HOUSE TRANSPORTATION STANDING COMMITTEE February 26, 1997 1:10 p.m.ΒΆ MEMBERS PRESENT Representative Bill Williams, Chairman Representative Beverly Masek, Vice Chairman Representative John Cowdery Representative Bill Hudson Representative Jerry Sanders Representative Kim Elton Representative Al Kookesh MEMBERS ABSENT All members present 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." - MOVED CSHB 63(TRA) OUT OF COMMITTEE HOUSE BILL NO. 95 "An Act relating to motor vehicle registration, licensing, and insurance; and providing for an effective date." - MOVED CSHB 95(TRA) OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 63 SHORT TITLE: AVIATION FUEL TAX EXEMPTION SPONSOR(S): REPRESENTATIVE(S) THERRIAULT, Davies, Kelly, Brice JRN-DATE JRN-PG ACTION 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 (H) MINUTE(TRA) 02/12/97 325 (H) COSPONSOR(S): KELLY 02/17/97 (H) TRA AT 1:00 PM CAPITOL 17 02/18/97 388 (H) COSPONSOR(S): BRICE 02/24/97 (H) TRA AT 1:00 PM CAPITOL 17 02/24/97 (H) MINUTE(TRA) BILL: HB 95 SHORT TITLE: MOTOR VEHICLE INSURANCE & LICENSING SPONSOR(S): REPRESENTATIVE(S) GREEN, Bunde, Rokeberg, Cowdery JRN-DATE JRN-PG ACTION 01/29/97 168 (H) READ THE FIRST TIME - REFERRAL(S) 01/29/97 168 (H) TRANSPORTATION, JUDICIARY 02/05/97 252 (H) COSPONSOR(S): BUNDE 02/10/97 297 (H) COSPONSOR(S): ROKEBERG 02/19/97 (H) TRA AT 1:00 PM CAPITOL 17 02/19/97 (H) MINUTE(TRA) 02/21/97 429 (H) COSPONSOR(S): COWDERY WITNESS REGISTER REPRESENTATIVE GENE THERRIAULT Alaska State Legislature Capitol Building, Room 511 Juneau, Alaska 99801 Telephone: (907) 465-4797 POSITION STATEMENT: Presented HB 63. MARK NECESSARY, Senior Vice President Tesoro P.O. Box 3369 Kenai, Alaska 99611 Telephone: (907) 776-8191 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 99811 Telephone: (907) 465-2320 POSITION STATEMENT: Testified on HB 63. JUANITA HENSLEY, Chief Driver Services Office of the Commissioner Department of Public Safety P.O. Box 20020 Juneau, Alaska 99501 Telephone: (907) 465-4361 POSITION STATEMENT: Testified on CSHB 95. MICHAEL LESSMEIER, Attorney State Farm Insurance One Sealaska Plaza, Suite 303 Juneau, Alaska 99801 Telephone: (907) 586-5912 POSITION STATEMENT: Testified on CSHB 95. KRISTY TIBBLES, Legislative Secretary to Representative Joe Green Alaska State Legislature Capitol Building, Room 118 Juneau, Alaska 99801 Telephone: (907) 465-4931 POSITION STATEMENT: Testified on CSHB 95. ACTION NARRATIVE TAPE 97-12, SIDE A Number 001 CHAIRMAN BILL WILLIAMS called the House Transportation Standing Committee to order at 1:10 p.m. Members present at the call to order were Representatives Williams, Masek, Cowdery, Hudson, Sanders, Elton and Kookesh. HB 63 - AVIATION FUEL TAX EXEMPTION Number 061 CHAIRMAN WILLIAMS announced the first order of business to be HB 63, "An Act extending the motor fuel tax exemption for fuel sold for use in jet propulsion aircraft to fuel used in those aircraft for flights that continue from a foreign country; and providing for an effective date." Number 153 REPRESENTATIVE GENE THERRIAULT stated that he would defer to the committees wishes on whether they want to take action on the original bill or the committee substitute with the marine bunker fuel. He stated that although a number of years ago the legislature tried to put an incentive into statute to increase the amount of marine bunker fuel that was sold in the state of Alaska, the Department of Revenue has provided information that the actual amount sold in the state has dropped off significantly. He stated that in 1996, 99,553 gallons of bunker fuel was sold which derived $5,177 of tax to the state. He stated that adding marine bunker fuel will not impact the fiscal note very much, but hopefully it will lure sales back into the state of Alaska. There are a number of cruise ships that come into the state but they are buying their product out of state where they have a tax advantage. Number 304 REPRESENTATIVE JOHN COWDERY stated that it was his understanding that the bunker fuel or residual oil is also used to make coke in coal. He asked if there was anything that could be done to enhance the Beluga Coal Fields. Number 407 REPRESENTATIVE THERRIAULT stated that this is the first time he had heard of this and if the committee is uneasy about adding the bunker fuel onto the bill and would prefer not to,1 that would be fine. Number 453 REPRESENTATIVE KIM ELTON asked why is it limited just to passenger watercraft. Number 469 REPRESENTATIVE THERRIAULT replied that