HOUSE STATE AFFAIRS STANDING COMMITTEE February 4, 1997 8:00 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative Ethan Berkowitz Representative Kim Elton Representative Ivan Ivan Representative Al Vezey MEMBERS ABSENT Representative Fred Dyson Representative Mark Hodgins COMMITTEE CALENDAR OVERVIEW: Department of Public Safety HOUSE BILL NO. 1 "An Act relating to taxes on cigarettes and tobacco products; and providing for an effective date." - MOVED CSHB 1(STA) OUT OF COMMITTEE HOUSE BILL NO. 52 "An Act relating to taxes on cigarettes and tobacco products; and providing for an effective date." - HEARD AND HELD * HOUSE JOINT RESOLUTION NO. 18 Proposing an amendment to the Constitution of the State of Alaska relating to changing the rate of a tax or license that supports a dedication of its proceeds. - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 1 SHORT TITLE: CIGARETTE AND TOBACCO TAX SPONSOR(S): REPRESENTATIVE(S) BUNDE, Ivan, Croft, Porter JRN-DATE JRN-PG ACTION 01/13/97 26 (H) PREFILE RELEASED 1/3/97 01/13/97 26 (H) READ THE FIRST TIME - REFERRAL(S) 01/13/97 27 (H) STATE AFFAIRS, HES, FINANCE 01/21/97 (H) STA AT 8:00 AM CAPITOL 102 01/21/97 (H) MINUTE(STA) 01/28/97 (H) STA AT 8:00 AM CAPITOL 102 01/28/97 (H) MINUTE(STA) 01/30/97 (H) STA AT 8:00 AM CAPITOL 102 01/30/97 (H) MINUTE(STA) 02/04/97 (H) STA AT 8:00 AM CAPITOL 102 BILL: HB 52 SHORT TITLE: INCREASE TOBACCO TAXES SPONSOR(S): REPRESENTATIVE(S) JAMES JRN-DATE JRN-PG ACTION 01/13/97 41 (H) PREFILE RELEASED 1/10/97 01/13/97 41 (H) READ THE FIRST TIME - REFERRAL(S) 01/13/97 41 (H) STATE AFFAIRS, HES, FINANCE 01/21/97 (H) STA AT 8:00 AM CAPITOL 102 01/21/97 (H) MINUTE(STA) 01/28/97 (H) STA AT 8:00 AM CAPITOL 102 01/28/97 (H) MINUTE(STA) 01/30/97 (H) STA AT 8:00 AM CAPITOL 102 01/30/97 (H) MINUTE(STA) 02/04/97 (H) STA AT 8:00 AM CAPITOL 102 BILL: HJR 18 SHORT TITLE: DEDICATED FUNDS: RATE MAY BE CHANGED SPONSOR(S): REPRESENTATIVE(S) IVAN JRN-DATE JRN-PG ACTION 01/29/97 164 (H) READ THE FIRST TIME - REFERRAL(S) 01/29/97 164 (H) STA, HES, JUD, FINANCE 02/04/97 (H) STA AT 8:00 AM CAPITOL 102 WITNESS REGISTER RONALD L. OTTE, Commissioner Department of Public Safety P.O. Box 111200 Juneau, Alaska 99811-1200 Telephone: (907) 465-4322 POSITION STATEMENT: Presented an overview of the Department of Public Safety. CRAIG GOODRICH, Director State Fire Marshal Division of Fire Prevention Department of Public Safety 5700 East Tudor Road Anchorage, Alaska 99507-1225 Telephone: (907) 269-5491 POSITION STATEMENT: Presented an overview of the Division of Fire Prevention. GLENN G. GODFREY, Colonel, Director Division of Alaska State Troopers Department of Public Safety 5700 East Tudor Road Anchorage, Alaska 99507-1225 Telephone: (907) 269-5641 POSITION STATEMENT: Presented an overview of the Division of Alaska State Troopers. JAYNE ANDREEN, Executive Director Council on Domestic Violence and Sexual Assault Department of Public Safety P.O. Box 111200 Juneau, Alaska 99811-1200 Telephone: (907) 465-4356 POSITION STATEMENT: Presented an overview of the Council on Domestic Violence and Sexual Assault. JOHN GLASS, Colonel, Director Division of Fish and Wildlife Protection Department of Public Safety 5700 East Tudor Road Anchorage, Alaska 99507-1225 Telephone: (907) 269-5509 POSITION STATEMENT: Presented an overview of the Division of Fish and Wildlife Protection. TIM SCHRAGE P.O. Box 870769 Wasilla, Alaska 99687 Telephone: (907) 440-1512 POSITION STATEMENT: Provided testimony on HB 1 and HB 52. BOBBY SCOTT 521 Izembek Circle Anchorage, Alaska 99508 Telephone: (907) 338-9257 POSITION STATEMENT: Provided testimony on HB 1 and HB 52. BRIAN LICK 9720 Vanguard Drive Apt. 28 Anchorage, Alaska 99507 Telephone: (907) 522-4610 POSITION STATEMENT: Provided testimony on HB 1 and HB 52. RICHARD CROSS P.O. Box 204 Glennallen, Alaska 99588 Telephone: (907) 822-5153 POSITION STATEMENT: Provided testimony on HB 1 and HB 52. GLADYS THOMPSON 7216 Lake Otis Parkway Anchorage, Alaska 99507 Telephone: (907) 349-1456 POSITION STATEMENT: Provided testimony on HB 1 and HB 52. REPRESENTATIVE CON BUNDE Alaska State Legislature Capitol Building, Room 104 Juneau, Alaska 99801-1182 Telephone: (907) 465-3871 POSITION STATEMENT: Sponsor of HB 1. REX SHATTUCK 21665 Sheltering Spruce Loop Chugiak, Alaska 99567 Telephone: (907) 688-0169 POSITION STATEMENT: Provided testimony on HB 1 and HB 52. THOMAS W. WRIGHT, Legislative Assistant to Representative Ivan Ivan Capitol Building, Room 418 Juneau, Alaska 99801-1182 Telephone: (907) 465-4942 POSITION STATEMENT: Provided testimony on HJR 18. JAMES BALDWIN, Assistant Attorney General Government Affairs Section Civil Division Department of Law P.O. Box 110300 Juneau, Alaska 99811-0300 Telephone: (907) 465-3600 POSITION STATEMENT: Provided testimony on HJR 18. ACTION NARRATIVE TAPE 97-6, SIDE A Number 0001 The House State Affairs Standing Committee was called to order by Chair Jeannette James at 8:00 a.m. Members present at the call to order were Representatives James, Berkowitz and Vezey. Members absent were Ivan, Dyson, Elton and Hodgins. CHAIR JEANNETTE JAMES announced the first one-half hour of today's meeting was dedicated to an overview from the Department of Public Safety. The committee would then take testimony from invited participants only. They were the remaining participants who wished to testify last week but were not able to due to time restraints. Public testimony would then be closed in the House State Affairs Standing Committee. Testimony would be taken in the House Health, Education and Social Services Committee and the House Finance Committee-the next two committees of referral. OVERVIEW: Department of Public Safety The first order of business to come before the House State Affairs Standing Committee was an overview presentation by the Department of Public Safety. CHAIR JAMES called on Ronald L. Otte, Commissioner, Department of Public Safety, to present the overview. Number 0180 RONALD L. OTTE, Commissioner, Department of Public Safety, stated the department appreciated the opportunity to talk to the committee members today about some of the programs included under the Department of Public Safety. He introduced the directors and managers of the