HOUSE TRANSPORTATION STANDING COMMITTEE February 12, 1997 1:06 p.m. MEMBERS PRESENT Representative Bill Williams, Chairman Representative Beverly Masek, Vice Chairman Representative John Cowdery Representative Bill Hudson Representative Jerry Sanders Representative Kim Elton MEMBERS ABSENT Representative Al Kookesh COMMITTEE CALENDAR *HOUSE BILL NO. 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." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 63  SHORT TITLE: AVIATION FUEL TAX EXEMPTION SPONSOR(S): REPRESENTATIVE(S) THERRIAULT,Davies,Kelly,Brice 01/13/97 48 (H) READ THE FIRST TIME - REFERRAL(S) 01/13/97 48 (H) TRANSPORTATION, FINANCE 01/22/97 126 (H) COSPONSOR(S): DAVIES 02/12/97 (H) TRA AT 1:00 PM CAPITOL 17 02/12/97 325 (H) COSPONSOR(S): KELLY WITNESS REGISTER REPRESENTATIVE GENE THERRIAULT Alaska State Legislature Capitol Building, Room 511 Juneau, Alaska 99802 Telephone: (907) 465-4797 POSITION STATEMENT: Sponsor testimony on HB 63 KURT PARKAN, Deputy Commissioner Department of Transportation and Public Facilities 3132 Channel Drive Juneau, Alaska 99801 Telephone: (907) 465 6977 POSITION STATEMENT: Testified in support of HB 63 BOB BARTHOLOMEW, Deputy Director Income and Excise Audit Division Department of Revenue P.O. Box 110420 Juneau, Alaska 99802 Telephone: (907) 465-2320 POSITION STATEMENT: Testified on HB 63 JEFF COOK, Vice President External Affairs and Administration Mapco 1150 High Lane North Pole, Alaska 99705 Telephone: (907) 488-2741 POSITION STATEMENT: Testified in favor of HB 63 KIM ROSS, Director Alaska Air Carriers Association 1117 E.35th Street Suite 102 Anchorage, Alaska 99508 Telephone: (907) 277-0071 POSITION STATEMENT: Testified against HB 63 ACTION NARRATIVE TAPE 97-6, SIDE A Number 001 CHAIRMAN BILL WILLIAMS called the House Transportation Standing Committee to order at 1:06 p.m. Members present at the call to order were Representatives Williams, Masek, Cowdery, Hudson, Sanders and Elton. Representative Kookesh was absent. HB 63 - AVIATION FUEL TAX EXEMPTION Number 058 CHAIRMAN WILLIAMS stated that HB 63 is, "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." He stated that he was considering adding a possible amendment and asked the sponsor, Representative Therriault explain the bill. Number 109 REPRESENTATIVE GENE THERRIAULT stated HB 63 would lift the 3.2 cent tax that is collected from instate refiners for jet fuel that is used on inbound foreign flights into the U.S. territory. He stated, "So the flights that originate from a foreign location, touched down in Anchorage or Fairbanks and then continue on to domestic or foreign locations." He stated that HB 63 extends the motor fuel tax exemption to include fuel used in aircraft for flights that continue from a foreign country. He stated that currently the state of Alaska provides a tax exemption for fuel used only in flights to foreign countries. He stated that federal law preempts state taxation of imported aviation fuel, transported through the Foreign Trade Zone (FTZ) for use in aircrafts during all foreign flights. He stated, "The federal definition of foreign flights includes flights originating from and flights continuing to a foreign country. As a result the jet fuel produced in Alaska is taxed 3.2 cents per gallon more than similar fuel produced at foreign refineries." He stated that two tankers filled with 20 million gallons of tax exempt foreign fuel were brought into Alaska in 1995 and last year just under 38 million gallons were imported through the FTZ. He stated that without new legislation it is anticipated that the practice of using the FTZ to import, will increase as airlines move to purchase tax exempt fuel for use. Representative Therriault stated that HB 63 is needed to provide a level playing field to Alaska's producers, by allowing the tax exemption for all fuel used in foreign flights. Number 290 REPRESENTATIVE THERRIAULT stated that last year the Administration was opposed to the legislation, however, the governor announced a switch in position this year. He stated, "That switch in position came after traveling in the Pacific Rim countries and hearing from a number of the carriers that the tax that was imposed on the jet fuel, produced in the state of Alaska was a deterrent to running more operations through the state of Alaska." He stated that the administration looked into whether the FTZ exemption could be closed off, however, the commissioner of the Department of Transportation and Public Facilities did not think that could be a possibility. He stated that the situation is, the fuel that is produced at the instate refineries have to pay the tax, while fuel that is imported from foreign destinations is