Legislature(2003 - 2004)
05/05/2003 01:35 PM Senate CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 194-REGIONAL DEVELOPMENT ORG TAX CREDIT
REPRESENTATIVE TOM ANDERSON, bill sponsor, paraphrased from the
sponsor statement:
HB 194 creates a tax credit for contributions made by
businesses to Alaskan regional development
organizations. This legislation limits the tax credit
to the first $10,000 contributed by a business to a
regional development organization. The tax credit
allowed under HB 194, when combined with credits
allowed under various other tax credit provisions in
statute, may not exceed the previously established
limit of $150,000. This tax credit will sunset in
2005.
The definition used in HB 194 for "regional
development organizations" is from statutory language
used to define an Alaska Regional Development
Organization (ARDOR). The Labor and Commerce Committee
Substitute clarifies these organizations must be
designated by the Department of Community and Economic
Development as ARDORs. There are currently 13 ARDORs
throughout the state covering all of Alaska except a
section of the Interior and a portion of the Lower
Yukon.
The ARDOR program is based on the notion that locally
driven initiatives, in partnership with the State, can
most effectively stimulate economic development and
produce healthy, sustainable local economies. The tax
credit established by HB 194 will encourage businesses
to contribute to the ARDORs and assist regional
development organizations' solicitation of
contributions by having a tax credit as a further
incentive.
SENATOR ROBIN TAYLOR asked why the Legislature should give a tax
credit thus diminishing revenue to the state in this instance
while voting to increase and add new taxes in other areas.
REPRESENTATIVE ANDERSON advised there is no fiscal impact with
this bill. Of course that's debatable if a corporation opted not
to give to one of the exempted entities and instead gave to an
ARDOR. Whether this would affect corporate taxes from the state
level is debatable but Mark Graber with the Tax Division said it
would not.
This would encourage development in local communities from large
corporations that have budgeted money for giving every year.
Currently they get tax credits for certain contributions, but
can't get any for contributing to local ARDORs.
SENATOR GARY STEVENS asked for examples of how this plan would
work.
REPRESENTATIVE ANDERSON outlined the role the Anchorage Economic
Development Corporation played to expand the airport, to bring
Federal Express to town, and to contribute to Providence Alaska
Medical Center. All the ARDORs don't work in exactly the same
way, but they allow taxpayers the opportunity to support
economic development.
SENATOR GARY STEVENS asked if the corporations gave for a
specific project or made a general contribution that the ARDOR
allocated as they see fit.
REPRESENTATIVE ANDERSON suggested one of the ARDOR
representatives could better answer that question. He thought a
contribution could be earmarked but it probably couldn't be a
definitive contribution.
There were no further questions for Representative Anderson.
LARRY CRAWFORD, President of the Anchorage Economic Development
Corporation, pointed out this provided a tool to all regional
development corporations around the state. It should have a
positive impact in terms of economic development and provide
more incentive for the private sector to work with ARDORS and
that sector creates wealth.
Given the current economic situation, it's important to develop
as many creative tools as possible for use at the local level.
HB 194 is an effective tool for that purpose.
SENATOR ELTON stated his concern that this may make it possible
for a business to give $10,000 to an ARDOR and earmark the money
for a project that would specifically enhance that business. In
effect that business would receive a tax credit to contribute
money to benefit their company. He suggested it might be
advisable to prohibit earmarked contributions.
MR. CRAWFORD advised he could only respond with regard to how
AEDC does business. In that case, all contributions are made in
the form of a membership and the board of directors determines
the overall direction for how monies are spent.
SENATOR ELTON asked if it was correct that amending HB 194 to
prohibit the earmarking of funds would make no difference in the
way AEDC operates.
MR. CRAWFORD said that was correct.
SENATOR TAYLOR remarked the university should be examined as
well because of the controversy that arose over the question of
how much private corporations could deduct from their Alaska
corporate taxes to make endowment gifts to the university. The
committee should know whether any of those endowments are from
businesses that are then benefited directly or indirectly by the
subject they have chosen to contribute to. For example, did an
engineering firm that builds bridges contribute money to the
School of Engineering to improve bridge design? Although he has
no particular concern with earmarking contributions, he though
the point should be raised.
MR. CRAWFORD clarified that funds could be earmarked to sponsor
a general-purpose event but not for an event for the purpose of
promoting their project.
TIM ROGERS, Legislative Program Coordinator for the Municipality
of Anchorage, testified the municipality has been the public
side of the public/private partnership with AEDC for many years.
They provide AEDC just under a half million dollars a year and
believe that ARDOR is a critical component in attracting new
economic development to the Anchorage area.
The bill is crafted to have minimal fiscal impact to the state
other than to attract new business and therefore new revenue to
the state. He noted Anchorage Mayor George Wuerch sent a letter
of support as well.
JIM CARTER from the Economic Development District of Kenai
testified they have used the money to support public events in
Kenai Peninsula communities nine times in the last two years.
LOREN GERHARD, Policy Director for the Southeast Conference,
testified he understood this would work in the same way as
contributions to scholarship funds the University of Alaska
receives from corporate donors. The Southeast Conference
established a scholarship fund with the University of Alaska and
one corporate donor made a sizeable contribution to that fund,
largely due to the tax credit.
