district works to address its needs, but the state is needed to partner with the district. He referred to supporting resolutions from the Denali Borough Assembly, Resolution 1908 and from the Denali Borough School District in the packets. He urged members to address this statewide need. CHAIR BISHOP noted that Senator Reinbold had joined the meeting. 1:56:33 PM NILS ANDREASSEN, Executive Director, Alaska Municipal League (AML), Juneau, Alaska, spoke in support of SB 50. He highlighted that in November the AML members voted in support of SB 50 and anything that will address infrastructure needs, especially for school facilities statewide. Since 2001, the state has paid an average of 16 percent of the $4 billion deficit for school construction and major maintenance grant funding, he said. He directed attention to DEED's six-year plan. He offered his belief that the $1.6 billion deficit shown is probably closer to $2.3 billion. Further, the FY 2021 proposed budget does not provide any funding for the $400 million in projects identified by DEED. 1:58:21 PM CHAIR BISHOP closed public testimony on SB 50. SENATOR COSTELLO referred to page 4, line 21, and asked for the definition of "employee" since it reflects federal statutes. She also asked how part-time employees are affected. 1:59:20 PM MR. PETERSON responded that the legislation references 26 U.S.C. 3401 and the definition of "employee" reads: The term employee includes an officer, employee, or elected official of the United States, a state, or any political subdivision thereof, or the District of Columbia or any agency or instrumentality of any one or more of the foregoing. The term employee also includes an officer of a corporation. He added that part-time employees also have the $30 tax taken from their first paycheck. SENATOR STEVENS said he would like an explanation of the fiscal note from the Department of Revenue regarding projected revenue and costs because the Department of Labor said collecting the taxes would be expensive. CHAIR BISHOP said he would have someone from the Department of Revenue available at the next meeting. 2:01:46 PM CHAIR BISHOP found no further question and held SB 50 in committee.