HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE March 7, 1997 8:04 a.m. MEMBERS PRESENT Representative Ivan Ivan, Chairman Representative Fred Dyson Representative Scott Ogan Representative Joe Ryan Representative Al Kookesh Representative Reggie Joule MEMBERS ABSENT Representative Jerry Sanders COMMITTEE CALENDAR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 132 "An Act relating to municipal taxation of alcoholic beverages." - SSHB 132 PASSED OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 132 SHORT TITLE: MUNICIPAL TAXATION OF ALCOHOL SPONSOR(S): REPRESENTATIVE(S) DAVIS,Ivan JRN-DATE JRN-PG ACTION 02/13/97 333 (H) READ THE FIRST TIME - REFERRAL(S) 02/13/97 333 (H) CRA, JUDICIARY, FINANCE 02/21/97 424 (H) SPONSOR SUBSTITUTE INTRODUCED-REFERRALS 02/21/97 424 (H) READ THE FIRST TIME - REFERRAL(S) 02/21/97 424 (H) CRA, JUDICIARY, FINANCE 03/07/97 (H) CRA AT 8:00 AM CAPITOL 124 WITNESS REGISTER REPRESENTATIVE GARY DAVIS Alaska State Legislature State Capitol, Room 513 Juneau, Alaska 99801 Telephone: (907) 465-2693 POSITION STATEMENT: Sponsor of HB 132 PAUL SHERRY, Deputy Director Alaska Native Health Board 4201 Tudor Center, Number 105 Anchorage, Alaska 99508 Telephone: (907) 562-6006 POSITION STATEMENT: Testified on HB 132 GARY GRANDE, Administrator Petersburg Medical Center P.O. Box 589 Petersburg, Alaska 99833 Telephone: (907) 772-4291 POSITION STATEMENT: Testified on HB 132 JAMES CULLEY, CEO & Administrator Valdez Hospital P.O. Box 694 Valdez, Alaska 99686 Telephone: (907) 835-2249 POSITION STATEMENT: Testified on HB 132 VALERIE THERRIEN Advisory Board for Alcohol and Drug Abuse 779 8th Avenue Fairbanks, Alaska 99701 Telephone: (907) 456-8113 POSITION STATEMENT: Testified on HB 132 GARREY PESKA Alaska State Hospital and Nursing Home Association 319 Seward Street Juneau, Alaska 99801 Telephone: (907) 586-1790 POSITION STATEMENT: Testified on HB 132 LAMAR COTTEN, Deputy Director Department of Community and Regional Affairs P.O. Box 112100 Juneau, Alaska 99811-2100 Telephone: (907) 465-4700 POSITION STATEMENT: Testified on HB 132 KEVIN RITCHIE, Executive Director Alaska Municipal League 217 Second Street Juneau, Alaska 99801 Telephone: (907) 586-1325 POSITION STATEMENT: Testified on HB 132 TOM WRIGHT, Staff Community and Regional Affairs Committee Representative Ivan Ivan Alaska State Legislature State Capitol, Room 418 Juneau, Alaska 99801 Telephone: (907) 465-4942 POSITION STATEMENT: Testified on HB 132 BOB BARTHOLOMEW, Deputy Director Income & Excise Audit Division Department of Revenue P.O. Box 110420 Juneau, Alaska 99811-0420 Telephone: (907) 465-2320 POSITION STATEMENT: Testified on HB 132 ACTION NARRATIVE TAPE 97-12, SIDE A CHAIRMAN IVAN IVAN called the House Community and Regional Affairs Standing Committee meeting to order at 8:04 a.m. Members present at the call to order were Representatives Dyson, Ryan and Kookesh. Representatives Joule and Ogan arrived at their respective times: 8:05 a.m. and 8:14 a.m. Representative Sanders was absent. HB 132 - MUNICIPAL TAXATION OF ALCOHOL Number 072 REPRESENTATIVE GARY DAVIS came forward to testify as sponsor of SSHB 132, "An Act relating to municipal taxation of alcoholic beverages." Representative Davis stated that in statute, there is a restriction on how much municipalities can tax alcohol as a stand alone substance. The statutes in place hold the amount that can be taxed for alcohol at the general rate of the sales tax. HB 132 removes this restriction. It allows municipalities to tax alcohol at whatever rate they feel is appropriate. He noted how alcohol problems affect services such as hospitals, police forces, the courts and other services the municipalities provide. REPRESENTATIVE DAVIS said this legislation would free up municipalities and give them the opportunity to address their problems in a manner they feel appropriate. If alcohol is causing problems, with this restriction eliminated, they can feel free to adjust their tax base and their revenue projections to deal with the problems created by alcohol. Number 311 REPRESENTATIVE FRED DYSON asked what the response of the liquor industry to this legislation has been. He also wondered if Representative Davis' office had put the industry on notice about this legislation. REPRESENTATIVE DAVIS stated that the alcohol industry hadn't contacted his office presently. In response to the latter, he stated that, no, he hadn't initiated contact either. Number 360 REPRESENTATIVE JOE RYAN asked if there was a cap on the amount of taxes the local municipality is allowed to charge. REPRESENTATIVE DAVIS responded that this was not included in the bill and he wasn't sure if there were any caps in state law. He noted that any municipality has the opportunity to address by ordinance or resolution any caps of their own. He stated that there were no caps in the bill, not in state statute or in municipal ordinances that he was aware of. Number 408 REPRESENTATIVE AL KOOKESH stated that he appreciated this legislation and he planned to support it. One of the problems he ran into during his campaign was unfunded