Legislature(2003 - 2004)

04/24/2003 01:37 PM TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
           SB 112-MOTOR FUEL TAX:GOVT AGENCY REFUNDS                                                                        
CHAIR JOHN COWDERY stated SB 112  was a governor's bill. He noted                                                               
there was a  committee substitute (CS) \Q version  and a proposed                                                               
amendment relating  to tax refunds  for government  agencies that                                                               
purchase fuel.                                                                                                                  
KEVIN  JARDELL,  Assistant  Commissioner  of  the  Department  of                                                               
Administration  (DOA), said  the State  of Alaska  began using  a                                                               
single credit card  last year, which allows the  state to receive                                                               
itemized  statements.  He explained  that  fuel  retailers pay  a                                                               
motor fuel  tax to wholesalers,  but they are eligible  to recoup                                                               
those taxes  on any fuel  they sell  to a government  agency. The                                                               
proposed  CS  is a  technical  adjustment  that would  allow  the                                                               
credit card  issuer to apply  for the fuel  tax rebate in  a lump                                                               
sum and  repay the  various fuel retailers.  This would  save the                                                               
state administrative  costs and would allow  flexibility in where                                                               
fuel is purchased.                                                                                                              
CHAIR COWDERY asked for a motion to adopt the proposed CS.                                                                      
SENATOR  THOMAS  WAGONER made  a  motion  to  adopt CSSB  112  \Q                                                               
version. There being no objection, it was so ordered.                                                                           
CHAIR COWDERY asked for a  motion to adopt the proposed amendment                                                               
relating to tax refunds for government agency purchases of fuel.                                                                
SENATOR  GEORGIANNA LINCOLN  pointed out  the proposed  amendment                                                               
refers  to  the original  bill  and  not  the  CS that  was  just                                                               
SENATOR  GENE  THERRIAULT  added  the amendment  could  be  moved                                                               
conceptually and the drafters could  insert the language into the                                                               
CS where it was appropriate.                                                                                                    
TAPE 03.16 SIDE B                                                                                                             
2:23 p.m.                                                                                                                     
SENATOR  LINCOLN  asked  if the  amendment  included  the  Alaska                                                               
SENATOR THERRIAULT said the amendment  is specifically related to                                                               
the issue to which Mr. Jardell spoke.                                                                                           
MR.  JARDELL  agreed  and  said the  specific  section  with  the                                                               
railroad would overrule  any inclusion in the  subsection. The CS                                                               
wouldn't change the  manor that the railroad is taxed  or the fee                                                               
charged; the railroad would pay the tax.                                                                                        
SENATOR THERRIAULT made a motion  to adopt conceptual amendment 1                                                               
to the  CSSB 112 \Q  to insert "and  relating to tax  refunds for                                                               
government agency purchases  of fuel" where the  drafters deem it                                                               
to be appropriate. There was no objection to the amendment.                                                                     
PAUL  FUHS, Horizon  Shipping Lines  representative, stated  they                                                               
are closely associated with truckers  and are concerned about the                                                               
overall impact  of all  the fees that  are currently  proposed on                                                               
the  transportation industry.  Individual truckers  in the  state                                                               
are losing  business to the outside  and they also find  they are                                                               
in direct competition with the  Alaska Railroad, which is a state                                                               
agency that also receives subsidies  from the federal government.                                                               
All the  fees will make  it more  and more difficult  for Alaskan                                                               
truckers to remain competitive.                                                                                                 
CHAIR COWDERY  said the Railroad  previously testified  that they                                                               
have no way of recouping the  20 cents per gallon increase [levy]                                                               
on their  fuel. He didn't  disagree, but everyone was  faced with                                                               
paying more.                                                                                                                    
MR. FUHS agreed  that everyone rides fuel costs up  and down, but                                                               
they  are speaking  to the  differential  that all  the new  fees                                                               
create  on  the  Alaska  trucking industry  compared  to  outside                                                               
truckers and the railroad.                                                                                                      
SENATOR THERRIAULT asked if he  supported the railroad paying the                                                               
fuel tax.                                                                                                                       
MR. FUHS said  he wasn't authorized by Horizon  Shipping Lines to                                                               
support the imposition of taxes on any other entity.                                                                            
SENATOR  DONNY  OLSON  asked  if  it  was  correct  that  Horizon                                                               
Shipping did not support the bill.                                                                                              
MR. FUHS  said he was  asking the  committee to consider  the new                                                               
and increased  fees in totality  because they will  ultimately be                                                               
passed on to the consumer.                                                                                                      
SENATOR THOMAS WAGONER said it's standard  to pass fees on to the                                                               
end user.                                                                                                                       
MR.  FUHS agreed  and said  the fees  could really  be viewed  as                                                               
sales taxes  or income taxes, but  their real concern is  that it                                                               
