HOUSE FINANCE COMMITTEE April 24, 1993 9:06 a.m. TAPE HFC 93-121, Side 2, #000 - end. TAPE HFC 93-122, Side 1, #000 - end. TAPE HFC 93-122, Side 2, #000 - 481. CALL TO ORDER Co-Chair Larson called the House Finance Committee to order at 9:06 a.m. PRESENT Co-Chair Larson Representative Hoffman Co-Chair MacLean Representative Martin Vice-Chair Hanley Representative Navarre Representative Brown Representative Parnell Representative Foster Representative Therriault Representative Grussendorf ALSO PRESENT Representative B. Davis; Representative Ulmer; Representative Moses; Representative Mackie; Jeff Koenings, Director, Commercial Fisheries, Department of Fish and Game; Mike Szymanski, Fishing Company of Alaska; Carl Ohls, Bering Sea Fishermen's Association; Phil Chitwood, Arctic Alaska Fisheries; Thorn Smith, North Pacific Longliners; Joe Blum, American Factory Trollers; John Walsh, Director, Division of Municipal and Regional Assistance, Department of Community and Regional Affairs. SUMMARY INFORMATION HB 60 "An Act making appropriations for capital projects; and providing for an effective date." CSHB 60 (FIN) was reported out of Committee with a "do pass" recommendation. HB 264 "An Act providing for a fishery resource landing tax; and providing for an effective date." HB 264 was HELD in a subcommittee consisting of Chair Parnell with Representatives Foster, Therriault, Navarre and Hoffman. HOUSE BILL NO. 264 "An Act providing for a fishery resource landing tax; 1 and providing for an effective date." THORN SMITH, NORTH PACIFIC LONGLINERS ASSOCIATION testified via teleconference. He stated that his association operates approximately 30 vessels off the coast of Alaska. He emphasized that the product is processed in off shore waters. He asserted that the Association contributes to Alaska's economy. He noted that whitefish international markets have been flooded by the Russians. He asked that the Attorney General's office do a comprehensive legal analysis. He observed that the federal Interstate Commerce Clause limits state's ability to tax and regulate interstate and foreign commerce. He asserted that the majority of their operations are performed outside of the state's jurisdiction. He noted that the majority of their product goes to foreign markets. JOE BLUM, AMERICAN FACTORY TROLLERS ASSOCIATION testified from Seattle via teleconference. He stated that the American Factory Trollers Association opposes HB 264. He asserted that there has been inadequate legal analysis. He observed that no credit is given to the Bering Sea Commercial Fisheries Development Foundation. He described the Bering Sea Commercial Fisheries Development Foundation. He asserted that the definition of value is vague and confusing. He maintained that the tax does not reflect a fair assessment of the demand the factory troller fleet places on the state and local services. He noted that the factory troller fleet must compete in the world market. CARL OHLS, BERING SEA FISHERMEN'S ASSOCIATION testified via teleconference. Mr. Ohls represents Bering Sea CDQ communities. He observed that the federal government allocated 75 percent of the harvested pallock resources in the Bering Sea to villages in Western Alaska. The villages formed into six corporations. The corporations have entered into partnerships with the established seafood processing industry operating in Alaska. Mr. Ohls referred to section 43.77.040. He noted that the provision allows the processors a credit on the CDQ harvest portion of the landing tax for contributions to nonprofit corporations in Western Alaska. The contributions would be used for scholarships, training, infrastructure development and research. Representative Therriault asked if processors could form their own nonprofit corporations. Mr. Ohls noted that the processors are under contract with CDQ corporations. He asserted that processors would not have their contracts renewed if the tax credit is abused. He maintained that the purpose of the section is to get funds back to Western 2 Alaska. Representative Therriault asked if a statutory notation could be added to clarify that the contribution is to be given to a nonprofit associated with a CDQ corporation. Mr. Ohls responded that there is one for-profit CDQ corporation. Representative Martin asked Mr. Ohls to send him information regarding projects implemented with CDQ revenues. Representative Navarre asked if the credit would be given on the overall tax. He questioned if the tax would be taken from the state and/or municipal