HOUSE FINANCE COMMITTEE March 4, 1994 1:36 p.m. TAPE HFC 94-47, Side 2, #000 - end. TAPE HFC 94-48, Side 1, #000 - end. TAPE HFC 94-48, Side 2, #000 - 244. CALL TO ORDER Co-Chair Larson called the House Finance Committee to order at 1:36 p.m. PRESENT Co-Chair Larson Co-Chair MacLean Representative Martin Vice-Chair Hanley Representative Navarre Representative Brown Representative Parnell Representative Foster Representative Therriault Representative Grussendorf Representative Hoffman was not present for the meeting. ALSO PRESENT Representative Olberg; Larry Labolle, Staff, Representative Foster; John Walsh, Special Assistant, Department of Community and Regional Affairs; Terry Elder, Division of Elections, Office of the Governor; John Hartle, Assistant Attorney, City and Borough of Juneau; Crystal Smith, Director, Member Services, Alaska Municipal League; Carol Collins, Staff, House Finance Committee; Reed Stoops, Air Carriers Association; Steve Van Sant, State Assessor, Department of Community and Regional Affairs; Clyde Benson, Department of Revenue; Robert Hallford, National Air Carriers. SUMMARY INFORMATION HB 49 "An Act relating to facsimile absentee ballot application and facsimile absentee voting." CSHB 49 (FIN) was reported out of Committee with a "do pass" recommendation and with a fiscal impact note by the Office of the Governor. HB 364 "An Act relating to allowable absences from the state for purposes of eligibility for permanent fund dividends; and providing for an effective date." 1 HB 364 was assigned to a subcommittee consisting of Representative Foster as Chair and Representatives Parnell and Navarre. HB 397 "An Act relating to the power to levy property taxes in second class cities." CSSSHB 397(FIN) was reported out of Committee with individual recommendations and with a zero fiscal note by the Department of Community and Regional Affairs, published 2/4/94. HB 406 "An Act relating to municipal sales and use taxes involving air carriers; and providing for an effective date." CSHB 406 (FIN) was reported out of Committee with "no recommendation" and with three zero fiscal notes, one by the Department of Community and Regional Affairs, published 2/15/94 one by the Department of Revenue, published 2/15/94, and with a zero fiscal note by the Department of Transportation and Public Facilities; and a municipal fiscal impact note by the Department of Community and Regional Affairs on behalf of municipalities. HOUSE BILL NO. 397 "An Act relating to the power to levy property taxes in second class cities." REPRESENTATIVE HARLEY OLBERG provided members with AMENDMENT 1 (Attachment 1). He explained that the amendment would allow second class cities to levy a 20 mill property tax. The current version allows a 30 mill levy to be raised. Representative Brown questioned the impact of CSHB 397 (FIN) on state revenues. She noted that second class cities would be allowed to tax the pipeline. Representative Parnell asked the impact of deleting the referendum requirement. JOHN WALSH, SPECIAL ASSISTANT, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS stated that the Department is neutral in regards to CSHB 397 (FIN). Representative Olberg observed that the referendum right is not currently being employed. Representative Grussendorf noted that second class cities could require a referendum vote under city ordinances. Mr. Walsh noted that second class cities would not be required to approve a tax increase by referendum. He agreed that the 2 option to require approval though a referendum would remain. Representative Hanley expressed concern that the legislation would take away the incentive to incorporate to a first class city. CRYSTAL SMITH, DIRECTOR OF MEMBER SERVICE, ALASKA MUNICIPAL LEAGUE stressed that only 37 out of 117 second class cities are large enough to incorporate to a first class city. There are approximately 10 second class cities with a population of 400 to 500. She clarified that only home rule municipalities operate with a charter. Other municipalities operate under general law statutes and adopted ordinances. She observed that only 3 second class cities collect any property tax. Sixty one second class cities collect sales tax. She asserted that a 5 mill limitation is inefficient to assess and collect property taxes. She added that a lot of property in second class cities is exempt from taxation. Representative Martin maintained that the deletion of "by referendum", as provided in amendment 1, would have a large impact on the rights of citizens. Ms. Smith noted that the Alaska Municipal League supports amendment 1. She pointed out that referendum elections are expensive to operate. She observed that most second class cities have a population of under 200. She maintained that local officials in small communities are well informed as to public opinion. Representative Brown observed that Delta Junction could obtain $312.0 thousand dollars through taxation of the pipeline. She asked if this would represent a loss to the state. Ms. Smith acknowledged that the amendment would allow second class cities to tax the pipeline up to 20 mills. She felt that it was unlikely that the full mill rate would be imposed. She pointed out that the local residents would have to pay the same mill rate. STEVE VAN SANT, STATE ASSESSOR, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS stated that there are only three second class cities that would have the possibility to tax the pipeline, Delta Junction, Glennallen and Copper Center. He observed that the pipeline is the only asset that could effect state revenues. CAROL COLLINS, STAFF, HOUSE FINANCE COMMITTEE clarified that Representative Hoffman MOVED to ADOPT AMENDMENT 1, during the 2/28/94 House Finance Committee hearing. She reviewed previous action taken by the Committee in regards to amendment 1. 