makes them less competitive as Alaskan businesses.                                                                              
SENATOR THERRIAULT  questioned whether  this precluded  the state                                                               
from  levying a  tax on  rail  operations above  and beyond  what                                                               
other modes of transportation pay.                                                                                              
WENDY  LINDSKOOG,  Director of  External  Affairs  of the  Alaska                                                               
Railroad Corporation, said Phyllis  Johnson and John Binkley were                                                               
available on line to give testimony and answer questions.                                                                       
JOHN  BINKLEY, Chairman  of  the Board  for  the Alaska  Railroad                                                               
Corporation, said  he didn't hear  the specific question,  but he                                                               
had testimony he would like to offer.                                                                                           
SENATOR  THERRIAULT asked  about  the  reported restriction  that                                                               
federal law  imposes on states  as far  as levying taxes  on rail                                                               
MR. BINKLEY deferred to Ms. Johnson.                                                                                            
PHYLLIS   JOHNSON,  legal   counsel   to   the  Alaska   Railroad                                                               
Corporation, said  she didn't have the  act in front of  her, but                                                               
she  thought  he was  referring  to  the 4  R  Act.  That is  the                                                               
Railroad Revitalization  and Regulatory  and Reform Act  of 1976.                                                               
She advised  that they portray  the act  in more black  and white                                                               
terms than the  specific provision indicates because  it has been                                                               
construed  from a  number of  court decisions  from jurisdictions                                                               
across the country.  In effect it means you cannot  impose a more                                                               
restrictive or burdensome tax on  one mode of transportation than                                                               
on another  mode of  transportation. She  said she  could provide                                                               
court decisions if that was desirable.                                                                                          
SENATOR THERRIAULT  said he would appreciate  receiving the court                                                               
CHAIR COWDERY  stated this  was raised  previously and  the legal                                                               
opinion he received was that  it doesn't apply because the Alaska                                                               
Railroad is  a state owned entity  and not federal. He  asked Ms.                                                               
Johnson if  she had a copy  of the opinion presented  at the last                                                               
MS. JOHNSON replied she had an opinion from Mr. Utermohle.                                                                      
CHAIR COWDERY asked if she disagreed.                                                                                           
MS.  JOHNSON advised  the Utermohle  opinion doesn't  address the                                                               
whole  question. It  is certainly  true that  the state  owns the                                                               
railroad  and   there  is  considerable  latitude   in  terms  of                                                               
intrastate  activity. However,  when  it comes  to activity  that                                                               
does or  can affect interstate  commerce, federal acts  come into                                                               
play.  The  federal  position  would  probably  be  that  if  the                                                               
railroad  were to  operate in  interstate commerce  then it  must                                                               
adhere to nationwide  rules. That is where imposing  a higher tax                                                               
on a railroad  than competing forms of  transportation comes into                                                               
CHAIR  COWDERY advised  he met  with Governor  Murkowski and  Jim                                                               
Clark  recently  and   he  is  under  the   assumption  that  the                                                               
administration supports SB  112 and believes the  state is within                                                               
its rights.                                                                                                                     
SENATOR LINCOLN stated  she had the April 3,  2003 legal services                                                               
opinion from  Kathryn Kurtz,  but she  didn't have  anything from                                                               
Mr. Utermohle.                                                                                                                  
CHAIR COWDERY said he would see she got a copy.                                                                                 
2:40 p.m.                                                                                                                     
MR. BINKLEY reported  there are two issues on SB  112. First is a                                                               
policy issue  that the Legislature  should review and  the second                                                               
is the legal issue spoken to earlier.                                                                                           
The purpose  of the  transportation tax is  to ensure  that those                                                               
entities that  use the  facilities pay their  fair share  for the                                                               
cost  of construction  and  maintenance over  time.  In terms  of                                                               
aviation,  the state  has  an extensive  airport  system and  air                                                               
carriers benefit  tremendously through  the use of  the airports.                                                               
It's appropriate that they pay a  tax on the fuel they consume to                                                               
help offset the  costs. The same reasoning applies  to marine use                                                               
of  state facilities.  With respect  to highways,  it's certainly                                                               
appropriate that a  fuel tax is levied to offset  the millions of                                                               
dollars that DOTPF spends constructing and maintaining highways.                                                                
In  contrast,  the  State  of  Alaska  pays  nothing  toward  the                                                               
construction, maintenance or operation  of rail facilities or any                                                               
of the  facilities that  contribute to  maintaining the  fleet of                                                               
railroad  equipment. In  addition, railroad  transportation saves                                                               
the  state millions  of dollars  in construction  and maintenance                                                               
costs.  For instance,  the railroad  has hauled  about 4  million                                                               
tons of gravel between Palmer and  Anchorage so far this year. It                                                               
