Legislature(2017 - 2018)SENATE FINANCE 532
04/26/2018 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB135 | |
| HB150 | |
| HB233 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 135 | TELECONFERENCED | |
| += | HB 150 | TELECONFERENCED | |
| += | HB 233 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR HOUSE BILL NO. 233(FIN) am
"An Act relating to the insurance tax education
credit, the income tax education credit, the oil or
gas producer education credit, the property tax
education credit, the mining business education
credit, the fisheries business education credit, and
the fisheries resource landing tax education credit;
providing for an effective date by repealing the
effective dates of secs. 3, 5, 7, 10, 14, 16, 18, 21,
23, 25, 28, 30, 32, 35, 37, 39, 42, 44, 46, 49, 51,
53, and 55, ch. 92, SLA 2010, sec. 14, ch. 7, FSSLA
2011, secs. 15, 17, 19, 21, 23, and 25, ch. 74, SLA
2012, sec. 49, ch. 14, SLA 2014, secs. 37, 40, 43, and
46, ch. 15, SLA 2014, and secs. 26 and 31, ch. 61, SLA
2014; providing for an effective date by amending the
effective date of secs. 1, 2, and 21, ch. 61, SLA
2014; and providing for an effective date."
10:13:46 AM
Co-Chair MacKinnon read the title of the bill.
Vice-Chair Bishop MOVED to ADOPT proposed committee
substitute for CSHB 233(), Work Draft 30-LS0152\N (Nauman,
4/23/18).
Co-Chair MacKinnon OBJECTED for discussion.
Ms. Lucky discussed the CS. She noted that the committee
had heard a similar bill in concept, but not content, with
SB 16. She stated she would present the differences between
the bill as it came to the Senate Finance Committee and the
new version currently before the committee. She referenced
the explanation of changes (copy on file):
Deletes Legislative Findings and Intent.
Sets the amount of the credit at 50% of all
contributions. Currently, a tiered system provides a
credit of 100% of contributions between $100,000 and
$300,000, and 50% of contributions that do not fall in
that range. See sections: 2, 5, 8, 11, 14, 17, and 21.
Reduces the total amount of credits that can be
claimed in any tax year to $1,000,000 current law
allows $5,000,000. Sections: 3, 6, 9, 12, 15, 18, and
22.
10:17:23 AM
Ms. Lucky continued to address the Explanation of changes:
Adds section 24 at the request of the Revisor of
Statutes to reconcile the effects of the passage of
both House Bill 233 and House Bill 97, which passed
the House on 4/9/2018 and the Senate on
4/20/2018.
Adds conforming amendments to the effective date
sections to accommodate these changes.
Ms. Lucky noted that the effective date of the changes to
the program was not changed. The date was January 1, 2019,
to correspond with the beginning of the new tax year.
Senator Stevens understood that the program had been
successful in opening opportunities for Alaska students. He
expressed concern that businesses might not contribute as
much in the future as they have in the past.
Co-Chair MacKinnon stated that currently business was
paying either corporate, income, or fisheries taxes, which
maintained a constant tax base unless services were
hindered. She said that whether the businesses donated or
not, the reduction in the availability of the tax credit
would provide savings to the state, like an indirect tax
expense. She said that the money would remain with the
state in the form of money that the corporations or
businesses were already paying in taxes.
10:19:54 AM
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE,
addressed Senator Stevens question. He asserted that the
department could not conjecture on how company behavior
would change. The analysis had been done based on the known
set of donations over the last three years and projecting
forward the same or a similar amount. He thought that much
good will was attached to the donations.
Senator Stevens summarized that it the future was unknown.
He assumed that there would be fewer donations, which would
result in fewer opportunities for students.
Mr. Alper stated that there were many different eligible
recipients for the potential donations. He said that
educators looked to the donations to back fill the
reductions of state funding that they had experienced in
recent years.
