Legislature(2015 - 2016)CAPITOL 17

02/04/2016 01:00 PM TRANSPORTATION


Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
- Recessed to 2/6/16 at 1:00 pm -
+= HB 249 ELECTRONIC TAX RETURNS & MOTOR FUEL TAX TELECONFERENCED
Heard & Held
-- Public & Invited Testimony --
Deputy Commissioner Burnett
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HCR 17 SUPPORT AVIATION INDUSTRY; USE STATE LAND TELECONFERENCED
Moved CSHCR 17(TRA) Out of Committee
         HB 249-ELECTRONIC TAX RETURNS & MOTOR FUEL TAX                                                                     
                                                                                                                                
1:08:54 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HUGHES announced that the  first order of business would                                                               
be  HOUSE  BILL  NO.  249,   "An  Act  requiring  the  electronic                                                               
submission  of a  tax return  or  report with  the Department  of                                                               
Revenue; relating  to the  motor fuel tax;  and providing  for an                                                               
effective date."                                                                                                                
                                                                                                                                
1:08:56 PM                                                                                                                    
                                                                                                                                
RANDALL  HOFFBECK,  Commissioner,  Department of  Revenue  (DOR),                                                               
began a  review of the sectional  analysis for HB 249  and stated                                                               
that  Section 1  would add  a $25  or 1  percent tax  penalty for                                                               
failure to  file electronically  unless an exemption  is received                                                               
by the  taxpayer.  He  explained that all  of the tax  bills that                                                               
[the  administration] proposed  this year  include a  requirement                                                               
for  electronic  filing  in  order  to  increase  efficiency  and                                                               
improve audit  capabilities.  He  stated that Section  2 contains                                                               
the  language which  requires the  electronic  submission of  tax                                                               
returns,  license  applications,  and   other  documents  to  the                                                               
Department  of  Revenue,  and explained  that  the  section  also                                                               
outlines the process  to request an exemption if  the taxpayer is                                                               
unable to file electronically.                                                                                                  
                                                                                                                                
COMMISSIONER  HOFFBECK  explained   that  Section  3  effectively                                                               
changes the  per gallon tax  rate for dealers for  all categories                                                               
of motor fuel  as follows:   highway fuel  and gasohol from $0.08                                                               
to  $0.16; marine  fuel from  $0.05 to  $0.10; aviation  gasoline                                                               
from  $0.047  to  $0.10;  and  jet fuel  from  $0.032  to  $0.10.                                                               
Section 4 language changes the per  gallon tax rates for users of                                                               
all  categories of  motor  fuel  by the  same  rates outlined  in                                                               
Section 3.                                                                                                                      
                                                                                                                                
1:11:08 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 1:11 p.m. to 1:14 p.m.                                                                       
                                                                                                                                
1:14:06 PM                                                                                                                    
                                                                                                                                
COMMISSIONER HOFFBECK  continued his discussion of  the sectional                                                               
analysis and clarified  that Section 3 and Section  4 provide the                                                               
implementation  language  for the  rates  in  two statutes.    He                                                               
explained that Section 5 language  will allow the increase of the                                                               
motor fuel  refund rate for  "off-road use" from $0.06  to $0.12,                                                               
and  Section   6  provides  language  clarifying   that  the  tax                                                               
increases  would apply  to motor  fuel sold  after the  effective                                                               
date,  and  that  the  filing   requirement  applies  to  returns                                                               
submitted after the effective date.   He specified that Section 7                                                               
includes  transitional  language   allowing  for  regulations  to                                                               
implement the  changes; Section 8 language  details the immediate                                                               
effective  date for  the  transitional  regulatory language;  and                                                               
language in  Section 9 sets the  effective date of July  1, 2016,                                                               
throughout the bill.                                                                                                            
                                                                                                                                
1:15:30 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HUGHES  inquired as  to how  the rates  were determined,                                                               
and whether $49 million was used  as a target goal.  Further, she                                                               
asked  if an  economic analysis  of the  proposed rates  had been                                                               
conducted with  consideration given toward the  impacts of marine                                                               
fuel increases  on coastal communities or  highway fuel increases                                                               
on rural locales.                                                                                                               
                                                                                                                                
COMMISSIONER HOFFBECK  stated that the rates  initially discussed                                                               
were significantly higher and closer  to the national average, as                                                               
the  Alaska  motor  fuel  taxes  are  substantially  lower.    He                                                               
specified  that as  the governor  began to  assess the  amount of                                                               
impact the taxes  would have on various entities,  the rates were                                                               
altered  to distribute  the burden  across a  larger base  of the                                                               
economy,  with the  idea that  everyone should  contribute.   The                                                               
resulting agreement was  to double the tax; to  meet the national                                                               
average it would  need to be quadrupled.  He  said there wasn't a                                                               
lot of science behind the  proposed increase, given that it would                                                               
still be one  of the lowest motor fuel tax  rates in the country.                                                               
The administration  has commissioned the Institute  of Social and                                                               
Economic  Research (ISER)  to  conduct a  study  on the  economic                                                               
impacts of  the governor's  plan, which  will be  available soon.                                                               
The study was not necessarily  designed to analyze the impacts on                                                               
a specific user  group or community, but rather,  to describe the                                                               
potential impacts  of a tax increase  in general.  He  noted that                                                               
with  a $4.7  billion dollar  deficit, everything  [lawmakers] do                                                               
will have some impact.                                                                                                          
                                                                                                                                
1:18:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HUGHES  related her understanding that  the proposed tax                                                               
rates  were  developed using  a  gut  sense  rather than  a  true                                                               
analysis,  and   she  expressed  appreciation   for  Commissioner                                                               
Hoffbeck's forthrightness  in that regard.   She stated  that the                                                               
tax increase  proposals taken  as a  whole -  the motor  fuel tax                                                               
increases, implementation  of an income  tax, and a  reduction in                                                               
permanent fund  dividends - would disproportionately  impact some                                                               
communities.    She mentioned  that  she  is looking  forward  to                                                               
reviewing the ISER study.                                                                                                       
                                                                                                                                
1:18:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CLAMAN asked  whether  the  national average  for                                                               
fuel tax is $0.32 or $0.25.                                                                                                     
                                                                                                                                
COMMISSIONER HOFFBECK stated his  understanding that the national                                                               
average is $0.32.                                                                                                               
                                                                                                                                
REPRESENTATIVE CLAMAN  relayed that the committee  had received a                                                               
letter from  Deputy Commissioner Jerry Burnett  of the Department                                                               
of  Revenue   (DOR),  describing   the  federal   requirement  to                                                               
exclusively  spend   aviation  fuel  tax  revenue   on  airports.                                                               
However,  the  committee  also  received  a  letter  from  Alaska                                                               
Airlines, Inc., basing its opposition  to the tax increase on the                                                               
fact  that  the  revenue  would  not be  spent  on  airports;  he                                                               
requested clarification on this discrepancy.                                                                                    
                                                                                                                                
COMMISIONER  HOFFBECK deferred  the question  and confirmed  that                                                               
the national average for fuel tax is $0.25 per gallon.                                                                          
                                                                                                                                
