Legislature(2001 - 2002)
05/01/2002 09:49 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 267
"An Act establishing the Alaska veterans' memorial endowment
fund and providing for credits against certain taxes for
contributions to that fund; relating to other tax credits for
certain contributions; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
LADDIE SHAW, Special Assistant, Office of Veteran Affairs,
Department of Military and Veterans Affairs read a statement into
the record as follows.
SB 267 sets up an endowment fund to support the maintenance of
existing and construction of new memorials, to Alaska veterans
and the military. Today Alaska has over 70 memorials to our
veterans. These tributes range from small plaques to memorials
like Byers Lake. Funds to maintain these existing memorials
are few.
The bill before the Committee would allow the Department of
Revenue to accept donations from the private sector of
legislative appropriations, to invest the funds to earn a real
rate of return of at least 5%, and identify amounts available
for appropriation each year.
The Department of Military and Veterans Affairs, with the
assistance of appropriate veterans' organizations would grant
the appropriated funds to organizations that would maintain
the monuments or memorials. If funds were available, new
memorials or monuments could be constructed. Regulations would
be promulgated to describe this process.
In addition, the bill allows a tax credit to taxpayers that
choose to donate money to the endowment fund. Credits would be
limited to 50% of the first $100,000 and 100% of the second
$100,000. The tax credit mirrors the structure of the existing
education tax credit. A taxpayer's total credit under both of
these credits would be limited to $150,000.
By providing a mechanism to take care of the existing
veterans' memorials in Alaska and to building additional in
the future, this bill recognizes the contribution that
veterans and the military have made to our state.
Co-Chair Kelly referenced language in Sec. 4 on page 3, lines 21
through 25, which reads as follows.
Article 8. Alaska Veterans' Memorial Endowment Fund.
…
Sec. 37.14.730. Use of the fund. (a) As soon as
practicable after July 1 of each year, the commissioner of
revenue shall determine the average month-end market value of
the fund for the immediately preceding three fiscal years. The
commissioner shall identify five percent of that amount as
available for appropriation by the legislature for uses
described in (b) of this section…
Co-Chair Kelly asked if this would essentially create a "sinking
fund" in the event of a period of poor earnings on the investment,
noting the requirement that five-percent must be appropriated.
SFC 02 # 83, Side B 10:38 AM
NEIL SLOTNICK, Deputy Commissioner, Department of Revenue, deferred
to Mr. Jenks to explain how this would be avoided.
JOHN JENKS, Chief Investment Officer, Treasury Division, Department
of Revenue, assured that the "investment features" of this
endowment are designed to ensure a "stable payout" over time,
despite fund performance. He noted the amount available for
appropriation is limited even in those years in which the fund
earnings are high. He furthered that this legislation also directs
the Department of Revenue to manage the endowment in a manner that
provides a five-percent "real or inflation-adjusted return over
time."
Co-Chair Kelly posed a scenario whereby earnings in the first two
years of the fund's existence are less than five percent and
surmised that the corpus of the fund would immediately "erode"
under the provisions of this legislation.
Mr. Jenks agreed the value of the fund would decline.
Co-Chair Kelly suggested amending the bill to stipulate that an
appropriation would not be made using funds from this endowment
before a year in which the endowment has realized a five-percent
rate of return.
Mr. Jenks replied that such a provision is possible, but cautioned
it would defeat the purpose of establishing a link between the
long-term investment policy i.e., the long-term expected earnings,
and the payout of the fund. He acknowledged the corpus of the
endowment could be reduced in the first two years, but assured that
long-term performance is the higher priority.
Co-Chair Kelly qualified his expertise on the matter is limited,
but wanted to ensure that the principal of the endowment would not
be compromised. He informed this has occurred with other
endowments.
Mr. Jenks reiterated that such action would be inconsistent with
the intended management of the fund.
Mr. Slotnick clarified that the language in the bill stipulates
that the funds would be identified and made available for
appropriation. However, he stressed the language does not require
that an appropriation actually be made. He foresaw the Department
issuing an annual report on the condition of the fund, and the
legislature making the determination as to whether an appropriation
is appropriate in a given year.
Co-Chair Kelly indicated this is satisfactory.
Senator Ward agreed.
Senator Wilken referenced Sections 1, 2 and 3 of the bill and asked
if the tax credits proposed in this legislation are comparable to
donations made to the University of Alaska.
Mr. Slotnick affirmed this legislation is modeled after the
University of Alaska endowment program.
Co-Chair Kelly noted the presence of students from Floyd Dryden
Middle School in Juneau who were attending the meeting as part of
the Close Up Program. He directed them to introduce themselves.
Senator Wilken asked about other tax credit programs.
Mr. Slotnick responded two programs are in existence, both relating
to the University of Alaska and postsecondary education.
Senator Wilken noted this legislation would establish a third tax
credit program.
Co-Chair Kelly directed attention to multiple statutory references
in the bill relating to "credits taken during the taxpayer's tax
year". He asked for elaboration.
Mr. Slotnick noted the "seven different tax types" for which a
contribution credit would be eligible, pointing out that
"overlapping" credits is disallowed. He exampled an oil and gas
company providing a contribution and explained the credit could be
taken against the company's oil and gas property tax, oil and gas
severance tax, or oil and gas corporate income tax in an amount not
to exceed the maximum allowed $150,000. He listed fisheries
business tax, fisheries landing tax, license tax, insurance premium
tax, and the three aforementioned oil and gas taxes as the seven
tax types. He qualified that other tax types are ineligible for
this tax credit program including motor fuel tax and tobacco tax.
Co-Chair Donley questioned the 100 percent tax credit allowed for
the second $100,000 contribution and asked who made the decision to
include this provision.
Mr. Slotnick answered this legislation was drafted to model the
University of Alaska endowment tax credit program.
Co-Chair Donley wanted to know the "human being" who made the
public policy decision to provide the 100 percent tax credit.
Mr. Slotnick was unaware of who made the decision. He emphasized
the intent is to provide an incentive for a second $100,000
contribution.
Co-Chair Donley pointed out this would result in a "100 percent
loss to the treasury" of those funds.
Mr. Slotnick explained the rational that the fist $100,000
contribution is only available for 50 percent tax credit.
Co-Chair Donley recalled the extensive debate on this issue at the
time the University of Alaska endowment program was established. He
expressed he did not support this structure in the University of
Alaska endowment program and does not support it as proposed for
the veterans' memorial fund. He stated this method does not benefit
the State's treasury and predicted that rather than the government
determining the best use of funds, companies would make donations
in lieu of paying taxes.
Co-Chair Donley disagreed with using the University of Alaska
endowment program as a model for this legislation. He cautioned
against "just blindly be copying mistakes of the past" without
debating the issue.
Senator Wilken suggested the fiscal note must be corrected, as it
does not reflect the subsequent reduction of the credited donations
from the general fund.
Senator Ward requested the Department of Military and Veterans
Affairs speak to the 100 percent tax credit for the second $100,000
contribution.
Mr. Shaw qualified his limited understanding of the tax credit
system. He predicted that actual donation amounts would be less
than $100,000, citing information indicating actual donations
average less than $5,000. He stated this legislation includes a
$125,000 legislative appropriation to match the $125,000 the
Department has already collected.
Co-Chair Kelly ordered the bill HELD in Committee.
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