Legislature(2011 - 2012)BARNES 124

04/15/2012 09:00 AM RULES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
Moved HCS CSSB 104(RLS) Out of Committee
Scheduled But Not Heard
Moved HCS SB 74(RLS) Out of Committee
Moved HCS CSSB 23(RLS) Out of Committee
        SB  23-TAXES & CREDIT:FILM/OIL & GAS/GAS STORAGE                                                                    
9:16:49 AM                                                                                                                    
CHAIR JOHNSON announced that the  next order of business would be                                                               
CS FOR SENATE BILL NO.  23(FIN), "An Act relating to transferable                                                               
film  production  tax  credits  and film  production  tax  credit                                                               
certificates; requiring  the legislative audit division  to audit                                                               
the Alaska  film production incentive program;  and providing for                                                               
an effective date by amending the  effective dates of secs. 3 and                                                               
4, ch. 63, SLA 2008."                                                                                                           
The committee took a brief at-ease.                                                                                             
9:17:45 AM                                                                                                                    
REPRESENTATIVE  OLSON moved  to adopt  HCS CSSB  23, Version  27-                                                               
LS0252\UU, Bullock, 4/14/12, as the working document.                                                                           
CHAIR JOHNSON objected for purposes of discussion.                                                                              
9:18:03 AM                                                                                                                    
REPRESENTATIVE   STEVE   THOMPSON,  Alaska   State   Legislature,                                                               
explained that  Version UU  is about  policy and  SB 23  is about                                                               
incenting the issues that are  important to Alaskans and good for                                                               
the state.   These incentives, which are found in  SB 23, HB 289,                                                               
SB 153,  HB 276, and SB  145 have been thoroughly  vetted in both                                                               
bodies  by many  committees.     Furthermore, votes  on both  the                                                               
House and the Senate floors  have been overwhelmingly in favor of                                                               
these  incentives.   Senate Bill  23, he  opined, will  encourage                                                               
commerce  via credits  for the  film  industry, new  oil and  gas                                                               
exploration in  unexplored regions, and the  commercialization of                                                               
natural  gas   to  Alaskans  and  quite   possibly  by  Alaskans.                                                               
Although SB  23 won't answer  all the issues the  legislature set                                                               
out  to  solve  this  year,   it  will  move  Alaska  forward  by                                                               
encouraging  industry,  development,   and  hope  to  communities                                                               
experiencing  the   strain  of   Alaska's  energy  drain.     The                                                               
aforementioned will  open the way for  new resources, exploration                                                               
that will  benefit the bottom  line of the  state as well  as the                                                               
people of Alaska.  In  closing, Representative Thompson expressed                                                               
hope  that next  year  the  same could  be  done  for the  legacy                                                               
9:19:45 AM                                                                                                                    
JANE PIERSON, Staff, Representative  Steve Thompson, Alaska State                                                               
Legislature,  informed  the  committee   that  Version  UU  is  a                                                               
compilation of SB 23, as it  left the House Finance Committee; HB                                                               
289, as it passed  the House; and HB 276, as  it left the Senate.                                                               
She  noted  that  there  is  a  fiscal  note  from  Lennie  Dees,                                                               
Department  of  Revenue,  and an  explanation  from  Roger  Marks                                                               
regarding  what the  Senate did.    She related  that the  Senate                                                               
added  a  new  section,  AS 43.55.162,  entitled  "Adjustment  to                                                             
production  tax value  for increasing  oil  and gas  production."                                                             
This section  incentivizes certain  qualifying new  production by                                                               
reducing the production tax value  for production from a lease or                                                               
property north of the 68th degree  latitude that as of January 1,                                                               
2008,  wasn't within  a unit  or in  commercial production  by 30                                                               
percent of  the gross value  at the  point of production  for the                                                               
first  10   consecutive  years  after  the   start  of  sustained                                                               
production.   The  adjusted production  tax value  is the  amount                                                               
upon  which the  base tax  rate  and progressivity  tax index  is                                                               
applied  to determine  the producer's  production tax  liability.                                                               