This would allow corporations that are already taking advantage
of the tax credit opportunity to redirect some of their funds to
ARDORs if they elect to do so. It would be up the ARDORs to
convince those corporations that what they are asking for is
worthy of their support. It simply allows those corporate donors
one more avenue to reinvest in their communities. Economic
development as a concept is generally good business for most of
these larger corporations.
With regard to earmarking funds, he would have no problem either
way as long as it allowed a way to access the tax exempt
funding. With the tightening of the state budget, it's an
uncertain time for ARDORs and they need every available tool to
support their budgets.
SENATOR ELTON remarked it is his opinion the Southeast
Conference, which works from Ketchikan and Metlakatla north to
Yakutat, is one of the best ARDORs in the state and he
appreciated everything they've done.
With regard to earmarking funds, he asked what "direct
operation" meant on page 3, line 7.
MR. GERHARD replied that would be similar to the grant they
receive from the state. The reason they need every possible
source of unencumbered funds is because they leverage that money
as a match for grants.
SENATOR ELTON asked if direct operation would preclude a cash
contribution for a specific project.
MR. GERHARD believed it would. As Mr. Crawford pointed out, no
contributions have been earmarked to date.
SENATOR TAYLOR asked whether any contributors were available to
testify.
CHAIR WAGONER said everyone that signed up to testify had done
so.
SENATOR TAYLOR speculated the contributions made in the form of
a membership are written off in that tax year as a federal
deduction against income but with regard to the state, each
dollar contributed to an ARDOR is subtracted from net tax due to
the state.
MR. GERHARD acknowledged that wasn't entirely clear to him, but
he thought it worked that way.
SENATOR TAYLOR said he would be remiss if he didn't mention
that, although there is no personal income tax in the state,
Alaskan corporate income taxes are among the highest. In light
of that, there might be a fiscal impact not reflected in the
fiscal note. There could be a number of businesses that don't
currently take advantage of available tax credit options but
like ARDORs.
MR. GERHARD agreed that might be the case, but the effects would
be minimal. Generally they found it is difficult to attract
large corporate donations because they're already spoken for.
This would allow a corporation the opportunity to do something a
bit different and would make contributions to ARDORs a bit more
attractive.
SENATOR TAYLOR stated he has always supported someone getting a
credit against taxes or eliminating taxes. He made a motion to
adopt amendment #1 then objected for discussion purposes.
MARY JACKSON, staff to Senator Wagoner, explained the amendment
removes the sunset provision found throughout the bill and
provides an effective date of July 1, 2003.
CHAIR WAGONER added the Legislature spends considerable time
passing bills because of sunset clauses and he saw no reason for
having one in this bill, particularly in light of the fact that
legislators may review bills at any time.
SENATOR TAYLOR asked Representative Anderson if he had any
objections to the amendment.
REPRESENTATIVE ANDERSON replied he did not object.
SENATOR TAYLOR withdrew his objection to amendment #1.
SENATOR ELTON asked what other exemptions they were eliminating
the sunset from.
MS. JACKSON explained this eliminates the sunset provisions in
the bill for just the proposed ARDOR exemption.
SENATOR TAYLOR asked if the fisheries education credit was still
in the statutes.
MS. JACKSON said that was called the fisheries resource landing
tax education credit and that is in Section 16 of the bill. She
assured him this legislation touches none of the existing
statute provisions.
SENATOR TAYLOR pointed out this was against corporate taxes and
that was against fisheries resource landing taxes.
SENATOR LINCOLN observed the amendment removed the sunset
clause. She expressed her continuing support of ARDORs, but
preferred to keep the 2005 sunset provision in the bill. The
fiscal impact to the state wasn't clear, as indicated by the
fiscal note.
CHAIR WAGONER replied the Department of Revenue would ask for a
review if the bill negatively impacted state revenues.
SENATOR LINCOLN pointed out that would depend on who was in the
driver's seat.
CHAIR WAGONER agreed then pointed out this legislation could be
an avenue to support some of the projects that were funded
through the Science and Technology Foundation that was recently
eliminated.
SENATOR ELTON noted the chart from the Department of Revenue
showed the tax credits for FY00 were about $2.3 million and for
FY01 they were about $2.2 million and for FY02 they were about
$3.1 million. He couldn't remember that the Department of
Revenue ever approached him to discuss current exemptions, but
he thought it made sense to revisit the issue in several years
to review how much money went out of the system because of the
exemption.
SENATOR LINCOLN made a motion to amend to remove the provisions
of amendment #1.
MS. JACKSON advised amendment #1 should be defeated if the
intention was to repeal the provisions.
CHAIR WAGONER called for a roll call on amendment #1. The
amendment passed with Senators Gary Stevens, Taylor and Chair
Wagoner voting yea and Senators Lincoln and Elton voting nay.
SENATOR TAYLOR moved SCS CSHB 194 (CRA) and attached fiscal
notes from committee with individual recommendations. There
being no objection, it was so ordered.
SENATOR ELTON suggested that the sponsor contact Mr. Graber from
the Department of Revenue to address this question before the
hearing in the Labor and Commerce Committee. He advised he would
contact him as well.
REPRESENTATIVE ANDERSON agreed to do so.
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