1:20:33 PM                                                                                                                    
                                                                                                                                
KEN ALPER,  Director, Tax Division, Department  of Revenue (DOR),                                                               
stated  that  he  was  unfamiliar   with  Mr.  Burnett's  letter;                                                               
however,  the  federal  transportation administration  does  have                                                               
rules  stating  that  aviation  fuel taxes  should  be  spent  at                                                               
airports.   It is the  understanding at  DOR that the  rules have                                                               
been strictly enforced in recent  years, and he recalled that the                                                               
issue had been brought before the  body when a bill regarding the                                                               
refined fuel  surcharge was  passed.  He  related that  the rules                                                               
regarding  airport  spending  were  part  of  the  rationale  for                                                               
excluding  aviation fuel  from that  piece of  legislation.   The                                                               
state provides a  significant amount of support  to airports from                                                               
the general fund,  and the amount of additional  funding from the                                                               
increased aviation fuel  tax, as proposed under HB  249, would be                                                               
less than  the state contributions  to airports from  the general                                                               
fund; therefore,  part of the  proposed legislation  was designed                                                               
as  a   backfill  for   state  spending.     He   explained  that                                                               
approximately $200,000  would be shared with  certain municipally                                                               
owned airports, and  the remaining state funds would  be used for                                                               
various, related support projects.                                                                                              
                                                                                                                                
1:21:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CLAMAN requested  confirmation that aviation taxes                                                               
are not currently directed to  a dedicated fund, that the federal                                                               
government  tracks  how  much revenue  the  state  receives  from                                                               
aviation  fuel  taxes,  and  expects   that  money  to  be  spent                                                               
specifically on airport projects.                                                                                               
                                                                                                                                
MR. ALPER stated his understanding  that one of the exemptions to                                                               
the  rule on  dedicated funds  is an  instance where  there is  a                                                               
federal  requirement.   He explained  that  in the  case of  this                                                               
specific federal  requirement, Alaska's aviation funding  is tied                                                               
to  compliance,  and   the  state  does  not  want   to  put  the                                                               
substantial amount of federal funding at risk.                                                                                  
                                                                                                                                
REPRESENTATIVE  CLAMAN   asked  whether   the  intention   is  to                                                               
designate  aviation   tax  revenues  as  dedicated   funds,  thus                                                               
allowing the federal government to track the expenditures.                                                                      
                                                                                                                                
MR. ALPER  responded that the administration  does not anticipate                                                               
having a  dedicated fund,  per se, but,  in terms  of accounting,                                                               
the funds can be tracked to airport expenditures.                                                                               
                                                                                                                                
1:23:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NAGEAK opined  that applying  changes in  the tax                                                               
structure  to every  type of  motor fuel  will have  a tremendous                                                               
impact on rural communities, as fuel  prices are based on what is                                                               
paid  at the  time the  fuel is  ordered.   He expressed  concern                                                               
regarding  the disproportionate  impact  a $0.16  per gallon  tax                                                               
could have on  people in rural Alaska where gas  prices can be as                                                               
high as  $20 per gallon.   He related  that in many  instances in                                                               
the Bush,  people don't  make an  income that  can be  taxed, but                                                               
this proposal  would effectively tax the  non-existent incomes of                                                               
rural Alaskans every time they buy  fuel.  He noted that the cost                                                               
of doing  business is increasing, especially  for businesses that                                                               
provide support services  to rural Alaskan villages.   He related                                                               
that when the cost of doing  business goes up, the increased cost                                                               
is passed on to the consumer;  the increases are visited on rural                                                               
Alaskans, who may be forced to  choose between buying a gallon of                                                               
milk  and going  without.   He explained  that the  price of  the                                                               
commodity is set when it is  delivered by barge, which could be a                                                               
month prior to a price change.   He re-emphasized his stance that                                                               
the  tax increase  would fall  disproportionately on  people with                                                               
fixed incomes or no income at all.                                                                                              
                                                                                                                                
COMMISSIONER  HOFFBECK replied  that having  lived in  Barrow for                                                               
eight years, he  understands the concerns regarding  the price of                                                               
fuel.   He  stated that  some components  of the  motor fuel  tax                                                               
proposal  have  been  designed  to buffer  the  impact  on  rural                                                               
Alaskans.  He further explained  that because the tax increase is                                                               
not percentage-based,  but is  instead based on  how much  fuel a                                                               
consumer purchases, it is not a  flat tax.  He explained that the                                                               
other  component  aimed  at  diminishing   the  impact  on  rural                                                               
Alaskans is the  increase in the "off-road use"  refund, which is                                                               
available for  people who  primarily drive  off the  road system,                                                               
with  four wheelers,  for example.   He  stated that  the largest                                                               
share of the motor fuel tax  would be paid by urban consumers who                                                               
travel significantly more miles and burn more gas.                                                                              
                                                                                                                                
REPRESENTATIVE  NAGEAK asked  whether the  requirement to  submit                                                               
tax returns electronically  would apply to everyone.   He pointed                                                               
out that  there are many people  in rural Alaska who  do not have                                                               
access  to  computers   or  have  not  had   the  experience  and                                                               
opportunities necessary to gain computing  skills.  He noted that                                                               
if  HB 249  passes, it  would implement  a $25  or 1  percent tax                                                               
penalty for  failure to file  electronically unless  an exemption                                                               
is received by the tax payer.   He asked who would qualify for an                                                               
exemption.                                                                                                                      
                                                                                                                                
COMMISSIONER HOFFBECK  responded that the  taxes are paid  at the                                                               
distributor level,  thus individuals would  not have to  meet the                                                               
requirement.                                                                                                                    
                                                                                                                                
REPRESENTATIVE NAGEAK stressed that the  tax will be passed on to                                                               
the consumer.                                                                                                                   
                                                                                                                                
COMMISSIONER HOFFBECK agreed  and said that there  is a provision                                                               
allowing any  taxpayer to file on  paper if they do  not have the                                                               
ability to file electronically.                                                                                                 
                                                                                                                                
1:30:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FOSTER  noted  that  the issue  of  equity  was  raised                                                               
previously  and stated  that comparing  highway  and marine  fuel                                                               
taxes is  an "apples  to oranges" comparison.   He  observed that                                                               
the increases outlined  in HB 249 are $0.08 for  highway fuel and                                                               
$0.05 for marine,  and noted that the aviation  tax increases are                                                               
$0.047 to  $0.10 and $0.032 to  $0.10 for gasoline and  jet fuel,                                                               
respectively.   He  noted the  two rates  for aviation  fuel, and                                                               
stated his understanding that aviation  gas tends to be used more                                                               
by private pilots  of smaller aircraft and that jet  fuel is used                                                               
for  airplanes  with  jet  or turbine  engines,  thus,  for  more                                                               
commercial  applications.   The  recommendation was  made by  the                                                               
Aviation Advisory  Board, and he  asked for the  rationale behind                                                               
setting the different aviation fuel tax rates.                                                                                  
                                                                                                                                
MR. ALPER answered  that the tax rates for aviation  and jet fuel                                                               
have been on the books for  decades, but he said he was uncertain                                                               
as to the  exact history.  He stated that  the [Aviation Advisory                                                               
Board] favored a tax increase  over a landing fee increase; there                                                               
is   an  authentic   need  for   funding  to   support  [airport]                                                               
operations,  and the  administration is  hoping to  avoid landing                                                               
fee increases.                                                                                                                  
                                                                                                                                
CO-CHAIR FOSTER noted that historically,  jet fuel has been taxed                                                               
at a lower rate than aviation  gas, and he speculated that it was                                                               
perhaps during  a time  period when  significantly less  jet fuel                                                               
was  being used.   He  asked  whether this  rate was  set in  the                                                               
1970s.                                                                                                                          
                                                                                                                                
