SB 22-MOTOR VEHICLE REG. TAX: COLLECTION COSTS  9:17:24 AM CHAIR STOLTZE announced the consideration of SB 22. 9:17:43 AM FORREST WOLFE, Staff, Senator Cathy Giessel, Alaska State Legislature, Juneau, Alaska, read the following sponsor statement: Since the inception of the Motor Vehicle Registration Tax system (MVRT) in 1993, the cost to the state of collecting these taxes for municipalities have been reduced considerably or the rate they take off the top has not. The MVRT program was created not as a revenue sharing program, but was intended in a sense to piggy- back on the activities the state was already conducting in order to produce revenues for municipalities; with this understanding in mind, the state should only be collecting the added cost it incurs from operating the program, not sharing in the added revenues with which the municipalities receive from their citizens. SB 22 proposes to reduce the amount the state collects from 8 percent to 5.5 percent in order to more accurately reflect the amount of work and resources the state provides to municipalities for preforming this service; this does not impose any new costs or fees on the state or citizens, it simply reallocates more of the collected funds to the cities themselves. By allowing local governments to keep more of their taxes, this revenue is kept closer to the citizens it was intended to serve and therefore serves the people better. With revenue sharing posed to be reduced in these difficult fiscal times, allowing the municipalities to retain more of their own revenues makes sense. 9:19:27 AM CHAIR STOLTZE asked if MVRT was the municipalities' only "bite at the apple" for some revenues. MR. WOLFE answered that he was not sure. 9:20:05 AM AMY ERICKSON, Director, Division of Motor Vehicles, Anchorage, Alaska, introduced herself and offered to answer questions. CHAIR STOLTZE pointed out that SB 22 has a fiscal impact for the state. He noted that the Division of Motor Vehicles (DMV) faces deficits as well as the state. He asked if Ms. Erickson had comments or concerns on SB 22. MS. ERICKSON answered that SB 22 would not affect DMV's operations, but the bill would affect the state's general fund. She asserted that whether the state could afford to forgo approximately $500,000 a year was a question for the Legislature. She explained that the MVRT was established in 1978 and amended in 1993 to increase the amount the state retained. She specified that the state's retention began at 5 percent and raised to 8 percent in 1993. SENATOR WIELECHOWSKI asked for an explanation as to how the registration tax works for the municipalities. He asked to confirm that the bill would result in more money going to the municipalities. MR. WOLFE explained that the state collect's their registration fee as well as fees for 16 other municipalities. 9:22:41 AM SENATOR WIELECHOWSKI asked if the bill lowers the registration fee. MR. WOLFE answered no. He specified that fees will not be lowered, but rather the amount the state returns to the municipalities. He said currently the state charges municipalities 8 percent as an administrative fee. He specified that the bill lowers the fee to municipalities to 5.5 percent. He detailed that the reduction will be more in line with DMV's actual administrative costs. SENATOR WIELECHOWSKI asked to clarify that state receives 8 percent for managing the municipalities' license registration taxes. MR. WOLFE answered that the bill applies to vehicle registration taxes, not license registration. 9:24:20 AM SENATOR WIELECHOWSKI asked how the municipalities get their money. MR. WOLFE answered that the state had separate agreements with each municipality. He detailed that vehicle registration fees were collected for each municipality, less the state's 8 percent fee. SENATOR WIELECHOWSKI asked Ms. Erickson for an explanation as to how the registration fees go to the municipalities and how the bill increases money to the municipalities. 