not subject to the the tax resulting in the shifting of Alaska's economy to off shore locations. He stated that the unfairness of a tax that puts Alaska's production at a disadvantage needs to be considered and dealt with. Number 417 REPRESENTATIVE THERRIAULT stated he would like the committee to consider adding bunker fuel sales to the legislation. He stated there is a statement from the Department of Revenue, Income and Excise Audit Division, that indicates the number of Bunker Fuel that is sold in the state. He stated that there was legislation that passed that was designed to be revenue neutral and once Alaska passed 400,100,000 gallons of sales from marine bunker fuel in the state of Alaska, the tax would go away. He stated that this threshold was only met and surpassed in 1995, and since the sales of marine bunker fuel in Alaska has dropped from over 4 million gallons to less then 100 gallons. He stated that we tax the marine bunker fuel and then the cruise ships and other marine vessels get fuel in Canada or Seattle, were the fuel is not taxed, putting Alaskan industry at a disadvantage. He stated that he would like the committee to remove the tax. Number 570 REPRESENTATIVE JOHN COWDERY asked what the benefit is to stopping in Anchorage and in Fairbanks. Number 580 REPRESENTATIVE THERRIAULT stated that there is geographic benefit but all of the air carriers have to be sensitive to the price of fuel that they consume, a change of a penny can result in a lot of money to the air carriers. He stated that locations in British Columbia are trying to attract some of the refueling business from Alaska through a price advantage. Number 643 REPRESENTATIVE COWDERY asked if HB 63 only pertains to foreign companies whose flights originate in foreign countries but stop in Alaska. Number 664 REPRESENTATIVE THERRIAULT stated that the tax exemption for the fuel that is brought in through the Foreign Trade Zone is for any flight that originates or is destined to a foreign airport, however, the state tax exemption is only for outbound flights. He stated that Alaska currently taxes the inbound flights, therefore, if we want to sell an Alaskan produced product it has to be taxed, a foreign source is not. Number 736 REPRESENTATIVE THERRIAULT stated that he argued against the fiscal note last year because it showed a loss if $3.5 million. He stated that he felt Alaska would lose this tax anyway because the airlines are going to seek out the lowest source of fuel resulting in an erosion of the tax revenue. He stated that the fiscal note attached to HB 63 shows an increase in the FTZ fuel. Number 752 REPRESENTATIVE COWDERY asked who is the largest supplier of jet fuel. Number 762 REPRESENTATIVE THERRIAULT responded that Department of Revenue might be able to answer that. Number 805 CHAIRMAN WILLIAMS asked how the other areas, Miami, New York, San Francisco, Los Angeles or Seattle are handling the tax exemption. Number 849 REPRESENTATIVE THERRIAULT stated that number of other states have taken similar action because of the importation of tax free fuel through a FTZ. He stated that Tennessee has eliminated the tax. Number 893 REPRESENTATIVE JERRY SANDERS asked what the money being taken in as taxes is being spent on. Number 905 REPRESENTATIVE THERRIAULT stated that it goes into the general fund. He stated that he believed the current amount to be $4 million. Number 925 REPRESENTATIVE SANDERS stated, "What scares me is we trying to cut $60 million dollars out, if we pass this bill do we have to cut $64 million out to accomplish the same thing." Number 938 REPRESENTATIVE THERRIAULT replied that is correct. He stated that he is working on a way that it can be revenue neutral and it is a problem that has to be dealt with. Number 965 REPRESENTATIVE COWDERY asked if the other states that have eliminated the tax are located in a strategic geographic location. Number 1020 REPRESENTATIVE THERRIAULT responded that Alaska has the distinct advantage that its location can not be duplicated very easily. He stated that Federal Express decided to locate in Tennessee because of strategic location, but would be able to find another area quite easily. He stated that carriers that felt they had to use Alaska for their fuel due to the timing of their flights, will want to import the tax free fuel. Number 1099 KURT PARKAN, Deputy Commissioner, Department of Transportation and Public Facilities (DOT/PF), stated that the administration supports HB 63. He stated that HB 63 will remove the competitive disadvantage that currently exists with regard to foreign fuel. He stated that the location of Anchorage and Fairbanks is important and growth in the cargo industry is fairly