MR. ALPER  stated that he believed  it was the 1970s  and, to put                                                               
the  scale of  the  changes  in perspective,  said  the State  of                                                               
Alaska has  taxed an average of  625 million gallons of  fuel per                                                               
year through the  four taxes effected in HB 249.   He stated that                                                               
jet  fuel has  accounted for  125  million gallons  of the  total                                                               
taxed, and general aviation fuel  has only accounted for about 10                                                               
million gallons; general  aviation fuel is a  much smaller volume                                                               
of consumption  and is used  by private pilots and  small planes.                                                               
He  stated that  it  is  important to  be  aware  that there  are                                                               
actually  400 million  gallons of  jet fuel  purchased in  Alaska                                                               
every year,  but the vast  majority is exempted from  tax because                                                               
it  is connected  to international  flights, largely  through the                                                               
Anchorage freight hub.                                                                                                          
                                                                                                                                
1:33:16 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FOSTER noted  that under  the proposed  legislation the                                                               
aviation  gas would  experience an  increase of  $0.053, and  jet                                                               
fuel $0.068.   He asked  whether much of  the jet fuel  is exempt                                                               
from taxation because it's purchased  by companies such as Korean                                                               
Airlines, and others not based in Alaska.                                                                                       
                                                                                                                                
COMMISSIONER HOFFBECK clarified that  the way the current federal                                                               
law is interpreted by the State  of Alaska is that flights coming                                                               
from,  as well  as  traveling to,  foreign  destinations are  tax                                                               
exempt.  He confirmed that a  portion of the Alaska Airlines fuel                                                               
purchases are tax exempt.                                                                                                       
                                                                                                                                
1:34:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ORTIZ   stated  that  he   shares  Representative                                                               
Nageak's concern about the impact of  a fuel tax on rural Alaska.                                                               
Many of his  constituents also reside in rural  locales and there                                                               
is no  question about the tax  impact being greater in  the Bush;                                                               
however,  the  alternative  is  to reduce  services  in  lieu  of                                                               
increasing  revenue,  and reductions  in  services  - whether  in                                                               
education, broadband,  or similar - also  have a disproportionate                                                               
impact on  rural Alaska.   He stated  that the problem  that both                                                               
the administration and  the legislature face is  that any changes                                                               
will have  a negative  impact.  It's  worth remembering  that the                                                               
legislature  is discussing  the impacts  of revenue  increases on                                                               
constituents, but  reduction in services will  also have negative                                                               
impacts.   He asked  for confirmation that  the revenue  of rural                                                               
airports is subsidized  from the general fund, at  the 80 percent                                                               
level.                                                                                                                          
                                                                                                                                
1:37:15 PM                                                                                                                    
                                                                                                                                
STEVE HATTER,  Deputy Commissioner,  Office of  the Commissioner,                                                               
Department  of   Transportation  &  Public   Facilities  (DOTPF),                                                               
clarified that  the representative's reference is  to the funding                                                               
gap between  revenue and  expenses relating  to the  operation of                                                               
rural aviation  systems; a gap  of approximately $34  million per                                                               
year.    The  systems  requires   approximately  $35  million  to                                                               
maintain  and   operate,  with  an   additional  $5   million  in                                                               
administrative   costs.     He  stated   that  [DOTPF]   collects                                                               
approximately $5.8  million in  revenue, primarily  through lease                                                               
rates, and the remainder comes out of the general fund.                                                                         
                                                                                                                                
REPRESENTATIVE ORTIZ  stated his  belief that the  calculated gap                                                               
equates to a subsidy of  approximately 80 percent, supporting the                                                               
idea that much of the DOTPF  airport revenues, from fuel taxes or                                                               
other sources, are directed back to the aviation support system.                                                                
                                                                                                                                
MR.  HATTER replied  that is  correct.   He stated  that, at  the                                                               
current  fuel tax  rate, state  airport expenses  far exceed  the                                                               
revenue from  aviation fuel  taxes.  The  large gap  provides the                                                               
means   for   the   state   to    meet   the   Federal   Aviation                                                               
Administration's (FAA's) grant assurance requirements.                                                                          
                                                                                                                                
1:38:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FOSTER asked  for figures  describing the  funding gaps                                                               
for the road system and the Alaska Marine Highway System (AMHS).                                                                
                                                                                                                                
MR. HATTER replied  that he did not know the  figures off the top                                                               
of his head  for the amount of those two  gaps, but ventured that                                                               
the  AMHS funding  gap  is a  considerable amount  as  well.   He                                                               
stated that  increasing revenue  from all  sections of  the motor                                                               
fuel  tax plan  would definitely  help close  the gap,  but would                                                               
ultimately come nowhere near covering operating costs.                                                                          
                                                                                                                                
1:39:45 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CLAMAN stated  that over the last  several days he                                                               
has received communications from  the Alaska Trucking Association                                                               
(ATA), heavy  users of  diesel fuel, stating  support for  HB 249                                                               
and  the  proposed   increase  in  the  motor  fuel   tax.    The                                                               
Association of  General Contractors,  also major users  of diesel                                                               
fuel, has  also offered its  opinion.  Further, he  reported that                                                               
he has spoken with a  tour operator, whose company consumes 5,600                                                               
gallons of diesel  on a weekly basis.  In  rough calculation, the                                                               
tour operator would  experience a $450 to $500  per week increase                                                               
under HB  249.  He stated  that all of the  aforementioned groups                                                               
and individuals  support this  tax increase.   He asked  if there                                                               
are  any   statistics  available  comparing  diesel   versus  gas                                                               
consumption.   The conversation is  frequently geared  toward the                                                               
impacts on consumers, he noted,  and offered that consumers would                                                               
see  an approximate  $80 per  year increase  in motor  fuel taxes                                                               
assuming two cars  and a driving range of about  20,000 miles per                                                               
year.   He asked  whether more of  the tax would  be paid  by the                                                               
major users of diesel fuel or  the average consumers who use less                                                               
in  general, and  whether the  difference is  similar to  private                                                               
aircraft  and commercial  aircraft  users:   commercial  aircraft                                                               
users  purchase more  jet  fuel than  private  aviation users  do                                                               
aviation gas.                                                                                                                   
                                                                                                                                
1:41:24 PM                                                                                                                    
                                                                                                                                
MR.  ALPER   offered  to  provide  further   information  to  the                                                               
committee,  regarding the  number of  gallons of  gasoline versus                                                               
diesel fuel  taxed [annually].   However, specifying  diesel fuel                                                               
use, with  regard to application  for industrial  purposes versus                                                               
what is consumed  by the average diesel automobile  owner, may be                                                               
beyond the scope of the division, he explained.                                                                                 
                                                                                                                                
1:41:45 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HUGHES  asked if the  economic analysis  being conducted                                                               
by ISER is going to describe impacts by region.                                                                                 
                                                                                                                                
1:43:00 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  HOFFBECK stated  his uncertainty  whether the  ISER                                                               
report would  include regional analysis,  and indicated  that the                                                               
administration  contracted ISER  to  do an  impact  study of  the                                                               
various issues pertinent  to this legislative session.   The task                                                               
of determining  methodology has  been left  up to  ISER, allowing                                                               
the   study  to   be  conducted   from   a  totally   independent                                                               
perspective.   Responding to a  follow-up question,  he projected                                                               
that  the  report would  be  complete  within  two weeks  and  an                                                               
executive summary available early next week.                                                                                    
                                                                                                                                
