SJR 4-CONST. AM: STATE TAX; INTIATIVE  3:35:46 PM CHAIR SHOWER reconvened the meeting and announced the consideration of SENATE JOINT RESOLUTION NO. 4, Proposing amendments to the Constitution of the State of Alaska prohibiting the establishment of, or increase to, a state tax without the approval of the voters of the state; and relating to the initiative process. 3:36:09 PM MIKE BARNHILL, Policy Director, Office of Management and Budget, Office of the Governor, Juneau, introduced himself. 3:36:15 PM BILL MILKS, Assistant Attorney General, Civil Division, Labor and State Affairs Section, Department of Law, Juneau, introduced himself. MR. BARNHILL explained that SJR 4 amends art. IX, sec. 1, Constitution of the State of Alaska to require a vote of the people on any new state tax or increase to an existing state tax that the legislature enacts. Conversely, any new state revenue or increase to an existing state revenue that the people pass through the initiative process would require approval from the legislature. This legislation is patterned after the Colorado taxpayer bill of rights which has a provision that requires a vote of the people for any new or increased state or local revenue. He highlighted that two other states have similarly amended their state constitutions. Missouri requires a vote of the people if a new state tax increases revenue by more than $50 million; and Washington State requires a three-fifths vote of the people for local property taxing jurisdictions to increase property taxes in excess of one percent of the property value. MR. BARNHILL related that Governor Dunleavy strongly believes that the people should have a say in matters relating to new revenues, increasing revenues, and the permanent fund dividend. He said that Alaska's constitution already has direct democracy measures through referendum and initiative and SJR 4 brings those together more closely. 3:39:42 PM MR. MILKS presented a sectional analysis for SJR 4, speaking to the following prepared document: Section 1: This section would add two new subsections to the tax clause of the Alaska Constitution. Taken together, the two subsections would require that any new state tax or increase to the rate of an existing state tax be approved by both the legislature and the voters. Subsection (b) would require that any law enacted through the legislative process that would establish a new state tax or increase the rate of an existing state tax shall not take effect unless the voters approve the proposed law in the next statewide election. If the voters approve the proposed law, it would take effect 90 days after the election was certified. Subsection (c) would require that any law proposed for enactment through the initiative process and approved by the voters that would establish a new state tax or increase the rate of an existing state tax shall not take effect unless the legislature, by resolution, approved the initiated measure by the end of the next regular session. The legislature would have to approve it by majority vote in a joint session. If the legislature approved of the initiated measure, it would take effect 90 days after the legislature's approval. Section 2: This section would make a conforming change to the initiative process in Section 6 of Article XI, providing an exception to the effective date requirements for initiatives. Section 3: This section would require that this amendment be placed on the ballot in the 2020 general election. 3:42:34 PM CHAIR SHOWER asked if there were questions. 3:42:55 PM SENATOR REINBOLD observed that SJR 4 is far broader than she realized. She asked if it would apply to new or existing taxes on income, fish, alcohol, oil, education, or designated general funds since some view the latter as fees. She noted that some people think that it's a tax on children who don't directly receive their PFDs. MR. MILKS said there is a distinction between taxes and fees. The resolution would amend art. IX, sec. 1, relating to taxing power. It does not amend art. IX, sec. 7, relating to dedicated funds and including licensing fees. SENATOR REINBOLD responded, "Just to verify. We can't increase taxes on fish, alcohol, education - nothing basically. ...It sounds like we can't do taxes on virtually anything or some people would say increase fees." MR. MILKS clarified that the resolution is not intended to apply to licensing fees. 3:46:30 PM MR. BARNHILL agreed with Mr. Milks that there is a distinction between taxes and fees. He said the intent in SJR 4 is that it would require a vote of the people for the legislature to initiate any new state tax or increase an existing state tax. He added, "For user fees, license fees, fees that we frequently consider as designated general fund - those would fall outside of the definition of tax for purposes of the constitution and would not be subject to going to a vote of the people." SENATOR REINBOLD observed that this creates a loophole because things now identified as a tax could be re-designated as a fee. MR. BARNHILL said the administration would be happy to draft the legislation to close any loopholes that are identified. He opined that constitutional amendments always try to strike a balance between language that is too restrictive and language that is too general. He reiterated agreement with Mr. Milks that taxes would be subject to a vote of the people but fees would not. MR. MILKS said the Alaska Supreme Court sometimes looks at what the dictionary said about key terms when the constitution was framed. He read the following from a 1955 dictionary: "A tax is a charge laid by government upon persons or property for public purposes." He said that is key; a tax on the sale of alcohol would be a tax but what the bar pays to hold a license would be a licensing fee. He said that is the intent of the resolution but he agrees with Mr. Barnhill that suggestions to improve the language were welcome. 3:49:23 PM SENATOR COGHILL listed various taxes in the statutes and highlighted that there are two pages of exemptions. He asked, should the resolution pass, if any modification to an exemption would require a vote of the people. MR. MILKS restated that SJR 4 addresses establishing a new state tax and increasing an existing state tax, both of which would require a vote of the people. He also summarized the similar provisions that amended the Colorado and California constitutions. 