HOUSE FINANCE COMMITTEE APRIL 2, 1997 1:40 P.M. TAPE HFC 97 - 86, Side 1, #000 - end. TAPE HFC 97 - 86, Side 2, #000 - #585. CALL TO ORDER Co-Chair Gene Therriault called the House Finance Committee meeting to order at 1:40 P.M. PRESENT Co-Chair Hanley Representative Kelly Co-Chair Therriault Representative Kohring Representative Davies Representative Martin Representative Davis Representative Foster Representatives Grussendorf, Moses and Mulder were not present for the meeting. ALSO PRESENT Bob Bartholomew, Deputy Director, Income & Excise Audit Division, Department of Revenue; Mark Necessary, TESORO, Alaska, Kenai; Peter Ecklund, Staff, Representative Bill Williams; Jack Shay, Mayor, Ketchikan Borough Assembly, Ketchikan; Tom Williams, Facility Manager, Department of Health and Social Services; Gregory Hayes, Dr., Chief, Public Health Laboratories, Anchorage; Mike Probst, Dr., Anchorage. SUMMARY HB 63 An Act extending the motor fuel tax exemption for fuel sold for use in jet propulsion aircraft to fuel used in those aircraft for flights that continue from a foreign country; and providing for an effective date. CS HB 63 (FIN) was reported out of Committee with a "do pass" recommendation and with a new fiscal note by the Department of Revenue. HB 66 An Act giving notice of and approving the entry into, and the issuance of certificates of participation in, a lease-purchase agreement for a centralized public health laboratory facility. CS HB 66 (HES) was reported out of Committee with 1 "no recommendation" and with fiscal notes by the Department of Administration dated 2/5/97, the Department of Health and Social Services dated 2/5/97, and the Department of Revenue dated 2/5/97, and a zero fiscal note by the Department of Public Safety dated 2/5/97. HOUSE BILL 63 "An Act extending the motor fuel tax exemption for fuel sold for use in jet propulsion aircraft to fuel used in those aircraft for flights that continue from a foreign country; and providing for an effective date." Co-Chair Therriault informed members that work draft #0- LS0262\L, Chenoweth, 3/11/97, had been adopted at a previous meeting. Representative G. Davis MOVED to adopt Amendment #1. [Copy on file]. Co-Chair Therriault OBJECTED for the purpose of discussion. Representative G. Davis explained that Amendment #1 would delete the reference to passenger "water craft", which would change the intent and would increase sales of bunker fuel. Usage of "passenger" restricts sales to cruise ships who utilize bunker fuel. BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME & EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE, spoke to the fiscal impact of the amendment. He noted that currently, the marine motor fuel tax is collected by the Department of Revenue and does not provide a report in which the information is separated between the amount of bunker fuel used. There would be $600 thousand dollars of lost tax revenue with passage of Amendment #1. Representative J. Davies questioned if non-passenger water craft was currently fueling in Alaska. Mr. Bartholomew understood that the tax would be placed on fuel purchased or used by the company that actually produces it, selling it then to others who export. He continued, in 1994, a provision was adopted by the Legislature that charged a full marine fuel tax on purchases up to four million gallons. At that threshold, the tax would be dropped from five cents a gallon to one cent a gallon to encourage bunker fuel business outside of Alaska. That action created a revenue increase in the first couple of years, although, to date it has "fallen off". MARK NECESSARY, TESORO, ALASKA, KENAI, noted that the 2 majority of the bunker fuel used was on ships transporting oil throughout the states. He added, the oil industry hopes to attract "takers" who are currently using other sources. Representative J. Davies asked if the amendment would be expanding the exemption to "all" water craft. He inquired if there would be an incentive to the vessels currently fueling outside the State. Mr. Necessary ascertained that bunker fuel sells at a low cost and that the tax is a substantial portion of that amount. From TESORO's perspective, inclusion of the proposed language will provide an opportunity to develop that business. Representative Martin questioned if ship carriers paid taxes in other states. Mr. Necessary understood that they do not which then places Alaska at a disadvantage. The objective is to price the fuel to be competitive with other markets on the West coast. Representative Martin suggested that being "competitive" would be at the State's lost revenue expense. Co-Chair Therriault clarified that royalty oil contracts are not "sweetheart" deals; fair market price is paid. Representative G. Davis added that the bunker fuel that TESORO produces is residual waste product, suggesting that it could be beneficial to major industry. He urged the Committee's support of the amendment. Co-Chair Therriault WITHDREW his OBJECTION. Representative Martin OBJECTED. A roll call vote was taken on the MOTION. IN FAVOR: G. Davis, Foster, Kelly, Kohring, Hanley, Therriault OPPOSED: J. Davies, Martin Representatives Grussendorf, Moses and Mulder were not present for the vote. The MOTION PASSED (6-2). Representative Foster MOVED to adopt Amendment #2. [Copy on file]. PETER ECKLUND, STAFF, REPRESENTATIVE TOM WILLIAMS, provided a historical background, pointing out that since 1990, the State has lost over 60% of the jobs in the Tongess National Forest and the timber industry. He stated that pulp mills used to be a good "source" for using low end boards for milling. The amendment would allow for the State to participate in a new and emerging technology which would produce ethanol derived from wood and wood wastes. 