rapid yet yields are dropping significantly to those cargo carriers. He stated that a penny does make a difference, Vancouver, Seattle and Portland are trying to take the our business as well as intercept new business that we are trying to attract. He stated that it is competitive amongst the airports, and we are in a good position to increase our cargo. He stated that HB 63 will help sell Alaska as a good place for the cargo industry to do business. Number 1243 MR. PARKAN stated that last year there was a concern with the bill. He stated that the DOT/PF thought eliminating the FTZ tax exemption provision resulting in a tax for all would be the solution, however, the DOT/PF learned that this was problematic. He stated that in addition, it was not possible to stop carriers from using bonded warehouses to bring in bonded fuel. Number 1336 MR. PARKAN stated that the money that comes into the general fund by the fuel tax does not affect the DOT/PF's budget. He stated that they have program receipts tied to revenue that is generated from leases and fees from the airports, in particular the rural airports, which amounts to $2.8 million a year. He stated that the costs of operating the rural airports is about $20 million a year. He stated that the international airports operate in an enterprise fund, they generate the revenue internally and the money is fed back into the operations. He stated that an increase in revenues at the international airports would go back and reduce landing fees, resulting in a net zero process in international airport operation. Number 1433 CHAIRMAN WILLIAMS asked how HB 63 will affect the rural areas and should they be concerned. Number 1470 MR. PARKAN stated that the rural airports should not be concerned in relation to HB 63. He stated that they should be concerned as it relates to the general state of affairs, reducing budgets will affect the rural airports but there is no link between HB 63 and the rural airports. He stated that the DOT/PF has no plans, as a result, of HB 63 to raise landing fees. He stated that the legislature passed a bill a few years ago regarding an increase in fuel tax with a provision that stated landing fees can not be charged for a period of five years. He stated that the DOT/PF is not interested in raising any fees as a result of HB 63. Number 1543 CHAIRMAN WILLIAMS asked how the DOT/PF will make up in the loss of revenue. Number 1470 MR. PARKAN replied that there are benefits to HB 63 such as encouring expansion of instate refinery work. Number 1617 REPRESENTATIVE THERRIAULT stated that the members should refer to the fiscal note attached to HB 63 which states the estimated impact to be a loss of $2.8 million. He stated last year's fiscal note was for $3.7 million, therefore, in a year there has already been a loss of roughly $1 million. He stated that the airport revenues are going down anyway without HB 63. He stated there would be extra revenue created by landing fees, "if the fees stayed flat but we have ten more flights per week there would be extra revenue generated." Number 1679 MR. PARKAN stated, "We are not proposing to increase landing fees at the international airports, we not proposing to implement landing fees which do not currently exist at the rural airports." Number 1704 CHAIRMAN WILLIAMS asked, "What about the airport leasing." Number 1709 MR. PARKAN replied that the DOT/PF is looking at increasing revenue in certain areas, such as tie down fees that are not being charged at the rural airports. Number 1734 REPRESENTATIVE COWDERY asked if he could explain his interpretation of the word foreign and should HB 63 further define "foreign." Number 1756 MR. PARKAN replied he could not answer that but in terms of which carriers are paying the tax, which direction they are flying and when they are not paying the tax, is fairly clear. Number 1775 REPRESENTATIVE COWDERY asked that Korean Airlines is definitely a foreign airline, but Northwest has flights that could originate in a foreign country but does not always so how is the tax determined. Number 1790 MR. PARKAN replied the tax is charged to the carrier based on where they are flying not whether or not they are a foreign or domestic carrier. He stated that Alaska's biggest cargo air carriers are domestic and they are paying the tax. Number 1812 REPRESENTATIVE COWDERY asked, "They would not get the same benefits as the foreign." Number 1825 MR. PARKAN replied that they would. He stated that if they are currently paying the tax and would be exempted under HB 63, it does not matter if they are Federal Express or Korean Airlines, they would both benefit. Number 1836 REPRESENTATIVE COWDERY asked who are the beneficiaries