would  have taken  400,000 trips  for the  typical 20-ton  belly-                                                               
dumper trucks  to have moved that  amount of gravel in  a 150 day                                                               
span. That translates  to over 2,600 trucks going  back and forth                                                               
to Palmer every day.                                                                                                            
CHAIR COWDERY interjected the comment  that they would charge the                                                               
fuel tax on the trucks if they didn't use rail.                                                                                 
MR.  BINKLEY said  the state  would reap  a tremendous  amount in                                                               
terms of  fuel tax if  that were the  case, but it's  likely that                                                               
the highway would  not only need more maintenance,  it would need                                                               
to  be expanded  by several  lanes to  accommodate the  increased                                                               
He  pointed  out the  railroad  builds,  maintains and  uses  its                                                               
facilities without  state input. As  a matter of policy,  he sees                                                               
no reason  that the  railroad should  be taxed  to use  their own                                                               
facilities  and   equipment  unless  the  state   is  willing  to                                                               
contribute as well.                                                                                                             
When the government  agreed to sell the railroad to  the State of                                                               
Alaska at  a price  that was  well below its  value, they  did so                                                               
because they  felt there was  greater value  in doing so  than in                                                               
liquidating the  line. There  is however,  a provision  under the                                                               
federal Alaska Railroad  Transfer Act that requires  that all the                                                               
earnings from the  railroad go back into the line  to ensure that                                                               
the federal government continues  to have a viable transportation                                                               
system to use in Alaska.                                                                                                        
CHAIR  COWDERY   announced  he   voted  against   purchasing  the                                                               
railroad. He then  asked if the railroad  couldn't have operating                                                               
costs because he understood fuel costs to be operating costs.                                                                   
MR. BINKLEY said that could be  argued but, it could be construed                                                               
as simply  a taking of  the revenue  of the Alaska  Railroad. The                                                               
state  could conceivably  raise the  tax on  the railroad  to any                                                               
level  and take  all  the earnings,  but  the federal  government                                                               
wouldn't agree that that was simply  a cost of doing business. He                                                               
said that  is a legal  question and the railroad  certainly wants                                                               
to comply with both state and federal law.                                                                                      
With  regard  to Mr.  Fuhs'  complaint  that  the railroad  is  a                                                               
competitor,  he reminded  everyone  that  the federal  government                                                               
heavily  subsidizes the  shipping industry  in terms  of dredging                                                               
Cook Inlet and docks and harbor development.                                                                                    
CHAIR COWDERY  asked whether he  thought the same applied  to the                                                               
MR. BINKLEY replied it did.                                                                                                     
SENATOR OLSON asked Mr. Binkley  whether he would consider SB 112                                                               
to be unconstitutional.                                                                                                         
MR.  BINKLEY  said it  wasn't  unconstitutional,  but there  were                                                               
federal statutes that would question whether it could be done.                                                                  
MR. OLSON asked  if it is correct  that case law would  not be on                                                               
the side of the bill.                                                                                                           
MR.  BINKLEY said  that is  correct according  to the  railroad's                                                               
legal counsel.                                                                                                                  
CHAIR COWDERY said  he understood that attorney  Jim Clark [Chief                                                               
of Staff] and Governor Murkowski supported the bill.                                                                            
SENATOR LINCOLN  asked him  to speak  to the  April 2,  2003 memo                                                               
from legislative  counsel, George Utermohle, that  said, "Also it                                                               
would be  worth checking with  bond council to  determine whether                                                               
the tax  would have  adverse consequences on  the ability  of the                                                               
Alaska Railroad to  issue bonds and whether the  tax would create                                                               
problems  with  respect  to  bonds that  may  have  already  been                                                               
MR. BINKLEY said they are concerned  about that, but they need to                                                               
borrow money to expand and grow  the railroad the same as private                                                               
corporations. To  the extent that financial  institutions rely on                                                               
their corporate earnings  and to the extent that  the state might                                                               
have changed the covenants that  the railroad signed, there could                                                               
be implications to those financial institutions.                                                                                
They  fully  support current  legislation  to  expand the  Alaska                                                               
Railroad  to  provide more  economic  opportunity  in the  state.                                                               
However, it is inconsistent for  the state to expect the railroad                                                               
to spend a  great deal of capital to expand  while the state cuts                                                               
the  dollars they  have for  the expansion.  The railroad  has an                                                               
operating  budget and  a capital  budget. The  capital budget  is                                                               
financed with earnings  so they must make a profit  or they won't                                                               
have money to spend on capital projects the following year.                                                                     
