Legislature(2007 - 2008)BELTZ 211

02/12/2008 01:30 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
Including But Not Limited to:
Heard & Held
Moved SCS CSHB 226(L&C) Out of Committee
Scheduled But Not Heard
<Bill Hearing Rescheduled to 02/14/08>
        SSSB 230-FILM OFFICE/ FILM PRODUCTION TAX CREDIT                                                                    
1:52:19 PM                                                                                                                    
CHAIR ELLIS  announced SSSB  230 to be  up for  consideration and                                                               
that the committee had CS SSSB 230(L&C) 25-LS1275\L before it.                                                                  
MAX HENSLEY,  staff to Senator  Ellis, sponsor of SB  230, walked                                                               
through  the  proposed  CS.  Starting  on  page  2,  lines  12-14                                                               
redefined the  duties under  duties of the  film office  to avoid                                                               
encroaching on what private industry  in Alaska is already doing.                                                               
The new  version simply links  the outside producers  with Alaska                                                               
The next  section on eligibility  on page  2, line 30,  inserts a                                                               
clause  that only  requires the  producers  to employ  university                                                               
interns  when  they  are actually  available  and  clarifies  the                                                               
definition of  "obscenity" on page  3, lines 16-17,  to reference                                                               
U.S. Code.                                                                                                                      
1:53:44 PM                                                                                                                    
CHAIR  ELLIS said  Senator  Bunde  had brought  up  the issue  of                                                               
obscenity and asked him to expound on the update.                                                                               
MR. HENSLEY said this definition is  in Title 18 of the U.S. Code                                                               
that differentiates  and regulates the commercial  motion picture                                                               
industry  and the  pornographic  industry. This  is the  standard                                                               
definition other states use for legitimate films.                                                                               
SENATOR BUNDE said the reason  he was concerned is that obscenity                                                               
is a grey area and sexually  explicit conduct could get a watered                                                               
down definition. He appreciated the clarification.                                                                              
SENATOR  STEVENS  went to  page  3,  line  3,  and asked  if  the                                                               
internship training program has changed.                                                                                        
MR. HENSLEY answered no.                                                                                                        
SENATOR STEVENS  asked if this  state film organization  would do                                                               
more  than just  contact the  university  or school  and ask  for                                                               
MR.  HENSLEY  replied  yes; the  University  will  establish  the                                                               
internship program  and the  film office will  simply say  one of                                                               
the requirements  for receiving  this potential tax  credit would                                                               
be to employ students who are enrolled in that program.                                                                         
SENATOR STEVENS asked what it means to be certified.                                                                            
MR. HENSLEY replied he would look at that.                                                                                      
CHAIR  ELLIS said  they are  not directing  the University  to do                                                               
anything; it already plans to establish this program.                                                                           
SENATOR STEVENS pointed out that the  language in SB 230 says the                                                               
program is being  certified by the film office and  asked if that                                                               
is their intention.                                                                                                             
CHAIR ELLIS  said he wanted  to leave  that as an  open question.                                                               
The language sounds as if those things were happening.                                                                          
1:57:58 PM                                                                                                                    
MR. HENSLEY  in response went to  page 6 where it  says "The film                                                               
office  may  establish  an   Alaska  film  production  internship                                                               
program on a cooperative basis with the University of Alaska."                                                                  
CHAIR  ELLIS said  that  the question  still  remains of  whether                                                               
subsection (2)  is properly  drafted and  what the  definition of                                                               
"certified by the film office" means.                                                                                           
SENATOR STEVENS said he liked  the wording "cooperative basis" on                                                               
page 6.                                                                                                                         
SENATOR BUNDE looked at it  differently. He wanted the internship                                                               
program certified by some Alaskan entity, not the film industry.                                                                
1:59:58 PM                                                                                                                    
KATE  TESAR,  lobbyist,  Alaska Film  Group,  explained  if  this                                                               
curriculum is  developed at the  University, the classes  will be                                                               
accredited.  The  bill might  need  tie-in  language saying  that                                                               
these  students are  taking this  training  for credit,  however.                                                               
They  want to  make sure  since these  programs are  only in  the                                                               
development  stage, they  don't want  that to  be a  detriment to                                                               
people who may  be coming to produce films in  Alaska in the near                                                               
future. "We definitely  want to advance the creation  of jobs for                                                               
students in-state, but we don't want  that to be holding back the                                                               
initial people that get involved in productions in Alaska."                                                                     
2:01:12 PM                                                                                                                    