3 Co-Chair MacLean asked for further clarification of section 2, amendment 1. She observed that section 2 would repeal statutes allowing incorporating second class cities to place a tax proposal on the incorporation ballot. Representative Hanley pointed out that the the statute being repealed states that second class cities "may" combine a property tax proposal with an incorporation referendum. Representative Olberg agreed with the deletion of section 2. Co-Chair MacLean MOVED to delete section 2, CSHB 397 (FIN). There being NO OBJECTION, it was so ordered. Representative Martin expressed concern that the amendment restricts the rights of citizens. Co-Chair Larson restated the main motion to adopt AMENDMENT 1. Representative Parnell OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Brown, Foster, Grussendorf, Hanley, Navarre, Therriault, MacLean, Larson OPPOSED: Martin, Parnell Representative Hoffman was not present for the vote. The MOTION PASSED (8-2). Co-Chair MacLean MOVED to report CSHB 397 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSSSHB 397 (FIN) was reported out of Committee with individual recommendations and with a zero fiscal note by the Department of Community and Regional Affairs, published 2/4/94. HOUSE BILL NO. 364 "An Act relating to allowable absences from the state for purposes of eligibility for permanent fund dividends; and providing for an effective date." Representative Parnell MOVED to RESCIND the Committee's action in reporting HB 364 out of committee. He expressed concern with the expansion of allowable absences for qualification to the Permanent Fund Dividend Program. Representative Foster OBJECTED. Representative Foster pointed out that the legislation received lengthy discussion in the House Finance Committee. He suggested that additional questions could be addressed on 4 the House floor. Representative Navarre observed that further deliberations by the House Finance Committee would benefit the bills passage. (Tape Change, HFC 94-48, Side 1) A roll call vote was taken on the motion to RESCIND the Committee's action in reporting HB 364 from committee. IN FAVOR: Grussendorf, Hanley, Martin, Parnell, Therriault, Larson OPPOSED: Brown, Foster, MacLean Representative Hoffman was not present for the vote. The MOTION PASSED (7-3). Co-Chair Larson announced that HB 364 would be assigned to a subcommittee consisting of Representative Foster as Chair and Representatives Parnell and Navarre. HOUSE BILL NO. 406 "An Act relating to municipal sales and use taxes involving air carriers; and providing for an effective date." Representative Foster noted that HB 406 was assigned to a subcommittee, on 2/24/94, consisting of Representative Foster as Chair and Representatives Grussendorf and Martin. He provided members with a proposed committee substitute, work draft 8-LS1599\E, dated 3/3/94 (copy on file). LARRY LABOLLE, STAFF, REPRESENTATIVE FOSTER explained that the committee substitute prohibits a municipality from levying or collecting a tax or fee on the transportation of individuals or goods unless provided for in U.S.C. App 1513(b). He explained that this section enumerates items that can be taxed, related to air commence. He observed that the retroactive effective date was removed from the committee substitute. He acknowledged that the committee substitute does not alleviate all of the concerns expressed by the City and Borough of Juneau and the Alaska Municipal League. In response to a question by Co-Chair Larson, Mr. Labolle clarified that items sold at the air terminal are subject to municipal taxes. He explained that the legislation refers to anyone traveling in air commerce. Federal regulation prevents additional taxes on air fares. Co-Chair MacLean asked for an explanation of U.S.C. App 1513 5 (b) and (e). Mr. Labolle observed that section (e) allows the implementation of a three dollar head tax at the airport of origin. He explained that section (b) encompasses property taxes, fuel flowage taxes, personal property used in business and other items not directly connected to the transportation of a person or freight. Representative Foster MOVED to ADOPT work draft 8-LS1599\E, dated 3/3/94. There being NO OBJECTION, it was so ordered. Representative Martin questioned if U.S.C. App 1513 (b) allows local governments to tax transportation to and from lodges and car rentals. Mr. Labolle stressed that local government's ability to tax is not being expanded or diminished by the legislation. ROBERT HALLFORD, NATIONAL AIR CARRIERS testified