HOUSE FINANCE COMMITTEE January 22, 2001 1:37 PM TAPE HFC 01 - 17, Side A TAPE HFC 01 - 17, Side B CALL TO ORDER Co-Chair Mulder called the House Finance Committee meeting to order at 1:37 PM. MEMBERS PRESENT Representative Eldon Mulder, Co-Chair Representative Bill Williams, Co-Chair Representative Con Bunde, Vice-Chair Representative Eric Croft Representative John Davies Representative Carl Moses Representative Richard Foster Representative John Harris Representative Bill Hudson Representative Ken Lancaster Representative Jim Whitaker MEMBERS ABSENT None ALSO PRESENT Speaker Brian Porter; Representative Mary Kapsner; Representative Joe Green; Representative Gary Stevens; Representative Drew Scalzi; Bruce Botelho, Commissioner, Department of Law; Steve White, Assistant Attorney General, Department of Law; Brad Pierce, Senior Economist, Office of Management & Budget Mary McDowell, Commissioner, Commercial Fisheries Entry Commission, Juneau. PRESENT VIA TELECONFERENCE None GENERAL SUBJECT(S):  BRIEFING OVERVIEW BY ATTORNEY GENERAL BRUCE BOTELHO CARLSON versus CFEC (Commercial Fisheries Entry Commission) The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 22nd Legislative Session, contact 465- 2156. After the 22nd Legislative Session they will be available through the Legislative Library at 465-3808.   LOG SPEAKER DISCUSSION    TAPE HFC 00 - 17  SIDE A  000 Co-Chair Mulder Opened the meeting and explained that the meeting would provide an overview of the Carlson versus Commercial Fisheries Entry Commission (CFEC) case.  103 BRUCE BOTELHO, Spoke to the issue of the financial COMMISSIONER, consequences to the State from the policy DEPARTMENT OF LAW perspective. He addressed the costs of limited entry licenses.  184 Attorney General Noted that the suit had been ongoing Botelho since 1982 and it had been before the Alaska Supreme Court twice. In the latest appeal, decided in 1996, the Court announced a formula that establishes for each year, the maximum additional amount that a nonresident may be charged. One of the main facts in the formula is the State's annual expenditure that support the industry, the higher the fees that may be charged to nonresidents. He emphasized that it was important to inform the Legislature about the potential financial liabilities the case presents.  298 Attorney General Advised that Assistant General Steve Botelho White would provide Committee members a historical perspective of the case.  370 STEVE WHITE, Stated that he had been involved with the ASSISTANT ATTORNEY case for 6 years. He mentioned that the GENERAL, DEPARTMENT main question is "how much can the OF LAW fishermen and residents be charged for the same permit". By statute, nonresidents are charged $125 dollars, and residents are charged $60 dollars. The difference rests with permits, which is the statute being challenged.  518 Mr. White An annual fee for entry or interim use permits shall be no less than $10 dollars and no more than $70 dollars.  578 Mr. White Noted that the case had been first challenged in 1982. There are 11,000 fishermen involved in that suit. They argue that the fee structure violates the U.S. Constitution. The clause, which they challenged, is under the commerce clause. In 1989, there was an appeal to  the Alaska Supreme Court, which was sent back to the Trial Courts, which resulted in a ruling that residents and nonresidents should be charged equally. Residents and nonresidents should be credited.  698 Mr. White The case has been appealed and reappealed a number of times. The Supreme Court provided a formula for the determination calculation and the maximum permissible fee for a nonresident commercial fishing license or permit. The formula would take the maximum permissible fee for a nonresident permit license and would be determined through the fee for a resident permit. That number would be added to the annual fisheries budget/Alaska population times the % of State budget from oil revenues.  845 Mr. White The class petitioned the Supreme Court decision. The Department fought that appeal and the U.S. Supreme Court denied that appeal.  899 Mr. White Spoke to the refund issues. The Department has argued that only the six plaintiffs should be paid and that this should not be a class action suit. Additionally, the Department has argued that there should not be any interest. The Superior Court denied those arguments.  937 Mr. White There was a trial last June and the Superior Court received six proposals including the capital costs, harbors, indirect costs of government, subsidy provided for hatcheries, etc. The Superior Court allowed only two of the provisions and struck down the others.  1030 Mr. White At the end of the trial in June, all the categories were calculated to decide the difference between the resident and nonresident difference. The differential resulted in the amount of $155 dollars.  1075 Mr. White The total difference came to $1.4 million dollars. Also, the underpayment was calculated which resulted in the amount of $1.43 thousand dollars.  1118 Mr. White The current plan requires that each nonresident needs to be notified in order to determine if they want the refund.  1148 Mr. White The other refunds for the additional 17 years in question must also be determined. Following the final  judgment, will allow an appeal to the Alaska Supreme Court.  