SENATOR STEVENS  said he  thought that was  going in  the correct                                                               
SENATOR  BUNDE   asked  why  they   would  limit  it   to  public                                                               
institutions,  because  a  private  school could  put  a  program                                                               
together as well. The board could certify them.                                                                                 
MS. TESAR replied  that they would have no  problem with changing                                                               
the definition to include private classes.                                                                                      
CHAIR ELLIS  noted that  language needed to  be crafted  a little                                                               
more carefully.                                                                                                                 
SENATOR  BUNDE  asked   what  if  an  individual   wanted  to  be                                                               
MS.  TESAR said  she hadn't  considered  that and  added at  this                                                               
point they are using other states' language.                                                                                    
2:03:29 PM                                                                                                                    
SENATOR  BUNDE said  he had  seen some  amateur film  productions                                                               
where the people are really  self-taught and looking for a chance                                                               
to break in and this might be an opportunity for them.                                                                          
CHAIR  ELLIS  asked  them  to give  more  thought  to  certifying                                                               
individuals  and said  the language  definitely needs  to include                                                               
both  public and  private training  programs to  qualify for  the                                                               
SENATOR  STEVENS  commented  that  government  already  has  some                                                               
intern  programs and  he  assumed some  people  already had  some                                                               
classes.  So, they  are not  talking  about just  anyone who  has                                                               
taken a class in film  production; they are talking about someone                                                               
who is part of  a university or college and is  part of a program                                                               
and someone  else who  has decided that  person has  qualified to                                                               
become an  intern. "So, it's  a little more than  just open-ended                                                               
walk in the door and we'll consider your application, isn't it?"                                                                
MS. TESAR replied that they asked  the Department of Labor to get                                                               
involved in  this program  last year  during their  workshop. She                                                               
foresaw expanding this  to AVTEC and other  similar programs. She                                                               
agreed that language needed to be expanded.                                                                                     
CHAIR  ELLIS commented  that he  had no  idea when  he introduced                                                               
this bill what the potential was  or what was going on out there.                                                               
Very few Alaskans are employed  on these films, because the state                                                               
doesn't have  the trained people;  Alaska doesn't have  a program                                                               
and it doesn't have an incentive. He stated:                                                                                    
     If we can just replace  half of the outside workers the                                                                    
     film production  crews must import to  have the trained                                                                    
     work force, we will have  had a significant, not just a                                                                    
     blip in economy,  but there is significant  money to be                                                                    
     made right  here. So I  get more and  more enthusiastic                                                                    
     as more people get in touch with us.                                                                                       
2:06:31 PM                                                                                                                    
CARYL   MCCONKIE,   Manager,   Tourism  and   Film   Development,                                                               
Department of  Commerce, Community  & Economic  Development, said                                                               
she has worked with the  Alaska Film Group, various film industry                                                               
professionals  throughout the  state  and  with communities  that                                                               
think there is  a great opportunity to bring  more productions to                                                               
the state.  She stated a quarter  of her time is  spent answering                                                               
business questions  and doing a  limited amount of  response; she                                                               
sends those requests  direction out to the  industry. She doesn't                                                               
want  to do  what private  industry could  do better.  She agreed                                                               
that the state  is now missing opportunities and  that "We're the                                                               
conduit between the demand and the  supply and we want to put out                                                               
people to work - is our primary interest."                                                                                      
She said as  part of her responsibilities she has  spent a lot of                                                               
time researching the  industry and talking to  other film offices                                                               
and  professionals  throughout  the  U.S.,  Canada  and  actually                                                               
throughout the world that meet  regularly for education and trade                                                               
show  opportunities. There  is a  lot of  information-sharing and                                                               
professional support even though they are all competitors.                                                                      
MS. MCCONKIE said  you can measure the success  of these programs                                                               
by  looking at  states like  Louisiana and  New Mexico  where the                                                               
film industry  didn't exist until  their film  incentive programs                                                               
were  put into  place.  She wanted  to include  film  in the  net                                                               
return in her report because  there is some real opportunity here                                                               
to grow  an industry that is  quite small at this  point. For her                                                               
division  the  measurement  mechanism  that is  built  into  this                                                               
