MINUTES SENATE FINANCE COMMITTEE 8 May 1997 8:10 a.m. TAPES SFC-97, #148, Side 1 (000 - 588) 148, Side 2 (588 - 000) 149, Side 1 (000 - 361) CALL TO ORDER Senator Bert Sharp, Co-chairman, convened the meeting at approximately 8:10 a.m. PRESENT In addition to Co-chairman Sharp, Senators Pearce, Phillips, Donley, Torgerson and Adams were present when the meeting convened. Senator Parnell arrived at approximately 8:30 a.m. ALSO ATTENDING: Senator Gary Wilken; Paul Bowers, Director, Statewide Aviation, Leasing, Department of Transportation and Public Facilities; Bob Bartholomew, Deputy Director, Division of Income and Excise Audit, Department of Revenue; Jeff Cook, MAPCO; Mark Necessary, TESORO; Ron King, Department of Environmental Conservation; Jerry Burnett, staff to Senator Randy Phillips; Jim Kelly, Research and Liaison Officer, Alaska Permanent Fund Corporation, Department of Revenue; Representative Norman Rokeberg; Sam Kito, III, Legislative Liaison/Special Assistant, Office of the Commissioner, Department of Transportation and Public Facility; Glenda Straube, Director, Central Office, Division of Child Support Enforcement, Department of Revenue; Dan Branch, Assistant Attorney General, Human Services Section, Civil Division, Department of Law; Ashley Reed, lobbyist; aides to committee members and other legislators. SUMMARY INFORMATION Co-chair Sharp convened the session and called HB 63. CS FOR HOUSE BILL NO. 63(2d RLS) "An Act amending the definition of `motor fuel' under the state's motor fuel tax to add, as a part of the tax exemption set out in that definition, exemption from the tax for fuel sold for use in jet propulsion aircraft operating in flights that continue from foreign countries, subject to termination of the exemption for that fuel if a refiner operating a refinery at which the fuel was produced fails to comply with terms of a voluntary agreement entered into by the refiner to use Alaska residents, contractors, and suppliers to provide goods and services when the refinery's capacity is expanded, t o add exemption from the tax for certain number 6 `residual fuel oil,' also known as bunker fuel, and to delete the exemption from the tax for fuel that is at least 10 percent alcohol by volume; and repealing ch. 42, SLA 1994, the Act providing for the imposition of a different tax levy on residual fuel oil used in and on certain watercraft until June 30, 1998; and providing for an effective date." Paul Bowers, Director, Statewide Aviation, Leasing, Department of Transportation and Public Facilities was invited to join the committee. He explained the department's standing on the bill. Senator Adams referred to SB 256 of last year and said concerning the aviation tax he was worried about how this might affect rural aviation. Mr. Bowers responded and noted that PFC's would not be affected. All taxes collected at the airport would be used for capital projects at the specific airport. Senator Donley asked if the Governor supported the alcohol exemption on page 4, line 29. Mr. Bowers said he did not know this status. He did feel, however, everyone should pay the same amount of tax. Senator Donley said it was an inequity removing the tax on aviation fuel. Mr. Bowers indicated that last year they dealt with the problem of inequity, but there was no way to stop fuel coming in through the foreign trade zone. Bob Bartholomew, Deputy Director, Division of Income and Excise Audit, Department of Revenue, was invited to join the committee. He explained the legal opinion and said under this opinion the State would lose the challenge on tax. It was "preempted by Federal law". Senator Torgerson asked if incoming fuel to the foreign trade zone could be restricted and Mr. Bartholomew said it had not been asked. Mr. Bowers, however, informed that the Department of Transportation had asked if restrictions could be placed on the incoming fuel but they go nowhere on that issue. Co-chair Sharp said that the ethanol exemption had resulted in a loss the last three years of over $17 million. Senator Pearce asked if we were being sold fuel even if we did not need it and Co-chair Sharp indicated "yes". Senator Pearce said we should only purchase ethanol gas as needed. Jeff Cook, MAPCO, was invited to join the committee. He explained MAPCO's understanding of the bill. He said there was an eight cent state credit. The cost for ethanol was $1.35. They could inject MTB at the truck. The credit would equal the cost of the project to blend. Senator Donley inquired the mandatory period and Mr. Cook said it was November through March. Mark Necessary, TESORO, was invited to join the committee. He said their standing was different than MAPCO. They do have the flexibility to manufacture octane and they do