department as the best any where in the state government. He noted Mary Moran, Director, Highway Safety Planning Agency; Juanita Hensley, Director, Driver Services, Division of Motor Vehicles; John Glass, Director, Division of Fish and Wildlife Protection; Kenneth E. Boschoff, Director, Division of Administrative Services; Laddie Shaw, Executive Director, Alaska Police Standards Council; Glenn G. Godfrey, Director, Division of Alaska State Troopers; Craig Goodrich, Director State Fire Marshal, Division of Fire Prevention, and Jayne Andreen, Executive Director, Council on Domestic Violence and Sexual Assault. Number 0266 CHAIR JAMES announced the Department of Public Safety was her favorite agency because it was the very prime reason there was a government. Number 0278 COMMISSIONER OTTE replied it was his favorite agency also. He read the following introduction from the Department of Public Safety Overview handout dated, February 1997: "When the public thinks about the Department of Public Safety they mostly think of the uniformed Trooper who they'd call in an emergency, or of the DMV with whom they register their car. In fishing communities the public would probably think of the uniformed Fish and Wildlife Protection Trooper who enforces the commercial harvest regulations. In rural communities they might think of the Village Public Safety Officer who provides local law enforcement and who coordinates search and rescue efforts. While each of these public images is correct, the Department of Public Safety services the public and the criminal justice community in many ways, including many not known to the general public." COMMISSIONER OTTE explained he would bring forward some of the directors today to present their programs. He would distribute the handout to the committee members so that they would have a chance to look at some of the programs that would not be covered in today's presentation. COMMISSIONER OTTE continued by stating that public safety provided direct services to the public. He cited highway patrol and accident investigation, criminal investigation, search and rescue operations, driver's licensing and motor vehicle registration, concealed handgun permitting, enforcement of sport fishing and hunting regulations, fire prevention and safety education, and criminal history background checks for employment. Public safety also provided indirect services to the public. He cited licensing of commercial drivers, security guard licensing, support for shelters for victims of abuse and sexual assault, highway safety planning grants to local communities, plan review and inspection of all building larger than a 3-plex, coordination of federal drug grants, enforcement of commercial fishing regulations, criminal history information to organizations, licensing of all fire arms and suppression systems, sex offender registration, financial aid for victims of violent crimes, and staffing for the Emergency Communications Center. There were other programs and services that literally touched every community in the state. He explained the handout also addressed the department's budget. He cited the department occupied 119 state owned or leased structures in 49 communities around the state; the department operated 43 aircraft with a value of approximately $6 million and an average age of 25 years; the department operated 19 marine vessels with an estimated value of $12 million and an average age of 16 years; the department operated approximately 1,500 mobile and portable radios, dispatch consoles, and call recorders to support the 911 service; the department operated more than 1,000 micro computer terminals and printers interconnected by 20 local area networks; and much more. The handout also addressed the volume of crime in the state. He would not go into detail about that today, however. COMMISSIONER OTTE called on Craig Goodrich, Division of Fire Prevention, to address the committee members next. Number 0590 CRAIG GOODRICH, Director State Fire Marshal, Division of Fire Prevention, Department of Public Safety, encouraged the committee members to review the information beginning on page 7 of the handout. He explained the fire marshall was also responsible for the construction of all facilities larger than a 3-plex. Furthermore, 1996 was a terrible year for the division. It expended $500 million and lost 29 lives to fires. The division was trying a variety of things to achieve a significant reduction in those areas. For example, it was partnering with 61 different agencies to apply the rules and to educate the public. Number 0701 COMMISSIONER OTTE called on Glenn G. Godfrey, Division of Alaska State Troopers, to address the committee members next. Number 0711 GLENN G. GODFREY, Colonel, Director, Division of Alaska State Troopers, Department of Public Safety, stated the division was complex. It was the most complex state law enforcement agency in the United States. It was empowered to pursue, apprehend and obtain evidence to allow for the prosecution of offenders. It was also a highly visible uniform patrol division. He explained officers were assigned to specialized major crimes, sexual assaults, white collar crimes, missing persons, narcotics, and alcohol investigations; as well as, to provide oversight for the Village Public Safety Officer Program. In addition, out of 328 communities in the state, the troopers had direct service to 274 of those communities. Only 45 communities in the state had established police departments and 67 percent of those were not accessible by road. The department, on a continual basis, supported the 45 established police departments. Moreover, the licensing section was responsible for administering security guard licenses, sex offender registration, and the concealed handgun permit program. Another taxing area for the division was the investigation of deaths. Last year it investigated 527 incidents that involved death. That averaged to 11 death investigations per week. The issues he mentioned facing the division for 1997 were the underfunding of personnel services, improving its access to technology, and paying for the support of search and rescue services. These issues were ones that were going