mandates and this legislation may take care of one of those. Number 460 PAUL SHERRY, Deputy Director, Alaska Native Health Board, testified via teleconference from Anchorage on HB 132. This organization consists of 20 health organizations around the state which are owned and operated by native organizations. Some of their members include Bristol Bay Area Health Corporation, the Norton Sound Health Corporation, Yukon-Kuskokwim Health Corporation, etc. MR. SHERRY added that their board several weeks ago in Juneau was briefed on this legislation by Representative Davis. They endorse this legislation. It provides a solution to a need that they identified in a priorities booklet delivered to all the legislators. Uncompensated care provided by many rural hospitals for intoxicated persons in custody is a problem. Fundamentally the cost burden falls on the hospitals and health center institutions within municipalities. MR. SHERRY continued that in order to deal with this problem of Title 47 requirements, police departments make sure that intoxicated persons are not at risk of a medical problem while in custody. The inebriate must be taken for a medical exam. In many communities police drive to the hospital door, un-cuff the prisoner and send them in. A requirement of the hospital is to provide service to those in need and since this person is incarcerated and might be referred to a treatment center at a later time, the municipality can avoid the obligation to pay the hospital for this service. MR. SHERRY stated that their members basically advise them that these types of losses can exceed $100,000 in some of these communities. Their concern is to find a way to recover these costs. Their membership basically feels that this bill provides an option for communities to increase the alcohol sales tax above and beyond the general sales tax in order to meet these costs related to alcohol abusers. Number 734 GARY GRANDE, Administrator, Petersburg Medical Center, testified via teleconference from Petersburg on HB 132. He stated that up until last October he served as a member of the Petersburg City Council. He also served for a time as the member of the Petersburg Council on Alcohol and Drug Abuse. He noted that he looks at this legislation from three different perspectives. MR. GRANDE spoke first to the city perspective. The city faces a $600,000 shortfall to try to balance their budget due to declining timber receipt revenues, fish tax revenues and pass through monies from the state. He stated for these reasons it makes it difficult for the city to fund such programs as the Petersburg Council on Alcohol and Other Drug Abuse. In the past, the city has funded $40,000 into this program to help those who can't afford these services to get counseling and help. MR. GRANDE stated that these programs are still needed. This bill would be a tool for communities to fund these on-going problems. He didn't look at it as a tax but a tool to fund necessary services. In addition, the police department is required to bring many of these public inebriates to the hospital. Their back debts related to this requirement range from $5,000 to $30,000 a year. MR. GRANDE noted that the hospital has a $4 million budget and because of cuts they're seeing in medicare and medicaid, their contractual allowances and their bad debt have gone from $200,000 a year to $400,000 a year. This is ten percent of their budget. In the past few years they have averaged about a $40,000 a year loss on the bottom line. Last year they had a $30,000 profit. Now, this year, they have an over $400,000 loss and their budget projections for next year are a $450,000 loss. They need to find whatever means possible to reduce these losses. When they give away their services to care for public inebriates, he believed that something should be put in place to reverse this trend. MR. GRANDE stated that the police department has added costs related to caring for the public inebriates as well. He said this legislation would set in place needed funds to be split between a hospital's bad debts, counseling services, and the police department for their extra work. He encouraged passage of this legislation. Number 989 JAMES CULLEY, CEO & Administrator, Valdez Hospital, testified via teleconference from Valdez on HB 132. The cost of public inebriation in un-reimbursed expenses to the Valdez Community Hospital comes in several forms. The first and easiest to quantify is the un-reimbursed costs of direct care. This is the supplies and services provided in treating the individual. In 1996 this came to a total of almost $12,000. While this might not sound like much money when accustomed to tossing around millions, to a small facility like Valdez this is a significant cost. This also represents over ten percent of their total write-offs for this past year. In all of the accounts written off, over 50 percent are related to alcohol or substance abuse. MR. CULLEY noted that the second cost was the indirect cost of damaged equipment, linen, furniture, etc., which they've experienced as a result of