it is where the potential sales or utilization of this type of fuel is anticipated to come from. Number 493 REPRESENTATIVE BILL HUDSON asked if we were going to take up the original bill or the committee substitute bill. Number 507 CHAIRMAN WILLIAMS responded that before the committee is the original bill and it would be up to the committee members if they want to take up the committee substitute. Number 558 MARK NECESSARY, Senior Vice President, Tesoro, stated that Tesoro supports HB 63. He stated that HB 63 will help Alaskan refiners remain competitive and at this time jet fuel produced outside the state is entitled to the tax exemption. It will encourage jobs and investment in the state of Alaska. He stated that recently Tesoro announced the capital budget for 1997 to be $50 million, of which $16 million is allocated to expand the hydrocracker unit at the Kenai refinery which produces jet fuel. He stated that it is ironic that Tesoro purchases Alaska crude oil at a premium price then pays tax on a fuel that sells for considerably less than what is paid for the raw material. He stated that bunker fuel is a residual from the crude oil after the light ends are extracted in the refining process. He stated that the only market for residual fuel oil in Alaska are asphalt, bunker fuel, fuel for tankers and cruise ships, and re-injection into the Trans-Alaskan Pipeline. He stated that the intent from Tesoro's prospective is for the bunker fuel amendment to include all tankers. He stated that the product is currently subject to state fuel marine tax. He stated that the tax for bunker fuel is 5 cents per gallon. This tax represents the disproportional amount of cost for the bunker fuel. He stated that as a result of the current rate of taxation on this product, Alaska bunker fuel oil is overpriced and Alaska producers can't compete with suppliers from outside the state. He stated that even though many tankers and cruise ships call on Alaskan ports, minimal quantities of this extremely tax sensitive fuel oil are purchased in Alaska. He stated that Alaska bunkers contain less sulfur than the average bunker used in Alaska waters. The Alaska refiner transports the residual fuel oil to the west coast where it is combined with an inferior bunker fuel that contains a much higher level of sulfur, which is sold to the same vessels calling on Alaska ports. He stated that this tax should be eliminated to increase the marketability of a quality, value added Alaska petroleum product in a very competitive market. He stated that Tesoro would like to have the opportunity to develop the market for this product. Number 821 REPRESENTATIVE HUDSON asked what Tesoro's average annual tax on the bunker fuel is and what percentage of the bunker fuel does Tesoro burn to manufacture other products. Number 841 MR. NECESSARY stated that Representative Therriault reference to $5,000 being collected in 1996 probably pertains strictly to cruise ships. The Tesoro Kenai refinery used 130,000 barrels, this past year. Number 880 REPRESENTATIVE HUDSON asked if you paid $600,000 in taxes, one- third of that would be taxes that are being paid on a product that you are expending yourself. Number 906 REPRESENTATIVE COWDERY referred to his comments earlier regarding residual fuel being used for coking operations in developing coal fields and asked if the residual could be used for those purposes. Number 936 MR. NECESSARY replied that several years ago Tesoro had looked into that and if the market were to develop, that would be a useful market for that material. Number 956 REPRESENTATIVE COWDERY stated that the committee substitute should be addressed. Number 985 REPRESENTATIVE JERRY SANDERS asked what period of time would $50 million be spent on the expansion. Number 1005 MR. NECESSARY stated that it would be between now and December 31, 1997. Number 1013 REPRESENTATIVE SANDERS asked how many construction jobs this would bring to Alaska and if workers would be brought in from outside Alaska. Number 1025 MR. NECESSARY replied that the total estimate is about 250 construction jobs, 160 will be allocated to the expansion of the refinery and from that group it is expected to have 98 percent Alaskan hire. Number 1052 REPRESENTATIVE SANDERS asked if it would primarily increase the jet fuel or would it increase the bunker fuel as well. Number 1066 MR. NECESSARY stated that it will increase the amount of jet fuel by 1,700 barrels per day. Number 1074 REPRESENTATIVE SANDERS asked that