2:52 p.m.                                                                                                                     
SENATOR  LINCOLN said  the  Senate  Resources Committee  recently                                                               
heard and passed a bill urging  the Alaska Railroad to expand the                                                               
rails from Fairbanks  north to the Canadian rail  line. She asked                                                               
if the  $1.2 million per year  for fuel costs was  still accurate                                                               
and  based on  what he  said about  bonding, would  that have  an                                                               
impact on the expansion of the railroad to Canada.                                                                              
MR. BINKLEY replied  he thought the fuel  calculations were still                                                               
accurate  and   the  ability  to  bond   would  impact  potential                                                               
expansion.  Anything  that  pulls   earnings  from  the  Railroad                                                               
Corporation and into the general  fund restricts their ability to                                                               
expand and grow the railroad  to provide for economic development                                                               
in Alaska.  The extent  is difficult  to gage,  but it  does make                                                               
them less profitable  and less able to do  the expansion projects                                                               
that everyone thinks are important.                                                                                             
CHAIR  COWDERY advised  he  had  a note  from  the Department  of                                                               
Revenue  that said  the attorney  general and  Governor Murkowski                                                               
support a tax on the railroad  and believe they have the right to                                                               
support the tax.                                                                                                                
SENATOR LINCOLN  said she  would like to  hear from  someone from                                                               
the administration.                                                                                                             
CHAIR COWDERY said no one from the administration was available.                                                                
SENATOR LINCOLN  asked if  the Chair understood  the note  to say                                                               
that  the administration  supported the  amended version  of CSSB
CHAIR COWDERY said,  ".... I'm not using just the  note. I talked                                                               
to Jim  Clark and everybody  Monday, in the Governor's  office in                                                               
Anchorage, and they indicated to  me and she just reaffirmed what                                                               
I  was told."  Furthermore, they  think  they have  the right  to                                                               
implement a fuel tax.                                                                                                           
He asked Ms. Baily to comment.                                                                                                  
LANDA BAILY  from the  Department of  Revenue clearly  stated she                                                               
was not speaking  for the Department of Law.  She understood that                                                               
the Governor  heard and understood  the legislative  message that                                                               
the railroad  had to  participate in  the state's  current fiscal                                                               
state of affairs  and be a part of the  solution. She couldn't be                                                               
more specific than to say that  the Governor and his full cabinet                                                               
were looking at the various ways that might happen.                                                                             
She  said   Assistant  Attorney   General,  Mike   Barnhill,  was                                                               
available to answer questions as well.                                                                                          
CHAIR COWDERY said  they were out of time and  asked for the will                                                               
of the committee.                                                                                                               
SENATOR  LINCOLN  asked Ms.  Baily  if  she understood  that  the                                                               
administration supported the committee substitute as presented.                                                                 
MS.  BAILY said  she was  unable to  make that  interpretation at                                                               
that time.                                                                                                                      
SENATOR THERRIAULT  noted the packet on  the federal 4 R  Act had                                                               
annotations on different state litigation  and he appreciated the                                                               
attorney  general's office  sending  someone over  to respond  to                                                               
questions.  However, because  the  motor fuel  tax  issue is  the                                                               
primary focus  of the bill  and he wanted the  bill to go  to the                                                               
Finance Committee,  he was willing  to advance the bill  with the                                                               
question  unanswered.    He asked  that  the  attorney  general's                                                               
office  give   a  full  review   of  the  federal  act   and  the                                                               
implications for restriction that it  would or would not place on                                                               
the State of Alaska.                                                                                                            
SENATOR WAGONER  stated the same  reservation then made  a motion                                                               
to  move  CSSB  112\Q  version as  amended  from  committee  with                                                               
individual recommendations and attached fiscal notes.                                                                           
SENATOR LINCOLN objected to the motion.                                                                                         
She said  she didn't realize  the committee was hearing  the bill                                                               
that day and  a copy of Mr. Utermohle's memo  was not included in                                                               
her packet.  There were  too many  unanswered questions  from the                                                               
railroad, the truckers association  and others. Although the bill                                                               
has  associated finance  questions, it  is a  transportation bill                                                               
and the  committee didn't do all  the work it should  have, which                                                               
is why she was maintaining her  objection to moving the bill from                                                               
CHAIR  COWDERY called  for a  roll call.  The motion  passed with                                                               
Senators Therriault, Wagoner and  Cowdery voting yea and Senators                                                               
Lincoln  and Olson  voting nay.  CSSB 112(TRA)  as amended  moved                                                               
from committee.                                                                                                                 

Document Name Date/Time Subjects