The  legislation  also  makes  the   appropriate  changes  to  AS                                                               
43.55.011(e)(1) and (g)  to reflect the change  in production tax                                                               
calculations  for the  reduction in  production tax  value.   Ms.                                                               
Pierson then  related that Mr.  Marks described the  new addition                                                               
by  the Senate  as follows:   "This  proposal uses  the same  tax                                                               
rates  for [Alaska's  Clear and  Equitable Share]  ACES with  the                                                               
gross value  reduced by 30 percent  for new fields for  the first                                                               
10 years.  Thus,  the nominal tax rate is the  same as for ACES."                                                               
She then  highlighted that there is  also a change in  Version UU                                                               
such  that the  new  production allowance  will apply  everywhere                                                               
outside of Cook Inlet.   Therefore, Middle Earth would fall under                                                               
this new tax rate after its own provision expires.                                                                              
9:22:26 AM                                                                                                                    
MS. PIERSON,  in response  to Chair  Johnson, clarified  that the                                                               
legislation  passed  the  Senate  with  the  north  of  the  68th                                                               
latitude language.   The legislation was  changed [within Version                                                               
UU] such  that it  referred to  outside of  Cook Inlet,  and thus                                                               
Middle Earth would also apply.                                                                                                  
9:22:56 AM                                                                                                                    
JERRY LAVINE, Owner/Operator, Connections  Film & Video, informed                                                               
the  committee that  he  testified  against SB  23  in the  House                                                               
Finance Subcommittee.   He related that his main  concern was for                                                               
Alaska businesses and competition.   While he favors the generous                                                               
support for  Alaska hire that  the bill  provides - trading  a $1                                                               
tax  credit for  a $1  of Alaska  resident hire  - Representative                                                               
Costello and the  subcommittee should be praised  for looking out                                                               
for  the  best  interests  of   Alaska  residents.    Mr.  LaVine                                                               
explained that during  his previous testimony he  referred to the                                                               
term  pass-through in  which a  producer may  use a  local Alaska                                                               
vendor to pass-through expenses that are actually made out-of-                                                                  
state  to  non-Alaskan  businesses.    Examples  of  out-of-state                                                               
expenses  include  cameras,  lights,   and  autos  for  catering,                                                               
portable  makeup,  et  cetera.    Further  examples  include  the                                                               
shipping expenses  to and from  the state  as well as  the travel                                                               
expenses for  out-of-state residents.  The  pass-through loophole                                                               
wasn't closed  and makes  it difficult  for Alaska  businesses to                                                               
compete against  non-Alaska business.  He  informed the committee                                                               
that  Washington State  closed its  pass-through loophole  to the                                                               
extent that  they used language  specifying that  even Washington                                                               
vendors may not  rent or purchase supplies outside  the state for                                                               
the purposes of  qualifying for the incentive or tax  nexus.  Mr.                                                               
LaVine  ran  some numbers  using  "The  Big Miracle"  tax  credit                                                               
application that  was approved by  the state.  Under  Version UU,                                                               
he estimated that "The Big  Miracle" production would qualify for                                                               
a $12.5  million estimated tax  credit whereas under  the current                                                               
legislation  they would  qualify  for $9.6  million.   Therefore,                                                               
"The Big  Miracle" would receive  more tax credits  under Version                                                               
UU.  He expressed concern  that the pass-through is a round-about                                                               
way that allows for the salaries  above the line to still qualify                                                               
for large sums of money.   However, he understood that 65 percent                                                               
of Alaskans  didn't want  to pay for  the salaries  of above-the-                                                               
line  directors, actors,  and producers.    Mr. LaVine  requested                                                               
that the  committee consider tabling SB  23 until next year.   He                                                               
informed the  committee that  Legislative Audit  hasn't completed                                                               
its audit and there is no public study of the program.                                                                          
9:27:00 AM                                                                                                                    
