SENATE TRANSPORTATION COMMITTEE March 1, 1994 3:33 p.m. MEMBERS PRESENT Senator Bert Sharp, Chair Senator Randy Phillips, Vice Chair Senator Tim Kelly Senator Jay Kerttula Senator Georgianna Lincoln MEMBERS ABSENT All Members Present COMMITTEE CALENDAR SENATE BILL NO. 334 "An Act relating to the tax on transfers or consumption of motor fuel, and to the proceeds from the tax; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 334 - No previous senate committee action. WITNESS REGISTER Bruce A. Campbell, Commissioner Department of Transportation & Public Facilities 3132 Channel Drive, Juneau, AK 99801-7898¶465-3901 POSITION STATEMENT: in favor of SB 334 Mead Treadwell, Deputy Commissioner Department of Environmental Conservation 410 Willoughby Ave., Suite 105, Juneau, AK 99801-1795¶465-5050 POSITION STATEMENT: in favor of SB 334 Mark Hickey, Representative Cambior Alaska, Inc. 211 4th Street, Juneau, AK 99801¶586-2263 POSITION STATEMENT: testified on SB 334 Resa Jerrel, Representative National Federation of Independent Businesses 9159 Skywood, Juneau, AK 99801¶789-4278 POSITION STATEMENT: opposed to SB 334 Frank Dillon, Executive Director Alaska Trucking Association 3443 Minnesota Dr., Anchorage, AK¶276-1145 POSITION STATEMENT: opposed to SB 334 Paul Dick Division of Income & Excise Audit Department of Revenue P.O. Box 110420, Juneau, AK 99811-0420¶465-3691 POSITION STATEMENT: testified on SB 334 ACTION NARRATIVE TAPE 94-7, SIDE A Number 001 CHAIRMAN SHARP calls the Senate Transportation Committee meeting to order at 3:33 p.m. Number 010 CHAIRMAN SHARP brings up SB 334 (INCREASE MOTOR FUEL TAX) as the only order of business before the committee today. The chairman announces SB 334 will not be moved from committee today. The chairman calls the commissioner of the Department of Transportation to testify. Number 030 BRUCE A. CAMPBELL, Commissioner, Department of Transportation & Public Facilities (DOT) states SB 334 was introduced at the request of the governor, and many persons in the administration had a part or a hand in its' development. Alaska has not had a gas tax increase since 1961, and Alaska is on the low-end of the fifty states for the amount of gas tax. Gas taxes in the United States range from a low in Alaska of eight cents per gallon, to a high of twenty-eight cents per gallon in Connecticut. The average tax is twenty cents per gallon. What the administration did was to figure out what the amount of gas would have to be per gallon to support DOT's operating and maintenance budget. The number the administration came up with was about twenty-four cents per gallon. The possibility of having a constitutional amendment in order to establish a dedicated fund to have revenues from the tax go toward DOT's operating and maintenance budget was discussed, but it was decided that the money should be deposited in a special account in the general fund, from which the legislature could appropriate for highway and maintenance activities. In every situation in which there has been what is referred to as a "pseudo-dedicated fund", the legislature has honored it. There is also one penny added to the price per gallon for underground fuel tank rectification, which would flow to the Department of Environmental Conservation (DEC). What SB 334 will do is hopefully raise the gasoline tax up to a break-even point for the highway operation and maintenance activity. Number 080 CHAIRMAN SHARP asks what the total general funds maintenance costs are state-wide. COMMISSIONER CAMPBELL says it is approximately 110 to 115 million dollars. For every eight cents per gallon of taxes, the state gains about 26 to 28 million dollars. (Department of Revenue's fiscal note states each penny per gallon tax yields 4,838,000 dollars in revenue, so a tax of 24 cents would yield 116,112,000 dollars.) Number 107 CHAIRMAN SHARP asks if there are any questions. Chairman Sharp asks how much money the one-cent tax for underground fuel storage tanks would bring in. The one-cent per gallon tax would bring in 4,838,000 dollars. Number 112 SENATOR LINCOLN asks about the sunset date for the one-cent tax for underground storage tanks. CHAIRMAN SHARP suggests the committee ask that question of DEC. The chairman calls a representative from DEC to come to the table. Number 153 MEAD TREADWELL, Deputy Commissioner, Department of Environmental Conservation says the administrations' proposal was to put on the penny and make it perpetual, but in the committee substitute it would sunset in two years. At this point, there is a backlog of applications for upgrade and cleanup of 49 million dollars. At