if HB 63 is passed. Number 1846 MR. PARKAN replied that Korean Airlines, China Air, Federal Express, UPS, Northwest, Japan Airlines, United Airlines, Air France, Luftansa and others. Number 1874 REPRESENTATIVE COWDERY asked what other companies would benefit from the tax exemption. Number 1884 MR. PARKAN replied that besides the carriers, hopefully the instate processors will benefit in terms of expanding their production, increasing jobs, and by giving local producers business. Number 1904 REPRESENTATIVE COWDERY asked if the local producers are Mapco and Tesoro. MR. PARKAN replied that Mapco, Tesoro and Petro Star are the ones that come to mind. Number 1933 REPRESENTATIVE COWDERY asked what would we lose if HB 63 did not pass. Number 1944 MR. PARKAN replied that we would continue to lose market share from instate producers to foreign producers. He stated that fuel is coming in from the FTZ and the bonded warehouses and we would not be giving the message we want to the international cargo market. Number 1992 REPRESENTATIVE BILL HUDSON stated that he sees this as an equity issue, as we are trying to offset $2.8 million in potential tax receipts which will become less as the foreign producers over compete with the local refineries. He asked what the value is to Alaska by not paying the 3.2 cent tax at the present time. He asked is there a defined value by having more people come through the airports. Number 2033 MR. PARKAN replied that Anchorage International Airport provides about 9 percent of the total jobs in Anchorage. He stated that there is great potential for more jobs as a result of cargo hubbing and logistics. He stated that Alaska has several third party investors that are looking to develop cargo hubbing warehouses. He stated that if we can further encourage the air cargo carriers, by reducing the tax, Alaska will have a better advantage to keep and attract business. He stated that as the international airports get more traffic the cost of landing fees will be reduced and all airports will benefit as a result of this. Number 2175 REPRESENTATIVE HUDSON stated then this should reduce the cost of flights to the villages. He stated that the quantity or volume of production has some bearing to the cost of production, and in turn some benefit to Alaskans at the gas pump. He stated that if Mapco and Tesoro is able to refine more than perhaps the cost to Alaskans will be reduced. Number 2222 REPRESENTATIVE THERRIAULT replied that the local refineries are serving local markets and every gallon of product going out of the refinery has a fixed cost attached to it and if the number of gallons that are going out are increased then each gallon will cost less. He stated that the fixed cost of gasoline will spread. Number 2260 REPRESENTATIVE BEVERLY MASEK stated on Page 6 under jet fuel revenues, it says if "The legislature decides to continue a foreign flight exemption the term foreign clearly defined in statute...", she asked is that in HB 63. Number 2286 REPRESENTATIVE THERRIAULT stated that it is not in HB 63 because the definition that has caused the problem is a federal definition of what a foreign flight is and has triggered the loss to the tax revenue. He stated that the legislature can not do anything in the statute to fix the federal definition problem. Number 2307 REPRESENTATIVE SANDERS asked that the problem is not with changing routes but with the duty free fuel. Number 2339 MR. PARKAN stated that there are new carriers that are expressing an interest in coming to Alaska, so no one is changing routes as a result of the fuel tax at this point, but clearly it does effect the bottom line of carriers that would do business in Alaska. Number 2369 REPRESENTATIVE SANDERS asked if the FTZ provides nothing to offset the money lost through the tax. Number 2385 MR. PARKAN stated that in terms of actual dollars there is no benefit to the FTZ, but it encourages value added processing. He stated that the fuel benefit was not anticipated when Alaska went into the FTZ business. Number 2446 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division, Department of Revenue, stated that he was here to answer any questions. Number 2446 REPRESENTATIVE COWDERY asked if the Department of Revenue has a definition of the word foreign. Number 2459 MR. BARTHOLOMEW replied that under the state Motor Tax Law there is a clear definition of "foreign" and there has not been problems with who is subject to a tax and who is not. He stated that in tax laws, "foreign" is defined by destination, the confusion occurs in the federal commerce laws and in who qualifies for FTZ activities. He stated that from a state tax prospective definitions of "foreign" do