program is very appealing.                                                                                                      
2:10:48 PM                                                                                                                    
She has always tried to bring  interns into state offices to work                                                               
in fisheries, mining and tourism  and she stated, "We acknowledge                                                               
that there  is a great role  for government to work  more closely                                                               
with the private sector in this business in this industry."                                                                     
She  had  put  together  a draft  business  plan  that  addresses                                                               
everything  the bill  asks for  including measurement  mechanisms                                                               
and  she stated  the division  is well  prepared to  move forward                                                               
with the  private sector to  see what exciting things  they could                                                               
bring to the state.                                                                                                             
CHAIR ELLIS said he was encouraged by her positive attitude.                                                                    
2:12:28 PM                                                                                                                    
SENATOR  BUNDE declared  a remote  potential conflict  and stated                                                               
his son  is a  concert producer  and promoter  and could  by some                                                               
remote possibility  benefit from  this legislation. He  asked Ms.                                                               
McConkie if  her interns have to  come from a university  or some                                                               
certified program or could someone  with practical experience and                                                               
interest show up with a sufficient resume and intern.                                                                           
MS. MCCONKIE replied traditionally  interns have come through the                                                               
school  systems,  high  schools and  universities.  She  couldn't                                                               
answer if that is an absolute requirement.                                                                                      
CHAIR ELLIS asked her to work  on that issue saying a self-taught                                                               
person should be able to apply.                                                                                                 
SENATOR STEVENS  encouraged her  to find out  if the  state would                                                               
have  a responsibility  to young  folks in  any way  in terms  of                                                               
being sued if certain responsibilities aren't carried out.                                                                      
MS. HENSLEY  agreed and said  the current intern  program already                                                               
has certain requirements;  child labor laws come in  to play, for                                                               
2:16:27 PM                                                                                                                    
CHAIR ELLIS  said they could  do a conceptual amendment  and send                                                               
the bill on.                                                                                                                    
SENATOR BUNDE said he was comfortable with that.                                                                                
2:17:27 PM                                                                                                                    
SENATOR  BUNDE  moved to  adopt  conceptual  Amendment 1  and  to                                                               
define  "intern"  as a  participant  in  a  public or  a  private                                                               
program or an individually designed program.                                                                                    
SENATOR  DAVIS  said  she  was   concerned  that  the  conceptual                                                               
amendment didn't clearly  state the film office  would create the                                                               
certification standards, not the University.                                                                                    
SENATOR  BUNDE  added he  meant  the  film production  internship                                                               
training program certified by the  film office; nothing would say                                                               
it had to be an individual, private or university program.                                                                      
SENATOR DAVIS agreed.                                                                                                           
SENATOR  BUNDE said  then perhaps  "intern" could  be defined  as                                                               
someone  who   is  adequately  prepared  to   benefit  from  this                                                               
MS.  MCCONKIE responded  what immediately  comes to  mind is  her                                                               
website  where film  industry  professionals  list their  contact                                                               
information  and their  areas of  interest.  She doesn't  certify                                                               
that each  one has gone to  college or film making  school or has                                                               
credentials,  but they  are  allowed to  list  resumes and  their                                                               
websites -  information that  allows the  state's film  makers to                                                               
contact  them.  She  envisioned  writing  regulations  about  how                                                               
criteria would be  set up. It could be set  up so that individual                                                               
film  makers  demonstrating an  interest  could  register and  be                                                               
certified as  being interested, but wouldn't  necessarily have to                                                               
be part of a formal program.                                                                                                    
CHAIR ELLIS said  this section is connected to  the incentive; so                                                               
that expands the  kind of internship person that  can trigger the                                                               
incentive for the producer beyond what was in the original bill.                                                                
SENATOR BUNDE pointed  out it says "when  interns are available."                                                               
So this  actually makes  it more likely  that someone  could take                                                               
advantage of  the incentive program.  He suspected  the practical                                                               
reality is  that most interns  will come through  some university                                                               
2:21:40 PM                                                                                                                    
SENATOR STEVENS  said he  assumed they  are talking  about mostly                                                               
young people.                                                                                                                   