3 Amendment #2 would provide a more narrow focus, keeping the tax incentive in place but only for ethanol that is produced from wood. Mr. Ecklund spoke to the many benefits that a biomass ethanol industry could bring to Alaska: * Create jobs for Alaskans; * Save about $1.5 million dollars per year by decreasing support payments; * Help sustain the Alaskan timber industry; * Help abate pollution from vehicles; * Introduce new ethanol export markets for Alaska to the Lower 48 and Japan; and * Increase corporate taxes going into the Alaskan treasury from the new industry. Representative Martin asked if this would "wipe-out" the ethanol made from other products. Mr. Ecklund replied that corn, barley and other sources of ethanol would not qualify for the tax exemption. Representative Martin questioned if such a restriction would be legal. Mr. Ecklund understood that it would be legal. Co-Chair Hanley pointed out that the 10% ethanol is currently being shipped from out-of-state; Alaska is loosing all that revenue. He voiced concern for the future, suggesting that at some point, producers in Alaska would like to have that advantage. Co-Chair Hanley commented that his preference was to either repeal such an incentive or use a 1.5 cents credit for ethanol, which would be well over the 25% credit incentive. His concern was that with a 100% credit, there would never be an incentive to raise taxes to dedicate a fund. Co-Chair Hanley OBJECTED to adoption of Amendment #2. Ms. Bartholomew spoke to the fiscal impact of Amendment #2. He pointed out that the Department is not opposed to business incentives, although, he stressed the "magnitude" of the incentive provided through Amendment #2. A complete exemption would delete $6 to $8 million dollars annual revenue for the State. The unknown issue is the size of the plant being considered. A feasibility study was provided on eight million gallons, which would meet about 80% of the Anchorage market consumption. That would equate to 100 million gallons of tax free gas. Mr. Bartholomew indicated that the Department did not know at this time, if there would be an incentive to go statewide. He concluded that the State should not loose one of the most standard tax base. Representative J. Davies asked what corporate taxes could be realized through the amendment. Mr. Bartholomew noted that the Department has not looked into that issue. At this 4 time, there are 13,000 corporations in Alaska, although, the largest proportion of revenue tax is provided from a few companies. Representative J. Davies commented that he was uncomfortable with the approach proposed because of the impact on State revenue. He believed that the State must maintain roads. He suggested a 5 year "tax holiday" as an incentive to establish the new business. Mr. Ecklund pointed out that 50-100 direct jobs would result from creating an ethanol wood plant. JACK SHAY, MAYOR, KETCHIKAN BOROUGH, KETCHIKAN, noted that Ketchikan is currently in the throws of restructuring with the close of the mill. Mayors throughout Southeast Alaska have been pleading for the release of the Tongess Land Use Management Plan. When that plan is released, it will demonstrate that there is ample timber to operate any type of producing ethanol facility. He urged the Committee to seriously consider the usage of ethanol from wood products. Representative J. Davies reiterated his support to the Ketchikan community and proposed that by creating some sort of direct "tax holiday" could provide the same incentive that the amendment would. Mr. Shay requested that Ketchikan be aided by the State in any capacity to initiate a methodology to create the facility and eliminate competition from other interests out side of the State. Co-Chair Therriault charged that the State was being requested to provide a "complete" exemption from the State's tax base before the Borough Assembly of Ketchikan had even made a determination if "they" would be willing to contribute an incentive. (Tape Change HFC 97-86, Side 2). A roll call vote was taken on the MOTION. IN FAVOR: G. Davis, Foster OPPOSED: Kelly, Kohring, Martin, J. Davies, Therriault, Hanley Representatives Mulder, Moses and Grussendorf were not present for the vote. The MOTION FAILED (2-6). Representative Martin asked if passage of the bill would bring a gas increase to consumers in Anchorage. Mr. Bartholomew replied that he did not know that market or the 5 dynamics that affect it. People in the industry have testified previously on those effects. Co-Chair Therriault commented that there currently exists a 5.4 cents per gallon tax break offered by the federal government. Co-Chair Hanley MOVED to report CS HB 63 (FIN) out of Committee with individual recommendations and the new Revenue fiscal note. There being NO OBJECTION, it was so ordered. CS HB 63 (FIN) was reported out of Committee with a "do pass" recommendation and with a new fiscal note by the Department of Revenue. HOUSE BILL 66 "An Act giving notice of and approving the entry into, and the issuance of certificates of participation in, a lease-purchase agreement for a centralized public health laboratory facility." GREGORY HAYES, DR., CHIEF, STATE