some of these individuals who tried to get into or out of the hospital. Depending on their disposition at any given moment, they are either fighting to get into a bed or they want out. Although they don't try to prevent anyone from leaving, when the police "drop" them at the back door, they don't always remember this. There is also the increased cleaning costs because of vomiting in their rooms, the emergency room and wherever else they might happen to be at the time. MR. CULLEY stated that the third cost was for security, including both tangible and intangible costs. The first is the actual dollar cost of increased staffing for security. In Valdez their normal coverage is two nursing staff per shift, one to cover the floor and the other to respond to the emergency room. Of the 18 full or part-time RNs, LPNs or Nursing Assistants they have only three male staff. At the same time they currently have three so-called swing bed patients. These are patients which don't require full time hospitalization but require such extensive part-time regular nursing care that they live full-time on a ward. These three individuals are elderly. MR. CULLEY offered that, "When you have a drunk who at best wants to use the hospital as a flop house, I can't leave the staffing at two females and provide emergency room and nursing coverage, as well as patient security." The second security related cost or the intangibles is the psychological cost to staff, the patients and their families. In a small, fifteen bed facility it is emotionally disturbing and physically threatening to have a "loud, obnoxious drunk with other patients." He noted one case where they had a drunk who was cursing and yelling on one side of the ward while on the other a first time mother was in labor. MR. CULLEY noted that ironically the hospital can't take the financial risk of not admitting these individuals as patients. With the federal enactment of the Emergency Medical Treatment and Active Labor Act, known as EMTALA, the potential claims against the Valdez Community Hospital make it a financially unacceptable risk to do anything but to admit all substance abuse patients brought to the facility. According to EMTALA, "like the physiatric patient, substance abusers must be medically screened to rule out organic causes for their condition. When a substance abuser is subject to possible withdrawals or delirium tremors that person has an emergency medical condition and is unstable according to the (indisc.) comments associated with the regulation for as long as seven days." MR. CULLEY continued that each violation of EMTALA, regardless of the outcome to the patient, is subject to a $25,000 fine. At Valdez Community Hospital they have no choice medically, ethically or financially to do anything but take "all comers." He strongly urged the committee to pass this legislation. It doesn't fix the problem, but it offers an opportunity to have part of the problem pay its own way. Number 1236 REPRESENTATIVE SCOTT OGAN asked what assurances did they have that the money collected for this tax would go to the hospital. MR. CULLEY responded that there would be none up front other than what they are able to do when they talk to the City Council about it. REPRESENTATIVE DAVIS responded to this same question by noting that they've questioned the legality of municipalities dedicating taxes. Their information is that this opportunity is available. Number 1280 VALERIE THERRIEN, Advisory Board for Alcohol and Drug Abuse, testified via teleconference from Fairbanks on HB 132. The board supports this bill. They urge the committee to pass this out and for the legislature to do the same. They believe that the local municipalities can make a decision on their own level as to what level the self-tax should be on alcoholic beverages. She gave a personal perspective on this issue. MS. THERRIEN stated that when she was a local elected official in Fairbanks, she served on both the City Council and on the Fairbanks North Star Borough Assembly. She said there was always a question of what they were allowed to do when taxing alcohol. This legislation would resolve this issue. She said it would be very supported in Fairbanks. Number 1397 GARREY PESKA, Alaska State Hospital and Nursing Home Association, came forward to testify on HB 132. He stated that he would not reiterate the same information already outlined concerning this issue, but he did say that the members of the Alaska State Hospital and Nursing Home Association have unanimously endorsed this bill. He asked to call their attention to the bill packet and a discussion paper enclosed there dated March 19, 1995, written by Ed Myers who is the former administrator at the Kodiak Island Hospital. This paper discusses, in the field, stories concerning this problem in facilities. With this, he yielded to others wishing to testify. Number 1445 LAMAR COTTEN, Deputy Commissioner, Department of Community and Regional Affairs, came forward to testify on HB 132. The department supports this legislation. It adds another tool to communities. It's clear that