10:22:00 AM
Senator Micciche commented that there were only 2
substantive changes in the bill. He thought that the 50
percent reduction between $100 thousand and $300 thousand
could alter business's donation behavior. The reduction
from $5 million to $1 million of the annual total would
have neutered the legislative appropriation authority and
would have increased state operating costs. He expressed
support for the bill.
Senator von Imhof wanted to understand the flow of funds.
She understood that under the bill if a business wrote a
check for $200 thousand to the University of Alaska, the
money would be split between the state and the University.
Mr. Alper explained that a company would make a donation
and then sometime in the next year would file their tax
return. The tax return would include a line for eligible
donations for the education tax credit and the tax
reduction would be based on the statutory percentage. The
first $100 thousand in donation, under current law,
received a 50 percent credit, the next $200 thousand would
reach the 100 percent credit. He said that the way the CS
was written the tax reduction would be smaller.
Senator von Imhof asked whether there was a 35 percent
taxable rate of on the extra $50,000, or would the business
pay $50,000 less in state taxes.
10:25:55 AM
Mr. Alper stated that it would be a straight reduction from
the tax liability, not the taxable income. He said that the
credit could not be received for multiple taxes but that
companies that, for example, a mining company that also
pain corporate income tax could zero out one tax and then
use the rest of the benefit to offset the other tax.
Co-Chair MacKinnon asked whether it was fair to say that,
currently, private sector donations above $100,000 were
deployed wherever the business chose.
Mr. Alper answered in the affirmative. He assessed that the
state had essentially outsourced to companies the ability
to set state education priorities.
Co-Chair MacKinnon WITHDREW her OBJECTION. There being NO
OBJECTION, it was so ordered. SCS CSHB 233() was ADOPTED.
Co-Chair MacKinnon informed that she had met with the
sponsor and a compromise had been made.
10:28:02 AM
Representative Chris Tuck, Sponsor, discussed the bill. He
read from the Sponsor Statement:
House Bill 233 will extend the education tax credit
program from December 31, 2018 to January 1, 2025 and
ensure that the credits that exist in statute today
will continue to support our education programs and
institutions.
Education tax credits encourage private businesses to
make charitable contributions to educational
institutions and programs in Alaska. Eligible
recipients include: non-profit, public, or private
accredited Alaska two-year or four-year colleges; non-
profit elementary or secondary schools and school
districts; state operated vocational education and
training schools; non-profit regional vocational
training centers; apprenticeship programs; Alaska
Native cultural programs; the Alaska Higher Education
Investment Fund; and postsecondary institutions
providing dual-credit courses.
The credits are non-transferable and non-refundable
and can be used against the following taxes: corporate
income tax; fisheries business tax/fisheries resource
landing tax; insurance premium tax/title insurance
premium tax; mining license tax; oil and gas
production tax; and the oil and gas property tax.
Currently, the credit provision allows for 50% of the
annual contributions up to $100,000, 100% of the next
$200,000, and 50% of annual contributions beyond
$300,000. The total credit per taxpayer, across all
tax types, may not exceed $5 million.
Historically, well over two dozen companies have used
this benefit. The contributions are good for the
companies and good for the recipient institutions.
House Bill 233 will continue to ensure that our
education institutions and programs are supported.
Senator Stevens asked the sponsor to reflect on the
reduction in contributions and whether there would be
impact on assistance to students.
Representative Tuck responded that he was not sure how the
bill would affect contribution behavior. He hoped the
connect local business with education institutions to
partner better and help educational institutions to teach
towards the jobs that were necessary for the needs of the
state.
10:30:52 AM
Senator von Imhof noted that the state had utilized tax
credits in various ways. She asked whether other states had
used education tax credits in creative ways to help offset
corporate taxes owed to their particular state.
Representative Tuck had not compared Alaska to other
states. He had investigated how to make the tax credit
system better in Alaska. He made note of the many statutes
referenced in the bill title. He thought that it would be
cleanest to begin by extending the tax credits and then
working on ways to improve the system.