CHAIR ELLIS said he hoped to  move this bill along, but there are                                                               
sufficient language issues to work on it some more.                                                                             
2:23:50 PM                                                                                                                    
SENATOR  BUNDE  asked if  potential  applicants  for tax  credits                                                               
might  be  corporations  that are  liable  for  Alaska  corporate                                                               
income tax.                                                                                                                     
MS.  TESAR answered  that  typically  a film  company  sets up  a                                                               
limited  liability  corporation (LLC)  and  would  not be  paying                                                               
corporate  taxes in  Alaska. That  is  why they  decided to  have                                                               
transferable tax  credits so that  Alaskan corporations  with tax                                                               
liability could get the tax  benefit. Benefits to the state would                                                               
be  through the  taxes that  are paid  locally through  the small                                                               
businesses, construction, catering et cetera.                                                                                   
SENATOR BUNDE said his problem is  they are giving a tax break to                                                               
entities that don't  pay taxes in the first place  and they don't                                                               
know if the state will get its money back.                                                                                      
MS. TESAR answered  considering the huge amounts  of money coming                                                               
into other  states through similar  incentive programs,  the real                                                               
benefits are to the community  and locals that are participating.                                                               
It depends on how you feel about the trickle down theory.                                                                       
CHAIR ELLIS said we choose to do it.                                                                                            
SENATOR  BUNDE  said  he  thought  not taxing  LLCs  was  a  huge                                                               
loophole in Alaska's tax system.  He asked if ESPN documented the                                                               
Iditarod could it be covered under this program.                                                                                
MS. TESAR responded this has to  do more with if someone is doing                                                               
a  documentary  on  the  Iditarod,  it's  a  documentary,  not  a                                                               
sporting event.                                                                                                                 
CHAIR  ELLIS   added  that   they  are   differentiating  between                                                               
documentaries,  feature productions  and  broadcasts of  sporting                                                               
2:28:19 PM                                                                                                                    
MR. HENSLEY said that is  exactly correct. He explained that this                                                               
language is used in almost every  state that has this program; it                                                               
refers to live broadcasts of things like "The Shootout."                                                                        
2:28:46 PM                                                                                                                    
SENATOR BUNDE  went to page 4,  line 20, subsection (f)  where it                                                               
says the film  office may not seek recourse  against the producer                                                               
or taxpayer who  has acquired a tax credit if  it is subsequently                                                               
disqualified even if it's a  fraudulent application. He said that                                                               
language seemed pretty broad.                                                                                                   
2:29:22 PM                                                                                                                    
DAMA  CHASLE,  Production  Executive,  commented  that  typically                                                               
other  states  that  use transferable  tax  credit  language  say                                                               
"absent  producer fraud  there will  be no  recourse between  the                                                               
transferor,  which   would  be   the  production  LLC,   and  the                                                               
transferee,   which   would   be   the   recipient   tax   paying                                                               
corporation." She said that's the spirit behind this language.                                                                  
SENATOR BUNDE said "absent fraud" should cover it.                                                                              
CHAIR ELLIS asked  Mr. Hensley to add that to  his list of things                                                               
to check into further.                                                                                                          
MR. HENSLEY added  that prior to awarding of any  credit the cost                                                               
and spending  reports are  required to have  been verified  by an                                                               
independent CPA.                                                                                                                
CHAIR ELLIS  asked Ms.  Miele if  she liked  their choice  for an                                                               
obscenity standard.                                                                                                             
2:31:32 PM                                                                                                                    
ANGELA MIELE, Motion Picture Association  of America (MPAA), said                                                               
she liked  the obscenity  clause, but  she thought  the reference                                                               
needed to be to Title 22.57, not Title 22.56.                                                                                   
MR. HENSLEY responded  that Title 22.57 refers  to record keeping                                                               
for films  that do  come into contact  with Section  22.56, which                                                               
has the specific definition.                                                                                                    
MS. MIELE said she wanted to  make them aware that AS 18.22.57 is                                                               
what all of the other state statutes reference.                                                                                 
CHAIR ELLIS thanked  her for her comments. He asked  if any other                                                               
issues  needed  to  be  highlighted by  the  Labor  and  Commerce                                                               
Committee. He  said they  would have  a new  CS prepared  for the                                                               
next meeting.                                                                                                                   