share. Co-Chair Larson thought that the credit would be taken out of the local government share. REPRESENTATIVE MOSES agreed that the tax credit would be taken from the local government share. Representative Navarre interpreted the legislation as taking the tax credit off the top with the remainder being shared between the state and local government. Mr. Ohls stated that it is the intent of the provision that the tax be taken from the municipal share. PHIL CHITWOOD, ARCTIC ALASKA FISHERIES testified via teleconference. He asserted that the legislation would have a serious impact on the industry. He stressed that the seafood industry is facing serious financial problems. He noted that fish prices have fallen. He maintained that the increased landing tax would result in curtailment of the Alaskan fisheries. He urged the Committee to seek a detailed legal opinion. He suggested that a provision be included for full credit for contributions to the Western Alaska Fisheries Development Foundation. He advised that section 43.77.060 (a) be removed. He maintained that the language confuses the bills intention. He asked that the tax rate for offshore processors be amended downward. He asserted that it is unfair to tax offshore processors at the same rate as onshore processors. He stressed that offshore processors maintain their own support services. He maintained that the portion of tax should be proportional to the demand placed on local services. JOHN WALSH, DIVISION OF MUNICIPAL AND REGIONAL ASSISTANCE, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS explained, in response to a question by Representative Martin, that the Department can perform the tax distribution. He noted that Akutan and Dutch Harbor stand to receive the greatest benefit from the tax. (Tape Change, HFC 93-122, Side 1) 3 MIKE SZYMANSKI, FISHING COMPANY OF ALASKA gave a brief history of the Company. He noted that all the Company's operations are performed offshore. He asserted that the 3.3 percent tax on the products value will have a devastating impact on the Company's ability to operate in a foreign market. He asserted that the legislation creates a two tier taxing structure. He noted that there has been a market price reduction of 50 percent due to Russian competition. He noted that the Company pays for direct local services such as; garbage, water, sewage, electricity, security, medical, transportation and food. He stressed that they also pay payroll taxes, docking fees, port fees and piloting fees. He referred to a memorandum from legal counsel, Jack Chenoweth, to the sponsor, suggesting that the legislation would invite scrutiny under the United States Constitution's commerce clause. Mr. Chenoweth advises that the legislation must demonstrate that the tax: (1) has a substantial nexus with the state; (2) does not discriminate against interstate commerce; (3) fairly relates to services claimed to be provided within or by the state or local government; and (4) is fairly apportioned. Mr. Szymanski suggested that the down stream taxes be exempt against taxes paid in the state. He added that tax free zones could be developed to entice fleet operations into more areas. REPRESENTATIVE CARL MOSES noted that trollers that sell their product onshore have to pay the processing fees, and a 2 percent sales tax. Mr. Szymanski replied that shore based operations have a greater impact on the community. JEFF KOENINGS, DIRECTOR, COMMERCIAL FISHERIES MANAGEMENT AND DEVELOPMENT DIVISION, DEPARTMENT OF FISH AND GAME spoke in support of HB 264. He noted that the Department of Fish and Game provides coordination and support of the management of Exclusive Economic Zone (EEZ) fisheries. He gave specific examples (Attachment 1). He emphasized that a number of permanent staff are assigned the responsibility of providing coordination and support of the management of Exclusive Economic Zone fisheries. Representative Martin suggested that a findings section be added to the legislation. Co-Chair Larson placed HB 264 in a subcommittee consisting of Chair Parnell with members Representatives Foster, Therriault, Navarre and Hoffman. HOUSE BILL NO. 60 4 "An Act making appropriations for capital projects; and providing for an effective date." Co-Chair MacLean noted that three amendments were pending from the 4/23/93, House Finance Committee meeting. Co-Chair Larson referred to a memorandum by Representative Fran Ulmer (Attachment 2), regarding Amendment 8, $809.5 thousand dollars for the Alaska State Museum (see House Finance