10:32:32 AM
Ms. Kloster spoke to the Sectional Analysis for the bill
(copy on file):
Section 1 Amends the Insurance tax (AS 21.96.070(a))
education credit to add an Alaska two-year or four-
year college accredited by a national association to
be eligible for the education tax credit program. It
also removed an annual intercollegiate sports
tournament from being eligible for an education tax
credit.
Section 2 Amends the Insurance tax, AS 21.96.070(b)
to remove the 100 percent contribution from the
$100,000-$300,000, therefore, all contributions will
be a 50 percent credit.
Section 3 Amends the insurance tax AS 21.96.070(d)
to decrease the cap for the total amount of the credit
to be not more than $1,000,000.
Section 4 - Amends the Net Income tax (AS
43.20.014(a)) education credit to add an Alaska two-
year or four-year college accredited by a national
association to be eligible for the education tax
credit program.
Section 5 Amends 43.20.014(b) the net income tax, to
remove the 100 percent contribution from the $100,000-
$300,000, therefore, all contributions will be a 50
percent credit.
Section 6 Amends 43.20.014(d) the net income tax, to
decrease the cap for the total amount of the credit to
be not more than $1,000,000.
Section 7 - Amends the oil or gas producer (AS
43.55.019(a)) education credit to add an Alaska two-
year or four-year college accredited by a national
association to be eligible for the education tax
credit program. It also removed an annual
intercollegiate sports tournament from being eligible
for an education tax credit.
Section 8 Amends the oil and gas producer tax, AS
43.55.019(b), to remove the 100 percent contribution
from the $100,000-$300,000, therefore, all
contributions will be a 50 percent credit.
Section 9 - Amends the oil and gas producer tax, AS
43.55.019(d), to decrease the cap for the total amount
of the credit to be not more than $1,000,000.
Section 10 - Amends oil and gas property tax (AS
43.56.018(a)) education credit to add an Alaska two-
year or four-year college accredited by a national
association to be eligible for the education tax
credit program. It also removed an annual
intercollegiate sports tournament from being eligible
for an education tax credit.
Section 11 Amends the mining business (AS
43.65.018(b)) to remove the 100 percent contribution
from the $100,000-$300,000, therefore, all
contributions will be a 50 percent credit.
Section 12 - Amends the mining business (AS
43.65.018(d)) to decrease the cap for the total amount
of the credit to be not more than $1,000,000.
Section 13 - Amends mining business (AS 43.65.018(a))
education credit to add an Alaska two-year or four-
year college accredited by a national association to
be eligible for the education tax credit program.
Section 14 - Amends mining business (AS 43.65.018(b))
to remove the 100 percent contribution from the
$100,000-$300,000, therefore, all contributions will
be a 50 percent credit.
Section 15 - Amends mining business (AS 43.65.018(d))
to decrease the cap for the total amount of the credit
to be not more than $1,000,000.
Section 16 - Amends AS 43.75.018(a) fisheries business
education credit to add an Alaska two-year or four-
year college accredited by a national association to
be eligible for the education tax credit program.
Section 17 - Amends AS 43.75.018(b) fisheries business
tax to remove the 100 percent contribution from the
$100,000-$300,000, therefore, all contributions will
be a 50 percent credit.
Section 18 - Amends AS 43.75.018(d) fisheries business
tax to decrease the cap for the total amount of the
credit to be not more than $1,000,000.
Section 19 - Amends AS 43.77.045(a) fisheries resource
landing tax education credit to add an Alaska two-year
or four-year college accredited by a national
association to be eligible for the education tax
credit program.
Section 20 Amends AS 43.77.045(a), the education tax
credit against the fisheries resource landing tax,
contains a cross reference to AS 43.77.040. AS
43.77.040 is a different credit, separate and apart
from the education tax credits, that provides a credit
for various donations related to fisheries and the
seafood industry. Under Secs. 23 and 36, Ch. 61, SLA
2014, AS 43.77.040 will be released December 31, 2020.
