Legislature(2011 - 2012)BARNES 124

02/10/2011 10:15 AM House ECON. DEV., TRADE & TOURISM


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10:15:25 AM Start
10:15:32 AM HB67
11:32:33 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 67 FILM PRODUCTION TAX CREDIT TELECONFERENCED
Heard & Held
+ - Overview: Alaska Film Office by Wanetta Ayers, TELECONFERENCED
Director, Division of Economic Development
+ - Presentation: Alaska Film Tax Incentives - TELECONFERENCED
Case Study
+ Bills Previously Heard/Scheduled TELECONFERENCED
               HB  67-FILM PRODUCTION TAX CREDIT                                                                            
  OVERVIEW(s): ALASKA FILM OFFICE; ALASKA FILM TAX INCENTIVE -                                                                
                           CASE STUDY                                                                                         
                                                                                                                                
10:18:14 AM                                                                                                                   
                                                                                                                                
CHAIR HERRON announced  that the first order of  business would be                                                              
HOUSE  BILL  NO.  67,  "An  Act   relating  to  transferable  film                                                              
production  tax credits; and  providing for  an effective  date by                                                              
amending  the effective  dates  of  secs. 3  and  4,  ch. 63,  SLA                                                              
2008."                                                                                                                          
                                                                                                                                
10:18:30 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  HERRON  noted  that the  bill's  co-prime  sponsors  are                                                              
Representative  Tuck  and himself,  and  that  the intent  of  the                                                              
chair is to move the bill out of committee on 2/17/11.                                                                          
                                                                                                                                
10:20:27 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  CHRIS  TUCK,  Alaska  State  Legislature,  Juneau,                                                              
Alaska, introduced  proposed HB  67, as co-prime  sponsor.      He                                                              
informed  the committee  the bill  extends  tax incentive  credits                                                              
for the  film industry.   The film industry  is an  important step                                                              
in the  diversification of Alaska's  economy, and the  Alaska Film                                                              
Incentive  Program enacted  in 2008,  is  largely responsible  for                                                              
the recent  growth of  this industry.   The  bill will  extend the                                                              
tax  credits that  have  played a  major role  in  the success  of                                                              
Alaska's film industry  and continuing interest in  filming large-                                                              
scale  productions  in  Alaska   brings  opportunities  to  Alaska                                                              
businesses and  workers.  From the  time of the first  tax credits                                                              
in 2008,  15 productions  have received tax  credits and  910 film                                                              
production days  in Alaska resulted  in a total "Alaska  spend" of                                                              
$14,910,810.   As of January 2011,  there are 28  film productions                                                              
prequalified   for  the   Alaska  Film   Incentive  Program;   the                                                              
projected Alaska  spend for these productions  totals $83,805,000,                                                              
which  brings the  total projected  boost to  Alaska's economy  to                                                              
over $100,000,000.   Representative  Tuck concluded  that proposed                                                              
HB 67  will extend the  sunset on this  program for  an additional                                                              
10 years,  and assure the  film industry  that Alaska is  open for                                                              
business.                                                                                                                       
                                                                                                                                
10:23:16 AM                                                                                                                   
                                                                                                                                
ROB  EARL,   staff,  Representative   Bob  Herron,   Alaska  State                                                              
Legislature, said  that with support  from Alaska  businesses, the                                                              
legislature  created the Alaska  Film Office  and the  Alaska Film                                                              
Production Incentive  Program in 2008  to encourage growth  of the                                                              
film  industry in  Alaska.   Credits are  structured to  encourage                                                              
film productions  all  across the  state, and  to put Alaskans  to                                                              
work year-around.    Mr. Earl explained that  the existing program                                                              
contains  a sunset  after five  years,  or after  $100 million  in                                                              
credits  are   issued.       Currently,   the  program   offers  a                                                              
transferrable tax  credit of 30 percent of qualified  spending, an                                                              
additional 10 percent  for Alaska-hire, 2 percent  for shooting in                                                              
rural  Alaska,  and  2  percent  for  working  during  the  winter                                                              
months.   Furthermore, eligible  productions can sell  tax credits                                                              
to any  company with a corporate  tax liability,  thereby offering                                                              
tax  relief.    Tax  credits are  issued  only  after  filming  is                                                              
complete  and   an  independently-owned  Alaska-certified   public                                                              
accountant  (CPA) has  verified Alaska  expenditures.    Mr.  Earl                                                              
restated  the  tax  credit  schedule  and  pointed  out  that  the                                                              
average tax  credit was  about 32.5 percent,  and the  highest was                                                              
about 37.5 percent.   The bill proposes to extend  the tax credits                                                              
for  ten  years  past  the existing  sunset  date  of  7/1/13,  to                                                              
7/1/23,  and to continue  the funding  level  at $100 million  for                                                              
each  five-year  period.   He  then  highlighted portions  of  the                                                              
sectional  analysis:   Section 1  authorizes $200  million in  tax                                                              
credits  over ten years,  limiting  the amount  of tax credits  in                                                              
the first  five years  to $100,000, to  ensure that  $100,000 will                                                              
be  available in  each  five-year period;  Section  2 changes  the                                                              
qualifying  period  from 24  months  to  36  months, in  order  to                                                              
accommodate  larger  productions;    Section  3  sets  in  statute                                                              
protection  of   a  production  company's   commercially  valuable                                                              
information;  Section 4  adds  the transfer  of  digital media  to                                                              
tape or  film to the  list of  qualifying expenditures;  Section 5                                                              
updates  statutory  references  to  match  the  program  extension                                                              
date; Section  6 requires  the commissioner  of revenue  to report                                                              
tax credits equal  to $200 million; Section 7  extends the program                                                              
for 10  years past the scheduled  sunset date, unless  the ceiling                                                              
is reached before  then; Section 8 updates the  audit and recovery                                                              
language in the bill.                                                                                                           
                                                                                                                                