to impact the citizens of Alaska. Number 0929 MR. GODFREY further presented a brief overview of the Village Public Safety Officer Program (VPSOP). He explained VPSOs responded to more than 9,100 requests in 1996. One issue affecting the VPSOP was funding for 10 additional positions. The program was a challenge for the division, but it did relieve some of the pressure placed on the troopers. Number 1034 COMMISSIONER OTTE called on Jayne Andreen, Council on Domestic Violence and Sexual Assault, to address the committee members next. Number 1075 JAYNE ANDREEN, Executive Director, Council on Domestic Violence and Sexual Assault, Department of Public Safety, explained the council provided funding to locally based programs throughout the state that provided services to victims and perpetrators of domestic violence and sexual assault. It was also responsible for coordinating and providing technical assistance at the state level for domestic violence. The domestic violence and sexual assault movement had been around for the last 20 years to 25 years. It was exciting because the field was beginning to be recognized for the seriousness of the crimes. It was also being given the opportunity and the tools to really make some forward progress. She cited the Domestic Violence Prevention and Victim Protection Act of 1996 helped put Alaska in the forefront of developing a consistent statewide policy that held the offender accountable and provided the maximum level of protection to the victims. The council played a very significant role in this project. She hoped that within the next five years the council would be able to know what it needed to intervene in the cycle of violence. Number 1197 COMMISSIONER OTTE explained that the delivery of public safety affected every community in the state. He cited the training academy in Sitka as an example. It was a program that trained officers statewide. The academy combined three programs reducing the need of support from the general fund. He also cited the state criminal laboratory. Most of its support went to the local communities. COMMISSIONER OTTE called on John Glass, Division of Fish and Wildlife Protection, to address the committee members next. Number 1335 JOHN GLASS, Colonel, Director, Division of Fish and Wildlife Protection, Department of Public Safety, explained the primary purpose and function of the division was to enforce the laws, rules, and regulations concerning fish and wildlife resources within the state. These regulations were passed by the various boards and committees throughout the state. There were two main components within the division-the aircraft section and the marine enforcement section. The marine enforcement section was primarily used for the enforcement of commercial fishing in the Bering Sea. Commercial fishing, he cited, produced $38.3 million in taxes last year. The division's 17 marine vessels ranged from 25 feet to 121 feet. Moreover, in 1996 there were 450,000 licenses issued in the state for hunting and fishing, and 35,000 jobs were associated with commercial fishing. He also explained in some of the communities the fish and wildlife protection trooper was the only public safety resource available. Number 1432 COMMISSIONER OTTE stated he had been in law enforcement for 31 years, and had visited virtually every community or area of the country. The public safety program in Alaska was healthy and was head and shoulders above any other law enforcement or public safety effort he had seen in the country. It was also the most diverse and challenging. The managers were extremely professional and competent. The department did have problems, he declared, but it handled them well. He would be willing to answer any questions of the committee members. Number 1495 CHAIR JAMES commented that the academy in Sitka mentioned earlier was an example of a building process from one administration to another, and from one legislature to another. Number 1537 REPRESENTATIVE AL VEZEY commented that the overview meetings were tantamount to a bathing suit contest. He believed that legislators should spend more time with the agencies because it was informative for both parities. He stated legislators did not spend enough time talking with the people that ran the government. Legislators tended to concentrate on passing legislation. It was not the duty of a legislator to run the government, therefore, it was necessary to communicate with those that did run it. Number 1591 REPRESENTATIVE ETHAN BERKOWITZ commented he had the privilege to work with the troopers when he was in the district attorney's office. He declared one of the serious problems that faced issues of public safety and crime, was that they were chronically underfunded. That was the largest complaint from the villages and Anchorage. It was said there was "a lot of talk out of Juneau," but not much delivery. He would like to work together with everyone to ensure that the legislature started to deliver on the public safety that Alaskans deserved. A collateral benefit, he stated, would be to improve officer safety. Furthermore, there were ways to increase public safety at zero cost to the budget. He cited there were great fishery enforcement ideas that could raise money, as an example. Number 1642 REPRESENTATIVE VEZEY commented on the recent drug bust in Fairbanks. He asked Commissioner Otte if he had a handle on measuring the magnitude of the drug problem in Alaska? He knew that it was so pervasive that it was hard to describe. Number 1673 COMMISSIONER OTTE replied he could not give Representative Vezey a measurement today. He could, however, say that the drug problem in Alaska continued to grow. As the profits from marketing and selling drugs remained substantial, there were always people willing to replace the ones that were arrested. Law enforcement believed that enforcement would not be the tool that eliminated or reduced drug use. If it was, the "war on crime" over the years would have done it by now. But, "Frankly, we haven't really made much of a dent," he said. He believed law enforcement would not make a significant difference until attitudes were changed. Number 1736 REPRESENTATIVE VEZEY replied the key words