via the teleconference network from Anchorage, in support of CSHB 406 (FIN). He maintained that the legislation is not intended to prevent or preclude the state or municipalities which operate airports from continuing to tax the associated services connected to air transportation. He noted that landing fees, fuel flowage fees, or property rent will not be effected. He asserted that the legislation will clarify that taxation of air transportation is reserved for the federal government in exchange for the "overriding benefit of the public at large." Mr. Hallford noted that the federal government collects a ten percent excise tax on passenger fares and a six and a half percent transportation tax on all air cargo. He asserted that case law supports the proposition that no additional taxes are allowed on air transportation of persons or freight. He maintained that the legislation will clarify federal law in order to prevent litigation by municipalities wishing to impose taxes on the transportation of property and people within the state. He suggested that references to subsections (b) and (e) are redundant. He pointed out that these sections pertain to matters other than the sale of air transportation. He asserted that the legislation will not hinder municipalities from collecting allowable taxes. JOHN HARTLE, ASSISTANT CITY ATTORNEY, CITY AND BOROUGH OF JUNEAU (CBJ) testified in opposition to CSHB 406 (FIN). He stressed that there is an unfunded mandate for municipalities to provide services to air carriers without the ability to collect taxes. He acknowledged that the legislation will prevent sales tax on transportation and goods through hub communities. He conceded that the committee substitute improves the legislation. He expressed concern that landing fees not be impacted by the 6 legislation. He suggested that the addition of "air" before "transportation" would further clarify the legislation. In response to a question by Co-Chair Larson, Mr. Hartle elucidated that landing fees would not be impacted by the committee substitute. Representative Hanley asked for further clarification of the City and Borough of Juneau's position. Mr. Hartle elaborated that federal law is unclear in regards to the taxation of the transportation of property. The City and Borough of Juneau believes municipalities should be free to challenge the federal interpretation of taxation of freight. He observed that freight could not be taxed if the legislation is adopted. He added that taxation would be precluded on the service of transporting property. Representative Martin MOVED to insert "air" before "transportation" on line 10, page 1. Representative Parnell restated that the amendment would exclude ground transportation. Mr. Hartle agreed that ground transportation would be excluded. He added that the legislative history is clear that the intent of the legislation is to prohibit sales tax on the carriage of goods. There being NO OBJECTION, AMENDMENT 1 was adopted. Representative Parnell clarified that "App" on page 1, line 12 refers to the appendix to the U.S. code. REED STOOPS, ALASKA AIR CARRIERS ASSOCIATION spoke in support of CSHB 406(FIN). He pointed out that air carriers pay a 10 ten percent federal excise tax on passenger fares and a six and a quarter percent federal excise tax on all air cargo. This tax goes to the federal Airport and Airways Trust Fund. He noted that the state of Alaska receives more than it contributes into the Fund. He suggested that a letter of intent be adopted to further define the legislative intent. CRYSTAL SMITH, DIRECTOR OF MEMBER SERVICE, ALASKA MUNICIPAL LEAGUE spoke in opposition of CSHB 406 (FIN). She reiterated that federal law pertaining to the transportation of goods is not well defined. She asserted that the transportation of intrastate freight is not exempted from taxation. She noted that St. Marys has attempted to add their municipal sales tax to the transportation of fish from St. Marys to Anchorage. They would collect approximately $100.0 thousand dollars a year if the sales tax was added. She alleged that there is no existing state case law regarding intrastate taxation of air freight. 7 Ms. Smith referred to an opinion by the Department of Transportation and Public Facilities, Deputy General Counsel that states that federal law does not preempt intrastate taxation. She referenced a preliminary opinion by Judge Lincoln in Homer. Judge Lincoln ruled that municipalities may place a tax on non certificated air carriers. Ms. Smith recognized that the committee substitute did address some of the concerns expressed by the Alaska Municipal League. Mr. Hallford noted that the letter referenced by Ms. Smith from the Department of Transportation and Public Facilities is dated 1986. He observed that the United States Supreme Court ruled in 1992 that the preemption provision was intended by Congress to have a broad effect. He clarified that the preemption provision is contained in U.S.C. 1305. He cited the supreme court decision Morelis vs Transworld airlines. He suggested that the exception for intrastate transportation was made clearer by the decision. He asserted that intrastate transportation