as the state and federal government readjust their own budgets that often it means less transfer funds directly or indirectly to communities. It's the responsibility of the state to give communities more tools to raise needed revenues at the local level. In the last six years they've seen creative ways local governments have raised funds and noted a few examples such as tax on coal, raw fish taxes, etc. This is not an abuse of the system and these programs have been supported by local citizens. Number 1537 REPRESENTATIVE OGAN asked how much money the state spends on alcohol related rehabilitation, including federal funds. DEPUTY COMMISSIONER COTTEN said he didn't have these figures and thought that the Department of Health and Social Services (HESS) would be the agency to tap for this information. He noted that these costs additionally go beyond this department, with public safety considerations, etc. He said he would talk to someone in HESS about this information. He added that there were quite a few state programs that are sister funded by the federal government as well as programs that regional non-profits receive from the federal government in part too. Number 1659 REPRESENTATIVE OGAN stated that he saw this legislation as being a new state tax. He said, "Let's call a tax, a tax here." Number 1690 KEVIN RITCHIE, Executive Director, Alaska Municipal League, came forward to testify on HB 132. He noted that municipalities run a business which is called government. They try to provide services to the public that are reasonable at a cost that doesn't overburden their tax payers. Over the past ten years the curve of local property taxation to replace under-funding of schools, cutbacks in municipal assistance revenue sharing, etc., and the higher demand of services in communities has caused property taxes to take an upward turn. What municipalities are asking for are more tools that local voters can decide upon as to whether or not to establish a structure of collecting revenues to pay for the services they want. MR. RITCHIE noted that this legislation was not a new tax because a new tax can only be put on by local voters in their own communities, the question might be, is this a new discrimination against alcohol. No, as a matter of fact it's currently a discrimination for alcohol. In essence, it's a state mandate that only applies to alcohol, no other commodity. Local voters may not decide to tax alcohol at a higher rate than other commodities if they choose to. Currently, alcohol is the only item under state law that has this restriction. Again, local voters are the only ones who can place this tax on the books. They would suggest that when the related statute was passed ten years ago that this was the discrimination for alcohol. This proposed change simply levels the playing field. MR. RITCHIE noted the state and municipal costs of alcohol use and abuse. These costs are staggering, both on a municipal and state level while considering the affects on the court system, police activity, youth and family services and the issues that schools are forced to deal with. Many of these revolve around alcohol use and abuse. Number 1834 REPRESENTATIVE DYSON asked about the membership of the Municipal League discussing the syndication of impact on regional health facilities, for example, he noted that Bethel probably ends up having a disproportionate impact there from a health cost perspective. He asked if there was any discussions about how to recoup some of these costs. MR. RITCHIE responded that they had not discussed it directly, but he noted that this was a serious issue. One significant discussion the Municipal League has had concerning especially Bethel and Kotzebue, both of these communities are "damp communities," which means that they can't get revenue from sales taxes on alcohol in these communities. Currently, under Title 29, the Municipal Statute allow communities to levy use taxes. This means that if somebody brings in alcohol they can be taxed on the value of the alcohol brought in even though it's not sold in the community. This is kind of a different issue, but another issue they would address in the future is how to assist in the collection of those use taxes. The law clarifies now if there is a local sales tax and a commodity is purchased in another community and brought in, essentially, the latter community could exact the difference between these two communities sales tax if there was a discrepancy between the two tax rates. They are exploring how to make this system work better than it does presently. Number 1937 REPRESENTATIVE DYSON said he was thinking more specifically about the medical costs. He asked if they have explored the possibility of the community that has the hospital and is required by law to deal with the inebriate, recapturing that cost of this service from the community where the patient resides. MR. RITCHIE responded that the Municipal League has not done so. Number 1989 REPRESENTATIVE OGAN referred to a dedicated fund issue and noted that from previous testimony there's nothing to