were "just growing." COMMISSIONER OTTE responded, "It is growing, yes, sir." REPRESENTATIVE VEZEY stated he was constantly amazed at how commonplace drugs were. Number 1745 CHAIR JAMES thanked Commissioner Otte for his presentation. CHAIR JAMES announced for the record that Representatives Kim Elton and Ivan Ivan arrived shortly after convening the meeting. HB 1 - CIGARETTE AND TOBACCO TAX HB 52 - INCREASE TOBACCO TAXES Number 1790 The next order of business to come before the House State Affairs Standing Committee was HB 1, "An Act relating to taxes on cigarettes and tobacco products; and providing for an effective date." And, HB 52, "An Act relating to taxes on cigarettes and tobacco products; and providing for an effective date." CHAIR JAMES announced she would open the committee meeting to the invited testifiers only. Number 1805 TIM SCHRAGE was the first person to testify via teleconference in Anchorage. He stated he was against the tobacco tax. He was a retail owner of a couple of liquor stores in Anchorage and the Matanuska Valley. The current state tax was $2.90 per carton, the current federal tax was $2.93 per carton, and the current municipality of Anchorage tax was $2.72 per carton. Therefore, a total of 50 percent of the wholesale price was pure tax. In addition, the retailer paid for a license to sell tobacco from the federal government, the state government and the municipal government. The bill was asking the smoker to pay a higher price. He asked, "Aren't they already doing that?" Furthermore, a smoker could not smoke in public buildings and on public transportation. A smoker also paid a higher insurance rate. He asked, "Where do these taxes go that they're paying?" He believed they were going to the general fund, and he wondered if the public was getting their money back. Mr. Schrage stated before an additional tax was added, the state should look at other ways to spend the money from the existing taxes. Furthermore, the heath organizations in support of the tax had 33 years, since the first report from the surgeon general that indicated smoking was a habit, to educate them. If the state was truly interested in stopping the children from smoking, then it should enforce the laws already in place and close the loopholes. Since it was illegal to sell cigarettes to minors he wondered where they were getting them. He stated they were probably getting them from stealing, their parents, friends, and illegal retailers. He reiterated, "Let's close the loophole, let's not tax more." Number 1962 BOBBY SCOTT was the next person to testify via teleconference in Anchorage. He did not promote or condone the use of tobacco products by the youth. He wondered why kids were using tobacco if it was illegal now. The kids today had the same attitude that the adults did when they were in school, therefore, the price did not matter. The tobacco tax would put an unfortunate amount of pressure on the less fortunate kids encouraging them to obtain cigarettes in order to fit in with the other kids. But, it was his responsibility to teach honesty, responsibility and respect to his kids. He explained he worked for a small retailer and he feared that the small retailers would be put out of business before long and send the economy on a downward spiral. There were other powerful ideas that had been discussed in Juneau and he would like to see them continued with the proper communication to reach the goal of deterring teens from smoking. The tax would not reach that goal. It would accomplish diversity, havoc and ultimately destruction. He thanked the committee for letting him testify. Number 2095 BRIAN LICK was the next person to testify via teleconference in Anchorage. He was a non-smoker, and he worked in the retail industry. A retailer he spoke to recently cited he was missing $20,000 in cigarette products. A reasonable amount of that was contributed to theft. He believed the tobacco tax would increase the amount of theft. In Canada the price of cigarettes went up to $50 per carton and bootlegging and smuggling became a real issue. The retailers would have to absorb $20,000 to $25,000 per year to protect their investments. This was not a threat, it was just a realistic perspective, he declared. The retailers would pass that cost on in a gallon of milk, for example, causing all Alaskans to pay and not just the smokers. Furthermore, he stated that the permanent fund dividend program invested in stock of the Phillip Morris Company. He felt that was a double standard. Number 2201 CHAIR JAMES explained that the Phillip Morris Company was a family of trading companies. It sold more than tobacco products. Number 2218 RICHARD CROSS was the next person to testify via teleconference in Glennallen. He was against the cigarette tax. He did not think it was right to tax one segment of society. It would not stop the kids from smoking. He had been smoking for 33 years and the price had increased every since he started. It did not stop him from smoking. The kids would steal and borrow for cigarettes. He stated the current laws needed to be enforced. He had seen kids burglarize to get cigarettes and then sell them at school to make money. It was not right to tax something that did not need to be taxed, he declared. Enforce what already existed. Some members of his family smoked and some did not. He tried it and liked it. "Some people were born with that." He reiterated the cigarette tax was wrong. Number 2279 GLADYS THOMPSON was the next person to testify via teleconference in Anchorage. She was a long time resident of Alaska. She had also lived in the Midwest and New England. When she was a little kid she remembered signs on the barns that were paid for by the tobacco companies encouraging the farmers who were not doing well. She agreed with the tobacco tax. She would even double the amount. She recognized the other ramifications that previous testimony referred to that needed to be addressed also. It was illegal to steal. Furthermore, she recalled from her earlier days that the signs on the barns were advertizing chewing tobacco. In Cleveland, Ohio spittoons were placed on the streets for those chewing tobacco. She started to smoke when she