wouldn't it increase the bunker fuel as well, since it is a by-product. Number 1081 MR. NECESSARY responded that it will not increase the amount of the heavy material coming through the refinery. He stated that the unit it would be processed through would be a hydrocracker unit, which cracks the molecule into smaller molecules, which produces jet fuel. Number 1097 REPRESENTATIVE SANDERS asked who the bunker fuel is sold to. Number 1107 MR. NECESSARY replied that it is sold to the Liquid and Natural Gas (LNG) Tankers that run between Nikiski and Japan and the rest is for their own tankers. Number 1133 REPRESENTATIVE SANDERS asked that in other words, you are selling this to yourself and paying a tax on it. He asked if the reason it is bought here is because they can't buy it in Japan. MR. NECESSARY replied that he could not answer that, but he would presume that is the reason. Number 1148 REPRESENTATIVE SANDERS stated that he would think with their operations on Sahlalin island it would just be a short period of time until they would be selling it to themselves in Japan and that Tesoro would lose that market too and asked if Tesoro would be the only one in Alaska that is paying the tax. MR. NECESSARY replied that is correct. Number 1169 REPRESENTATIVE SANDERS stated that he thought the committee substitute should be addressed. Number 1180 REPRESENTATIVE HUDSON asked if someone from revenue could address the dollar amounts, so we would know not just from the industry but also from the agencies. Number 1203 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division, Department of Revenue, stated that the history of bunker fuel sales in 1994 and 1995 equaled $200,000 in revenue. In 1996 what has been reported as sale of bunker fuel has dropped off considerably. He stated it could be because consumption has dropped off or because it was netted with other kinds of fuel upon reporting. He stated that an option that the state took and the department supported was in 1994, a proposed alternative to the complete repeal of the tax. A special act was passed that stated a certain threshold on bunker fuel, which was 4 million gallons and as soon as this was sold the tax was dropped from 5 cents a gallon to 1 cent a gallon. This provided an incentive to sell bunker fuel and the state still received some of the revenue. He stated that an option would be to extend this option that expires in 1998. He stated that the 400 million gallons equates to $200,000 dollars in tax. Number 1365 REPRESENTATIVE HUDSON made a motion to adopt CSHB 63, B draft, before the committee. Number 1380 CHAIRMAN WILLIAMS asked if there were any objections. Number 1386 REPRESENTATIVE ELTON stated that he would object for clarification purposes. He stated that the draft before us now would only apply to bunker fuel that is sold to passenger watercraft. He asked if he was correct in sensing that there is some wish to expand that beyond passenger watercraft. Number 1439 REPRESENTATIVE COWDERY stated that it was his intentions to extend it so it would allow development of the Beluga Coal Field, because it is a low yield field and it is one of the largest fields on tide water in the nation, but in order to make it competitive there needs to be a residual of oil. Number 1480 REPRESENTATIVE HUDSON stated that he believed the committee substitute needs to be adopted before it could be amended. Number 1497 REPRESENTATIVE ELTON stated that he would maintain his objection. Number 1515 CHAIRMAN WILLIAMS called for a roll call vote. Representatives Cowdery, Kookesh, Hudson, Sanders, Masek and Williams voted in favor of the motion. Representative Elton voted against motion. Committee Substitute HB 63 was adopted before the committee. Number 1525 REPRESENTATIVE COWDERY asked the Department of Revenue where it would be appropriate to put the amendment in the bill. Number 1556 MR. BARTHOLOMEW stated that the department has not been involved in the drafting of the amendment so he would hesitate to comment until he has the intent in writing. REPRESENTATIVE COWDERY stated that maybe the language could be added in the next committee of referral. Number 1604 REPRESENTATIVE SANDERS stated that maybe the committee could agree on an conceptual amendment. CHAIRMAN WILLIAMS stated that a memo will be sent along with the bill. Number 1623 REPRESENTATIVE HUDSON stated that if we are going modify or amend the bill then we would have to ask for an amended fiscal note to carry along with it. He suggested