Legislature(2009 - 2010)BELTZ 105 (TSBldg)
02/05/2010 08:00 AM Senate EDUCATION
| Audio | Topic |
|---|---|
| Start | |
| SB236 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 236 | TELECONFERENCED | |
SB 236-TAX CREDITS FOR EDUCATIONAL CONTRIBUTIONS
8:02:44 AM
CO-CHAIR MEYER announced consideration of SB 236.
CO-CHAIR THOMAS moved to adopt the proposed committee substitute
(CS) to SB 236, labeled 26-LS1191\P, as the working document of
the committee. There being no objection, version P was before
the committee.
8:03:46 AM
JOMO STEWART, staff to Senator Meyer, provided a sectional
analysis of CSSB 236. He said it does not represent a change in
policy; it is an expansion of the existing policy regarding tax
credits for educational purposes.
The title was amended to read "educational purposes and
facilities" to better reflect the intent of the committee. That
change is consistent throughout the CS.
He explained that Section 1 requires that the director of the
Division of Insurance make an annual report to the legislature
regarding the functioning of the expanded system. Section 2
creates a sunset for the new regime and amends existing statute
to allow tax credits to state-owned vocational education
courses, programs and facilities, and adds language to allow tax
credits on contributions for facilities for Alaska non-profit
public or private two-year and four-year colleges.
The expansion of the existing regime occurs in section 3, which
amends existing statute to create a 50 percent tax credit for
contributions above $200,000. He referred members to the printed
PowerPoint presentation that was included in their packets.
SENATOR OLSON joined the meeting.
MR. STEWART continued; CSSB 236 impacts seven different tax
types within Alaska Code. Five of these are administered by the
Department of Revenue (DOR): oil and gas property taxes, oil and
gas production taxes, corporate income taxes, mining license
taxes, and a couple of fisheries taxes. The Division of
Insurance, Department of Commerce (DCCED), has health insurance
providers' taxes and provides tax breaks for those insurance
providers for educational purposes.
Under current law, he explained, a contributor receives a 50
percent tax credit for the first $100,000 and a 100 percent
credit for the next $100,000; no additional credits are given
for amounts above $200,000. For example, if an oil and gas
company called "Alasko" made a contribution of $500,000 to
Alaska University, it would receive a 50 percent credit for the
first $100,000 and 100 percent credit for the next $100,000,
resulting in a total tax credit of $150,000. Also under existing
statute, the earned credits can be divided to impact multiple
tax types or obligations that contributor might have. Alasko
could divide that $150,000 tax credit into thirds and use it to
offset $50,000 in production taxes, $50,000 of its property
taxes and $50,000 of its corporate income taxes.
MR. STEWART said CSSB 236 amends that by removing the cap on tax
credits, so on a $500,000 contribution Alasko would receive a 50
percent credit on the first $100,000, a 100 percent credit on
the next $100,000 and a 50 percent tax credit for the remaining
$300,000, for a total tax credit of $300,000. The other change
made by the CS is that contributors can no longer divide their
earned tax credit; credits earned for a single contribution can
only be applied to a single tax.
8:11:18 AM
SENATOR HUGGINS asked if it might be more advantageous to
sweeten the pot for contributions of $1 million or more.
MR. STEWART responded that he also questioned why the 100
percent tax credit should be set between $100,000 and $200,000.
The University explained that the majority of their private
donations fall in that range and they want to encourage private
donors.
8:12:30 AM
SENATOR HUGGINS said that every dollar received from donors
saves the state money, so it doesn't seem reasonable to reduce
the tax incentives for larger donations.
8:13:15 AM
CO-CHAIR MEYER said when they wrote this bill they basically
just expanded the ranges and took the cap off. They thought it
would be best to let the Finance Committee define the levels of
tax credit and whether or not there should be a cap on the
amount of credit allowed per contribution.
8:14:31 AM
SENATOR HUGGINS stated that the Education Committee should ask
for some of that information and develop a package that is much
more deliverable and less likely to get bogged down in the
Finance Committee.
8:14:53 AM
CO-CHAIR MEYER agreed that the more the Education Committee can
do, the better, and said they will be hearing further testimony
in today's meeting.
8:15:08 AM
MR. STEWART said the staff has been working with this for a
couple of weeks and discussed a number of those financial
issues, but felt their time would be better spent on policy
questions. They put in some of the sideboards they felt the
committee would want, including annual reporting by the Director
of Insurance and the Commissioner of Revenue, and added a sunset
date of January 4, 2014 to review the impacts under this new
legislation.