2:32:34 PM                                                                                                                    
MR. HENSLEY  continued going through  the changes in this  CS. On                                                               
page 3,  line 18,  under "qualification  for the  film production                                                               
tax  credit"  the   requirement  for  a  production   to  have  a                                                               
preexisting distribution  plan was  removed. He explained  that a                                                               
number of smaller independent productions  do not have them until                                                               
the completion  of the production  and they didn't want  those to                                                               
be disqualified from participating.                                                                                             
CHAIR ELLIS said they are looking  out for the little guy and the                                                               
little gal.                                                                                                                     
MR. HENSLEY added  that those little guys and little  gals in the                                                               
motion  picture  industry  aren't necessary  little;  they  still                                                               
contribute significantly to the industry.                                                                                       
He went  on to the award  of the film production  tax credit that                                                               
started on  page 3,  line 30,  that was increased  from 25  to 30                                                               
percent and the  bonus rate for rural and winter  spending from 1                                                               
percent  to 2  percent.  Their production  consultants and  other                                                               
production   companies  said   that  Alaska   still  had   enough                                                               
difficulties that 25  percent wouldn't be enough to  drag them up                                                               
CHAIR ELLIS  added that they  basically said "If you're  going to                                                               
do this,  you might as  well make it  worth peoples while  or you                                                               
won't  get the  impact that  you're looking  for." He  said going                                                               
much further would be difficult for him personally.                                                                             
MR.  HENSLEY said  on page  4, lines  14-16, the  production cost                                                               
report was previously audited and  now it must simply be verified                                                               
by  a certified  public accountant.  This will  allow independent                                                               
and smaller producers  to bear that cost yet  still certify their                                                               
spending in the state. On page  4, he said, lines 7-9 clarify the                                                               
definition of "payroll".   Lines 17-20 added  the construction of                                                               
film  and television  production  infrastructure to  the list  of                                                               
qualified expenditures.                                                                                                         
2:37:02 PM                                                                                                                    
SENATOR BUNDE  went to page 4,  line 23, on the  determination of                                                               
qualified  expenditures and  asked if  any thought  was given  to                                                               
limiting that  to approved Alaska  vendors. He could  see someone                                                               
buying  everything  in California  and  bringing  it up  and  not                                                               
making a lot of local purchases.                                                                                                
MR.  HENSLEY  explained  that this  language  says  "expenditures                                                               
directly  incurred in  this state".  The goal  is only  to reward                                                               
spending in the state.                                                                                                          
SENATOR BUNDE  further clarified, "When  you say incurred  in the                                                               
state, that  doesn't mean they  placed the order while  they were                                                               
within the state.  This is expenditures that  occurred within the                                                               
state with state businesses."                                                                                                   
CHAIR  ELLIS  agreed,  but  said they  would  double  check  that                                                               
MR. HENSLEY  went to page  5, line  23, on what  production costs                                                               
may  be considered  as qualified  expenditures.  The wording  was                                                               
changed to "the cost of report  or examination" from "the cost of                                                               
an  audit" because  of  the previous  change  about requiring  an                                                               
audit.  Lines  28-29 clarify  that  amounts  that are  reimbursed                                                               
later resulting  in a  reduction of production  costs can  not be                                                               
Finally,  he  said, two  changes  within  the definition  section                                                               
which  starts on  page 6,  lines 8,  added "the  production of  a                                                               
television pilot" to  expand that from a series  that has already                                                               
been  picked  up  to  prospective  series,  which  can  be  major                                                               
business.  Also, on  lines 11-13,  the  definition of  "producer"                                                               
previously only applied to film,  video, commercial or television                                                               
and  this adds  television pilots.  Also, the  final three  lines                                                               
aligns the  definition of "rural  area" from a community  of 5500                                                               
people or  less not  connected by  road or  rail to  Anchorage or                                                               
Fairbanks to other statutory definitions  for other programs that                                                               
include small communities on the road system.                                                                                   
2:40:04 PM                                                                                                                    
CHAIR ELLIS thanked everyone and  recapped the concerns for a new                                                               
CS.  There  being   no  further  business  to   come  before  the                                                               
committee, he adjourned the meeting at 2:41:09 PM.                                                                            

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