1:43:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HUGHES, returning to the  foreign jet fuel tax exemption                                                               
as   it  applies   to   international   flights,  expressed   her                                                               
understanding that  Alaska statute  exempts the  flights; however                                                               
the  statutes   are  based   on  federal   law  which   has  been                                                               
successfully challenged in  Florida.  She said  a question exists                                                               
regarding the  free-trade zone, near  the Anchorage  airport, and                                                               
she  asked for  information  on the  flexibility  of the  foreign                                                               
exemption.   If foreign  flights comprise 80  percent of  the jet                                                               
fuel  sold  in the  state,  she  conjectured that,  even  without                                                               
changing  the   aviation  fuel  price,  simply   eliminating  the                                                               
exemption would  provide a considerable  amount of revenue.   She                                                               
asked whether DOR had statistical information for that scenario.                                                                
                                                                                                                                
1:45:10 PM                                                                                                                    
                                                                                                                                
MR.  ALPER  replied  that  DOR  had  run  some  similar  analyses                                                               
regarding numbers  and the  order of magnitude,  at the  time the                                                               
legislature was  considering the  fuel surcharge  bill introduced                                                               
last session,  and he  offered to rework  the numbers  to provide                                                               
updated  information  to the  committee.    He  said he  was  not                                                               
familiar with  the specifics of  the Florida case, but  there are                                                               
some  federal  constitutional  issues  related  to  the  commerce                                                               
clause.  He stated his  awareness of differences between outbound                                                               
and  inbound  foreign flights,  which  include  a rule  regarding                                                               
flights continuing on  locally.  He suggested that  when it comes                                                               
time for  public testimony, Alaska  Airlines would have  a strong                                                               
opinion on the issue.                                                                                                           
                                                                                                                                
1:45:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HUGHES  opined that the  foreign exemption  is pertinent                                                               
to   the  conversation.      Despite   considerable  fuel   price                                                               
fluctuations over  the years, carriers have  continued to provide                                                               
service to Anchorage.   A break-even point exists  where it would                                                               
no  longer  make sense  for  an  airline  to provide  service  to                                                               
Alaska, and that is something  the committee needs to understand.                                                               
She  noted   that  of  the   $49  million   anticipated  revenue,                                                               
businesses and residents  would each pay a  portion, and although                                                               
the  business  -   not  just  transporters,  but   all  types  of                                                               
businesses  including retail  and service  providers -  would pay                                                               
the  tax initially,  ultimately the  cost would  be passed  on to                                                               
consumers.   She  posited that  a  tax increase  will affect  all                                                               
Alaskans  and  individuals  would   ultimately  pay,  which,  she                                                               
stressed is her primary concern.                                                                                                
                                                                                                                                
CO-CHAIR HUGHES compared the governor's  tax proposal strategy to                                                               
throwing proposals  against a  wall to  see what  sticks, peeling                                                               
off those  that do,  adding them up,  and reassessing  the bottom                                                               
line afterward.  She noted  that Alaska's high cost of government                                                               
is among  the highest in  the nation  and held that  the proposed                                                               
budget  maintains   that  status.     She  opined   that  further                                                               
reductions in costs must be  made, and expressed concern over the                                                               
combination of  maintaining the high  cost of government  and the                                                               
prospect of  collecting $49  million with  the proposed  tax. She                                                               
said every dollar  that is not reduced from the  budget will come                                                               
out  of residents'  pockets and  suggested that  a dollar  in the                                                               
pocket of  the private sector  in Alaska has a  larger multiplier                                                               
effect than a dollar held by government.                                                                                        
                                                                                                                                
CO-CHAIR  HUGHES restated  her  concern about  the proposal,  and                                                               
emphasized that it may affect  some communities more heavily than                                                               
others.   She said the tax  may be low relative  to other states,                                                               
but Alaskans pay more at the  pump; California and Hawaii may pay                                                               
more, but  it can be  offset by lower  food costs.   She remarked                                                               
that the average amount of fuel  used in some Alaskan locales far                                                               
exceeds that  of others and  offered an example from  her region:                                                               
one  parent  has a  daily  commute  while  the other  drives  the                                                               
children     throughout     the    Matanuska-Susitna     Borough.                                                               
Additionally, for  some people, at trip  to the store may  mean a                                                               
20-mile  round trip.   The  proposed  tax would  impact her  area                                                               
significantly, she  predicted and said  that she would  feel more                                                               
comfortable reducing  the budget to essential  services; however,                                                               
if circumstance  arose where an  area would lose an  Alaska State                                                               
Trooper or close a section of  road, then she might support a tax                                                               
increase.  Knowing that the $49  million would be going back into                                                               
transportation  infrastructure and  maintenance,  rather than  to                                                               
the  general fund,  would also  provide some  piece of  mind, she                                                               
shared.                                                                                                                         
                                                                                                                                
1:50:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE    NAGEAK    stated    that    Alaska's    primary                                                               
transportation modes are marine and  aviation, and he pointed out                                                               
that  marine  transportation  is   seasonal  for  South  Central,                                                               
Southwestern,   and  Northern   coastal   regions   due  to   ice                                                               
conditions.    These methods  are  the  only travel  options  for                                                               
residents who do not live on the  road or rail system, which is a                                                               
circumstance that will not change.   He indicated that connecting                                                               
all  areas of  the state  by road  remains cost  prohibitive and,                                                               
given   the   transportation   challenges,   leaves   communities                                                               
isolated.  As  an aside, he noted that some  of that isolation is                                                               
countered  by  modern   communication  technology,  which  allows                                                               
events to be transmitted instantaneously.   He explained that due                                                               
to  the seasonality  of transportation  to some  regions, if  the                                                               
cost of fuel  was high, at the time of  purchase and delivery, it                                                               
would remain high until the  next buying season; between February                                                               
and June  of the  following year.   Fuel costs  are significantly                                                               
higher  in  rural   Alaska  than  elsewhere  in   the  state,  he                                                               
maintained, and  expressed uncertainly  as to how  rural Alaskans                                                               
would get through the fiscal challenge.                                                                                         
                                                                                                                                
1:54:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CLAMAN requested  that Mr.  Alper be  directed to                                                               
provide  the  committee  with   figures  comparing  expenses  and                                                               
revenue for  both the  rural and  international airports  for the                                                               
purpose of drawing a complete picture of the funding gap.                                                                       
                                                                                                                                
1:54:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  HUGHES  stated  that   the  United  Parcel  Service  of                                                               
America,  Inc.,  Delta Air  Lines,  Inc.,  and Checker  Dispatch,                                                               
LLC., have  each submitted a  testimonial letter included  in the                                                               
committee packet.                                                                                                               
                                                                                                                                