MR. STEWART said there is language in the existing statute that
speaks to colleges "accredited by a regional accreditation
association" and suggested that the committee may want to
include that accreditation language in the newly written bits of
statute that refer to "a facility by a non-profit public or
private Alaska two or four-year college."
SENATOR STEVENS commented that he agrees with Senator Huggins;
the Education Committee needs to set the parameters and send
them forward to Finance.
8:17:22 AM
SENATOR STEVENS questioned who decides how contributions are
used.
MR. STEWART answered that the contributor can request that money
be used for a specific purpose, but he believes the receiving
entity, the University or the school district, ultimately
decides whether to use the money for that purpose.
8:18:27 AM
SENATOR OLSON asked if Mr. Stewart knows what other
organizations are recipients of donations at that level.
MR. STEWART replied that local vocational educational programs,
individual schools, or Alaska Pacific University could be
recipients.
8:19:46 AM
SENATOR OLSON asked what provisions have been made for private
institutions.
8:20:10 AM
MR. STEWART said the Department of Revenue may have more
information on that.
SENATOR HUGGINS wondered if donations to Job Corps, which trains
students across the state, would be eligible.
CO-CHAIR MEYER said he would like the Department of Revenue to
address that question.
MR. STEWART said the capacity seems to exist, even under the
current statute, which reads "an Alaska university foundation or
by a nonprofit, public or private."
8:21:27 AM
SENATOR STEVENS stated it is important for the committee to
specify that only institutions accredited by one of the national
organizations are eligible.
8:21:53 AM
MURRAY RICHMOND, staff to Senator Thomas, confirmed that Job
Corps is not an accredited institution and would not be
eligible. Tax credits are allowed only on contributions to
regionally accredited institutions, public or private.
MR. STEWART commented that it is within the state's power to set
up some kind of certification program to accommodate those other
good organizations, entities, and purposes it would like to see
benefit from donations.
8:22:56 AM
JOHANNA BALES, Deputy Director, Tax Division, Department of
Revenue (DOR), Anchorage, Alaska, said the department is
concerned that, although it may not be expected that tax payers
will donate to the point that it erodes revenue, without a cap,
the potential is there. If a company made a $50 million donation
to construct a two or four-year college, for example, that
donation would result in approximately $25 million credit to the
donor.
She confirmed that Job Corps could not be a recipient for
credits under this program. She also pointed out that the
language specifically states "for a facility by a non-profit
public or private," so it looks like that is to construct new
facilities.
8:25:15 AM
CO-CHAIR MEYER thanked her and agreed that they need a cap to
limit exposure and risk to the state. He asked how often
donations have reached the current cap.
8:25:40 AM
MS. BALES said only a limited number of tax payers take
advantage of the current credit; about 11 of the state's 15,000
corporate income tax payers have contributed on a regular basis
and taken the credit against their corporate income taxes.
8:26:29 AM
SENATOR STEVENS said he wonders how other states handle this. He
understands the risk to state, but thinks there are some pretty
exciting possibilities. If the University needs a new science
building, and a corporation wants to pay half of the cost, that
might be a good way to expand the University facilities at less
cost to the state.
8:27:26 AM
CO-CHAIR MEYER acknowledged his point and said that is why he
thinks the cap should be dealt with in the Finance Committee;
they may want some of that money to go to roads or elementary
schools instead of putting all of it into a university building.
8:27:57 AM
CO-CHAIR MEYER thanked Ms. Bales and asked her to stay on the
line in case the committee members have additional questions.
8:28:23 AM
JAMES R JOHNSEN, Senior Vice President, Administration, Doyon
Limited, Fairbanks, Alaska, said Doyon is an Alaska Native
Corporation that operates in 11 states across the country and
state wide. He is here on behalf of Doyon and all of the other
regional Alaska Native corporations (ANC), who last year sent a
list of priorities to the University for educational programs,
facilities, and curriculum. This tax credit issue was in the
high-priority category. There is broad support from the Native
corporations and among private sector business interests.
DR. JOHNSEN continued; at Doyon they look to the future, and
their future growth is going to depend largely upon investments
in two areas: natural resource development and human resource
development. During the past summer, Doyon and its partners were
encouraged to invest in gas exploration in the Nenana Basin
under the state's current oil and gas tax credit program, which
provides a 50 percent tax credit for that investment. They are
turning that credit right back around to invest in further
exploration work this winter in Stevens Villages, so the state's
policy for encouraging exploration through a tax credit is
working. However, if Doyon or some other corporation were to
invest $15 million in a research facility, it would get only a
$150,000 tax credit, or 1 percent. From a financial perspective,
that just doesn't provide much encouragement to invest heavily
in workforce development, in research, in much-needed
facilities, and in the partnership between business and the
state that they see long-term as critical for the state's
future.