MARK BRINSTER, Film Professional,  informed the committee that he                                                               
has been  a film professional  in Alaska for  over 30 years.   He                                                               
then testified in  opposition to SB 23.  While  Mr. Brinster said                                                               
that he  applauds the efforts  of the House  Finance Subcommittee                                                               
on SB 23  to add incentives for local hire,  he felt the language                                                               
regarding above-line  salaries isn't entirely clear  and [doesn't                                                               
provide]  adequate safeguards  to prevent  Hollywood from  taking                                                               
advantage.  The film industry  is fairly well known for "creative                                                               
accounting."   In  fact, one  court in  California described  the                                                               
film  industry  as  having "the  most  unconscionable  accounting                                                               
practices  in  the  world."     Therefore,  Alaska  needs  to  be                                                               
especially careful  when dealing with Hollywood,  particularly in                                                               
terms of a subsidy program.   He opined that the 2008 legislation                                                               
was  rushed and  received  inadequate debate,  which resulted  in                                                               
numerous loopholes, pass-throughs,  and a disproportionate amount                                                               
of subsidies paying  for nonresident wages.  In  2011, 84 percent                                                               
of  the  wages  that  were  subsidized by  the  program  went  to                                                               
nonresidents.  Mr. Brinster recalled  that there is a legislative                                                               
audit underway and the program  sunsets next year.  Therefore, he                                                               
opined  that  the   matter  should  be  tabled   until  the  next                                                               
legislature when more  will be known, which  will assure Alaskans                                                               
that [the  program] doesn't subsidize Hollywood,  California, but                                                               
rather protects the interests of Alaskans.                                                                                      
9:29:01 AM                                                                                                                    
LAWRENCE GOLDIN,  Aurora Films, began by  informing the committee                                                               
that he has  been producing/making films in Alaska  for nearly 40                                                               
years.   He noted that he  has worked on feature  films that were                                                               
funded by outside  production companies as well  as feature films                                                               
funded from within  Alaska.  He related that he  is probably most                                                               
well-known for  his historical documentaries, the  most recent of                                                               
which was "Statehood".  With regard  to SB 23, he stated that his                                                               
main interest  is to see  that the Alaska film  industry benefits                                                               
from these  subsidies.  He then  said that much credit  is due to                                                               
Representative  Costello and  the  subcommittee  for inserting  a                                                               
provision   that  would   allow   above-the-line  functions   for                                                               
directors, writers,  principle actors, and producers  who qualify                                                               
as  state residents.    This  legislation would  allow  up to  50                                                               
percent  of the  salaries of  those Alaskans  to qualify  for tax                                                               
incentives, as  it's the  only way in  which Alaskans  will reach                                                               
the ability  to own  media productions so  that the  profits from                                                               
the   media  productions   stay   in  the   state.     When   the                                                               
aforementioned  occurs,   the  private  sector  in   Alaska  will                                                               
increase  its   capital  and   be  able   to  better   invest  in                                                               
infrastructure, crew training, and  future productions.  However,                                                               
he expressed  concern with the  cap on incentives for  those same                                                               
categories  of professionals  if  they  aren't Alaska  residents.                                                               
The  testimony in  prior committees  has related  how that  might                                                               
dampen out-of-state  investments in Alaska.   The 5  percent cap,                                                               
he opined,  is low  and could  have a  detrimental impact  in the                                                               
long-term.  Mr. Goldin explained  that although he wants Alaskans                                                               
to own media productions and  participate as employees as much as                                                               
possible,  it  will take  time  for  that  to  develop.   In  the                                                               
meantime,  the  most  readily available  source  of  capital  for                                                               
improving the film  industry and obtaining more jobs  will be the                                                               
nonresident  producers.    He then  expressed  concern  with  the                                                               