Committee meeting, 4/23/93). Co-Chair Larson MOVED to RESCIND the Committee's action in failing to adopt Amendment 8. There being NO OBJECTION, it was so ordered. Co-Chair Larson MOVED to AMEND Amendment 8, to $500.0 thousand dollars for the Alaska State Museum. Representative Martin OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Brown, Grussendorf, Hoffman, Navarre, Foster, MacLean, Larson OPPOSED: Martin Representatives Hanley, Parnell and Therriault were absent from the vote. The MOTION PASSED (7-1). Co-Chair MacLean noted that Amendment 7 was held during the 4/23/93 House Finance Committee meeting (Attachment 3). Amendment 7 would appropriate $3 million dollars from the earnings reserve of the Alaska Science and Technology Endowment to the BIDCO Fund. REPRESENTATIVE BETTYE DAVIS observed that legislation creating the BIDCO Fund provides for the use of the earnings reserve of the Alaska Science and Technology Endowment. She provided members with a Memorandum from Ron Duncan, Chairman, Alaska Science and Technology Foundation (Attachment 4). Mr. Duncan expressed support for the appropriation to the BIDCO Fund. Co-Chair Larson expressed concern that the Legislature has over appropriated funding from the earnings reserve of the Alaska Science and Technology Endowment. Representative Davis assured him that the Endowment has not been over appropriated. Representative Davis provided members with a letter of intent: "It is the intent of the Legislature that the Science and Technology Foundation transfer $3 million form its earning reserve to the BIDCO Fund as the money becomes available during the Fiscal Year 1994." Representative Martin expressed concern with the letter of intent. 5 (Tape Change, HFC 93-122, Side 2) Representative Brown pointed out that according to AS 37.17.210, the BIDCO Fund is within the Science and Technology Endowment. She stressed that the letter of intent specifies the timing of the transfers to the BIDCO Fund from the earning reserves. Co-Chair Larson expressed concern that the Science and Technology Foundation meet its original intent to provide incentives for the private sector to create new economic development in the State of Alaska. Co-Chair MacLean MOVED to ADOPT AMENDMENT 7. Representative Martin OBJECTED. Members discussed the earning reserve appropriation. A roll call vote was taken on the motion. IN FAVOR: Brown, Grussendorf, Hoffman, Navarre, Parnell, Therriault, MacLean, Larson OPPOSED: Foster, Martin Representative Hanley was not present for the vote. The MOTION PASSED (8-2). Representative Brown MOVED to ADOPT the letter of intent. Representative Martin OBJECTED. Representative Brown explained that the purpose of the letter of intent is to give the Science and Technology Foundation the flexibility to provide funding as it becomes available. Co-Chair Larson MOVED to AMEND Amendment 8 by inserting after "1994", "to the extent that it does not decrease their ability to meet their obligations during FY 95." There being NO OBJECTION, it was so ordered. Co-Chair MacLean reiterated the main motion, to adopt the letter of intent as amended. A roll call vote was taken on the motion. IN FAVOR: Grussendorf, Hoffman, Navarre, Brown, Foster, Larson OPPOSED: Martin, Parnell, Therriault, MacLean The MOTION PASSED (6-5). Co-Chair MacLean provided members with a technical amendment by Representative Williams, AMENDMENT 22 (Attachment 5). Co-Chair MacLean MOVED to ADOPT Amendment 22. There being NO OBJECTION, it was so ordered. Representative Therriault provided members with a technical amendment, AMENDMENT 23 (Attachment 6). He explained that "matching funds" will be deleted to allow for the use of 6 structural equipment. There being NO OBJECTION, it was so ordered. Representative Brown MOVED to AMEND page 77, line 23, insert after "project," "District 15 and 16". There being NO OBJECTION, it was so ordered. Co-Chair MacLean provided members with a handout detailing the FY 94 House proposed capital budget (Attachment 7). She reviewed Attachment 7. Representative Brown MOVED to AMEND page 77, line 20, to delete "$30.0" and insert "$20.0" thousand dollars; and page 78, line 20, to delete "$25.0" and insert "$35.0" thousand dollars. There being NO OBJECTION, it was so ordered. Representative Martin MOVED to report CSHB 60 (FIN) out of Committee with individual recommendations. There being NO OBJECTION, it was so ordered. CSHB 60 (FIN) was reported out of Committee with a "do pass" recommendation. ADJOURNMENT The meeting adjourned at 10:58 a.m. 7