9:26:01 AM MS. ERICKSON specified as follows: For example, in the Municipality of Anchorage, my vehicle is 8 years old and the MVRT applied by the Municipality of Anchorage is $70, so I pay my $100 registration fee for the state and the $70 fee that goes to the municipality; of that $70, 8 percent is retained by the state and the rest is refunded to the community. Of the 17 communities, they each have their own established motor vehicle tax, so it would range from $16, for example, to $70 for Anchorage and Mat- Su. CHAIR STOLTZE summarized that the bill does not change the fees, the change is directed at the percentage for the transacted cost for being the tax collector. SENATOR WIELECHOWSKI asked if the municipalities were doing additional work for the registration fees. He opined that the state seems to be doing the bulk of the work and the municipalities are completely not involved. MS. ERICKSON answered true. She explained that the state administers the program for each of the 17 municipalities. SENATOR MCGUIRE noted that the state does a similar program with school district appropriations. She added that administrative fees often can erode the base of the dollars that people are trying to collect for whatever their purposes. SENATOR WIELECHOWSKI asked how the bill impacts the Anchorage property tax cap. 9:29:34 AM DANIEL MOORE, City Treasurer, Municipality of Anchorage, Anchorage, Alaska, replied that the auto registration tax is a payment in lieu of property tax. He explained that every dollar collected in auto registration tax for the municipality is a dollar decrease in the amount of property tax that is needed. He said Anchorage increased its rate schedule in 2012, resulting in increased auto tax registration revenues of $5 million to $6 million; that meant $5 million to $6 million less was needed from property taxes. MR. MOORE detailed that the 8 percent fee, which has not changed since 1993, provides for DMV's administrative costs. He explained that prior to the tax increase in 2012, the municipality paid 45 percent of DMV's entire program cost, a percentage that matched Anchorage having 45 percent of the state's vehicles. He revealed that today the municipality pays 59 percent of all MVRT costs, but Anchorage still has 45 percent of the state's vehicles. He remarked that Anchorage pays double the amount for administration fees while not getting any additional services. He asserted that Anchorage's MVRT increase has been a windfall to DMV with an added $500,000 per year. He explained that the bill corrects the situation by lowering the administrative fee from 8 percent to 5.5 percent. He specified that DMV would retain approximately $1 million, an amount the division used to retain, and the $500,000 would be spread across the state; Anchorage will annually recover $300,000 and Mat-Su will recover $100,000. He said the 16 or 17 communities will basically receive a 3 percent increase in their net revenues from DMV, resulting in more money to provide local services or to reduce property taxes. 9:32:51 AM CHAIR STOLTZE asserted that previous testimony had clearly established that the state was overly gouging the recipient of vehicle title or registration. He declared that his constituents' hearts would not be warmed that the municipalities are getting the money rather than the state. He asked if consideration was ever given towards reducing the MVRT by giving the money back to the people. MR. WOLFE replied that he had no comment. CHAIR STOLTZE asked if Mr. Wolfe had a philosophy about where the money belongs. MR. WOLFE replied that he did not feel comfortable commenting at that time. CHAIR STOLTZE asked Mr. Moore to comment. 9:34:23 AM MR. MOORE explained that the difference between the city and the state is that Anchorage has a tax-cap set by charter. When Anchorage gets any type of tax, by charter the tax must be taken into account within the municipality's cap, the result means less money is being charged for property taxes. He noted that one good thing about the MVRT is that a broader base of people are paying than property taxes. CHAIR STOLTZE replied that he understood the government aspect and how it worked for government. He noted that he was concerned for the people who were paying the MVRT. He asserted that people did not care which government entity the tax goes to. He stated that the crux of the bill will be the fiscal issue and the referral to the Senate Finance Committee was appropriate. He inquired if the committee members had reviewed the bill's fiscal note. He confirmed that there would be a revenue shift from the state to the municipalities. He asked if there was any other public testimony on SB 22. 9:37:08 AM SENATOR COGHILL commented that he would like to associate himself with Chair Stoltze's remarks on the individuals in Alaska and noted his appreciation. He conceded that the bill was a finance issue. He moved to report SB 22 from committee with individual recommendations and the attached fiscal note. 9:37:28 AM CHAIR STOLTZE announced that seeing no objection, SB 22 moved out of the Senate State Affairs Standing Committee.