not need to be changed. TAPE 97-6, SIDE B Number 032 REPRESENTATIVE HUDSON asked if there were any tax mechanisms on imported fuel in the state of Alaska. Number 049 MR. BARTHOLOMEW stated the problem is Alaska does have the authority to tax imported fuel, whether it is domestic or foreign but the federal government has developed special clauses under the U.S. Constitution in which customs, bonded warehouses, and the FTZ came into being which superceeds any state jurisdiction to levy a tax or a fee. Number 073 REPRESENTATIVE HUDSON asked if there could be a potential tax on imported fuel before it comes into the FTZ. Number 087 MR. BARTHOLOMEW replied that we can not tax until they come into Alaska's jurisdiction, which is in the FTZ. Number 108 REPRESENTATIVE HUDSON asked if there was any corporate income tax from those who operate in our airports. Number 127 MR. BARTHOLOMEW replied that there is a corporate income tax based on net income for any business that transacts business in Alaska. He stated that any registered taxable corporation is subject to the corporate income tax. Number 133 REPRESENTATIVE HUDSON stated that it is a factor that we can adjust, in that we establish what the corporate taxation rate will be. He asked if there is a separate rate for carriers that are operating at the airport as opposed to any other corporation in the state. Number 146 MR. BARTHOLOMEW replied that at this time the state of Alaska charges a tiered corporate rate that is applied to all business' and that he is not sure what the rules are for taxing differently. Number 159 REPRESENTATIVE SANDERS stated that he knows there is a definite benefit for the ships to come into the port of Anchorage, and asked if the port of Anchorage could have a port tax to offset this to the point were we could keep the tax. MR. BARTHOLOMEW replied that he did not know what authorities the ports would have for fees and charges. Number 193 REPRESENTATIVE THERRIAULT responded that if the municipalities put an increase fuel flowage fee, it would be a revenue to Anchorage and unless they bequeathed a certain amount of money every year to the general fund, he did not know how they would link the two together. Number 216 REPRESENTATIVE HUDSON asked if we have any understanding of what the comparative tax mechanisms are at other airports. Number 231 MR. BARTHOLOMEW stated that there is a diverse set of fees and taxes charged at every airport. He stated that the first thing to look at would be the landing fees, land rents, the local and state taxes. He stated that he has not seen a comparison of the total cost of doing business at airports. Number 272 REPRESENTATIVE HUDSON asked if it was possible if he could pull together a comparison to another airport to see how Alaska's policy is through the competition. Number 293 MR. BARTHOLOMEW replied that he would have to defer to the Department of Transportation and Public Facilities. Number 311 MR. PARKAN stated that the DOT/PF had tried to do a similar analysis and ran into problems but will try to bring in something to the next meeting. Number 328 JEFF COOK, Vice President, External Affairs and Administration, Mapco, based at the North Pole refinery. He stated that he has worked for Mapco for two years. He stated that Mapco is twenty years old and was purchased the trans-Alaskan refinery in 1981. He stated that there are 450 employed by Mapco with 100 percent local hire rate. Number 393 MR. COOK stated that we have clearly seen the shift to FTZ fuel and the Mapco jet fuel customers have made it clear that they are going to continue to buy FTZ fuel. He stated that we are losing sales through the FTZ and even if we could remove the FTZ it would still allow the carriers to use bonded fuel. Number 454 MR. COOK stated that Alaska consumes between 51,000 and 55,000 barrels of jet fuel, each barrel contains 42 gallons. He stated that Anchorage airport consumes 42,000 barrels a day of that total. He stated that Federal Express is located in Tennessee and the Memphis airport consumes 18,000 barrels of jet fuel a day. He stated that the instate refineries do not have the capacity to refine the fuel demand and are about 10,000 barrels short a day. He stated that we have always had to import a certain amount and until the FTZ it was always West Coast refined jet fuel which would import North Slope crude oil. He stated that in order to have a contract with a carrier Mapco needs to be able to meet all there fuel needs and as a result has to sometimes import FTZ fuel. He stated that there needs to be an incentive to expand the production of the refineries. He stated that the expansions are multi-million dollar projects and a penny can