1192 Mr. White Believed that some of the decisions could be reversed. He did not know which ones would be reversed. Based on what the Superior Court has ruled to date, it could be quite high.  1231 Co-Chair Mulder Asked about the $30 million dollars outlined in the memo.  1242 Mr. White Noted that he did not believe that the amount would be greater than that. It could be different each year depending on the variables.  1271 Representative Inquired how far back did the claims go.  Hudson 1290 Mr. White Back to 1984. The three to one has been on the books since 1978 and was placed into statute in 1982.  1317 Mr. White Mentioned the crewmember license fee since 1989.  1331 Representative Asked how the percent of the State budget Hudson oil revenue was computed.  1344 Mr. White Deferred to Mr. Pierce.  1361 BRAD PIERCE, SENIOR Believed that they could use the ECONOMIST, OFFICE OF petroleum derived revenues and permanent MANAGEMENT & BUDGET fund earnings which amounts to 60% of the total revenues. It would be discounted by 6/10, 70% of the total funds.  1405 Representative Croft Asked about the issues for appeal. He asked about certification and class issues. He asked what the possible interest could be.  1451 Mr. White In 1996, the principle refunds amounted to 50% of the principle, and then was added on as interest.  1474 Representative Croft The interest could be about $10-$14 million dollars. He mentioned that the appeal could be made on the budget appeal category.  1506 Mr. White Agreed that was true for FY96. however, he stated that certification would be attached on two different theories.  1543 Vice-Chair Bunde He asked if the residents of Alaska would be called upon to make a contribution to the fee depending on where they live.  1563 Mr. White The Supreme Court clarified that there could only be taxation in those places where the Administration pays on those services. That would create the differential. He admitted that this could create an accounting nightmare.  1598 Vice-Chair Bunde Commented that the more the locals  provide, the less the State would have to contribute.  1619 Representative Six categories.  Davies 1625 Mr. White Direct operating expenditures. Indirect operating expenditures. General governmental expenditures. Capital costs. Hatchery loan subsidy. Management for the benefit for State residents.  1719 Representative Croft Asked what the Courts allowed?  1730 Mr. White $571 dollars per person.  1748 Co-Chair Mulder Suggested that it was odd that the Supreme Court voiced a different decision for residents versus nonresidents. He stressed that it was inconsistent that they upheld that decision.  1787 Mr. White Found that the Supreme Court upheld the ability of a person moving from state to state to uphold their livelihood.  1811 Mr. White Pointed out that if there is a non- important constitutional right, the Courts have tolerated certain quality rights.  1853 Representative Asked how practical it would be to find Hudson every potential recipient.  1872 Mr. White Replied that the Limited Entry Commission has records of all those that paid. The problem rests with being able to find their current addresses.  1890 MARY MCDOWELL, In the process the Commission will be COMMISSIONER, sending out notification by March 15, COMMERICAL FISHERIES 2001, to the old addresses requesting ENTRY COMMISSION, notification of any change of address.  JUNEAU 1925 SPEAKER BRIAN PORTER Asked about the claims.  1940 Mr. White Asked if there was no record of that claim. Stated that the last Superior Court decision was the one made in Anchorage.  2002 Mr. White Commented on the number of people that would not be found which could establish the dimensions of that class.  2022 Vice-Chair Bunde Inquired about the costs of notification.  2039 REPRESENTATIVE GARY Asked about the payment for the Alaskan STEVENS fishermen and then the ones that would be left to pay.  2076 Mr. White Stressed that the Department of Law had made a good case presentation and that the judge was the one that made the final decision.  2101 Co-Chair Mulder Could not understand the judge's logic, which gives preference to those that live out of State. He questioned why the courts had not taken that into consideration.  2127 Mr. White Spoke to the retroactive charge in the amount of the rate. He stated that it would be difficult to make that a constitutional option.  2156 Co-Chair Mulder Suggested the possible offset computations.  2167 Representative Asked if it would help to modify the law Hudson to account for that. He inquired if it would help if the Legislature passed a Concurrent Resolution to go along with that.  2193 Mr. White Stated that it could not hurt, however, the Supreme Court would not give it much clout.  2211 Mr. White Commented that the Department of Law would be appealing the decision as soon as the Supreme Court makes it final judgment, anticipated to be in April 2001.  2240 Representative Croft Asked how the State could differentiate between resident and nonresident.  2261 Mr. White When pursuing a livelihood, the State can only charge nonresidents more if the nonresident creates a higher enforcement cost or other costs. Or if the resident themselves, received credit and that could provide the base of the amount of the credit.  2302 Representative Croft Questioned if some sort of tax with a rebate option could work.    TAPE HFC 01 - 17,  Side B  024 Mr. White Replied that could be problematic. If the Court determines that it is an out of state penalty, they tend to strike it down.  075 Representative Moses Reminded members that he proposes that there should be an income tax on property taxes.  112 Co-Chair Mulder ADJOURNED: The House Finance Committee adjourned at 2:25 P.M.