8:31:53 AM
He said they support the bill as written, to have a rather broad
scope, including vocational and technical programs. While most
jobs certainly require postsecondary education, only 75 percent
of the jobs in Alaska and across the nation require
baccalaureate degrees, so they strongly encourage vocational and
technical programs.
8:32:54 AM
DR. JOHNSEN commented that the use of the money has to be by
agreement. The University of Alaska Foundation, which is the
formal recipient of donations, has guidelines, and the Board of
Regents has policies with respect to how gifts are used, but
ultimately it is about a partnership for the long-term.
8:33:49 AM
SENATOR STEVENS wondered if Doyon saw an issue that affected its
membership, such as graduation rates in rural Alaska, could it
or would it try to work toward improvements for those members.
DR. JOHNSEN responded that Doyon could certainly work for
student support programs and student services, but he thinks
there would be a legal issue with running money through the
University that was directed solely to Doyon shareholders. In
addition to making donations, Doyon, the other Alaska Native
corporations, and many private companies provide scholarships;
those they can target. Doyon spends over $1 million per year on
its foundation and scholarships. This is an additional tool that
can certainly help Doyon's shareholders, but its priority is the
state of Alaska.
8:36:22 AM
SENATOR OLSON asked Dr. Johnsen whether he sees SB 236
significantly increasing the amount of contributions from Doyon
and similar corporations to institutions of higher learning.
8:37:06 AM
DR. JOHNSEN replied that workforce development is a key issue to
them, and he knows this would encourage them to collaborate more
and invest more in education. He said they also recognize the
enormous commercial potential of the research done in this
state.
8:38:23 AM
CO-CHAIR THOMAS asked if Dr. Johnsen would anticipate a quicker
response from the University to some areas of interest because
they are receiving private money.
8:39:18 AM
DR. JOHNSEN said he thinks this would enable "jump starts,"
bringing in some private-sector funding to partner up with
people at the University. He does not think the University is
hesitant or resistant; the regular budgetary process just takes
longer and is a bit more of a challenge due to the many
competing demands in such an institution.
8:40:08 AM
SENATOR HUGGINS observed that the conversation has been around
universities, but there is a secondary school provision in the
bill also. He asked how Dr. Johnsen thinks this will work for
secondary schools.
DR. JOHNSEN said vocational and technical programs are provided
for now; he will be meeting with people from the Galina School
District next week to talk about a project to provide some
private-sector support. Programs that help postsecondary or
higher education programs reach out to students in secondary
schools would be a high priority. He referred to the list of
priorities that the native corporations sent to the University
back in August, and said that outreach programs are included in
the top category. They see these programs as a very important
link to employment in Alaska, with Alaskan companies. Too many
of the state's bright students don't see the employment
opportunities here in the state.
8:43:35 AM
SENATOR STEVENS asked whether the accreditation requirement
would cause any problems.
DR. JOHNSEN answered that Doyon is looking only at accredited
institutions at this time.
8:44:09 AM
SENATOR OLSON asked whether it would make a difference in
Doyon's contributions if the committee were to expand the bill
to include non-accredited institutions.
DR. JOHNSEN said he supposed it could; they would like to rely
on the certification of educational quality represented by that
accreditation.
SENATOR OLSON asked if there are any provisions for a student
who, for example, goes to flight school and receives an APC
license, which is a valuable commodity in rural Alaska.
DR. JOHNSEN said he does not believe so, but will check on it
and get back to the committee.
8:45:53 AM
CO-CHAIR MEYER confirmed that the current intent of the bill is
to limit it to accredited institutions.
8:46:53 AM
MARY RUTHERFORD, Associate Vice President, Development,
University of Alaska, Fairbanks, Alaska, expressed the
University Foundation's support for SB 236. The Alaska Higher
Education Tax Credit has been a good tool to help the University
expand the base of private corporate support and, as the
committee was just discussing, private funds enable the
University to be more entrepreneurial than do traditional
methods of acquiring resources. The most obvious example is the
expansion of the nursing program, which was done in
collaboration with many of the hospitals in the state, to
increase the number of nurses and space in the nursing program.