10:29:09 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  MUNOZ asked how  the tax  credits are  brokered to                                                              
prospective companies.                                                                                                          
                                                                                                                                
10:29:33 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  advised   that  most  are   brokered  through                                                              
financial  institutions,  although some  are  pre-sold and  others                                                              
are  matched up  with companies  that  have a  high corporate  tax                                                              
liability with the  state.  In further response  to Representative                                                              
Munoz,  he said  Alaska is  pretty competitive  with other  states                                                              
such as  Louisiana,  which has a  similar program  except  that it                                                              
guarantees the sale of the tax credits.                                                                                         
                                                                                                                                
10:30:49 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GARDNER asked  how  close the  program  is to  the                                                              
current limit of $100,000, and for a timeline of the claims.                                                                    
                                                                                                                                
10:31:12 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  advised  qualified tax  credits of  about $15                                                              
million,  plus  the projected  amount  of  $83 million,  puts  the                                                              
program very close to its limit.                                                                                                
                                                                                                                                
10:31:43 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  HERRON   observed  Southcentral  is  a   very  desirable                                                              
location for film  production.  He questioned whether  a 2 percent                                                              
tax credit  for filming  in rural  locations is  "the best  we can                                                              
do."                                                                                                                            
                                                                                                                                
10:32:24 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  warned  about   the  public's  perception  of                                                              
granting "such  a huge tax break."   However, because of  the high                                                              
cost of fuel,  transportation, and other challenges  to filming in                                                              
rural  areas, he  agreed that  2 percent  may not  be enough.   He                                                              
discussed two movie productions that were filmed in Barrow.                                                                     
                                                                                                                                
10:33:30 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GARDNER  recalled   that  the  list  of  qualified                                                              
expenses allowed  by the original legislation limited  film stars'                                                              
salaries.   She  asked whether  there are  in-state expenses  that                                                              
are not deductible.                                                                                                             
                                                                                                                                
10:34:02 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  noted   that  the   industry  divides   costs                                                              
"above the  line and  below the  line."   He explained  that below                                                              
the  line expenses  are  for  production  people and  actors,  and                                                              
above  the   line  expenses  are   for  producers,   writers,  and                                                              
directors.   The state grants tax  credits for salaries  above and                                                              
below the  line, with  an additional 10  percent for  Alaska hire.                                                              
He deferred to the film office for more specifics.                                                                              
                                                                                                                                
10:34:42 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GARDNER surmised  any money spent  in Alaska  is a                                                              
qualified  expense with  the possible  exception of  a portion  of                                                              
salaries for "big stars."                                                                                                       
                                                                                                                                
10:35:01 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  said  correct.    He  added that  an  Alaska-                                                              
based CPA firm must verify the expenses.                                                                                        
                                                                                                                                
10:35:07 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  FOSTER observed  the  2 percent  added tax  credit                                                              
for  film production  in a  rural area  is a  good incentive,  and                                                              
could  be  expanded.   The  production  of  a  film would  have  a                                                              
positive  impact on  jobs  in villages  that  are  at the  poverty                                                              
line.                                                                                                                           
                                                                                                                                