went to college because of the influence of the movie stars in the 1930's and the 1940's. It was considered glamorous. She only enjoyed it to an extent. That was another example of how the tobacco companies marketed their products to encourage young people to smoke. She believed they should be put out of business in the long run. Number 2414 REX SHATTUCK was the next person to testify via teleconference in Anchorage. He was representing himself and not the tobacco industry or the health industry. It appeared that it was only the tobacco and the health industries that were testifying on this issue. He believed that testimony should be weighed. He started smoking 28 years ago and quit last year. The price of a package of cigarettes was not a deterrent nor was it a consideration when he quit, it was due to the urging of his children. The gradual price increases over the years were not effective. Two of his parents suffered from emphysema, but that did not spur him to support a 344 percent tax increase. That was the biggest increase ever. TAPE 97-6, SIDE B Number 0001 MR. SHATTUCK continued by stating that there was not a way to earmark the money from this tax to education. He reiterated he did not support a tobacco tax, and he strongly recommended that the committee members review the federal and the state constitution to determine their responsibilities in terms of raising revenues. Furthermore, last year the legislators did a good job of decreasing the budget. He suggested they do the same thing this year and not increase the revenues. Number 0041 CHAIR JAMES closed the House State Affairs Standing Committee meeting to public testimony on HB 1 and HB 52. It was now time for the committee members to deliberate. CHAIR JAMES explained there was an amendment that changed HB 1 to look like HB 52. She called for a motion to adopt the amendment. Number 0062 REPRESENTATIVE IVAN IVAN moved that the committee adopt Amendment 1, dated 1/28/97. Number 0081 REPRESENTATIVE CON BUNDE announced he did not have a problem with Amendment 1, dated 1/28/97. REPRESENTATIVE VEZEY objected. A roll call vote was taken. Representatives James, Berkowitz, Elton and Ivan voted in favor of the motion. Representative Vezey voted against the motion. The amendment was adopted. CHAIR JAMES announced for the record that Representatives Fred Dyson and Mark Hodgins were excused from today's committee meeting. CHAIR JAMES further explained that HB 1 was the vehicle that would move through the committees, while HB 52 would remain in the House State Affairs Standing Committee. Two tobacco tax bills were not needed. Number 0127 REPRESENTATIVE BUNDE expressed his appreciation of the efforts of Representative James in soliciting the testimony heard on this subject. He also thanked the public for taking the time to testify. Representative Bunde recapped the goal of CSHB 1(STA) by stating it was designed to achieve an economic barrier to young people starting to smoke, and a user fee for those who wished to continue to smoke. He responded to prior testimony from the tobacco industry. He suggested that the spokes people acquaint themselves with the laws in Alaska. He explained one had not bothered to register with the state as a lobbyist. His latest research showed that the nicotine industry had spent over $200,000 in lobbyists. That alone told him that the bill would work. The committee members also heard considerable comments about protecting the small business person. He took those comments to heart. However, if smuggling was such a challenge, he stated, "I don't think anybody would go so far as to recommend we remove existing taxes." And, the mail order problem could be addressed through other legislation. That was something that needed to be looked at. The business people that he heard from supported the notion that the legislators should stop kids from smoking, and research showed that the vast majority of people began smoking when they were children. If that was accepted as a fact, then these business people had better be making plans for the future because if they stopped children from smoking they would indeed put themselves out of business over a period of time. He reiterated he was sympathetic to the small business owner. He reminded the committee, however, that at one time cocaine was put in Coca-Cola because it was thought to be healthy. And, codeine was put in a lot of patented medicines causing addictions at one time. As more information was obtained, businesses needed to change. Furthermore, there were concerns about enforcement and Indian country. He thought it was a little unfair to assume that the majority of the Native citizens would become scofflaws and immediately begin smuggling. It was necessary to consider the geography of Alaska. He stated, "Not too many people are gonna go to Egegik to buy smuggled cigarettes." Moreover, there would not be the common border problems that the Canadians had on the East coast. The people in Western Canada did not lower their prices because of smuggling problems. Furthermore, if the state faced the issue of Native sovereignty, he thought that the issue of smuggling tobacco would be only one of many, many challenges the state would face. The bottom line was that the increase in the tobacco tax obviously worked to reduce the demand. "If it didn't," he asked, "Why would the nicotine industry be here spending so much time and money to fight this increase." He thanked the committee members for their time. Number 0335 CHAIR JAMES stated that this issue was not one of her favorite issues. She believed strongly in a person's right to do what was legal, and smoking tobacco was legal. She also believed that imposing a tax at a time when the legislature was trying to cut the budget was not wise. It violated the pledge to not impose taxes until the budget was under control. She had never smoked and she hated smoking. She did not want any children to start to smoke, and she would prefer that everyone would quit. However, she recognized the legal right of those that wanted to use tobacco. Therefore, she struggled with this issue and had been very candid about her feelings from the beginning. She also had a great passion