1:55:35 PM                                                                                                                    
                                                                                                                                
JOE SPRAGUE,  Senior Vice President, Communications  and External                                                               
Relations, Alaska Airlines, Inc.,  introduced the team members in                                                               
attendance  and pointed  out the  written testimony  available in                                                               
the committee  packet.  He  said Alaska Airlines has  operated in                                                               
Alaska  for  84  years,  and currently  provides  service  to  19                                                               
cities.  He  explained that only 3 of these  cities are connected                                                               
to the  road system  and, from  that standpoint,  Alaska Airlines                                                               
views  its  services  as  a critical  component  of  the  state's                                                               
infrastructure.   He held that  this is further evidenced  by the                                                               
fact that  the company  build the terminal  facilities for  11 of                                                               
the communities served.  In  other words, these facilities, which                                                               
would be funded by municipal  and state governments anywhere else                                                               
in the  country, are provided  by Alaska  Airlines at no  cost to                                                               
the state.  Alaska Airlines  has maintained these facilities over                                                               
the  years,   and  is  about   to  invest  in  them   again;  the                                                               
infrastructure directly provided to the  airports is a large part                                                               
of  Alaska Airlines'  service to  the  state.   He reported  that                                                               
Alaska Airlines has  1,820 employees in Alaska  and is privileged                                                               
to  count  the  vast  majority  of the  residents  of  Alaska  as                                                               
customers.                                                                                                                      
                                                                                                                                
MR. SPRAGUE stated  that due to the  company's extensive presence                                                               
in  the state,  it is  very concerned  with HB  249, as  it would                                                               
raise the tax  on jet fuel by  over 200 percent.   In addition to                                                               
the  jet  fuel tax  increase  being  exceedingly large,  internal                                                               
calculations  suggest  that Alaska  Airlines  would  pay over  30                                                               
percent of  the increase.   He stated  his concern  regarding how                                                               
the  taxes   would  be  utilized,  with   the  revenue  initially                                                               
transferred to the general fund,  and eventually allocated to the                                                               
aviation system.   He pointed out that the FAA  stipulates use of                                                               
state  tax revenue  for aviation  purposes when  those funds  are                                                               
collected from  aviation entities.   He  emphasized that,  due to                                                               
the  company's  awareness of  the  fiscal  challenges facing  the                                                               
state, it's  not saying "heck  no" to  any sort of  tax increase,                                                               
recognizing  that  all  businesses   and  residents  need  to  be                                                               
involved in  the necessary  solutions.  He  warned that  the fuel                                                               
tax increase  will impact much  needed commerce in the  state, as                                                               
well  as basic  needs.   In  many cases  Alaska  Airlines is  the                                                               
primary means  of transporting basic  commodities to a  town, and                                                               
as well  as providing  the means for  residents to  access larger                                                               
urban  areas for  basic  needs  such as  medical  care and  other                                                               
services.  He  announced that Alaska Airlines intends  to begin a                                                               
multi-pronged investment  in the  state, estimated to  total tens                                                               
of millions  of dollars,  on three to  four year  projects, which                                                               
include:  improvements  to the 11 rural  terminal facilities, the                                                               
development of a new hangar  and aircraft maintenance facility at                                                               
the  Ted   Stevens  Anchorage  International  Airport,   and  the                                                               
conversion of three modern 737  aircraft for use as freighters to                                                               
support the  cargo and airfreight  needs of the state.   Although                                                               
new  revenue  may  be  needed,   Alaska  Airlines  urges  careful                                                               
consideration of  the impact of  such a  large tax increase  on a                                                               
single,  critical component  of the  state's infrastructure.   He                                                               
concluded by  reviewing the economic contributions  being made by                                                               
Alaska  Airlines  in a  variety  of  ways including  a  corporate                                                               
income  tax for  2015 of  $10 million  and paid  approximately $2                                                               
million in state fuel tax.                                                                                                      
                                                                                                                                
2:01:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FOSTER asked  the administration  to comment  regarding                                                               
the FAA's requirement for expenditures of aviation revenue.                                                                     
                                                                                                                                
COMMISSIONER HOFFBECK replied that the  state is spending more in                                                               
the maintenance  and operation  of airports  than it  collects in                                                               
aviation taxes; which  can be easily demonstrated.   If the state                                                               
were to collect  more from aviation than they  spend, there would                                                               
be an  issue.  He  noted that there is  also an issue  related to                                                               
dedicated  funds within  the constitution.   It  requires DOR  to                                                               
track the funds  and ensure that what is spent  is at least equal                                                               
to, or greater than, the amount received in the aviation tax.                                                                   
                                                                                                                                
2:04:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CLAMAN asked  whether  the fact  that more  state                                                               
money goes  into the airports  than comes in from  aviation taxes                                                               
sufficiently addresses  Alaska Airlines'  concern about  the lack                                                               
of a dedicated aviation fund.                                                                                                   
                                                                                                                                
MR. SPRAGUE replied affirmatively, and  said that of more concern                                                               
is  the  added  cost  of  several  million  dollars  that  Alaska                                                               
Airlines would  incur, specific to  intra-Alaska operations.   He                                                               
stated that  high fares are  the norm on intra-Alaska  routes, as                                                               
it  is  very expensive  to  operate  in-state.   Alaska  Airlines                                                               
continues  to seek  ways to  lower  operating costs  and the  tax                                                               
increase would  serve to increase expenses,  potentially for many                                                               
years to come.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  CLAMAN offered  his assumption  that if  the fuel                                                               
tax increases by $0.068 per  gallon, the company will recalculate                                                               
its rates, resulting in consumers paying more for air travel.                                                                   
                                                                                                                                
MR. SPRAGUE concurred,  and said that, like  any business, Alaska                                                               
Airlines must cover its costs  and when expenses rise, pricing is                                                               
adjusted  to  cover the  increase.    He  added that,  as  Alaska                                                               
Airlines is  considering a very  large capital investment  in the                                                               
state, the  addition of a  recurring cost, while  not necessarily                                                               
causing the company to cancel plans, does curb its enthusiasm.                                                                  
                                                                                                                                
2:07:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ORTIZ stated his assumption  that with oil down to                                                               
$30 per  barrel, Alaska  Airlines' fuel  costs have  been reduced                                                               
significantly.   He asked if  it is  accurate to say  that Alaska                                                               
Airlines  has benefitted  from the  lower fuel  costs, and  that,                                                               
even with  the additional  tax, the price  of fuel  remains lower                                                               
than it was two years ago.                                                                                                      
                                                                                                                                
MR. SPRAGUE  agreed that lower  fuel prices have been  a benefit,                                                               
and  fares are  down  because the  company is  able  to pass  the                                                               
savings on  to its  customers.   The lower  cost has  also helped                                                               
Alaska  Airlines' financial  position,  allowing  it to  consider                                                               
capital  investments in  the state.    He pointed  out that  fuel                                                               
prices fluctuate  significantly and  - while experts  may suggest                                                               
that prices are  going to be "lower, longer" in  the present - if                                                               
a  fuel  tax  increase  is  enacted, it  could  remain  in  place                                                               
indefinitely.   He related  that the belief  held by  the airline                                                               
industry is  that oil prices  are going to rebound  and companies                                                               
will pay higher prices over time.                                                                                               
                                                                                                                                
REPRESENTATIVE  ORTIZ  asked  whether  the  lack  of  significant                                                               
progress by the state, regarding  its fiscal situation, increases                                                               
the  risks  associated  with Alaska  Airlines'  intended  capital                                                               
investments.                                                                                                                    
                                                                                                                                