Because the repeal of AS 43.77.045. the education tax
credit, has been extended from 2018 to 2025, the cross
reference to AS 43.77.040 must be removed from AS
43.77.045 on December 31, 2020.
Section 21 - Amends AS 43.77.045(b), the fisheries
resource landing tax to remove the 100 percent
contribution from the $100,000-$300,000, therefore,
all contributions will be a 50 percent credit.
Section 22 - Amends AS 43.77.045(b), the fisheries
resource landing tax to decrease the cap for the total
amount of the credit to be not more than $1,000,000.
Section 23 - repeals the contraction dates set at 2021
for the education tax credit expansions which
includes the number of programs that are eligible for
the education tax credits and the cap amount. By
repealing the contractual language, it leaves the
program AS IT IS TODAY in place.
Ms. Kloster noted that because the education tax credits
had expanded over the years, with multiple different
iterations, there were multiple repeal dates. The Section
was meant to lineup all the repeal dates.
10:37:36 AM
Ms. Kloster continued to address the Sectional Analysis:
Section 24 Adds reviser's instructions to reconcile
the effects of the passage of both House Bill 233 and
House Bill 97, which passed the House on 4/9/2018 and
the Senate on 4/20/2018.
Section 25 repeals the effective dates that are in
accordance with section 23. Per legislative drafting
the repeal of effective dates need to be in separate
section.
Section 26 extends the sunset date from December 31,
2018 to January 1, 2025.
Section 27 Sections 1-19, 21, and 22 take effect on
January 1, 2019 which relate to the national
accreditation, removal of intercollegiate sports
tournament, make all tax credits contribution amounts
at 50 percent, and decreasing the total cap from
$5,000,000 to $1,000,000.
Section 28 Relates back to section 20 of the bill
which is removing a cross reference to an unrelated
fisheries tax credit.
Section 29 With the exception of sections 27 and 28,
everything else in the bill has an immediate effective
date.
10:38:36 AM
Vice-Chair Bishop discussed a new fiscal note from the
Department of Revenue, OMB Component 2476. He read from the
analysis:
Assuming an unchanged donation profile in future
years, the reduction to the credit rate would reduce
the total credits claimed under this version of the
bill to $5.42 million. Although the fiscal note shows
"negative" revenue of $5.42 million, this is compared
to the status quo which would be a full sunset on
1/1/19. Alternatively, this should be viewed as a
reduction in revenue impact of $2.15 million. In other
words, this bill represents $2.15 million in
additional revenue versus a so-called clean extension.
For FY1019, the impact will be half this number due to
the change occurring in the middle of the fiscal year.
Continuing this program will not add administrative
costs to the Department of Revenue.
Co-Chair MacKinnon pondered why reducing the ability to
apply a tax credit against taxes owed to the state was not
reflected in the fiscal note as increased revenue.
Mr. Alper stated that the initial purpose of the bill had
been to extend a program that had been scheduled to sunset.
He said that if the bill were not to pass the $7.5 million
in education tax credits currently being claimed would be
reflected as additional state revenue in future years. He
said that the fiscal note showed a revenue reduction
because the comparison was between the current bill version
and what would happen if no legislation were to pass.
10:42:22 AM
Co-Chair MacKinnon directed committee attention to the
analysis previously related by Vice-Chair Bishop, which
outline d the $2.15 million in additional revenue that the
state would receive based on the changes in the CS and
allowing the extension to go forward.
Mr. Alper agreed.
Co-Chair MacKinnon asked whether it was accurate to say
that the bill was extending the program in its current form
versus reducing the state's contribution and that the
difference was reflected on the fiscal note.
Mr. Alper said that roughly speaking approximately $200,000
of the $2.15 million would be from the very large donations
that would be above the $2 million cap. A little less than
$2 million would be the lower credit rate between $100
million and $300 million donation.
Co-Chair MacKinnon understood that if the bill did not
advance the state could save $7 million.
Mr. Alper stated that if the program were to sunset
completely the state would save $7.5 million per year.