that the committee pass out the bill and attach a letter of intent to the next committee of referral. Number 1653 REPRESENTATIVE SANDERS stated that if page 2, line 21 had the word passenger eliminated from it would eliminate the need for lines 24 through 26. Number 1684 REPRESENTATIVE ELTON stated that it would not address Representative Cowdery's concern of the use of this kind of fuel to create a coal slurry. He stated that the reason he objected to the bill was because he had a sense that the committee would want to go on further. He would prefer it if it just addressed the problem that was originally presented, this is a last minute change that will lead to further change. He stated that the committee is taking a bill that addresses a discreet problem and is trying to fix other things by reducing the revenue that comes to the state at a time when more programs are being taken out. He stated that it is a problem that Tesoro pays a tax on fuel that they are selling to themselves but beyond that causes problems. He stated that the committee is making a substantive change that is going to make him rethink his position on the bill. Number 1808 CHAIRMAN WILLIAMS stated that this was talked about when the bill was first brought to the committee and the language of the title of the bill was tightened up. He stated that this should take care of Representative Elton's concern. Number 1837 REPRESENTATIVE ELTON stated, "that it does help a lot. I guess the growth that I see in this bill is I can swallow this bill when it says passenger watercraft. I might even be able to swallow this bill if it says passenger watercraft and let's not tax somebody selling bunker fuel to themselves. Going beyond that would be allowed under the title." He stated that the coking idea for coal may be a great idea and he understands that there could be a potential problem competing with refineries, that in the future may be placed overseas at which he would then revisit the bill. He stated he is not comfortable with extending this, in light of a potential problem down the road when it means that we are taking $200,000 out of the general fund. Number 1882 REPRESENTATIVE COWDERY stated that he would have no problem moving the bill and working with the sponsor in the next committee of referral. Number 1911 REPRESENTATIVE BEVERLY MASEK made a motion to move CSHB 63(TRA), 0- LS0262\B, Chenoweth, 2/26/97 with the following fiscal notes and individual recommendations. Number 1930 CHAIRMAN WILLIAMS asked if there was an objection. Hearing none, CSHB 63(TRA) was moved out of the House Transportation Standing Committee. HB 95 - MOTOR VEHICLE INSURANCE & LICENSING Number 1992 CHAIRMAN WILLIAMS stated that the next order of business is HB 95, "An Act relating to motor vehicle registration, licensing, and insurance; and providing for an effective date." He stated that the bill was amended at the last meeting. REPRESENTATIVE MASEK asked which version of the bill the committee was working from. Number 2019 JUANITA HENSLEY, Chief Driver Services, Office of the Commissioner, Department of Public Safety, stated that the committee was working from the original draft of the bill, Version E, with two amendments 1 and 2. Amendment 1 failed and Amendment 2 was adopted. Number 2035 REPRESENTATIVE AL KOOKESH asked if under the exemption for insurance, other than being a self insurer, is the exemption on page 3, off road system. Number 2050 MS. HENSLEY replied, "Yes, that it is anyone that is determined by the Department of Transportation and Public Facilities studies that have fewer then 499 daily traffic." She stated that there are those that have the off systems drivers license that are exempt from this. Number 2068 REPRESENTATIVE MASEK stated that page 2, Section D, line 5 through 8, if an insurance company did not put forth the required paperwork could they be suspended or lose their license. Number 2140 MS. HENSLEY stated that this is placed through the Division of Insurance Statutes and it would be the reporting requirements and the Division of Insurance Requirements. She stated if the division found that a person was not following the intent of the law by providing the information to the Department of Public Safety, then the provisions of existing law would step in. Number 2194 REPRESENTATIVE MASEK asked that it seems that statute already requires drivers to carry insurance in the state. Number 2225 MS. HENSLEY stated that it is mandatory that everyone certify their