mean three million dollars. Number 576 MR. COOK stated that this tax is going away anyway. He stated that the benefits from increasing Alaska's international air traffic are increased fuel flowage fees, landing fees through usage, corporate taxes, and additional jobs. He stated that Mapco is the largest shipper of the railroad in that they provide $21 million in revenue to the railroad, therefore if fuel is imported, the Alaska Railroad is penalized as well. He stated that there needs to be an incentive to bring in Alaskan fuel. He stated that Alaska would benefit with added production and increased demand for Alaska crude oil. He stated there would be a potential for added jobs by all corporations who are paying corporate taxes. Number 770 REPRESENTATIVE THERRIAULT asked, "With regard to the cost of your crude, and through the refinery is royalty oil through the state, and I just remember back in the mid 1980s, when I was involved in negotiation of the contract and the price that you were paying was, I think you actually paid a slight premium, that contract I think is expired and I am not sure what your current price...." Number 800 MR. COOK replied that there is a market based contract with the state and it goes to 2003 and it looks to market references and the state negotiated those contracts to make sure Alaska is getting full value. Number 828 REPRESENTATIVE COWDERY asked if Mapco is profitable. MR. COOK replied, "We make money, if we didn't we wouldn't be here." Number 838 REPRESENTATIVE COWDERY asked what is the price of the gas in Anchorage and Fairbanks. Number 859 MR. COOK stated that the price is less in Anchorage than in Fairbanks. REPRESENTATIVE COWDERY asked why that was. MR. COOK stated that Anchorage has competitors and Fairbanks does not. He stated, "We have a refinery that has a fixed production, whether we run the maximum of 135,000 barrels a day through there, which we retain 44 or 45 or whether we run nothing there are certain fixed costs that are there. So if we could sell in a market and make less than we could to justify selling our whole production at that and stay in business we have benefitted everybody." He stated that Mapco is sensitive to local markets and trys to be fair to the consumers. Number 918 REPRESENTATIVE COWDERY asked if his understanding was correct in that the price to the public is based on the competition or the alternative supply. MR. COOK stated it is a market value. Number 992 REPRESENTATIVE COWDERY asked if could Mapco adjust their prices to take up the slack from the tax. Number 1039 MR. COOK stated that they do not pay the tax the carriers do. He stated that Mapco is not going to be able to increase the price by the 3.2 cents. He stated that we want to maintain and hopefully increase volumes. He stated that we either lose the business or we have to absorb it and it would not be fair for instate refiners to have to absorb that cost. Number 1083 REPRESENTATIVE COWDERY stated that instate refineries are going to be the beneficiaries of the tax exemption in a larger volume of sales. Number 1113 REPRESENTATIVE HUDSON asked if Mapco had expansion plans at the current time to provide the added capacity. Number 1128 MR. COOK stated that Mapco does not have specific plans but HB 63 is key to the expansion. Number 1209 REPRESENTATIVE SANDERS asked if HB 63 is passed can't the foreign refiners drop their price by a penny resulting in Alaska being no better off than it is now. Number 1247 MR. COOK replied that a 3.2 cent advantage is a big advantage plus there are a lot of other factors that the foreign carriers have to comply with. He stated that there are other costs and he thinks that the instate refiners will still have the advantage. Number 1339 KIM ROSS, Director, Alaska Air Carriers Association, testified via teleconference from Anchorage, that she had been director of the association for ten years. She stated that the association represents 110 air carriers and air service suppliers, serving Alaska. She stated that the views expressed in the association's February 28, 1996, letter remain valid today. She stated that a tax policy decision should be based on accurate facts and sound analysis, and that has yet to be done. She stated that the fuel tax exemption would create an un-level playing field for carrier competing for cargo at Anchorage airport. Ms. Ross stated, "Carriers that happen to be continuing from a foreign airport, picking up new cargo at Anchorage and carrying it on to Memphis or Los Angeles would get the fuel tax exemption and a competitive advantage. Carriers that start in Anchorage or that come to Anchorage from another U.S. airport picking up the same cargo at