makeup  and  functions  of  the film  commission  that  would  be                                                               
empowered  to evaluate  and pass  judgment on  the worthiness  of                                                               
projects for the tax incentives.   The aspects of SB 23 that have                                                               
to do with  approving projects based on whether  the projects are                                                               
perceived  as  being  in  the  best interest  of  Alaska  can  be                                                               
problematic.     The   film  commission   is  composed   of  four                                                               
commissioners   of  state   departments,   which  are   political                                                               
appointees  who will  be very  cautious.   The interpretation  of                                                               
best  interest, best  financial  interest of  the  state is  very                                                               
nebulous.  In fact, he expressed  concern that some of the recent                                                               
films produced  in Alaska  might not have  passed muster  to that                                                               
type  of  judgment.    For example,  the  film  "Everybody  Loves                                                               
Whales"  includes some  controversial remarks  regarding the  oil                                                               
industry in Alaska.  The  film "On Frozen Ground", which portrays                                                               
the misadventures of  an Alaskan, could have  been determined not                                                               
to  be   appropriate.    He   emphasized  that  people   who  are                                                               
hypersensitive to the  content of films could veto  any number of                                                               
projects.   At the  very least, Mr.  Goldin suggested  that other                                                               
members  be added  to the  proposed film  commission, those  with                                                               
longer term perspectives  or vision such as  individuals from the                                                               
State Council  of the Arts,  the Humanities Forum, or  staff from                                                               
the film  department from  the University  of Alaska  Fairbank or                                                               
the  journalism   department  from   the  University   of  Alaska                                                               
Anchorage.  He  opined that for the artistic  process some leeway                                                               
is required to  allow one to express him/herself and  leave it to                                                               
audiences to make reasonable and informed judgment about Alaska.                                                                
9:36:34 AM                                                                                                                    
BOB CROCKETT, acknowledged that SB  23 isn't perfect, but it does                                                               
allow  the  film  industry  to   move  forward.    Therefore,  he                                                               
encouraged the committee  to allow SB 23 to  move forward because                                                               
it allows a tremendous benefit  to Alaskans as it ties above-the-                                                               
line  to  wages  that  are  spent  on  Alaska  wages  and  Alaska                                                               
9:37:10 AM                                                                                                                    
CHAIR JOHNSON,  upon determining no  one else wished  to testify,                                                               
closed public testimony.                                                                                                        
9:37:20 AM                                                                                                                    
The committee took an at-ease from 9:37 a.m. to 9:40 a.m.                                                                       
9:40:24 AM                                                                                                                    
REPRESENTATIVE CHENAULT  moved Conceptual Amendment 1  that would                                                               
delete Section 18.                                                                                                              
CHAIR JOHNSON objected for purposes of discussion.                                                                              
REPRESENTATIVE  CHENAULT clarified  that  Conceptual Amendment  1                                                               
would remove Section 18 and any references to it.                                                                               
9:41:06 AM                                                                                                                    
MS. PIERSON  explained that Conceptual  Amendment 1  would remove                                                               
the 30  percent gross tax  allowance that was  put into SB  23 by                                                               
the  Senate.   That allowance  applies to  above the  68th degree                                                               
parallel.   Therefore, the [adoption  of Conceptual  Amendment 1]                                                               
would only leave  an oil and gas tax advantage  for Middle Earth.                                                               
In response  to Chair Johnson,  Ms. Pierson explained  that above                                                               
the 68th parallel refers to the North Slope.                                                                                    
9:41:51 AM                                                                                                                    
CHAIR  JOHNSON surmised  then that  [the  adoption of  Conceptual                                                               
Amendment 1] would result in the  removal of the North Slope from                                                               
the proposed tax exemption.                                                                                                     
MS. PIERSON  pointed out that the  tax allowance can be  found in                                                               