can be interstate commerce. Representative Martin MOVED to insert "air" before "transportation" on page 1, line 1. Representative Brown asked how flight seeing services would be effected. Mr. Hartle replied that sales taxes on flight seeing services would be prohibited by the legislation. He added that CBJ has considered assessing a sales tax on flight seeing tours that operate in Juneau. He emphasized that the state has reduced aide to municipalities and is cutting into the municipal tax base in statute. Representative Hanley noted that Judge Lincoln's decision found that the air taxi service in Homer was a non certificated air carrier and could be taxed by the municipality of Homer. Mr. Hartle observed that all commercial aviators carrying passengers have some federal certificate. He felt that the broad language contained in CSHB 406 (FIN) would prevent the taxation desired by CBJ on sight seeing air transportation. Mr. Hartle clarified that the confusion regarding the taxable status of air freight is contained in section (a) of U.S.C. APP 1513. He maintained that reference to section (b) would not create further confusion. Representative Foster MOVED to report CSHB 406 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. 8 CSHB 406 (FIN) was reported out of Committee with "no recommendation" and with three zero fiscal notes, one by the Department of Community and Regional Affairs, published 2/15/94 one by the Department of Revenue, published 2/15/94, and with a zero fiscal note by the Department of Transportation and Public Facilities; and a municipal fiscal impact note by the Department of Community and Regional Affairs on behalf of municipalities. HOUSE BILL NO. 49 "An Act relating to facsimile absentee ballot application and facsimile absentee voting." On 2/15/94, HB 49 was assigned to a subcommittee consisting of Representative Parnell as Chair and Representatives Brown and Martin. Representative Parnell provided members with a proposed committee substitute, work draft 8-LS0359\I, dated 3/3/94 (copy on file). He also provided members with a sectional analysis of changes incorporated by the committee substitute (copy on file). He discussed the changes made by the committee substitute. He noted that the committee substitute would apply a phased in approach to allow all absentee voters to vote by fax. He noted that the Division of Elections would be unable to implement the provisions by the next primary election. Under the committee substitute ballots could not be cast by fax during the primary election. Absentee ballots could be requested during the primary election. Ballots could be cast in the general election if the voter was residing outside of the state. In two years all absentee voters would be able to vote by fax. Representative Parnell stressed that the Subcommittee presumed that voters utilizing a facsimile machine to submit their ballot would waive their confidentiality. A waiver provision would be added to the ballot. Representative Parnell MOVED to ADOPT work draft 8-LS0359\I, dated 3/3/94. There being NO OBJECTION, it was so ordered. Representative Brown expressed concern that the phase in approach does not allow all citizens to have the same opportunity to vote. (Tape Change, HFC 94-48, Side 2) Representative Brown felt that the the committee substitute improved the legislation. 9 Co-Chair Larson asked if the originals of the faxed ballots would be mailed. Representative Brown clarified that faxed ballots would be in leu of a written ballot. She noted that ballots would have to arrive before or on the day of the election. She observed that the legislation would allow the possibility of data transfers. Representative Brown expressed concern that possibilities for fraud exist. She acknowledged that opportunities for ballot fraud exist in the current written ballot system. Representative Parnell asked if the phased in approach would change the Division of Elections' fiscal note. TERRY ELDER, DIVISION OF ELECTIONS, OFFICE OF THE GOVERNOR stated that the Division's fiscal note would not be changed. Representative Navarre stressed that procedures must be implemented to assure that transmittal of faxed ballot information is processed correctly. He asked if the statement of oath is the same as currently utilized on absentee ballots. Mr. Elder noted that current absentee ballots require that the ballot is witnessed by any two persons over the age of 18 or a individual authorized to give oaths. A commissioned or non commissioned officer, notary or an election official may also witness the ballot. In response to a question by Representative Navarre, Mr. Elder noted that the age requirement was not included in the committee substitute. Representative Parnell MOVED to insert a conceptual amendment to require that witnesses be United States citizens "over the age of 18." There being NO OBJECTION, it was so ordered. Representative Martin MOVED to report CSHB 49 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 49 (FIN) was reported out of Committee with a "do pass" recommendation and with a fiscal impact note by the Office of the Governor. ADJOURNMENT The meeting adjourned at 3:45 p.m. 10