Legislature(2013 - 2014)HOUSE FINANCE 519
02/28/2014 09:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB204 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 204 | TELECONFERENCED | |
| += | HB 306 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 28, 2014
9:26 a.m.
9:26:42 AM
RECONVENED: CONTINUATION OF RECESSED MEETING ON 2/27/14.
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 9:26 a.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative David Guttenberg
Representative Lindsey Holmes
Representative Cathy Munoz
Representative Tammie Wilson
MEMBERS ABSENT
Representative Les Gara
Representative Steve Thompson
ALSO PRESENT
Anna Kim, Tax Division, Department of Revenue.
PRESENT VIA TELECONFERENCE
Johanna Bales, Deputy Director, Tax Division, Department of
Revenue.
SUMMARY
HB 204 SALMON & HERRING PRODUCT DEV'T TAX CREDIT
CSSSHB 204(FIN) was REPORTED out of committee
with a "do pass" recommendation and with one
previously published indeterminate fiscal note:
FN1 (REV).
HOUSE BILL NO. 204
"An Act relating to a product development tax credit
for certain salmon and herring products; and providing
for an effective date."
9:27:21 AM
REPRESENTATIVE ALAN AUSTERMAN, SPONSOR, discussed various
fish can sizes. The small can of red salmon was $6.99.
Other competing products of the same size included a
Bumblebee can costing $0.88 and an Atlantic salmon can
costing $3.99. He spoke to the importance of reducing the
salmon can size to allow it to compete in the marketplace.
He detailed that it would take money and the refitting of
can machines to handle the smaller size.
9:29:04 AM
Vice-Chair Neuman pointed to page 2, line 5 of the
legislation. He thought the addition of herring would
enable a company that had received credits for purchasing
salmon equipment in the past to purchase new equipment with
the credit.
ANNA KIM, TAX DIVISION, DEPARTMENT OF REVENUE, replied that
recipients would receive a tax credit for salmon and
herring combined; a double credit was not provided. She
pointed to a December 31, 2020 date.
Co-Chair Austerman asked for clarification. He discussed
that if a business added herring to its canning and salmon
processing it would need a new piece of equipment to handle
the filleting of herring. He understood the concern, but
did not believe the replacement of all other equipment
would qualify. He asked for verification that the bill
would not allow a business to replace all other equipment.
Ms. Kim replied in the affirmative.
Vice-Chair Neuman appreciated the clarification. He spoke
about recapturing product value. He discussed that it would
make sense for a business owner to use the maximum amount
of credits available for equipment per year. He elaborated
that a savvy business owner would eventually pay no
corporate taxes and would replace equipment (e.g. freezers)
that was available for the credit. He asked if it was the
way the bill would work. Ms. Kim answered that it could
work that way; however, the recapture provision was
included for instances when business plans did not work as
intended.
9:32:47 AM
Vice-Chair Neuman addressed the potential development of
powdered fish products. He noted that a significant amount
of money was spent on research to develop machines to
process the new products. He wondered what would happen if
the machines were unsuccessful in producing the product. He
asked whether a business could continue to receive the
credits on new equipment to try to make new products.
Ms. Kim replied that it depended on whether the business
was operating under the bill's provisions. She detailed
that the purpose was to incentivize new developments and to
provide flexibility for the changing market. A business may
need to go back to the drawing board. She communicated that
as long as a business was fulfilling the intent contained
within the bill it would continue to receive the tax
credit.
JOHANNA BALES, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE (via teleconference), augmented prior testimony.
She shared that taxpayers could receive credit for
investing in equipment that was part of a value added
process. She believed it seemed highly unlikely a company
would continue to invest its own money (the credit covered
up to 50 percent of the equipment cost). The department
believed the risk was low for taxpayers to continue
investing in equipment where 50 percent of their money was
also on the line.
9:35:51 AM
Representative Wilson wondered whether the fishing industry
was being over taxed. She asked about tax credits versus a
reduction in taxes to the industry.
Co-Chair Austerman replied that the industry was not over
taxed. He believed that industry was probably undertaxed
when it came to state taxes. He thought that providing
incentives was appropriate for the economic development and
expansion of industries in the state. He spoke to the
encouragement of reinvestment in Alaska and various
industries including timber, minerals, and oil. He stated
that if the goal was for an industry to expand, many times
it was necessary to help. He noted that all other
industries in the state paled in comparison to the gas and
oil industry; however, no one hesitated to think about
providing a tax credit or a zero tax base to some of the
major industries such as Cook Inlet. He believed it was
important to continue the incentive programs to create
jobs. He stressed that the bill only applied to the process
and money spent in Alaska.
Co-Chair Stoltze added his support for the industry in
Alaska. He pointed to competitive forces that pushed
industry out of Alaska for processing including higher
labor and fuel costs. He surmised that if a company only
went off what was best economically it would ship the
product frozen to China for processing. He noted that the
industry did not provide substantial support to the state's
general fund; however, it was a large employer. He opined
that if incentives were not offered companies would make
different economic decisions to relocate to other
jurisdictions. There were a multitude of other competitive
costs; everything was more expensive in Alaska. He had
learned more about the commercial fishing industry during
his time on the House Finance Committee. He noted that
other fishing bills seldom reached the committee.
9:39:34 AM
Representative Munoz asked about issues that had led to the
decline in permit activity in the herring fishery. She
referenced page 5 of a Department of Commerce, Community
and Economic Development presentation titled "Alaska North
to Opportunity: HB 204" (copy on file). She asked what the
impact of further herring commercialization would be on roe
and other fisheries given that herring was at the base of
the food chain.