the current rate of funding at 5.45 million dollars a year, it would take a long time to get to all the applications. There is a deadline coming up. We have already passed the deadline for providing proof of financial responsibility in case of a spill. For these reasons, DEC thinks the program should be continued for more than two years. Number 177 SENATOR LINCOLN asks why it is that it is rolled over from 24 cents to 25 cents per gallon tax. Number 182 CHAIRMAN SHARP notes that the committee substitute originated from the Senate Transportation Committee, not from DEC. Number 193 MR. TREADWELL says the governor's bill would put the penny on and leave it on. Mr. Treadwell asks that if the legislature sunsets the penny tax for underground fuel storage tanks, it at least extend the sunset provision to more than the two years noted in the committee substitute (cs). This program began in 1991 as a state effort to help the many people with underground storage tanks around the state to meet the federal requirements for upgrade and clean-up. Mr. Treadwell reads statistics on the Underground Petroleum Storage Tank Program from a paper submitted to the committee by DEC. Federal mandates would force many operations to shut down if DEC did not go through this process to help them. Every other state in the union has set up some kind of a fund to help fund the underground storage tank assistance programs. Most of those states have done it through fuel tax assessments, as the governor has proposed in SB 334. Number 220 MR. TREADWELL says for the first several years of the underground storage tank program, funds came out of the general fund; for the last two years funding has come from the mitigation account. At this point it is up to the state to find another source of funding for the underground storage tank program. Number 239 CHAIRMAN SHARP asks if funding the program from a one-cent fuel tax would allow the state to meet the federal mandate. MR. TREADWELL replies the tax would allow the state to meet the federal mandate. Number 251 CHAIRMAN SHARP asks what the federal deadline on applications is. MR. TREADWELL responds there was a deadline of December 31, 1993 for proof of insurance or financial responsibility in the event of a spill. There is a deadline of December 22, 1998 for tanks to be up to standards. DEC's deadline for cleanup applications is June, 1994. There is legislation pending that would extend that date by approximately six months. Number 267 SENATOR KERTTULA asks if there is a lot of documented industrial support for the one-cent tax for the underground storage tank program. MR. TREADWELL replies he cannot speak for the tank owners themselves, but perhaps Mr. Hayden or Mr. Barnett could answer that question. He can say that the Association of Underground Tank Owners and Operators had a meeting in December in which there seemed to be a fairly large consensus that a long-term funding source was needed. Number 279 SENATOR KERTTULA asks how much a penny tax would return on an annual basis. It would return 4,838,000 dollars per year. Number 282 CHAIRMAN SHARP asks if there are any more questions. Hearing none, he calls the next witness. Number 285 MARK HICKEY, Representative of Cambior Alaska, Inc. states Cambior Alaska, Inc. owns and operates the Valdez Creek Mine, which is a large placer gold mine on the Denali Highway about seventy miles east of Cantwell. The mine has been in operation under Cambior's ownership since the mid to late 80's. There has been active mining in the Valdez Creek area for a number of years before that. The mine employs about 150 people and has an annual payroll of approximately 11.5 million. Cambior is probably the largest single private employer in the Matanuska-Susitna (Mat-Su) Borough. Cambior Alaska has an arrangement with DOT, whereby Cambior pays half of the cost of winter road maintenance on a principal highway of the State of Alaska, and DOT pays the other half. This arrangement was worked out with legislative help and the department's help. Number 304 MR. HICKEY states he does not have a company position to offer at this time on the proposal as it relates to the highway tax, except to say that the increase that does get passed, to the extent possible, should go into road maintenance. MR. HICKEY says he would like to draw the committee's attention to one other impact that is of concern to Cambior, that is the increase that will occur to the off-highway component of the tax. Presently in state law, eight cents per gallon is paid for fuel consumption, whether it is highway or off-highway use. For off- highway