export some gasoline. Ultimately, the market will dictate what will happen. Senator Donley requested TESORO provide certain information. He noted the price would go up in Anchorage. Mr. Cook said that ethanol also had a fluctuating price. The Anchorage market, specifically, had a tremendous fluctuation and the prices may vary from station to station. Senator Phillips said he noted higher MAPCO prices in poorer sections. Senator Pearce moved CSHB 63(2d RLS) with individual recommendations and accompanying fiscal notes. Senator Donley objected. AMEND #1 moved by Senator Donley failed by a vote of 3 - 3 (Torgerson, Pearce, Sharp). AMEND #2 moved by Senator Donley failed by a vote of 3 - 3 (Torgerson, Pearce, Sharp). AMEND #3 moved by Senator Donley failed by a vote of 2 - 4 (Torgerson, Parnell, Pearce, Sharp). There followed miscellaneous discussion by the committee members. Senator Phillips said he was not interested in a bill providing a special tax break. He said it was one of the worst pieces of legislation he had seen especially since everyone was opposed to it. Senator Donley said deletion of the tax exemption was unfair to Anchorage. He felt it was a very ill advised bill. It would be extremely devastating to trucking and transportation in Anchorage. The City of Anchorage provided its' own services and it was not fair to say they live with this 20% increase. The bill contained many inequities. Co-chair Sharp asked the roll be called and by a vote of 5 - 2 (Donley, Phillips) HB 63(2d RLS) was reported out with individual recommendations and accompanying fiscal notes. Senator Pearce introduced SCR 16 and read the sponsor statement. There were four new bargaining agreements. She explained her amendment #1 and noted the change on page 2, line 1. Senator Pearce moved amendment #1 and without objection it was adopted. Senator Parnell moved CSSCR 16(FIN) and by a vote of 5 - 2 (Donley, Adams) it was reported out with individual recommendations and accompanying zero fiscal note from the Senate Finance Committee. Co-chair Sharp called SB 159. CS FOR SENATE BILL NO. 159(L&C) "An Act relating to the new business incentive program." Jerry Burnett, staff to Senator Randy Phillips was invited to join the committee. He explained amendment #1. Senator Torgerson asked if it applied only to the federal program. Mr. Burnett said it could be done by AHFC. He said he had discussed the amendment with Tam Cook and she felt it appropriate. Senator Torgerson further asked what was the banks' participation and Mr. Burnett responded that it was only for state or federal approved loans. Senator Pearce moved CSSB 159(L&C) with individual recommendations and accompanying fiscal notes and without objection it was reported out. Co-chair Sharp called SB 118. SENATE BILL NO. 118 "An Act relating to investments of the Alaska Permanent Fund Corporation." Jim Kelly, Research and Liaison Officer, Alaska Permanent Fund Corporation, Department of Revenue was invited to join the committee. He explained the bill. US stocks earned over 18% and the stock market had done very well this year. However, he did say that volatility increased risks. He referred briefly to the APFC packet in the file. Senator Pearce said she was opposed to the bill. It was built on a house of cards that would come tumbling down like in 1929. She did not feel that stocks should be increased. Co-chair Sharp referred the Department of Revenue (APFC) fiscal note in the amount of $4.2 million. Senator Phillips moved SB 118 with individual recommendations and accompanying fiscal notes. Senator Pearce objected. By a vote of 2 - 3 (Torgerson, Pearce, Sharp, nay; Parnell, Donley, absent) the bill failed to be reported out of committee. Co-chair Sharp called HB 210. HOUSE BILL NO. 210 "An Act relating to the extension of contracts for the sale and delivery of inbond merchandise at international airports." Representative Norman Rokeberg, sponsor, was invited to join the committee. He testified on behalf of his bill. He noted constraints on lease terms. Senator Pearce asked about the cost of goods in the duty free shops, saying it was her understanding that one could purchase name brands at a reduced price because they were in duty free shops. Representative Rokeberg said that higher ticket items usually attracted shoppers in duty free shops. He referred to a legal memo dated 5 May and said there was the same discussion last year on the North Star contract. Senator Pearce advised that the State was presently in Court on North Star. Elizabeth Hickerson, Assistant Attorney General, Transportation Section, Anchorage, Department of Law testified via teleconference from Anchorage. She noted there were four bids prior to the award on the contract. She said one