10:35:53 AM                                                                                                                   
                                                                                                                                
CHAIR  HERRON  opined  it  is  important  to  think  of  workforce                                                              
development  in  this  industry,  and  strive  to  supply  Alaskan                                                              
workers at all technical levels.                                                                                                
                                                                                                                                
10:36:17 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK also  encouraged local  and rural  communities                                                              
to use  this opportunity  to develop  their own productions  about                                                              
their   communities.     He  then   pointed   out  the   qualified                                                              
expenditures  are listed in  section 4 of  the proposed  bill, and                                                              
in regulations.                                                                                                                 
                                                                                                                                
10:37:06 AM                                                                                                                   
                                                                                                                                
WANETTTA AYERS,  Director, Anchorage Office, Division  of Economic                                                              
Development,   Department  of  Commerce,   Community   &  Economic                                                              
Development  (DCCED),  informed  the  committee  the  Alaska  Film                                                              
Office (AFO)  is located in the  Anchorage office of  the Division                                                              
of  Economic  Development,   DCCED.  She  stated   that  the  2008                                                              
statutory authority  establishing AFO  tasked the office  with the                                                              
following   five  actions:      co-administer   the  Alaska   Film                                                              
Production  Incentive  Program  with  the  Department  of  Revenue                                                              
(DOR); cooperate  with the  private sector  in the development  of                                                              
the  film industry;  promote Alaska  as a  film location;  provide                                                              
assistance  to  the  private  sector  during  filming  activities;                                                              
address workforce  development issues.   Currently, some  of AFO's                                                              
activities  are:  collaboration  with the  private sector  through                                                              
its website,  www.film.alaska.gov., which contains  information on                                                              
the incentive  program, details  on filming  in Alaska,  and links                                                              
to    specialized    databases;     engagement    with    industry                                                              
organizations, trade  associations, and allied groups  in the film                                                              
industry;  promotion   of  Alaska  as  a  film   location  through                                                              
speaking  engagements, exchanging  ideas  with targeted  contacts,                                                              
and fielding  daily inquiries.   Ms. Ayers provided an  example of                                                              
display  advertising  that  was  a  brochure  placed  in  industry                                                              
magazines  and directories  such  as Director's  Guild of  America                                                              
Quarterly  and  Monthly,  Produced  By,  and  Locations  Magazine.                                                              
Although the website  is the primary vehicle for  the promotion of                                                              
Alaska  as  a  filming  location,   the  film  office  also  makes                                                              
contacts through  trade shows and other marketplaces  by providing                                                              
information,  conducting  follow-up  activities, and  providing  a                                                              
"leave-behind"  piece   on  filming  in  Alaska.     In  terms  of                                                              
providing assistance,  Ms. Ayers stated  that AFO and  DCCED staff                                                              
respond to  inquiries about  filming in Alaska  on a  daily basis;                                                              
conduct  follow-up  and  outreach  after the  initial  contact  is                                                              
made; meet regularly  with producers and provide  introductions to                                                              
state  and  local  contacts; explain  the  incentive  program  and                                                              
assist   producers   with   the   application   process;   provide                                                              
alternatives  and  creative solutions  to  production  challenges;                                                              
work  with  Alaska  businesses,   community  representatives,  and                                                              
other stakeholders about how to serve the industry.                                                                             
                                                                                                                                
10:43:24 AM                                                                                                                   
                                                                                                                                
MS. AYERS  turned attention to  workforce development  and relayed                                                              
in  order to  develop a  skilled  film industry  workforce AFO  is                                                              
working   with  a   variety   of  organizations   including:   the                                                              
Department   of  Labor   &   Workforce  Development   (DLWFD)   on                                                              
apprenticeships  for  technical  careers  in  the  film  industry;                                                              
the  University  of Alaska  (UA)  on  academic programs  that  are                                                              
recognized  by the  film industry;  private  sector businesses  on                                                              
ways  to  provide on-the-job  training;  youth  training  programs                                                              
through  school  districts;  rural  outreach  efforts  to  support                                                              
productions filmed  in rural areas;  skilled trade  union training                                                              
on industry standards.                                                                                                          
                                                                                                                                
10:44:18 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GARDNER  asked about the source of  funding for the                                                              
workforce development programs.                                                                                                 
                                                                                                                                
10:44:24 AM                                                                                                                   
                                                                                                                                
MS.  AYERS responded  that  the  programs are  in  the very  early                                                              
stages  of development;  in  fact, some  may  begin with  existing                                                              
funding  from the  agencies and  institutions  that are  involved.                                                              
She acknowledged  that these programs would not  be funded through                                                              
AFO,  but noted  that  related  agencies  in other  states  regard                                                              
workforce  development as  an important aspect  of attracting  the                                                              
film industry.                                                                                                                  
                                                                                                                                