Co-Chair MacKinnon recognized that sunsetting the program
would negatively affect Alaskan students. She said that the
bill would represent a compromise that the tax credit would
be extended at a cost to the state as long as donations
remained the same at $5.4 million.
Co-Chair MacKinnon discussed the challenging fiscal
situation in the state. She lamented the possible loss of
good programs, reduction of contributions, and the
availability of the private sector to donate to good
causes.
10:46:00 AM
Co-Chair MacKinnon OPENED public testimony.
SUSAN FOLEY, PRESIDENT, UNIVERSITY OF ALASKA FOUNDATION,
ANCHORAGE (via teleconference), testified in support of the
bill. She explained that the foundation was the biggest
beneficiary of the donations that qualified for the
education tax credit. She stated that one of the most
serious threats to the state was "brain drain" from
students leaving the state to pursue postsecondary
education. She said that it was impossible to know the
impact of the 50 percent credit remaining constant, rather
than the increase under the bill, but relayed that gifts
from businesses - more than $100,000 in any one year -
amounted to an average of 44 percent of the total donations
received by the foundation since January 1, 2010. She added
that for the same period, donations in excess of $1 million
averaged 9 percent of total donations. She related that a
large portion of those donations went to scholarships and
programs important to employers. She said that the
extension of the tax credits was important to the
foundation and the University.
10:49:34 AM
Senator Stevens understood that 44 percent of total
donations to the UA Foundation were from businesses making
donations in excess of $100,000 per year, 9 percent were
from donations that were over $1 million.
Ms. Foley agreed.
Senator Micciche asked about the average of the 44 percent
of the donations.
Ms. Foley stated that the time frame was from January 1,
2010, to the present.
Senator Micciche asked for the average amount over $100,000
for the 44 percent.
Co-Chair MacKinnon asked Ms. Foley to respond in writing.
Ms. Foley agreed to provide the information.
Ms. Foley clarified that the 44 percent was for all
donations over $100,000.
10:51:48 AM
MIKE SATRE, MANAGER, GOVERNMENT RELATIONS AND COMMUNITY
AFFAIRS, HECLA GREENS CREEK MINE, testified that the
largest legislative priority for the mine in 2018 was to
advocate for a clean extension of the tax credit. He spoke
to his concerns with the current bill version. He said that
the greatest challenge for the mining industry in the state
was the recruitment and retention of quality employees. He
said that the mine had utilized the credit almost
exclusively for workforce development programs at all three
University of Alaska campuses and various
vocational/technical centers throughout the state. He
related that the current format of the tax credit system
allowed the industry to make large, programmatic type
donations that institutions could count on to provide
multi-year programs. He said a $300,000 donation from the
mine to the University allowed for a budget of $100,000 for
a three-year program, which the mine had done for many
years, contributing nearly $1 million to the Pathways to
Mining Careers program. He believed that by taking away the
incentive for making these large donations, companies would
likely make smaller donations or no donation at all. He
shared that the $100,000 donation now cost the industry
$50,000 out-of-pocket; that same donation would cost
$150,000 out-of-pocket under the bill. He stressed that
that out-of-pocket money was new money to the University,
new money to the school system, in addition to the money
that was redirected from the General Fund to local
institutions. He hoped that the intent of the legislation
would be to incentivize partnerships and new money into the
University and school systems. He reiterated that the
extension of the tax credit was the priority but thought
that the current version would result in less donations.
10:55:18 AM
He referenced the newspaper in Juneau, in which was
reported the cancellation of the automotive program at
Juneau-Douglas High School. Under the current tax credit,
it was possible for the school to solicit a qualifying tax
payer to make a $200,000 payment in support of the program.
Under the CS, there would be no incentive for the tax payer
to donate.
10:57:16 AM
Co-Chair MacKinnon thanked Mr. Satre for his company's
participation in the tax credit program.
Vice-Chair Bishop asked Mr. Satre to convey the increased
percentage of Alaska hire since the tax credit programs had
been in place.
Mr. Satre agreed to provide the information.