MR. SPRAGUE  replied that  Alaska Airlines  has certain  needs in                                                               
the  state of  Alaska  with  respect to  operations.   The  rural                                                               
terminals are in  need of improvements as the newest  is 15 years                                                               
old,   the  facilities   are  exposed   to  harsh   environmental                                                               
conditions much of the year, and  none have been adjusted to meet                                                               
the  (Transportation  Security Administration)  TSA  requirements                                                               
imposed  after [the  terrorist attacks  of  September 11,  2001].                                                               
The changes need to take place  regardless of what the state does                                                               
to address  the fiscal  situation; this holds  true for  both the                                                               
maintenance facility  in Anchorage  and the  company's commitment                                                               
to serving cargo  needs.  He suggested that  Alaska Airlines will                                                               
likely proceed  with the  investments, but will  do so  with some                                                               
level  of  trepidation  given an  economic  environment  that  is                                                               
cloudy  at  best  and,  absent   legislative  action,  could  get                                                               
cloudier.  He emphasized, yes, there is concern.                                                                                
                                                                                                                                
2:10:48 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FOSTER asked  if Alaska Airlines is a member  of, or has                                                               
input  into,   the  Aviation  Advisory  Board,   which  made  the                                                               
recommendations for the proposed tax increases.                                                                                 
                                                                                                                                
MR. SPRAGUE confirmed the company's  awareness of the proceedings                                                               
with  the  Aviation Advisory  Board,  and  has an  executive  who                                                               
represents the  airlines as a  member.  However,  Alaska Airlines                                                               
did not have  a participating member when  the recommendation for                                                               
the tax  increase was made.   He stated his appreciation  for the                                                               
question, because  it is an  important distinction.   Mr. Sprague                                                               
offered  assurance that  Alaska  Airlines' is  supportive of  its                                                               
aviation  colleagues  in Alaska,  and  works  closely with  other                                                               
aviation  operators, whether  in regard  to safety  or commercial                                                               
issues.   It's unusual  for Alaska Airlines  to have  a different                                                               
position from  the rest of  the aviation operators in  the state,                                                               
but what makes  it unique is the level of  investment the company                                                               
has made  in the  state's aviation  infrastructure.   He remarked                                                               
that some other airlines have  their own terminal facilities, but                                                               
none of  them have  eleven, large,  TSA-equipped, cargo-equipped,                                                               
terminal facilities.                                                                                                            
                                                                                                                                
2:12:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CLAMAN stated  that  he has  heard many  business                                                               
leaders express  the urgent importance  of addressing  the fiscal                                                               
gap this  session and not  postponing action to  another session.                                                               
He  asked which  would be  the greater  risk to  Alaska Airlines'                                                               
confidence  in continued  investment  in Alaska:    the fuel  tax                                                               
increasing to $0.10  or the legislature not  making real progress                                                               
toward closing the fiscal gap.                                                                                                  
                                                                                                                                
MR. SPRAGUE  stated that Alaska  Airlines' understanding  is that                                                               
the  amount of  revenue that  would be  raised by  increasing the                                                               
motor  fuel  taxes would  not  sufficiently  address the  state's                                                               
fiscal challenges.                                                                                                              
                                                                                                                                
REPRESENTATIVE  CLAMAN  clarified  that he  was  referencing  the                                                               
larger  fiscal  situation,  not  just  the  fuel  tax,  with  his                                                               
previous question.                                                                                                              
                                                                                                                                
MR. SPRAGUE stated  that Alaska Airlines' view is  that action is                                                               
going to  have to  be taken  across the  various levers  that are                                                               
available to the legislature to address the issue.                                                                              
                                                                                                                                
2:14:08 PM                                                                                                                    
                                                                                                                                
GREG LOUDON,  member, Alaska Chamber,  stated that  the chamber's                                                               
legislative  affairs  committee  members were  asked  to  clarify                                                               
priorities for the upcoming legislative  session.  He pointed out                                                               
that  written testimony  was  submitted on  August  24, 2015,  to                                                               
Governor Walker and the Alaska  State Legislature.  For answering                                                               
the fiscal  situation, the Alaska  Chamber's number  one priority                                                               
is the reduction of state  spending to a sustainable level, which                                                               
the chamber  defines as  $4.5 billion,  or less,  of unrestricted                                                               
general  fund  expenditures by  fiscal  year  2018 (FY18).    The                                                               
second priority is  to use permanent fund earnings,  and the last                                                               
priority  is  to  invoke  broad-based taxes.    He  informed  the                                                               
committee that the  important message from the  Alaska Chamber is                                                               
that  it  supports closing  the  fiscal  gap and  encourages  the                                                               
legislature  to take  strong action  this  session to  accomplish                                                               
that, but  it wants  the focus  to be  on cutting  state expenses                                                               
before looking to other sources of revenue.                                                                                     
                                                                                                                                
2:15:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FOSTER  noted that, if  the legislature were to  use the                                                               
permanent fund earnings, after subtracting  what is needed to pay                                                               
a  dividend  and  inflation proofing,  approximately  $5  billion                                                               
would be available.   At the current oil price of  $20 to $30 per                                                               
barrel that  sum would  be gone in  as little as  18 months.   He                                                               
asked whether Alaska Chamber has a long-term strategy.                                                                          
                                                                                                                                
MR.  LOUDON  stated that  the  Alaska  Chamber  has not  taken  a                                                               
specific  position on  the governor's  proposed  bill or  related                                                               
legislation, as introduced.   The Alaska Chamber  knows that some                                                               
form of legislation  is necessary, and it is  not advocating that                                                               
the state spend all of the  permanent fund earnings.  The chamber                                                               
is  emphasizing  the importance  for  the  legislature to  reduce                                                               
state spending before considering other sources of revenue.                                                                     
                                                                                                                                
2:17:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  HUGHES   asked  for   clarification  that   the  Alaska                                                               
Chamber's  stance is  that  there  is a  preferred  order to  the                                                               
actions taken to close the  gap:  reduce government spending, use                                                               
the permanent fund  in some way, and, as a  last resort, increase                                                               
taxes.                                                                                                                          
                                                                                                                                
MR. LOUDON replied that is correct.                                                                                             
                                                                                                                                
CO-CHAIR  HUGHES commented  that Alaska's  budget from  ten years                                                               
ago,  adjusted for  inflation,  was  approximately $4.1  billion.                                                               
She  granted  that there  are  differences  now such  as  pension                                                               
obligations  and  health  care.    A  $4.5  billion  unrestricted                                                               
general fund budget sounds like  a realistic target, and she said                                                               
she personally does not recall any  public outcry about a lack of                                                               
government services 10 years ago.                                                                                               
                                                                                                                                
2:18:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STUTES asked  if the Alaska Chamber  has any ideas                                                               
regarding ways to cut state spending.                                                                                           
                                                                                                                                
MR. LOUDON responded  that the chamber has  developed a framework                                                               
for  how  it  would  suggest   making  reductions  in  government                                                               
spending; however, the framework  does not involve isolated cuts,                                                               
but offers department by department recommendations.                                                                            
                                                                                                                                
2:19:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ORTIZ  asked  if  the  Alaska  Chamber  has  been                                                               
provided  with any  information on  the economic  impacts of  the                                                               
recommended reductions.   He  gave the  example of  a significant                                                               
reduction in  spending for the  Alaska Department of Fish  & Game                                                               
(ADFG) resulting in  a lack of positions  necessary to accomplish                                                               
their projects, which may result  in more conservative management                                                               
decisions, which would  in turn result in fewer  fish caught, and                                                               
ultimately less income  earned in the fisheries.   He stated that                                                               
the  legislature needs  to reduce  the budget  and will,  but the                                                               
question is  how that  is accomplished with  a minimal  impact on                                                               
the overall economy.  He asked  if there has been any analysis on                                                               
the impact of a $4.5 billion budget.                                                                                            
                                                                                                                                