10:45:35 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   FOSTER   asked   for   examples   of   applicable                                                              
apprenticeships.                                                                                                                
                                                                                                                                
10:46:15 AM                                                                                                                   
                                                                                                                                
MS.  AYERS  said  the  best example  is  that  the  film  industry                                                              
requires skilled  electricians who  understand the specific  needs                                                              
of  the  film industry;  further  examples  are  forthcoming  from                                                              
DLWFD.   She then provided  a slide  that illustrated  the process                                                              
to pre-qualify for  the Alaska Film Production  Incentive Program.                                                              
The  pre-qualification   process   involves:    evaluation;   pre-                                                              
qualification  approval;  production  phase; audit  of  production                                                              
costs; application  for tax  credits; review  and approval  of tax                                                              
credits;  movement of approved  applications  to DOR; issuance  of                                                              
the tax  credit certificate.   Over  the last  three fiscal  years                                                              
forty-five   applications   for    pre-qualification   have   been                                                              
submitted  and   forty-four  were  approved.    There   have  been                                                              
fourteen  tax credit  applications  and  all have  been  approved.                                                              
The total for  pre-qualified tax credit applications  at this date                                                              
is approximately  $34.5 million,  and the  total for approved  tax                                                              
credits is $4.8  million.  Ms. Ayers turned attention  to staffing                                                              
and  budget, and  stated  that AFO  is  staffed  by 1.5  full-time                                                              
positions with  additional support  from DCCED  officials.     The                                                              
operating  budget for  Fiscal Year  2011  (FY 11)  is $283,000  in                                                              
direct   program   costs,   additional   support   costs   of   an                                                              
undetermined amount,  and unallocated  overhead costs  of $27,800,                                                              
for a total of $310,800.                                                                                                        
                                                                                                                                
10:50:53 AM                                                                                                                   
                                                                                                                                
CHAIR HERRON asked how often the website is refreshed.                                                                          
                                                                                                                                
10:51:07 AM                                                                                                                   
                                                                                                                                
MS. AYERS assured  the committee the website is  updated regularly                                                              
by a skilled  website manager; in  fact, the website  will migrate                                                              
to the new state website development program soon.                                                                              
                                                                                                                                
10:51:55 AM                                                                                                                   
                                                                                                                                
CHAIR HERRON asked  to be notified of that change.   He then asked                                                              
whether television productions qualify.                                                                                         
                                                                                                                                
10:52:29 AM                                                                                                                   
                                                                                                                                
MS. AYERS  said television productions  qualify for  the incentive                                                              
program,  however, a  television  production may  not achieve  the                                                              
"minimum spend."   In further response  to Chair Herron,  she said                                                              
the website includes guidelines for television productions.                                                                     
                                                                                                                                
10:52:36 AM                                                                                                                   
                                                                                                                                
CHAIR HERRON asked for a description of AFO's outreach methods.                                                                 
                                                                                                                                
10:53:24 AM                                                                                                                   
                                                                                                                                
CURTIS THAYER,  Deputy Commissioner,  Office of the  Commissioner,                                                              
Department  of Commerce,  Community &  Economic Development,  said                                                              
he consulted  with the commissioner  of DCCED and  they determined                                                              
that the  film office is one  of the department's  programs worthy                                                              
of emphasis.     Mr. Thayer  noted that  AFO is  growing, and  has                                                              
potential  for more  growth;  in  fact, representatives  from  the                                                              
commissioner's   office  have   met  on   a  regular  basis   with                                                              
production  companies  in  Anchorage,  and have  traveled  to  Los                                                              
Angeles  on  an outreach  trip  to  contact producers  looking  at                                                              
filming  in  Alaska.   He  described  past  movie  productions  in                                                              
Anchorage  and  Barrow  and  said   there  are  three  productions                                                              
currently  considering  filming  in  Alaska  because  of  the  tax                                                              
incentive program  and its  longevity.   Although Alaska's  lack a                                                              
sound stage limits  some filming, there is a  possibility that the                                                              
private  sector will  build a  sound stage  in Southcentral,  even                                                              
though that  project will not  qualify for tax credit  incentives.                                                              
Mr. Thayer  concluded that  outreach by  the film office  includes                                                              
meeting with production companies, but not "wining and dining."                                                                 
                                                                                                                                
10:55:42 AM                                                                                                                   
                                                                                                                                
CHAIR HERRON  asked whether  the film  industry collaborates  with                                                              
other industries.                                                                                                               
                                                                                                                                