PUBLIC HEALTH LABORATORIES, ANCHORAGE, provided an overview of the handout. [Copy on file]. He spoke to the proposition of a new public health lab located in Anchorage which would include the medical examiners lab and the functions of the Juneau and Anchorage laboratories and would be designed and constructed through debt financing. The unique role of public health laboratories are to assess infectious disease in partnership with private laboratories, specializing in disease surveillance and recognition of new and re-emerging diseases and applying critical state of the art technology for rapid testing of large numbers of specimens, in face of an epidemic. Mr. Hayes provided examples of how public health labs have historically benefited the public by addressing the epidemic gastroenteritis and contamination of king crab, epidemic gastroenteritis in the Tourism Industry-May 1992, tuberculosis outbreaks in rural villages, and the rabies expertise in Pilot Point exposure in 1995. He explained the public health lab mission statement: * Essential component of state and national public health systems providing a different purpose than private labs; * To provide scientific and technical information for disease prevention; 6 * First line of defense in recognizing and controlling spread of communicable diseases; * Accomplish core public health functions and responsibilities in partnership with private and federal laboratories. Dr. Hayes addressed the need to build a new facility. He emphasized that it would save money while maintaining an essential public service more cheaply and efficiently. To have new advances requires new technologies and a modern, well-designed, adaptable, safe laboratory, which is a 21st Century necessity. He stressed that the status quo cannot continue. The State can not afford nor does it need four separate labs. The current arrangement for the medical examiner is untenable. Dr. Hayes pointed out that the Legislature almost approved the new lab during the last session. That legislation would have combined the Anchorage and Juneau public health labs and medical examiner into a new lab in Anchorage, leaving the Fairbanks public health lab operating. The current labs spaces are inadequate and crowded, consuming 15,000 square feet. The proposed architectural and laboratory standards require 23,400 gross square feet. Construction of this facility would be adequate for at least fifty years. Construction would start in 1999 @ $482/square foot. Costs would reflect: * Special utility & ventilation requirements; * Special containment; * Explosion proof; * Morgue; * Security access; and * High floor loading & floor ceiling heights. Co-Chair Therriault asked what the building complex would house. Dr. Hayes reiterated that there would be technical area, a darkroom, shared storage, microbiological center, immunology area, molecular diagnostic area, classroom training, support areas, employee areas, specimen processing unit; utility space and waste storage, bulk storage, housekeeping, reception areas, technical administrative and billing offices and a conference room. There also would be an embalming room, shower room, body holding room, and a place where the chief medical examiner, pathologist and chief investigator would co-locate, a photo lab and receiving area. This area would total 5,915 square feet. In response to Co-Chair Therriault, Dr. Hayes informed members that the library/conference room would be technically for staff to keep their journals, whereas, the 7 classroom would be an area for educating and training other labatorians in the State. In response to Co-Chair Therriault, Dr. Hayes noted that he had answered all questions posed by the Senate Finance Committee during his overview presentation. MIKE PROBST, DR., ANCHORAGE, MEDICAL EXAMINER, ANCHORAGE, explained that the medical examiner currently has space in two buildings. The space occupied in the laboratory was not designed as a morgue for people; it was designed to do post morgue examinations on animals. Also, the demands to do DNA testing technology by the crime laboratory has increased in the past few years and the Department needs the space currently being occupied by the medical examiner. Representative J. Davies cited that construction cuts would be around $12 million dollars. He inquired what the remaining $6 million dollars would be budgeted for. TOM WILLIAMS, FACILITY MANAGER, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, stated that the full cost would include not only the construction cost but also the design and equipment costs. There would be a savings of $200 thousand dollars per year in comparison to the existing situation. Currently, leased costs paid in Anchorage and Juneau would be consolidated creating also a savings in personnel costs. Over the life time of the building, those savings could provide for the cost of the facility. The recommended space is projected to cover the State's needs for up to a fifty year time period. Representative Martin MOVED to report CS HB 66 (HES) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CS HB 66 (HES) was reported out of Committee with a "no recommendation" and with a fiscal note by the Department of Administration dated 2/5/97, the Department of Health and Social Services dated 2/5/97, the Department of Revenue dated 2/5/97 and a zero fiscal note by the Department of Public Safety dated 2/5/97. # ADJOURNMENT The meeting adjourned at 3:10 P.M. 8