could opt for an extension also. Sam Kito, III, Legislative Liaison/Special Assistant, Office of the Commissioner, Department of Transportation and Public Facilities was invited to join the committee. He basically concurred with testimony offered briefly by Ms. Hickerson. He said the department neither supported nor opposed the bill. In response to a question by Senator Parnell he said they would leave it to the Legislature to continue any existing contracts. Senator Torgerson asked how this bill would affect the foreign trade zone and Ms. Hickerson said it would not affect it. Senator Torgerson also asked about any FAA waiver and Mr. Kito said any FAA waiver was not a big deal. Ashley Reid, lobbyist, briefly testified on behalf of the bill. There were no questions of this witness. Senator Donley moved HB 210 with individual recommendations and accompanying fiscal notes. Senator Torgerson objected. By a vote of 2 - 3 (Torgerson, Parnell, Pearce, nay; Adams, Sharp, absent) the bill failed to be reported out of committee. Co-chair Sharp called SB 114. CS FOR SENATE BILL NO. 114(JUD) "An Act relating to contributions from employee compensation for political purposes; and prohibiting certain kinds of discrimination against employees for political purposes." After miscellaneous discussion among the committee members Senator Phillips moved his amendment #1. Senator Torgerson objected and by a vote of 2 - 2 (Parnell, Torgerson, nay; Adams, Donley, Pearce, absent) the amendment failed to be adopted. Senator Parnell moved CSSB 114(JUD) with individual recommendations and accompanying fiscal notes and without objection it was reported out. Co-chair Sharp called CSSB 154. CS FOR SENATE BILL NO. 154(HES) "An Act relating to paternity determination and child support; relating to reporting of and access to financial or other information for child support purposes; making changes to laws relating to occupational, recreational, or other licenses, permits, certificates, or other authorizations issued by the state to facilitate administration of child support laws; relating to the interest rate on judgments or decrees for child support; relating to immunity from civil liability for good faith compliance with reporting or other requirements for child support purposes; relating to voiding fraudulent transfers and to penalties for noncompliance with orders for child support purposes; amending Rules 4, 5, 35, 52, 58, 60(b), 78, 90.1, and 90.3, Alaska Rules of Civil Procedure; amending Rule 901, Alaska Rules of Evidence; amending Rules 3 and 5, Alaska Bar Association Rules; repealing the effective date of sec. 45, ch. 107, SLA 1996; and providing for an effective date." Senator Parnell explained his amendment #1 and then later moved it. Without objection, amendment #1 was adopted. Glenda Straube, Director, Central Office, Division of Child Support Enforcement, Department of Revenue was invited to join the committee. She referred to section 87(f). Dan Branch, Assistant Attorney General, Human Services, Department of Law was invited to join the committee. At this point, Senator Parnell noted a problem with amendment #1 and without objection it was withdrawn. He moved amended amendment #1 to delete those sections which CSED and AG recommended as follows: sec. 12, 13, 83, 84, 87, 89(f), 111, 140(e) and 91(e). Without objection the amended amendment #1 was adopted. Co-chair Sharp felt the committee needed time to study this bill and that it should be taken up next year. Mr. Branch referred to section 89(f), page 35, line 18 and said if this section were deleted it would take the bill out of federal compliance. Senator Parnell moved a technical amendment that section 89(f), page 35, lines 18 - 20 be conformed with federal law and without objection it was adopted. Mr. Branch read a brief portion of the federal law applicable to section 89(f) into the record. Senator Parnell concurred with Co-chair Sharp that this bill would have to be revisited next year. Both Senators Phillips and Torgerson voiced their concern with the bill, Senator Phillips especially how the bill would affect the small employers. Ms. Straube indicated that there would be open meetings in which the small employers would be advised on how to deal with employing individuals under this bill. Co- chair Sharp indicated that his concern about getting the bill out today was in order to not forfeit federal funding. Senator Phillips indicated that he also had many questions regarding this bill. Senator Torgerson moved CSSB 154(FIN) with individual recommendations and accompanying fiscal notes and without objection it was reported out. (Sharp, Donley, Torgerson, Parnell voted) ADJOURNMENT Co-chair Sharp recessed the meeting until 5:00 p.m. today.