for school maintenance and construction and the children of the state. In addition, over the past four years, she had not seen much interest in putting money towards that process. She did not want to fill the general fund with more money creating a tendency to spend it. Therefore, the pre-dedicated school fund was much more palatable. Moreover, she was pleased to have the approval of Representative Bunde as sponsor of HB 1. She was also pleased to hear the testimony from the public supporting the dedication. The committee today would also be hearing HJR 18 which called on the people to vote on a constitutional amendment that would allow the raising or lowering of a tax in a pre-dedicated fund and close the opportunity for a law suit. She thought it was a better idea to go to the public than it was to go to the courts. She had very little confidence in the court system due to decisions made whimsically by judges. She felt guilty that she did not have confidence in the judicial system, but she would rather go to the public to vote on this issue. She was happy to walk together with Representative Bunde the rest of the way with this bill. Number 0507 REPRESENTATIVE KIM ELTON stated he hoped the money that went into the school construction and maintenance account was not seen as a substitute for general fund dollars. The money generated from the tax would not be enough to accomplish what needed to be done in school maintenance and construction. It should not be seen as the only answer for the problems that many of the school districts faced. Number 0548 REPRESENTATIVE ELTON moved that CSHB 1(STA) move from committee with the attached fiscal note(s) from HB 52 and with individual recommendations. There was no objection. The CSHB 1(STA) was so moved from the House State Affairs Standing Committee. Number 0569 CHAIR JAMES announced that she was in the process of designing legislation that would improve the enforcement of the current laws surrounding teenage smoking. She asked for assistance from anybody that knew where more enforcement was needed. Number 0599 REPRESENTATIVE ETHAN BERKOWITZ stated that he was offended because a representative of the tobacco industry had not provided information to him within the time that he indicated. Number 0630 CHAIR JAMES stated that it had only been one week. She suggested putting his request in writing to ensure a response. Number 0640 REPRESENTATIVE VEZEY stated that if a lobbyist promised information one should allow three weeks to four weeks to receive it. HJR 18 - DEDICATED FUNDS: RATE MAY BE CHANGED The next order of business to come before the House State Affairs Standing Committee was HJR 18, "Proposing an amendment to the Constitution of the State of Alaska relating to changing the rate of a tax or license that supports a dedication of its proceeds." CHAIR JAMES called on Representative Ivan Ivan, sponsor of HJR 18, to present the resolution. Number 0713 REPRESENTATIVE IVAN IVAN announced his staff, Thomas W. Wright, was here to answer any technical questions about the resolution. Representative Ivan read the following sponsor statement into the record: "This resolution proposes an amendment to Article IX, Section 7 of the state constitution. The current article allows for the dedication of funds for a specific purpose as long as it existed by April 24, 1956. This resolution would allow a changing of a rate of a tax or license of which the proceeds are dedicated to a special purpose. This proposed amendment would be placed before the voters at the next general election, if approved by the Legislature. "I introduced this resolution because of the differing opinions represented by the attorney general's office and Legal Services in regards to the dedication of a tax increment to a specific purpose. In order to avoid litigation, especially if the proceeds of the tobacco tax are to be placed into the school fund or if the legislature changes any other tax rate or license fee, into which proceeds are to be placed into a dedicated fund, this resolution is a means to resolve that potential problem." REPRESENTATIVE IVAN further stated he would like to see that the proceeds of the tobacco tax go to the maintenance and construction of school facilities. It was an opportunity to assist the government in some of its most important aspects. Number 0860 REPRESENTATIVE ELTON asked how many dedicated funds were there, other than the education fund? Number 0869 CHAIR JAMES replied there was a fish and game fund and a school fund. REPRESENTATIVE ELTON wondered if those were the only two funds that would qualify under this resolution. CHAIR JAMES replied, "Yes." Number 0877 REPRESENTATIVE VEZEY stated he believed that there were more than two funds. He cited the Fishermen's Fund as an example. He could not remember how many there were, but he knew there were more than two. Number 0883 CHAIR JAMES asked Thomas W. Wright, Legislative Assistant to Representative Ivan Ivan, to respond to the question. Number 0879 THOMAS W. WRIGHT, Legislative Assistant to Representative Ivan Ivan, stated the opinion of Mr. Gerald L. Wilkerson, Legislative Auditor, dated November 30, 1982, outlined what dedicated funds existed. He cited the Tobacco Tax (school) Fund, the Fish and Game Fund, the Reserves for Capital Outlay and Energy Facilities Development, the Renewable Resources Fund, the Public Employees Retirement System Fund, the International Airport Funds, the Continuing Debt Service Appropriation, and the Rural Electrification Revolving Loan Fund. Some of those funds, he explained, were out of existence and according to the attorney general's opinion, once a dedicated fund was out of existence it could not be re-instituted. Number 0940 REPRESENTATIVE VEZEY asked was that five funds? CHAIR JAMES replied there were a number of funds listed by Mr. Wright. Some of which were already gone. Number 0948 REPRESENTATIVE BERKOWITZ asked Mr. Wright, if the funds out of existence had been zeroed out in terms of the account, or had they been repealed? Number 0956 MR. WRIGHT replied he understood that they were not funded and considered discontinued programs. He suggested asking the Department of Revenue who had a better