usage, users can get a rebate of six cents. So in effect, Cambior pays a two cent tax for off-highway use. Under SB 334, that off-highway tax would rise to nineteen cents per gallon; the rebate will not change. For Cambior, the annual cost increase would, conservatively, be about 600,000 dollars per year. Cambior uses between 3.5 to 4 million gallons of fuel. All of that is subject to the off-highway tax. The tax increase contained in SB 334 would cause about a three percent increase in annual operating cost for the Valdez Creek Mine. This is a significant cost increase, particularly since the funds would go toward road maintenance, and Cambior is already paying directly for half the maintenance costs of a local highway. One solution to this problem would be to increase the rebate for off-highway use of fuel. Since the increase in tax is to fund road maintenance, the impact should be primarily on the highway user. Mr. Hickey thinks the committee will find that SB 334 will impact industry and other mines similarly to the impact it will have on Cambior. Number 338 SENATOR KERTTULA asks if the Valdez Creek Mine is physically located in the Mat-Su Borough. MR. HICKEY responds that the mine pays borough property taxes, so he believes the mine is within borough boundaries. The mine pays about 200,000 dollars per year in property taxes. Number 347 SENATOR LINCOLN asks if there is provision in the committee substitute for SB 334 that changes the rebate. CHAIRMAN SHARP responds there is no provision in the cs to change the rebate for off-highway fuel use, but it is something the committee probably should talk about at the next meeting. The chairman suggests people review the current proposed cs and talk about possible revisions at the next committee meeting. The chairman calls the next witness. Number 359 RESA JERREL, State Director, National Federation of Independent Businesses (NFIB) says the state NFIB has 4,400 members, and overwhelmingly opposes tax increases without first reducing the state operating budget. She is, therefore, testifying in opposition to SB 334. Ms. Jerrel suggests that the state get out of competition with the private sector by privatizing services and contracting out for more of the work it does. She reads from a prepared statement submitted to the committee. Number 370 CHAIRMAN SHARP thanks Ms. Jerrel for her testimony and calls the next witness. Number 374 FRANK DILLON, Executive Director, Alaska Trucking Association states the association is categorically opposed to the 25 cent per gallon fuel tax. Federal and state fees and taxes per tractor trailer come to approximately 6,500 dollars. The competitive nature of the trucking business in Alaska has virtually squeezed most of the profit out of every operation. The association is seeing a number of companies that are hanging on by their fingernails right now, and we expect to see more consolidation and mergers in the industry. Mr. Dillon says that although the fuel tax would apply across the board, the Alaska Trucking Association does not feel that the amount is justified. The association also is hesitant about using fuel taxes as a mechanism to fund the Underground Storage Tank Program. Funding for that program could perhaps be better addressed in another way. Number 386 SENATOR KERTTULA asks Mr. Dillon how trucker's fees and taxes compare to fees and taxes in other states. MR. DILLON states that Alaska truckers are paying less than in most other states. The Alaska Trucking Association is not arguing that it is not necessary to perhaps increase the fuel taxes, and the association supports a dedicated fund for maintenance. The association believes the infrastructure problems with highways are reaching a critical point. There should be absolutely no language allowing DOT to do deferred maintenance; deferred maintenance is no maintenance. If the state does not do the maintenance on the highways that has to be done, it ends up costing a lot more later. The state is now at the point where, if it does not seriously address the maintenance problems, we will be in big trouble. Number 399 SENATOR KELLY asks what the federal tax rate per gallon on fuel is. The federal tax rate on motor fuel is 18.4 cents per gallon. Number 404 SENATOR KERTTULA states the trucking industry should have a good look at what kind of an increase it could support, since taxes are so low in Alaska. Number 428 MR. DILLON says the Alaska Trucking Association does advocate an increase in the motor fuel tax and has worked with DOT on this subject. The association felt that a 100% increase in taxes to 16 