Senator von Imhof thought Mr. Satre had made salient points
and sound and reasonable arguments. She thought that the
challenge for the committee was to keep the credit program
alive but at a higher expense to industry. She believed
that time would tell how the change would impact donation
behavior.
10:59:15 AM
Co-Chair MacKinnon notified that the committee had posted
the CS online and provided a copy to the sponsor before
public testimony.
11:00:08 AM
DOUG WALRATH, DIRECTOR, NORTHWEST CAREER AND TECHNICAL
CENTER, NOME (via teleconference), spoke in support of the
education tax credit program. He said that the center had
been aggressive in pursuing business partnerships with the
education tax credit for nearly a decade; the education tax
credit represented approximately 30 percent if the center's
annual operating budget. He said that prior to the credit
the graduation rate from the Bering Strait School District
was 39 percent, since training programs had been build
using the credit donations graduation rates had risen to 82
percent. He echoed the concerns of the previous testifier
that the current bill version could negatively affect
donations from industry. He thought that it was important
to acknowledge the total contribution of new money for
credits claimed in 2017.
11:04:44 AM
Senator Micciche stated that the tax credit program still
had bi-partisan support in the legislature. He asked about
the total contributions to the Northwest Alaska Career and
Technical Center in 2016 of $320,500. He wondered what
percentage of the donations were between $100,000 and
$300,000.
Mr. Walrath considered the technical center's nine-year
history. He said that 27 contributions had been received
between FY10 and FY18, of those contributions only one was
at the $300,000 level. 96 percent of the contributions
received had been below $300,000 level. He said that 15 of
the contributions were between $10,000 and $100,000, 11
contributions were between $100,000 and $300,000.
Vice-Chair Bishop asked about the graduation rates at the
center.
Mr. Walrath stated that the grad rate of the district was
at 32 percent in 2008, one year before the tax credit was
available at the secondary level. He that the rate had
grown since the programs inception to 89 percent in FY17.
He said that the program had directly contributed to the
reduction of the dropout rate by 76 percent.
11:08:22 AM
DR. BRAD HARRIS, SELF, ANCHORAGE (via teleconference),
testified shared that he was a professor at the University
of Alaska. He stated that the program in its current form
was extremely effective. He encouraged the extension of the
program in its current form. He disagreed with the removal
of the "sweet spot' and the changes in the current bill
version. He believed that the legislation would hurt the
relationship between educational institutions and industry.
He thought that the fiscal note that showed the cost of the
program did not reflect the full benefits associated with
the program. He requested the extension of the program in
its current form.
11:12:40 AM
TOMMY SHERIDAN, SILVER BAY SEAFOODS, CORDOVA (via
teleconference), testified in strong support of HB 233. He
shared that he had benefited from the education tax credits
as a student in the University of Alaska Southeast
Fisheries Technology program. He summarized that the
extension of the program would continue to promote private
investment in Alaskan higher education and would ensure
that the state could maintain its world-class fishery
management system.
11:14:58 AM
Co-Chair MacKinnon CLOSED public testimony.
Representative Tuck gave an example of the tax credit
program partnering with industry. He stated he was an
electrician by trade. He shared a story relating the way
that industry supported schools, and ultimately, society.
CSHB 233(FIN) am was HEARD and HELD in committee for
further consideration.
Co-Chair MacKinnon informed the committee that amendments
were due April 27, 2018, at noon.
Co-Chair MacKinnon discussed housekeeping. She announced
that the committee would hear public testimony on the
capital budget. She relayed the public testimony process.
Co-Chair MacKinnon offered words on the fiscal crisis faced
by the state and the hard decision to discontinue funding
meaningful programs. She explained that the committee was
working to reduce the state's fiduciary responsibilities
while balancing the consequences of those reductions. She
discussed the history of the inception of the Parament Fund
Dividend. She stressed the difficult financial choices that
the committee had been, and would be, forced to make in
order to balance the state budget. She complimented the
individual talents and strengths each committee member
brought to the table.