understanding. He did not know if they were out of existence in statute. He had not gone that far back, yet. He reiterated he understood that they were in existence, but they were not being funded. Number 0978 CHAIR JAMES responded that according to a legal opinion relating to the tobacco tax that once the tax was taken completely away, it could not be brought back. That was in accordance with the minutes at the constitutional convention. It would need to be re- instituted again. Chair James called on James Baldwin, Department of Law, to address the issue. Number 1016 JAMES BALDWIN, Assistant Attorney General, Government Affairs Section, Civil Division, Department of Law, stated the question of how many dedicated funds there were, was subject to definition. The only true dedicated funds now were the Fishermen's Fund and the Tobacco Tax (school) Fund. Those were the only two that he had been able to confirm. There was, of course, the permanent fund, that was constitutionally dedicated. There was also the Constitutional Budget Reserve Fund. There were also the funds that were required by federal statute. The funds that Mr. Wright referred to were not truly dedicated funds. They were rather segregated funds that were established for bond covenant purposes. They were an exception to the dedicated fund prohibition because the assets were pledged to buy off bond indebtedness. There was an exception allowed in the constitution to allow the state to incur debt for that purpose. Number 1085 CHAIR JAMES stated there were funds that the state used as though they were dedicated funds. She liked the term "segregated fund" that Mr. Baldwin mentioned earlier. The general public thought of these accounts as dedicated funds when technically they were only considered dedicated for political purposes. In addition, funds were also appropriated to get around the issue of dedication. She called it an end-run around the situation. She believed that the legislature should have free reign of the general fund to spend it in the best way. Number 1186 MR. BALDWIN replied the dedicated fund prohibition was put into place so that the power of the legislature would be preserved to the maximum extent possible over revenues coming into the state. Therefore, as long as the legislature retained its ability to appropriate funds, it did not violate the dedicated fund prohibition. Number 1210 CHAIR JAMES replied she understood that. However, "It's a perception, and perception is sometimes reality as far as people are concerned." Number 1217 MR. BALDWIN stated there were many funds that the legislature established by law and then appropriated money to them. That was clearly not a violation of the dedicated fund prohibition. The Governor's bill, he explained, would appropriate the revenues from the tobacco tax to a particular fund rather than dedicate them in the beginning. Number 1246 REPRESENTATIVE ELTON asked Mr. Baldwin if the language in the resolution would not allow the legislature to change the rate of contribution to the permanent fund or to the Constitution Budget Reserve Fund? Number 1279 MR. BALDWIN replied it would not because it only referred to those funds in existence before April 24, 1956. The permanent fund was established after that date. The constitution did allow the legislature to change the rate upwards, but the constitution would have to be amended to decrease the rate. Number 1317 REPRESENTATIVE ELTON asked Mr. Baldwin if the language in the resolution would allow the legislature to bring back a fund that had disappeared, such as, the Renewable Resources Fund? Number 1338 MR. BALDWIN replied he did not think that it did. The language would have to be changed to do that. It did not revive passed repealed dedicated funds. The statutory interpretation would say that "you cannot revive a prior repealed provision unless expressly provided." This resolution did not expressly provide for that. Number 1382 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin if, according to the opinion of Mr. Jack Chenoweth, Attorney, Legislative Legal and Research Services, Legislative Affairs Agency, a change in the rate of the tax by the legislature would not have an impact on the existence of the dedicated fund or undo the legal effect of the dedicated fund? Number 1405 MR. BALDWIN replied the 1959 opinion of the attorney general indicated such an act would nullify a fund. "We didn't explore that, as to what would be the effect. Whether it would destroy the underlying dedication." He read the opinion to say it would be an empty act. It would not accomplish anything. The legislature was without power to do that. It would leave the existing dedication in place. It would not destroy the existing dedication. That, however, was an open question. Number 1455 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin, in his opinion, if there was a change in the tax rate, would it nullify the fund? Number 1469 MR. BALDWIN replied, "No." If the tax rate was increased then the law was nullified. If the tax rate was increased and went to a dedicated fund then that law was nullified. If it was repealed, it was also gone and it could not be revived according to the current wording of the constitution. Number 1490 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin in his opinion if the increase in the tobacco tax in CSHB 1(STA) that the House State Affairs Standing Committee just passed would nullify the fund? Number 1501 MR. BALDWIN replied the opinion of the attorney general indicated there was a good faith legal argument that could be made of Mr. Jack Chenoweth's opinion. It was still an open question for the courts to decide, however. It was the opinion of the attorney general that it was worth testing. He could not say that it was flat out void or unconstitutional. The opinion of the attorney general in 1959 had been in effect for a long time, and the legislature had followed if for a long time. All those factors would be considered by a court. He could not say today that the bill passed out of the committee was flatly prohibited by the constitution. Number 1554 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin if the opinion had ever been