10:56:02 AM                                                                                                                   
                                                                                                                                
MR. THAYER  indicated yes.  He  explained that DCCED wants  to see                                                              
AFO working  with the Alaska  Travel Industry Association  (ATIA),                                                              
and the Alaska  Seafood Marketing Institute (ASMI).   For example,                                                              
the film  office is  providing to  film scouts  scenic footage  of                                                              
Alaska  locations   produced  from   advertising  funded   by  the                                                              
legislature through  ATIA.   He said, "Where  the state  has spent                                                              
money  in one  hand,  supporting  tourism, we  have  been able  to                                                              
utilize  that and  turn  that into  site  locations  for the  film                                                              
office, at no additional cost to the state."                                                                                    
                                                                                                                                
10:56:57 AM                                                                                                                   
                                                                                                                                
MS.  AYERS  recognized the  residual  benefits  of the  images  of                                                              
Alaska  that  are  broadcast  in   film  and  television,  thereby                                                              
holding value  for other industries  such as tourism  and fishing.                                                              
In response  to Chair Herron, she  opined AFO will not  exceed the                                                              
proposed $200 million  funding limit; furthermore,  proposed HB 67                                                              
provides  a level  of  certainty that  will  stimulate the  needed                                                              
private sector  investment in order  to strengthen  the industry's                                                              
infrastructure in Alaska, and to provide a trained workforce.                                                                   
                                                                                                                                
10:58:20 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  corrected   his  response  to  Representative                                                              
Gardner  and said  that  $4.9 million  in  tax  credits have  been                                                              
granted  thus far,  and it  is projected  that  an additional  $10                                                              
million will  be granted.  Therefore  the program is not  close to                                                              
reaching its  limit of $100 million  on the amount of  tax credits                                                              
allowed, but almost $100 million has been spent in Alaska.                                                                      
                                                                                                                                
10:58:57 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE FOSTER  re-stated that the construction  of a sound                                                              
stage  would not  be a  qualified expenditure,  and asked  whether                                                              
the committee should examine how to spur this type of activity.                                                                 
                                                                                                                                
10:59:31 AM                                                                                                                   
                                                                                                                                
MS.  AYERS  observed  that  there   are  other  states  that  have                                                              
included  the  construction  of  a sound  stage  into  their  film                                                              
development  program.     She  opined  that  the   extensions  and                                                              
modifications  in proposed HB  67 will  assure the private  sector                                                              
that  an  investment  in film  industry  infrastructure  is  worth                                                              
making.                                                                                                                         
                                                                                                                                
11:00:12 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  FOSTER  requested  information  on  other  states'                                                              
actions "to incentivize infrastructure."                                                                                        
                                                                                                                                
11:00:42 AM                                                                                                                   
                                                                                                                                
MR. THAYER cautioned  that a sound stage is a  unique structure of                                                              
10,000-15,000  square feet,  requiring 40-foot  ceilings, with  no                                                              
posts, and sited  on 10 acres of land.  He advised  that there are                                                              
no existing buildings like that in Alaska.                                                                                      
                                                                                                                                
11:01:42 AM                                                                                                                   
                                                                                                                                
CHAIR HERRON  inquired as to  whether the administration  supports                                                              
the proposed legislation.                                                                                                       
                                                                                                                                
11:02:07 AM                                                                                                                   
                                                                                                                                
MR. THAYER  said the  governor introduced  the legislation  in its                                                              
original  form.     In  further  response  to   Chair  Herron,  he                                                              
confirmed  that  the  governor supports  the  legislation  in  its                                                              
current form on 2/10/11.                                                                                                        
                                                                                                                                
[HB 67 was heard and held.]                                                                                                     
                                                                                                                                

Document Name Date/Time Subjects
HB067-CCED-DED-02-07-11.pdf HEDT 2/10/2011 10:15:00 AM
HB 67
HB67-DOR-TAX-02-05-11 film production tax credit.pdf HEDT 2/10/2011 10:15:00 AM
HB 67
HB 67 News Stories 020811.PDF HEDT 2/10/2011 10:15:00 AM
HB 67
HB 67 Sectional.pdf HEDT 2/10/2011 10:15:00 AM
HB 67
HB 67 Sponsor Statement.pdf HEDT 2/10/2011 10:15:00 AM
HB 67
HB 67 Support Letters 020811.PDF HEDT 2/10/2011 10:15:00 AM
HB 67
HB 67 Background.PDF HEDT 2/10/2011 10:15:00 AM
HB 67