cents per gallon would be a reasonable step forward, but that was connected to the dedicated funding for maintenance. SENATOR KERTTULA says pseudo-dedicated funds set up without a constitutional amendment are handled pretty good. Book-keeping dedications work pretty good; the legislature takes money from those dedications and applies it towards the allocation for which it was intended. Even though the legislature is not constitutionally required to do this, they do it because their constituents are looking over their shoulder. Number 440 SENATOR KELLY asks what the impact 2 cents a gallon will have on the municipalities. Number 443 SENATOR KERTTULA argues that the money cannot be reallocated at the point of collection, it will have to be reallocated from the amount of roads or by some other system. A person fills their tank in one area, and then drives out of that area and into another area. So reallocation by point of collection is not a good way to distribute the money. Perhaps there could be a regional distribution system. It also could not be redistributed on a population basis either. SENATOR KELLY asks if there has been any indication as to what amount of money is involved. Number 450 CHAIRMAN SHARP calls a representative from the Department of Revenue to perhaps answer some of the fiscal questions. Number 460 SENATOR LINCOLN comments she would like to see where DOT could possibly cut maintenance costs, perhaps through looking at things like banning studded tires. The state needs to address cuts, rather than just increasing the motor fuel taxes. Senator Lincoln states she does not want to see a situation whereby taxes from fuel purchased in Fairbanks, but used in the bush, would go towards road maintenance in Fairbanks. CHAIRMAN SHARP says that sort of situation would be exempt from the tax increase provided for in SB 334. Number 470 PAUL DICK, Department of Revenue states that every cent of motor fuel tax increase would increase revenues by an estimated 4.8 million dollars. Accordingly, assuming that the municipalities go with the full two cent increase, there would be 9.6 million dollars. Although, in the committee substitute, there is a provision for a one percent administrative cost withholding on that. So the department estimates approximately 9.5 million dollars would go to municipalities under SB 334. MR. DICK says he is concerned with one aspect of the proposed cs for SB 334: the municipal motor fuel tax is going to open up a whole new level of reporting requirements by those involved in the motor fuel industry. Right now, our motor fuel tax is structured at the wholesale level. The point of taxation is when wholesalers bring fuel into the state. Under this bill, in order to return this money back to the municipalities, there will have to be some reporting by the wholesaler and subsequent distributors, and from distributors to retail, to the ultimate point of sale so that money can be allocated back. There will be a whole new reporting level, which would significantly increase the Department of Revenue's workload. Number 491 CHAIRMAN SHARP says the original instructions to the bill drafter on the cs were to possibly base the rebate on population within the city or the borough as of the last census date. Realizing that it doesn't have any direct relation to miles of roads or sales of gasoline within an area, but the purpose of this is for discussion on the municipality additions. We all know that municipal assistance and revenue sharing is decreasing every year, and is probably going to go away. Most of the larger entities do have road maintenance responsibilities. It's a use tax; they should share in that. It was discussed three years ago in House Finance Committee when the first dedicated fund was proposed by the governor. The chairman agrees it would be a bearcat administrative paper trail, particularly since many of the retail facilities sell fuel outside the area in which they are located. Number 514 SENATOR RANDY PHILLIPS asks what the breakdown is on the 9.6 million dollars generated from each organized part of the state, and the unorganized areas. Where is the money being generated and how much is being generated. Number 518 MR. DICK responds that wholesalers do not report that information to the Department of Revenue, so the department does not have any data available to crunch those numbers. Number 524 CHAIRMAN SHARP asks if there are any other questions. Hearing none, he states there is a need to talk about taxing motor fuel. Number 527 CHAIRMAN SHARP adjourns the Senate Transportation Committee meeting at 4:13 p.m.