8:48:14 AM
CO-CHAIR MEYER asked if Ms. Rutherford has ever run into a
situation when a donor wanted to make a large contribution for a
specific program or project that wasn't in line with the
University's needs or in their best interests.
MS. RUTHERFORD said negotiation is sometimes necessary, and it
can be difficult to reach that delicate balance that is mutually
satisfactory. However, she pointed out that things that come
into the University Foundation are charitable gifts; there is a
distinction between a gift and an outright grant or a contract.
These donations must meet the standard for a charitable gift
according to IRS guidelines, which means the University agrees
to the purpose and the donor relinquishes all control over it
when the gift is made.
8:50:10 AM
SENATOR STEVENS asked whether the University could accommodate
it if, for example, "Alasko" wanted to finance a summer camp
offering remedial education in math and English and have it
named the "Alasko Summer Camp".
8:51:02 AM
MR. RUTHERFORD said "absolutely;" they would work with the donor
on that.
8:51:38 AM
JIM DODSON, President/CEO, Fairbanks Economic Development
Corporation, Fairbanks, Alaska, said he supports SB 236. He
believed it would create jobs by leveraging private money with
state money, provide a new funding source for higher education
institutions, and help diversify Alaska's economy through
research, innovation, and job training. He cited initiatives
like the Arctic Innovation Competition, Alaska Technology
Business Accelerator, and the Economic Opportunity Task Force as
good examples of economic activities generated by higher
education institutions from business funding sources.
8:54:16 AM
CO-CHAIR MEYER closed public testimony.
8:55:30 AM
SENATOR STEVENS asked if these tax credits would be allowed on a
contribution used to finance a chair at the University.
MS. BALES answered that the way the statute is currently
written, contributions can be used for that purpose.
8:56:41 AM
SENATOR HUGGINS said he would like the Department of Revenue to
give the committee some guidance and recommendations based on
historical donation levels.
8:57:50 AM
MS. BALES responded that the department is concerned about the
potential exposure that exists without a cap, but is not
prepared to suggest what the limit should be. She said this
credit has historically been taken primarily against corporate
income taxes. One thing the committee might do is to restrict
the use of the credit to only that tax type.
8:59:19 AM
CO-CHAIR MEYER asked if Conoco Phillips took a tax credit on
their recent donation of $20 million to the Integrated Science
Center at the University of Alaska Anchorage.
MS. BALES said she cannot discuss the transactions of a specific
tax payer, but in general, that contribution could be used in
the calculation of net income for federal tax purposes. They
would also be allowed to deduct it in the calculation of their
corporate income tax.
She pointed out that, under current law, if the company used the
tax credit to the current maximum of $150,000, it could not also
use the contribution as a deduction in calculating its Alaska
corporate income tax. Using the same scenario under CSSB 236,
the company would get a $10 million credit against the corporate
income tax or one of its other tax obligations.
9:00:45 AM
CO-CHAIR THOMAS commented that the committee has discussed both
individual and overall caps, and asked Ms. Bales to let them
know if the Department of Revenue has any thoughts on the matter
as they continue their deliberations.
CO-CHAIR MEYER added that the committee has had some informal
discussions on a cap and, although they have not been able to
agree, they were considering an overall cap in the area of $50
million, as well as limiting individual companies.
9:01:56 AM
SENATOR STEVENS said he understands the concerns about a cap and
the potential impact on revenue, but he doesn't think they
should preclude the opportunity for those large donations. He
reminded them that there is a three-year sunset in the bill and
if there are abuses in that time, the legislature can make
changes or refuse to renew it.
9:02:48 AM
SENATOR HUGGINS noted that the Veterans Administration (VA) is
one of the larger educational contributors; as he recalled,
accreditation usually occurs out of Oklahoma City, but in the
case of the VA it is under the department of Military and
Veterans' Affairs. He wondered if that accreditation qualifies
it to receive donations under this program. He also asked if
contributions to the governor's scholarship program would
qualify
9:04:09 AM
CO-CHAIR MEYER asked Senator Huggins to clarify his question
with regard to the governor's scholarship program.
SENATOR HUGGINS explained that he was asking if Doyon, for
example, would get a tax credit for contributing funds to help
finance the governor's scholarship program.
9:04:46 AM
MS. BALES was not sure, and suggested the senator ask the
Department of Education.
9:05:12 AM
CO-CHAIR MEYER said he would hold SB 236 and bring it back next
week.
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