prevent this, for example, to funnel money directly to hospitals to off-set these costs. He asked if there were any cities that had dedicated funds. He also asked if there are currently alcohol taxes collected by cities. MR. RITCHIE responded, yes, to the latter question. To the previous question he noted that the only community that he knows of that has an alcohol tax is Juneau. In the current law there's a grandfather clause related to alcohol taxes. He believed Juneau was the only community that had this on the books. He understood that there was not a dedicated fund. In Juneau they cannot dedicate funds for specific uses, but in the case of sales tax, when they are re-authorized the intent of the use of those funds is clearly stated to the public, even though they are not technically dedicated. So far, the City and Borough of Juneau has never reneged on an intent to the public. REPRESENTATIVE OGAN noted that part of the problem he was having with this legislation is that he didn't trust the cities to dedicate money that they collect for this problem even though the efforts of this legislation is laudable. He said he would have difficulty supporting this legislation without language that allows for a dedicated fund. Number 2143 REPRESENTATIVE DAVIS stated that he thought this dedication would be a good idea. Their information to date indicates there is nothing to bar a municipality from dedicating funds. He said he'd like to check on this first to make sure that it is in fact legal for them to do, however, in this case even if it isn't dedicated, there are other ways for municipalities to gain revenue to take care of the inebriate problem. In this way they could draw the money from those who are creating the problem. He believed it would be easy enough to amend this legislation to allow for any tax on alcohol above the general sales tax to be dedicated to alcohol related problems if they find this is constitutionally possible. REPRESENTATIVE RYAN asked if it would be possible to incorporate a system to show the tax payers how this tax money would be spent. Number 2236 REPRESENTATIVE RYAN said he wasn't so sure. He said he didn't want to clutter up the bill with anything that would be not real specific. He said he'd have to check on this. CHAIRMAN IVAN stated that the problem of inebriate services was brought to his attention by the community of Dillingham about three years ago. He spoke to how this problem is ringing up costs to different state agencies as well. This problem not only touches municipalities but also the Department of Public Safety, Corrections, HESS, the Administration, the Court system, etc. In their efforts to repay the state's expenditures for this problem they need to pass this responsibility onto municipalities and give them tools to do so. This legislation allows more local control. He said amendments and other possible questions could be worked out in the Judiciary Committee which is the next committee of referral. Number 2377 REPRESENTATIVE DYSON stated that he would want the liquor industry to have a chance to comment on this bill before it goes to the floor. He stated that he is in favor of this legislation, but he said he couldn't vote to pass this out of committee unless he was assured that the liquor industry would be notified. REPRESENTATIVE DAVIS said that, absolutely, he would notify them. Number 2421 TOM WRIGHT, Staff, Community and Regional Affairs Committee, testified on HB 132. He stated that the liquor industry had contacted their offices, but they hadn't said anything pro or con regarding this legislation. REPRESENTATIVE DAVIS noted that there was one fiscal note from the Department of Revenue which indicates that, due to the phenomenon of elasticity in economics where the possibility of the price of alcohol going up could affect the amount of purchases, they anticipate a reduction should an alcohol tax be imposed in the future. TAPE 97-12, SIDE B Number 006 BOB BARTHOLOMEW, Deputy Director, Income & Excise Audit Division, Department of Revenue, came forward to testify on HB 132. The Administration supports the concept of this bill. The Department of Revenue wanted to point out that there is a potential small affect to state revenue which is hard to predict. The fiscal note is a means to provide information to the committee in order to help them make their decision. It's not a certainty that there would be a loss in revenue. If there is, they estimate that it would be a small amount. Number 063 REPRESENTATIVE JOULE made the point that this legislation might cause a loss to the state, but in the long run it might be a gain to the communities who choose to exercise this tax. MR. BARTHOLOMEW stated that in effect, for the loss of revenue to the state to happen, this would be the assumption. The local government could raise the tax for whatever small amount needed. The amount of revenue that would go into the local communities would exceed the loss to the state. Number 129 REPRESENTATIVE RYAN asked what the current state tax was on alcoholic beverages. He wondered if this tax was