MR. LOUDON  answered that  the Alaska  Chamber worked  with ISER,                                                               
and  other state  resources, to  analyze  the potential  economic                                                               
impacts of budget reductions.   The $4.5 billion dollar number is                                                               
a summary  of the expenditures  that the Alaska  Chamber believes                                                               
is reasonable.                                                                                                                  
                                                                                                                                
2:20:56 PM                                                                                                                    
                                                                                                                                
RON WILLE, General  Manager, Kenai Fjords Tours,  stated that the                                                               
implementation  of a  $0.05  increase in  marine  fuel tax  rates                                                               
would double  the current rate  and substantially  increase costs                                                               
to his  company.   He stated that  in recent  years back-to-back,                                                               
double-digit  minimum wage  increases  for some  of the  seasonal                                                               
entry  level  jobs  that  Kenai   Fjord  Tours  hires  have  also                                                               
increased costs.   He  said coupling these  increases has  had an                                                               
impact  on the  business  and  the company's  bottom  line.   The                                                               
marine fuel taxes made more sense,  he said, when the state owned                                                               
and operated  many of the  harbors throughout the state.   Seward                                                               
now  owns and  maintains its  own  harbor, and  the revenue  from                                                               
marine  fuel taxes  do not  seem  to directly  transfer from  the                                                               
state to the local coffers.   He asked whether funds generated by                                                               
the marine  fuel tax  would be dedicated  to locally  owned ports                                                               
and harbors.   Another area of  concern, similar to that  held by                                                               
people in rural  Alaska, is that the company only  has one marine                                                               
fuel supplier,  which causes less  competition in the  market and                                                               
can lead  to higher prices.   He concluded by stating  that large                                                               
increases over such a short time  period does not allow a company                                                               
to make adjustments  to its pricing structure  and compensate for                                                               
the increased costs.                                                                                                            
                                                                                                                                
2:23:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HUGHES asked what the  projected, additional costs would                                                               
be for his business, under HB 249.                                                                                              
                                                                                                                                
MR.  WILLE replied  that fuel  costs  would increase  by tens  of                                                               
thousands of dollars.                                                                                                           
                                                                                                                                
2:23:50 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HUGHES opened public testimony on HB 249.                                                                              
                                                                                                                                
2:24:02 PM                                                                                                                    
                                                                                                                                
CLARK MILNE  stated support  for HB  249 and SB  132 and  said he                                                               
believes that  the revenue  would be  allocated to  current road,                                                               
harbor,  and airport  maintenance  expenditures.   He stated  his                                                               
understanding that  Alaska's highway  fuel tax  is the  lowest in                                                               
the  country, at  $0.08,  and  would remain  the  lowest even  if                                                               
increased to the  proposed $0.16.  He  stated that implementation                                                               
of the  tax would  put Alaska  in better  stead with  the Federal                                                               
Highway Administration  and given that  the overall cost  of fuel                                                               
has  dropped by  50  percent,  the addition  of  $0.08  is not  a                                                               
significant burden.  The proposed  tax increase, as structured by                                                               
the  Aviation  Advisory  Board,  would  not  result  in  any  new                                                               
collection costs  and would  be visited upon  people who  use the                                                               
associated  infrastructure.   Also,  the impacts  of  a fuel  tax                                                               
would  be  greater  for  fuel-based  businesses  such  as  taxis,                                                               
airlines, mining, and construction.   It is imperative for Alaska                                                               
to continue  using the  subaccounts within  the general  fund, he                                                               
said, as  mandated by AS  43.40.010 (g), which reads  as follows:                                                               
"The proceeds  of the revenue  from the  tax on all  motor fuels,                                                               
except as provided in (e), (f)  and (j) of this section, shall be                                                               
deposited  in a  special highway  fuel tax  account in  the state                                                               
general  fund."   He opined  that  because of  this statute,  the                                                               
state does not need a dedicated fund.   He said he is not certain                                                               
that the subaccount  is a designated fund, but it  is handled and                                                               
accounted for  in such a  way that  the legislature or  a private                                                               
citizen can track revenues and  expenses.  The entire $49 million                                                               
tax increase divided  by 700,000 citizens would result  in a per-                                                               
capita  increase of  about $70  per person,  per year,  which, he                                                               
predicted, would help meet the needs of the state.                                                                              
                                                                                                                                
2:27:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR HUGHES  clarified that, even though  the subaccounts are                                                               
written in statute,  the legislature has the ability  to move the                                                               
funds and use them in whatever way is deemed necessary.                                                                         
                                                                                                                                
2:28:13 PM                                                                                                                    
                                                                                                                                
AVES THOMPSON,  Executive Director, Alaska  Trucking Association,                                                               
stated  support  for  HB  249,  and said  that  one  of  the  ATA                                                               
legislative priorities in 2016 is  the development of a balanced,                                                               
durable,   long-term  fiscal   plan  utilizing   cuts  to   state                                                               
government, permanent fund earnings, and  taxes, if required.  He                                                               
stated that  the fuel  tax increase,  as proposed  in HB  249, is                                                               
acceptable to  ATA, within  the framework  of a  long-term fiscal                                                               
plan.   He  stated  that  ATA believes  action  is critical  this                                                               
legislative session  and has long-supported  a fuel  tax increase                                                               
if  the funds  can  be  dedicated to  transportation  needs.   He                                                               
relayed that it  is ATA's understanding that the  funds would not                                                               
be  dedicated in  HB 249,  but ATA's  members feel  strongly that                                                               
they need to help resolve the fiscal issues by doing their part.                                                                
                                                                                                                                
2:29:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  HUGHES asked  whether  ATA agrees  with the  governor's                                                               
proposed  budget  or  if  the association  is  more  inclined  to                                                               
support the Alaska Chamber's proposal of a $4.5 billion budget.                                                                 
                                                                                                                                
MR. THOMPSON responded that ATA  want to see further reduction in                                                               
state  spending,  consideration  of  use of  the  permanent  fund                                                               
earnings, and  an increase in taxes  - all part of  a longer-term                                                               
plan.   He stated that action  needs to take place  now, and that                                                               
there  is  a  lot  of  uncertainty  in  the  credit  markets,  in                                                               
construction, in transportation, and  in other industries; people                                                               
are wondering what  will happen next.  He urged  the committee to                                                               
consider the whole  package and said the motor  fuel tax increase                                                               
is acceptable within the framework of a larger plan.                                                                            
                                                                                                                                