Co-Chair Austerman answered that the initial concept
related to herring had pertained to Western Alaska. He
communicated that Western Alaska had much forgone harvest
of salmon. He pointed to the region's remoteness and its
cost of operations; it was prohibitively expensive to
harvest salmon in the areas. The concept was that many
potential herring fishery opportunities existed in Western
Alaska; once there was a combined herring and salmon
market, the industry would invest in the region. The bill
worked to provide incentive for the investment. He stated
that one loan would not stand on its own. He explained that
currently herring was turned into low value products; the
objective was to increase the profitability and value so
fisheries would grow.
Representative Munoz was concerned about the change in
marketing from roe to the entire herring. She wondered
about the ecological impact.
Co-Chair Austerman saw no ecological difference between the
current practice and what would occur under the bill. He
explained that roe had the highest value and would continue
to be harvested. Currently the problem was that all male
herring were discarded or frozen for bait. The incentive
would be to use the entire fish, which would increase
profitability. He communicated that several years earlier
the legislature had provided the Alaska Seafood Marketing
Institute with funds to market herring in the international
marketplace. The institute had shown that there was a
demand for the high protein. He shared that CDQ groups in
Western Alaska had begun to enquire how they could
incorporate herring products into their production. He
added that the incentive had already begun to work.
Representative Munoz surmised that the goal was to utilize
what was not used currently. Co-Chair Austerman replied in
the affirmative.
Co-Chair Stoltze referred to Co-Chair Austerman's testimony
that taxes affected any industry's behavior. He pointed to
the potential reduction in state revenue and wondered if
communities would absorb part of the tax loss.
Ms. Kim replied in the negative.
Co-Chair Stoltze wondered whether it was good or bad [that
the communities would not share in the tax loss].
9:43:52 AM
Co-Chair Austerman was unsure. He stated that the objective
was to create economic development and a tax base
particularly in small communities.
Co-Chair Stoltze asked if the goal was to include the
communities in the encouragement quotient. Co-Chair
Austerman agreed.
Vice-Chair Neuman stated that as a woodworker he would like
to see increased product development in the forestry
industry. He stated that the fishery industry was huge in
Alaska and was worth hundreds of millions of dollars. He
referred to Co-Chair Austerman's testimony that current
taxes were not where they should be. He stated that there
were many industries that would like to have the
opportunities. He stressed that small loggers needed help.
He discussed new product development, changes in equipment
and in product sizes. He emphasized that one of the largest
industries paid a minimal amount in taxes to the state. He
remarked that $2 million had just been cut from the
Department of Health and Social Services budget. He had
questions about how the state continued to create tax
breaks for industries. He wondered about the expected cost
and the idea of measuring it against other industries the
state may want to help. He questioned where to start and
stop with incentives.
Co-Chair Stoltze believed the observation was fair. He
discussed that much of the opposition to mining and timber
came from the fishing industry.
Representative Guttenberg asked if the enhancement of
product value would provide a return to the state. He
wondered about cost recovery. Ms. Kim replied that over
time the change was expected to boost the economy and to
address market changes.
9:47:01 AM
Representative Guttenberg wondered if the success in
developing new products would enhance the tax base. Ms. Kim
referred to a handout from the department titled "Fisheries
Business Tax Revenue and Tax Credits Claimed" (copy on
file). She communicated that in 2013 the tax credit had
been $1.8 million [related to salmon product development].
She believed that the positive impact could not necessarily
be reflected by dollars. She believed the overall benefit
would be shared.
Co-Chair Stoltze made a remark about free market and
capitalism.
Co-Chair Austerman highlighted that creating value for an
unutilized species would help offset the credit in the
future.
Representative Edgmon added that a significant portion of
the bill was to take a raw seafood product and make it more
market competitive. The outcome was meant to benefit
fishermen in terms of contributions that went into the
fisheries business tax that would in theory increase the 50
percent going back to communities and the state. He
contended that a correlation existed; if the state could
help the industry provide more market ready products there
was a multiplier effect back to fishermen, the state, and
the community. He stated that it was not possible to
provide an exact number or know what the impact of the
credit would be over time. He noted that the fiscal note
talked about unpredictability. Since the tax credit's
inception in 2003 it had stimulated economic value for the
fishermen, industry, and the state.
Co-Chair Stoltze remarked that there had not been a boost
to the state treasury.
Representative Edgmon noted that the discussion was not
about significant dollars. He stated that the raw fisheries
business tax was a separate issue.
Co-Chair Stoltze did not want to raise expectations.
Representative Edgmon believed the committee understood the
significance of the raw fisheries business tax to the
state.
9:50:33 AM
Co-Chair Austerman referred to the value-added portion of
the waste stream. Ideally the waste stream would be
converted to a high protein, human-grade value that could
be used as a global food source. A phase process was
expected; in the near-term the waste stream could be turned
into a product such as pet food and as the marketplace and
process built over time it was expected to become human-
grade protein. He believed the human-grade product would
provide more value to the industry and the marketplace.
Representative Costello discussed the previously published
indeterminate fiscal note from the Department of Revenue;
the impact to the operating budget was zero and the impact
in change of revenues to the state was indeterminate.
Co-Chair Stoltze noted that the bill continued and expanded
a current program.
Representative Costello MOVED to REPORT CSSSHB 204(FIN) out
of committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSSSHB 204(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one previously published
indeterminate fiscal note: FN1 (REV).
Co-Chair Stoltze discussed the schedule for the following
meeting.
ADJOURNMENT
9:55:07 AM
The meeting was adjourned at 9:55 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 204 PSOA Support.jpg |
HFIN 2/28/2014 9:30:00 AM |
HB 204 |