vehicle, at the time they are registering their vehicle, that the vehicle meets the limits of liability under Alaska Statute, Title 28, Chapter 22. She stated that the division does not require proof to be shown, it is a self certification program. The only time that a person is required to submit proof that the vehicle is insured is after the fact of an accident, resulting in damages greater that $501. She stated that they have 15 days from the date of the accident to submit proof that the vehicle is insured. She stated that what they are doing in the bill, is at the time of registration the insurance will be verified though the electronic media. REPRESENTATIVE MASEK stated that since there is already a law why not go after the offenders. We need to enforce the laws that are on the books rather than make the insurance companies more accountable. Number 2268 MS. HENSLEY stated that the provision does go after the individuals if they are involved in an accident and do not submit the proof that they are insured, the Division of Motor Vehicles suspends the uninsured driver's license regardless of fault. She stated that the bill allows the department to electronically verify that the person was insured on the spot, eliminating paperwork. Number 2278 REPRESENTATIVE MASEK stated that on page 1, Section 1, line 7, of the bill, regarding the monthly reporting, it seems like it is going after the private sector. She stated maybe it should be reported at the time the insurance is purchased. She stated it is putting a bigger burden on the industry rather than having the agencies do the job. Number 2353 MS. HENSLEY stated that the division updates changes monthly and the insurance industry already has an electronic medium. She stated that all the large insurance companies are on the electronic database. She stated that the division will have access to the database and will eliminate having to get the information through paper shuffling. It will benefit the way the division does business. She stated that last year, the division eliminated four positions from the budget. TAPE 97-12, SIDE B Number 007 MS. HENSLEY stated that enacting an electronic verification program, will allow the financial responsibility program to be reinstated. Number 034 REPRESENTATIVE COWDERY stated that there is very little proof required at present to show that a driver is insured. Number 055 MS. HENSLEY stated that is correct. Number 077 REPRESENTATIVE COWDERY stated that after an accident the only thing that can be done is to take the license away. He stated that the bill enforces that existing law to a higher degree. Number 116 REPRESENTATIVE HUDSON asked if the lists are able to become public. Number 132 MS. HENSLEY replied that page 5, lines 10 through 12 stated that database companies can't disclose information on the file. Number 156 REPRESENTATIVE HUDSON asked that if there is anything in the bill that addresses out of state insurers being on the line to easily report in every 30 days. Number 179 MS. HENSLEY stated that if they are licensed to do business in the state of Alaska, they have to be approved by the Division of Insurance and they would be required to report to the database company. Number 206 REPRESENTATIVE SANDERS asked if Ms. Hensley said that they are going to eliminate four people if this goes through. Number 220 MS. HENSLEY replied no, the division eliminated four people last year and lost a whole program. She stated that what they wanted to do is free up people that are doing the paper shuffling to reinstate the program. Number 263 REPRESENTATIVE HUDSON stated that we are adding an additional cost to the industries. He stated that the bill appealed to him because of the possibility that the uninsured motorist could be eliminated and decrease the liability that all of the insured motorists have. Number 330 MS. HENSLEY stated that there are those individuals who are never going to have insurance but this will cut the uninsured motorists quite drastically. She stated that the one state that has this law has cut their uninsured motorists by half. Number 367 MICHAEL LESSMEIER, Attorney, State Farm Insurance, stated that everytime the legislature passes a bill that raises the cost of doing business, the cost has to be passed onto the customers. He stated that the problem that is trying to be solved is one of uninsured drivers, who usually can't afford insurance to begin with and by making the product more expensive, will not solve the problem. He stated