Anchorage and carrying it to the same destination in the U.S. would not receive the fuel tax exemption and that would create a competitive disadvantage." Number 1516 MS. ROSS stated that federal law does exempt FTZ or bonded fuel from the Alaska tax of 3.2 cents, the Department of Revenue should be collecting that tax. She stated that no one has refuted the association's analysis on this point. Number 1582 MS. ROSS stated that there are options to fix the perceived problem at the boundaries of the FTZ. She stated that a substantial amount of the foreign fuel is being imported by Alaskan refineries because they can not compete but at the same time there are enjoying record production volume, sales volume, margins and profit. She stated that Anchorage has record cargo growth without the jet fuel tax exemption, it grew over 13 percent in 1996. She stated that the tax exemption would cost between four and five million dollars which are funds that are for the rural airports' maintenance and operations budget. Number 1704 MS. ROSS stated that the rural airports budget total is $19.3 million dollars, revenue from the DOT/PF is about $2.5 million, aviation fuel revenues are $8.5 million, which leaves a short fall of $8.3 million in 1995. She stated that the DOT/PF projects a 40 percent to 50 percent decrease in fuel tax revenue if HB 63 passes, which equates to 25 percent of the entire maintenance and operations budget for rural airports. She stated that this could result in a terrible impact on operational safety and a disastrous impact on the transportation needs of Alaskans. She questioned where the airport would make up the $4.5 million for airport operation and maintenance as the rural communities could not afford a small dent in this short fall. Number 1858 MS. ROSS stated that the point of increased landing fees from increased traffic does not make sense because the increased traffic would be in Anchorage and the law states that landing fees can only be used to fund Anchorage and Fairbanks and can't be diverted to rural airports. She stated that the Governor and the legislature promised not to reinstate landing fees at rural airports and that fuel taxes were the fairest method to raise revenues for rural airports. She asked if the rural airports would the effects of the tax give away. Number 2070 MS. ROSS stated that the association would like HB 63 to require an overall transportation funding plan be developed and put into effect prior to any tax exemption is effective. She stated that those seeking a tax advantage should be able to provide good reasons for it. She stated that the lost revenue will be made up at the rural airports expense and they can't afford it. She asked what the committee would do to protect the rural airports interests. Number 2181 REPRESENTATIVE THERRIAULT stated that he and Representative Hanley met with a representative from the association this past summer and asked for a review of their legal arguments by the attorney general's office and the Department of Revenue. Mr. Hanley received a letter back stating "I am confident that the conclusions reached by our staff are correct and that we must continue to exempt the fuel used in foreign commerce that is run through the FTZ." He stated that the administration did look into this and felt assured that their interpretation was right and they respectfully disagree with the Alaska Air Carriers Association. He stated "If a link existed between the revenue drive from the fuel that protected the air carrier from seeing increased landing fees, the erosion of nearly a million dollars from this year and last year should cause the association to be concerned because they should be feeling the pressure of that slack." He stated that there is no connection between the two it is only through the budgeting policy that there is any connection between the revenues that are generated between the fuel tax and the revenues that are charged from the moorage. Number 2381 CHAIRMAN WILLIAMS stated to Ms. Ross that he would have some answers to her letter at the next meeting. Number 2436 REPRESENTATIVE HUDSON asked if her analysis of the $4.5 million value of the revenue is derived from subtracting known figures from the total cost. Number 2466 MS. ROSS replied that is correct. TAPE 97-7, SIDE A Number 014 REPRESENTATIVE HUDSON asked Ms. Ross if there was a policy written on the total collected taxes and the implications of use at the various of airports, he would like to see it. Number 055 CHAIRMAN WILLIAMS stated that HB 63 will be taken up at the next meeting. ADJOURNMENT Number 084 CHAIRMAN WILLIAMS stated that the House Standing Transportation Committee was adjourned at 2:40 p.m.