tested before in court? He had more faith in the court system than Chair James. Number 1567 MR. BALDWIN replied this particular issue had not been tested in Alaska. He was not aware of a case tested in another state either. There were dedicated funds in other states, but he did not believe that there was a dedicated fund prohibition similar to the one in Alaska. The dedicated fund prohibition had been tested in other aspects, in particular, the breadth of the revenue covered. It was believed at one time that the prohibition only applied to tax and license proceeds. But, in the mid-1980's, it was ruled by the court that it covered all revenues received by the state. The court also ruled that the revenues that went to the ferry proceeds was not a dedicated fund. He was not aware of any other court cases. Number 1659 CHAIR JAMES stated that Mr. Jack Chenoweth's opinion contained the same caveat-that it could be challenged in court. The resolution, however, put the choice to the public as opposed to the courts. Number 1689 MR. BALDWIN explained there was a timing issue involved here as well. The resolution would go before the voters in 1998. And, according to the terms of the constitution it would take effect 60 days after certification. The CSHB 1(STA) indicated the primary tax would take effect in October of 1997. There was a one-year difference. He suggested considering a provision to include retroactivity or somehow linking the two together. Number 1770 CHAIR JAMES thanked Mr. Baldwin for his suggestion. The committee substitute was drafted so that if there was court action that negated it from putting revenues into the school fund, the money would then go into the general fund. It was assumed that the taxes collected before the court case would go to the dedicated fund. The money would be identifiable and the net result would then go to the general fund. She agreed the bill and the resolution should be coordinated. She hoped that the resolution would deter anybody from challenging this issue in court. MR. BALDWIN replied he thought somebody would file as soon as the first return was due. CHAIR JAMES stated it did not deter her determination, however, to move this issue forward. Number 1901 REPRESENTATIVE VEZEY stated the effort of HJR 18 was a bad idea. He called it an attempt to assuage ones conscience over raising taxes. The legislature had a 38 year history of defending its right to appropriate revenues. The hottest issue in terms of dedicating funds was the highway fund. Moreover, "Every time we get into a dedicated fund, it just turns into such a christmas tree that it goes into a hole and stays there the rest of session." That would probably happen to HJR 18 as well. Number 1972 CHAIR JAMES replied during the last legislature, she proposed a bill that addressed a state highway dedicated fund. She believed there needed to be a relationship between a tax and a fund for a connection. There was no connection between a tobacco tax and a school fund. There was a definite relationship between a fuel tax and a road maintenance fund. However, the state currently spent $75 million on road maintenance, but only collected $24 million in gas taxes. Even if the current gas tax was tripled there would not be enough money available to maintain the roads. Therefore, it did not serve the purpose of the dedicated fund. She agreed HJR 18 assuaged her because she had as much passion for spending money to make the schools safe and healthy as the people who supported the tobacco tax. Number 2080 REPRESENTATIVE VEZEY commented that, if all the fees and taxes were added together that were directly contributed to highway and vehicle use, they would amount to approximately $75 million. It just so happened, he explained, that what the legislature appropriated was at about the level that the state taxed and assessed fees at. Number 2111 CHAIR JAMES replied she understood that argument. The general public was concerned about losing federal funding in Alaska if it did not start taking care of its roads. That was a nationwide problem, however. She understood in other states that there was a dedicated highway fund and in other states that a transportation authority took care of the funds. The funds did not go through the legislature. She was not questioning whether the resolution or the bill was a bad idea or not. It was just what she wanted to do. Number 2217 REPRESENTATIVE ELTON said he was concerned because the constitutional convention provided the notion that dedicated funds were not good. He announced he was not prepared to move the resolution today, especially since there was a suggestion to include a retroactivity clause. He asked Chair James to postpone the final disposition of the resolution until Thursday, February 6, 1997, to allow the committee members to review the possible added language. He also wanted more time to ponder the wisdom of the members of the constitutional convention who were adamantly opposed to dedicated funds. Number 2312 CHAIR JAMES replied she did not have a problem with his concerns. The prohibition in the constitution had a rational purpose. It also allowed for the grandfathering of those dedicated funds prior to statehood. That was done for a reason. She did not want to question the reason, however. She believed, if the opinion of the attorney general had not been written in 1959 in its context, then the state would probably still have a highway use fund, for example. She would like to have a fund for the roads and a tax that was directly related to the use of the roads. She would not vote for a school fund if a highway use fund was an issue before the committee. There was no relationship between a tobacco tax and a school fund. But, it was here, it was reasonable, and it was available. That was her rationale and she knew there were holes all through it. She reiterated she would support a dedicated fund for the maintenance of the roads as long as the money going into it had a direct relationship to the use of the roads. This should not be a political issue, it should be a realistic issue. ADJOURNMENT TAPE 97-7, SIDE A Number 0017 CHAIR JAMES adjourned the House State Affairs Standing Committee at 9:38 a.m.