that when the company does better than the loss experienced, money is given back. In 1987 and 1988 State Farm Insurance issued a 20 percent premium refund. He stated that the issue is enforcement. If the bill is passed without anymore enforcement mechanisms in it, it will not affect the number of uninsured drivers. He stated that proof of insurance at the time of registration would not cost the industry or the policy holders any additional money. He also suggested that when stopped for a traffic violation proof of insurance should also be checked. MR. LESSMEIER stated that there ought to be an independent audit of the situation to see if it is working. He stated that confidentiality could be a problem. He urged a need for caution, with the bill. He stated that insurance companies may be set up electronically but they are not set up to transfer information. Number 683 REPRESENTATIVE ELTON stated that the bill will add efficiencies to the agency operation and may lead to reinstatement of a program that could benefit the insurance industries. Number 717 MR. LESSMEIER stated that not all insurance companies are computerized. He stated that the Motor Vehicle Safety Responsibility Act should be separate from the bill, he stated that a new computer system will result in time to make it operational. He stated that the legislature should give the division funding to reinstate the act. Number 790 REPRESENTATIVE MASEK asked if any insurance companies have the database set up. Number 813 MR. LESSMEIER replied that he didn't believe so. Number 830 REPRESENTATIVE COWDERY made a motion to move CSHB 95(TRA) out of the House Transportation Standing Committee. Number 841 REPRESENTATIVE MASEK objected for purpose of discussion. She stated that she would like to offer an amendment to page 1, Section 1, line 7, to change each calendar month to "an insurer that issues an automobile liability insurance policy in this state shall within fifteen days of the policy inception date or cancellation, report to the Department of Public Safety a record of each motor vehicle insurance policy issued by the insurer." Number 888 CHAIRMAN WILLIAMS stated that he will accept that amendment at this time, but from here on out he will not accept an amendment that is brought before the committee at the time there is a meeting. He stated that he would appreciate getting the amendments a day before as members expect the bill to be before them a day before. Number 915 CHAIRMAN WILLIAMS objected to the amendment. Number 924 REPRESENTATIVE MASEK stated that basically what the amendment would do is instead of having the insurance company comply every month it would give them the opportunity to provide the information within 15 days of the policy inception date or cancellation date to the Department of Public Safety. Number 957 KRISTY TIBBLES, Legislative Secretary to Representative Joe Green, stated that Representative Green would prefer not to have the amendment in the bill, although he is not entirely opposed. She stated that monthly reporting would be more accurate. Number 1000 CHAIRMAN WILLIAMS stated that there are two motions on the floor he asked that the motion to move the bill be withdrawn. REPRESENTATIVE COWDERY withdrew the motion to move CSHB 95(TRA). Number 1012 REPRESENTATIVE ELTON stated that instead of turning over the whole database monthly, the insurer would only be required to provide notice of new policies that are written or provide notice of policies that were expired and not renewed. He asked what would be less of a burden on the industry, doing these as they occur within fifteen days or each month. Number 1061 MS. TIBBLES responded that it appears for large insurance companies it would be less of a burden to report monthly, however for smaller companies it is easier to report as they receive the cancellations. Number 1108 CHAIRMAN WILLIAMS asked for a roll call vote on Amendment 3. Representatives Elton, Sanders, Hudson, Kookesh, Cowdery, Masek voted in favor of Amendment 3. Chairman Williams voted against Amendment 3. Amendment 3 passed. Number 1120 REPRESENTATIVE COWDERY made a motion to move CSHB 95(TRA) as amended, with the attached fiscal note and individual recommendations. Number 1133 CHAIRMAN WILLIAMS asked if there was any objections. Hearing none, CSHB 95(TRA) was moved out of the House Transportation Standing Committee. ADJOURNMENT Number 1137 CHAIRMAN WILLIAMS stated that the House Transportation Standing Committee is adjourned at 2:35 p.m.