a uniform percentage or whether or not it varied. MR. BARTHOLOMEW stated that it varies. They tax alcohol in three separate ways. There is a rate based on wine, beer and hard liquor. He had the rates available for the committee's information. The Department raises approximately $13 million from all these three sources. Number 129 REPRESENTATIVE DYSON asked if state law allows a local political subdivision to discriminate in the taxes between the type of business that disseminates the liquor. He used the example of specific businesses who serve meals along with liquor that generate less problems with alcohol than others, such as bars or walk up liquor stores. MR. BARTHOLOMEW stated that he was not familiar enough to know how the taxing schemes work on the local level, whether or not they could do this. He said he would look into this issue. Number 200 REPRESENTATIVE DAVIS stated that he appreciated the issues raised for possible amendments and the concern about contacting the liquor industry. He noted the Judiciary referral and said he'd like to see this bill move out of the present committee. The issues raised could be addressed during the Judiciary hearings. He said he would contact the liquor industry. Number 303 REPRESENTATIVE RYAN moved and asked unanimous consent to move HB 132 out of committee with individual recommendations and accompanying fiscal note. Hearing no objection, SSHB 132 was moved out of the House Community and Regional Affairs Committee. Number 345 CHAIRMAN IVAN called a brief at ease at 9:01 a.m. and came back on the record at 9:06 a.m. Number 458 REPRESENTATIVE DYSON stated that long before the issues about sovereignty were raised it seemed very clear that the state is ill- prepared to deal with the native community. Relatively few communities in Alaska have chosen the option to organize themselves in spite of the state's encouragement to facilitate this. He believed they should revisit Title 29 and see if there are ways to make it easier for local communities to organize themselves in ways which are culturally appropriate. REPRESENTATIVE DYSON said that if they could find ways to facilitate communities to organize themselves through self- determination, he would like to at least present the option of doing so under state law rather than federal. Number 570 REPRESENTATIVE RYAN mentioned village council entities and didn't know how they would react to this proposal. He spoke about layers of government and the power to tax. Number 644 REPRESENTATIVE AL KOOKESH stated that this proposal would find out exactly whether or not this effort to organize is even necessary. He said they could find this out from the people directly. REPRESENTATIVE DYSON asked Deputy Commissioner Cotten if his department could research this issue for the committee. He wondered what has been done in other states and if a line of council could be drafted by the department for the committee to explore. He asked if this would be difficult or impossible. Number 698 DEPUTY COMMISSIONER COTTEN stated that this would not be impossible. It's an extremely complex issue with no easy answers. They've done similar investigations about every four or five years. He said they'd prefer to come back with an outline initially. Ninety-eight percent of Alaskans live in a city or borough or both. Ninety-one percent live in a city or a borough that pays for education. The eight and a half percent that do live in the unorganized borough, but outside of a first class or home rule city is roughly 55,000 people who are generally of isolated, low income, high unemployment communities. DEPUTY COMMISSIONER COTTEN noted that there is a continuing trend of communities revisiting or taking a second look at what is the most appropriate government for them and outlined the options. In some cases the tribal entity of communities has been a more effective body for the state to work with. He noted that these same communities through tribal rule have established sewer and water systems, garbage services, etc. He noted the few instances where the state has refused a community to organize as a city and went into detail about the various ways some regions have organized. Number 882 REPRESENTATIVE DYSON stated that he would like to get a significant basis on this issue before the legislative session ends. He wanted to make it clear what they would do, what's possible, what's advisable, etc. He asked for a preliminary briefing on the proposed outline by next week. Number 939 REPRESENTATIVE KOOKESH noted that they needed to allow for public testimony. It was agreed by the committee that these preliminary efforts would be more organizational. REPRESENTATIVE JOULE thought that this concept was long overdue. He noted that he's been sworn to uphold the constitution. He spoke about the limited native representation at the original constitutional convention in light of discussing these issues. He stated this effort would address people's frustrations. Number 1037 ADJOURNMENT CHAIRMAN IVAN adjourned the House Community and Regional Affairs Committee meeting at 9:20 a.m.