2:31:32 PM                                                                                                                    
                                                                                                                                
FRED STURMAN  stated opposition to HB  249, and said that  he has                                                               
been testifying  regularly over the  past ten years in  an effort                                                               
to persuade  the legislature to  reduce government spending.   He                                                               
expressed opposition  to any  new taxes until  the state  cuts at                                                               
least 30 percent of its spending.   When it comes time to discuss                                                               
taxes, the state  should start with an income tax,  followed by a                                                               
sales tax, followed  by accessing the permanent  fund, he opined,                                                               
and concluded that by accessing  the permanent fund, implementing                                                               
a sales  tax, increasing motor  fuel tax  rates, and some  of the                                                               
other proposed  taxes the state  would effectively  eliminate any                                                               
discretionary  money  held by  the  public,  and there  would  no                                                               
longer  be  an  economy.   As  an  owner  of  a couple  of  small                                                               
businesses, he reported  that business has been down by  15 to 20                                                               
percent in the  last two years and is getting  worse.  He related                                                               
that he  recently spoke  with people  who are  selling everything                                                               
they  have and  moving out  of state.   The  economy in  the near                                                               
future  is going  to be  worse than  it was  in the  1980s unless                                                               
there  are major  cuts to  government spending.   Based  on a  $4                                                               
billion fiscal  gap, the state  is short  $5,714 per capita.   He                                                               
stated  his  hope  that the  legislature  would  stop  discussing                                                               
implementation of  new taxes  and start focusing  on cuts  to the                                                               
government.   Additionally,  he  suggested that  the Division  of                                                               
Motor Vehicles  (DMV) and  the Kodiak  rocket launch  facility be                                                               
cut and that  road maintenance be contracted.   He suggested that                                                               
the  State of  Alaska should  purchase products  and services  in                                                               
support of the  government from locally owned  businesses as much                                                               
as possible, and  opined that the legislature for the  past 10 to                                                               
20 years has been spending more than it can afford.                                                                             
                                                                                                                                
2:35:41 PM                                                                                                                    
                                                                                                                                
JAMES SQUYRES  stated opposition  to HB 249  and opined  that the                                                               
legislature should  further reduce the size  of government rather                                                               
than entertain  the governor's  plan to  increase revenue  at the                                                               
expense of the  private economy.  The state  should be continuing                                                               
to cut,  not "run from one  side of the  boat to the other."   He                                                               
encouraged members to  endorse the judicious use  of the earnings                                                               
reserve  and the  power  of  the majority  to  lower the  overall                                                               
budget to  $4.5 billion.  He  stated that a 100  percent increase                                                               
in  the  fuel  tax  is   one  of  several  proposals  that  would                                                               
inordinately place the  burden of the fiscal crisis  on the backs                                                               
of the people.  He related  that he lives in rural Alaska, drives                                                               
80  miles  round  trip  to  get   to  town,  plows  one  mile  of                                                               
unmaintained  state  road  to  get  to  his  driveway,  and  must                                                               
maintain two  plow trucks to ensure  access to his property.   He                                                               
stated  that  gasoline  is used  for  energy,  plowing,  cutting,                                                               
splitting, and transport to and from  town.  He related that fuel                                                               
costs  have finally  come down  for the  interior, and  posed the                                                               
question, "Will the fuel tax be  dropped if the price of oil goes                                                               
back up?"  He restated his opposition  to HB 249, because  of the                                                               
budget.                                                                                                                         
                                                                                                                                
2:37:45 PM                                                                                                                    
                                                                                                                                
PAM  GOODE stated  opposition  to  HB 249,  and  opined that  the                                                               
proposed bill  is unnecessary  and a  total waste  of time.   She                                                               
said the  legislature should focus  entirely on cutting  the size                                                               
of  government,  not   on  raising  revenue.     She  stated  her                                                               
understanding that DOTPF has increased  in size by 109 percent in                                                               
the last 10  years, and this increase was not  used for services,                                                               
but instead  to "hold up the  size of government."   The economic                                                               
challenge is faced by all Alaskans  and the rural sector is going                                                               
to  be hit  very hard.   She  posited that  the bigger  insult to                                                               
rural Alaskans  is the removal  of money from the  private sector                                                               
and its placement  in the hands of government,  which is normally                                                               
located  in the  larger  cities; therefore,  the  state would  be                                                               
taking  money out  of the  rural  communities and  placing it  in                                                               
cities.     She commented  on the  argument that  an increase  in                                                               
motor fuel tax  is positive because it  captures tourism dollars,                                                               
stating that  the summer is not  just the tourism season,  but is                                                               
also the  time of year that  all Alaskans travel.   She indicated                                                               
that she was  offended by the claim that, when  compared to other                                                               
states,  Alaska does  not  tax enough.   The  cost  of living  in                                                               
Alaska is  already high she  said, and stressed that  she doesn't                                                               
want Alaska  to be like  other states.   Alaska has  more liberty                                                               
and more  freedom, she  opined, and  it needs  to stay  that way.                                                               
The  only way  to ensure  that  happens is  to keep  the size  of                                                               
government down.  She restated  her opposition to HB 249, because                                                               
she  said it  would  not address  the root  cause  of the  fiscal                                                               
problem:  government spending.                                                                                                  
                                                                                                                                
2:40:14 PM                                                                                                                    
                                                                                                                                
LARRY DEVILBISS testified that he  is a beef farmer attempting to                                                               
compete with  cattle farms in the  Lower 48.  He  related that in                                                               
the Lower 48,  cattle can graze on natural grass  for nine months                                                               
per year and  farmers only have to provide feed  for 3 months per                                                               
year;  however, the  opposite is  true in  Alaska, where  farmers                                                               
must provide feed 9 months per  year.  He said the consequence of                                                               
this is that in the summer, [his farm]  puts up a lot of hay.  He                                                               
stated that last year's "Schedule  F" form for his federal income                                                               
tax confirmed that  fuel is easily the largest  single expense in                                                               
the  cost of  putting up  hay  in the  summer, and  is easily  50                                                               
percent  more than  the cost  of fertilizer.   He  explained that                                                               
fuel costs  are a huge  impact, and he  is aware of  an exemption                                                               
that exists for off-road users, but  HB 249 would double his farm                                                               
tax.    He  stated  his  awareness  that  someday  this  sort  of                                                               
provision  may be  necessary, but  he  said it  bothers him  that                                                               
state government wants  to "reach into his pocket" on  July 1, at                                                               
the time of first hay  cut, before the legislature has determined                                                               
a sustainable level  of government.  The  legislature should find                                                               
the  minimal level  of state  services, before  dipping into  the                                                               
private side  of the economy.   He posited that  state government                                                               
is more  concerned with  preserving the  public economy  than the                                                               
private economy.                                                                                                                
                                                                                                                                
2:43:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  HUGHES announced  that HB  249 would  be held  over and                                                               
that public testimony would remain open.                                                                                        

Document Name Date/Time Subjects
HB249 Sponsor Statement - Governor's Transmittal Letter.pdf HTRA 2/4/2016 1:00:00 PM
HB 249
HB249 ver A.pdf HTRA 2/4/2016 1:00:00 PM
HB 249
HB249 Fiscal Note-0912-DOR-TAX-01-13-16.pdf HTRA 2/4/2016 1:00:00 PM
HB 249
HB249 Sectional Analysis.pdf HTRA 2/4/2016 1:00:00 PM
HB 249
Tax presentation MOTOR FUEL 1-22-16 with comparison slide.pdf HTRA 2/4/2016 1:00:00 PM
Motor Fuel Tax FAQ.docx HTRA 2/4/2016 1:00:00 PM
HB 249 Opposing Documents - Letter from UPS 2-3-20106.pdf HTRA 2/4/2016 1:00:00 PM
HB 249
HB 249 Opposing Documents - Delta Airlines 2-4-2016.pdf HTRA 2/4/2016 1:00:00 PM
HB 249
HB 249 Opposing Documents - Emals from Public.pdf HTRA 2/4/2016 1:00:00 PM
HB 249
HB 249 Opposing Documents - Letter from Checker Cab 2-4-2016.pdf HTRA 2/4/2016 1:00:00 PM
HB 249
HB 249 Supporting Documents - Emails from Public.pdf HTRA 2/4/2016 1:00:00 PM
HB 249