the proposed AS 43.55.162, Section 18.                                                                                          
CHAIR JOHNSON  related his understanding  that the  [inclusion of                                                               
Section  18] was  an  oversight  and was  never  intended by  the                                                               
sponsor.  He  then thanked Representative Chenault  and his staff                                                               
for catching the mistake.                                                                                                       
9:42:21 AM                                                                                                                    
REPRESENTATIVE  TUCK   asked  if  [the  adoption   of  Conceptual                                                               
Amendment 1] would  remove the North Slope from  the proposed tax                                                               
MS. PIERSON replied yes.                                                                                                        
9:42:36 AM                                                                                                                    
REPRESENTATIVE GRUENBERG  surmised then,  "If we didn't  have it,                                                               
then all Middle Earth would be  removed.  You just want to remove                                                               
the North Slope."                                                                                                               
MS. PIERSON  replied no, and  added that there are  two different                                                               
issues.  This adjustment on the  North Slope was directed just to                                                               
the North Slope and Middle Earth was addressed as Middle Earth.                                                                 
9:43:16 AM                                                                                                                    
CHAIR  JOHNSON related  his understanding  that [the  adoption of                                                               
Conceptual Amendment  1] will  remove the  North Slope  [from the                                                               
proposed tax exemptions].                                                                                                       
9:43:25 AM                                                                                                                    
REPRESENTATIVE   TUCK  recalled   that  Ms.   Pierson  originally                                                               
specified that Version UU included HB  289, HB 276 as passed from                                                               
the Senate, and Section 18.  He asked if that's correct.                                                                        
MS.  PIERSON responded  yes,  but stated  that  the inclusion  of                                                               
Section 18 was a drafting error.                                                                                                
9:44:08 AM                                                                                                                    
REPRESENTATIVE  TUCK  recalled  that  Ms. Pierson  did  speak  on                                                               
behalf  of Section  18 as  if Representative  Thompson added  the                                                               
MS. PIERSON  acknowledged that she  did speak to Section  18, but                                                               
didn't  realize  that it  was  actually  in the  legislation  and                                                               
should be removed.                                                                                                              
CHAIR JOHNSON  interjected that any complaints  regarding why and                                                               
how  Section 18  was included  should be  directed to  him as  he                                                               
introduced [Version UU].                                                                                                        
REPRESENTATIVE  TUCK clarified  that he  was trying  to determine                                                               
whether the inclusion of Section 18 was really a mistake.                                                                       
CHAIR JOHNSON further  interjected that it was  clearly a mistake                                                               
and again thanked Representative Chenault for catching it.                                                                      
9:44:59 AM                                                                                                                    
CHAIR JOHNSON  withdrew his objection to  Conceptual Amendment 1.                                                               
There  being no  further  objection, Conceptual  Amendment 1  was                                                               
9:45:36 AM                                                                                                                    
REPRESENTATIVE   GRUENBERG  informed   the  committee   that  his                                                               
recommendation  will  be  to  amend   for  reasons  that  he  has                                                               
discussed with the chair.                                                                                                       
CHAIR JOHNSON withdrew  his objection to the  adoption of Version                                                               
UU, as amended.                                                                                                                 
9:46:02 AM                                                                                                                    
REPRESENTATIVE OLSON moved to report  HCS CSSB 23, Version UU, as                                                               
amended,  out of  committee with  individual recommendations  and                                                               
the accompanying  fiscal notes.   There  being no  objection, HCS                                                               
CSSB  23(RLS)   was  reported  from  the   House  Rules  Standing                                                               

Document Name Date/Time Subjects
SB 23 Version UU.pdf HRLS 4/15/2012 9:00:00 AM
SB 23
SB 74 Version E.pdf HRLS 4/15/2012 9:00:00 AM
SB 74
SB 104 Version T.pdf HRLS 4/15/2012 9:00:00 AM
SB 104
SB 104 v.T Leg Legal Memo 4.14.12.pdf HRLS 4/15/2012 9:00:00 AM
SB 104