3:51:04 PM SENATOR COGHILL suggested that before passing SJR 4, the committee might want to review all the tax exemptions or place clarifying sideboards. He mentioned excise taxes, fish landing taxes, and unemployment insurance and said he agrees with Senator Reinbold that the application could be very broad. He suggested that it may be difficult to make the case that something is a fee but the tipping point may be the public fee for individual use versus the public fee that is broad-based use. He reiterated that dealing with the exemptions embedded in the law would be a real conundrum. MR. BARNHILL advised that he and Mr. Milks would get back to the committee after they review the Colorado Supreme Court cases relating to increasing a tax rate and whether that includes just the increase to the rate in statute or whether it also includes an indirect increase through changing an exemption. SENATOR COGHILL said he likes the idea of a low broad-based tax because it applies to everybody and generally affects the state positively. He noted that if Colorado isn't part of the United States Court of Appeals for the Ninth Circuit, it doesn't matter what that state did. 3:54:18 PM MR. MILKS clarified that the Colorado Supreme Court would be the definitive interpreter of the Colorado State Constitution. SENATOR COGHILL said it could be a conundrum if the legislature decided to tax income from other states. MR. BARNHILL said an Alaskan court would look at cases decided by the Colorado Supreme Court as persuasive but not binding. CHAIR SHOWER summarized that an Alaska court could look at and potentially use the information from the Colorado court even though that state is not under the jurisdiction of the Ninth Circuit. MR. MILKS opined that the Alaska court would look at the intent of the legislature and how the proposal was communicated to the voters before it looked at other states. SENATOR MICCICHE talked about the recent ballot measure to tighten protections for fish habitat from development and noted that the warring bumper stickers inaccurately reduced what was an intricate issue to either you like fish or you hate fish. He said despite the fact that legislators will sit through hours of meetings to learn the details of SJR 4, it, too, could be reduced to warring bumper stickers that ask if you want to pay more money or not. He said he struggles with SJR 4 because conservative districts like his will be ceding their vote to districts like Anchorage and Southeast that are much more likely to support a broad-based tax. He questioned how carefully considered policy can result from what comes down to a bumper sticker war. MR. BARNHILL responded, "The important thing here is that we're combining the best of representational democracy, which really does resist the sound bite - the bumper sticker, with direct democracy." This involves the legislative process and it consults the people. He opined that policy makers are responsible for resisting the sound bite or bumper sticker and having substantive discussion with the people of Alaska to convey the reasons that this is important. MR. MILKS added that the framers of the constitution decided they wanted the people to have a role through the initiative and referendum processes. SENATOR MICCICHE said he supports the right of the people to have a role in government through the initiative and referendum processes but he wonders how far a representative government should go and still be fruitful in answering to the people. MR. BARNHILL responded that a tension exists now between direct democracy and representational democracy. The substantive public discussion in the referendum over Senate Bill 21 relating to progressivity and oil production tax is evidence of that. He said he believes that sort of high level discussion can occur in this context, but he also believes that if the legislature were to pass a broad-based income or sales tax, it's inevitable that a group of stakeholders would seek a referendum on that. This tightens the relationship between the roles of the legislature and the people, he said. 4:03:53 PM SENATOR REINBOLD said the idea of no new taxes without a vote of the people sounds like a generally good idea because the constitution calls for government established by the will of the people. However, the people vote for legislators to go to Juneau for 90 days to dig deep into issues. She said part of the reason she wants to support SJR 4 is because of how abusive the federal income tax has become, but it's not clear what the overall impact will be. "I don't know if this is going to impact bonds. Are bonds technically a tax? Can we really vote to bond ourselves into taxes? Is that basically where we're going?" She further questioned whether this was intended to limit the size and scope of government. She predicted a massive boom in the state if SJR 6 and SJR 4 were to pass. MR. BARNHILL responded that the two resolutions combined will have an impact similar to what happened in 1992 when the voters passed the Colorado taxpayer bill of rights. The intent was to restrain the growth of government spending and to require consultation with the people when enacting new taxes. He said Colorado has thrived economically since that legislation passed. SENATOR COGHILL asked how this interacts with art. IX, sec. 11, Constitution of the State of Alaska relating to the exemptions for bonding. MR. MILKS pointed out that the proposed legislation is about taxes, not bonding. He said bonding is about borrowing money and the constitution places certain restrictions on borrowing. SENATOR COGHILL suggested he think about whether special assessments would be a tax. He also asked the reasoning for the statewide election to be held more than 120 days after enactment. 4:09:35 PM MR. BARNHILL said he didn't know the intention or the reason that it was different than for referendums, which is 180 days after adjournment. SENATOR COGHILL suggested the committee think of that as a timeframe issue. MR. MILKS offered to follow up with the information. 4:10:18 PM CHAIR SHOWER stated that he would hold SJR 4 in committee.