Legislature(1997 - 1998)
04/17/1997 03:10 PM House ECD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT
April 17, 1997
3:10 p.m.
MEMBERS PRESENT
Representative Jerry Sanders, Chairman
Representative Mark Hodgins
Representative Ivan Ivan
Representative William K. ("Bill") Williams
Representative Alan Austerman
Representative J. Allen Kemplen
Representative Ethan Berkowitz
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
* HOUSE BILL NO. 220
"An Act relating to the new business incentive program."
- MOVED CSHB 220(ECD) OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 220
SHORT TITLE: NEW BUSINESS INCENTIVE PROGRAM
SPONSOR(S): REPRESENTATIVE(S) SANDERS, Barnes, Austerman, Dyson
JRN-DATE JRN-PG ACTION
04/01/97 897 (H) READ THE FIRST TIME - REFERRAL(S)
04/01/97 898 (H) ECD, FINANCE
04/03/97 979 (H) COSPONSOR(S): DYSON
04/17/97 (H) ECD AT 3:00 PM CAPITOL 17
WITNESS REGISTER
JEANNE LOVELL, Legislative Assistant
to Representative Jerry Sanders
Alaska State Legislature
Capitol Building, Room 414
Juneau, Alaska 99801
Telephone: (907) 465-4945
POSITION STATEMENT: Presented sponsor statement for HB 220.
TOM LAWSON, Juneau Section Chief
Juneau Office
Division of Trade and Development
Department of Commerce and Economic Development
P.O. Box 110804
Juneau, Alaska 99811-0804
Telephone: (907) 465-2017
POSITION STATEMENT: Provided department's position and answered
questions regarding HB 220.
GREG WOLF, Vice President
Anchorage Economic Development Corporation
550 West Seventh Avenue, Suite 1400
Anchorage, Alaska 99501
Telephone: (907) 258-3700
POSITION STATEMENT: Testified in support of HB 220.
PATRICIA M. DeMARCO, Ph.D., President
Anchorage Economic Development Corporation
550 West Seventh Avenue, Suite 1400
Anchorage, Alaska 99501
Telephone: (907) 258-3700
POSITION STATEMENT: Testified in support of HB 220.
DONNA TOLLMAN
Copper Valley Economic Development Council
P.O. Box 9
Glennallen, Alaska 99588
Telephone: (907) 822-5001
POSITION STATEMENT: Testified in support of HB 220.
KATELYN MARKLEY
Alaska Industrial Development and Export Authority
480 West Tudor
Anchorage, Alaska 99503
Telephone: (907) 269-3000
POSITION STATEMENT: Testified on HB 220.
ACTION NARRATIVE
TAPE 97-2, SIDE A
Number 0001
CHAIRMAN JERRY SANDERS called the House Special Committee on
Economic Development meeting to order at 3:10 p.m. Members present
at the call to order were Representatives Sanders, Hodgins, Ivan
and Kemplen. Representatives Berkowitz, Williams and Austerman
arrived at 3:15 p.m., 3:16 p.m. and 3:25 p.m., respectively.
HB 220 - NEW BUSINESS INCENTIVE PROGRAM
Number 0016
CHAIRMAN SANDERS announced the committee would hear House Bill No.
220, "An Act relating to the new business incentive program."
Number 0070
JEANNE LOVELL, Legislative Assistant to Representative Jerry
Sanders, read the sponsor statement into the record:
"The New Business Incentive Program is an economic development
grant program targeted toward companies locating or expanding into
new manufacturing businesses in Alaska. The focus of the program
is substantially on business that attracts high-value, year-round
jobs. At present, the program is limited to business under
consideration for financing through Alaska Industrial Development
and Export Authority, more commonly known as AIDEA. The grant
program would be limited to reimbursement of defined portions of
relocation costs, site development costs, special employee training
not covered by other programs, and special analyses of sites in
Alaska. The program is limited to $3 million annually, from funds
generated by AIDEA. Administered by the Department of Commerce and
Economic Development, allocations may be made each year to fund the
program. Unencumbered funds will revert to the general fund.
"This program is essential for three reasons:
"1. Interest in freight flights has increased. There is a window
of opportunity for Alaska to capitalize on the combination of
location and expansion of existing cargo transfer capabilities. We
need Alaska-produced cargo in planes departing from this state.
"2. Manufacturing comprises only 6.2 percent of the Alaska
economy. Of the $140 million paid in corporate taxes, $110 million
were paid by 11 corporations. The top four were oil companies.
Companies who qualify to take advantage of this program will be of
size and stature to be significant contributors to the corporate
tax base within a few years of beginning operations in Alaska. New
revenues will flow into the state through existing mechanisms
within three to five years.
"3. Many Alaskan manufacturers with more than 20 employees hire
approximately 60 percent of their work force from out of the state.
Alaska needs to establish and expand existing businesses that
provide year-round jobs that pay well and add value to the economy.
Companies benefitting from this incentive program will create jobs
for Alaskans, jobs from which our children's children will benefit.
"The New Business Incentive Program allows Alaska to capitalize on
its location and natural resources to enter high-value, expanding
global markets. This program will add dollars to our economy."
Number 0337
CHAIRMAN SANDERS emphasized that HB 220 is a statewide bill; it
could easily apply to timber operations or gold mining, for
example.
Number 0392
TOM LAWSON, Juneau Section Chief, Juneau Office, Division of Trade
and Development, Department of Commerce and Economic Development
(DCED), came forward to testify. He said the DCED likes the bill
and the idea behind it, although they are concerned about where the
money will come from. They understand that the DCED's roll would
be operating the grant program after AIDEA signs off on the
eligibility of the grant applicant and sets the level of funding
for the grant.
MR. LAWSON referred to page 2, line 6, and advised he was offering
an amendment to clarify that this is a statewide bill. It
clarifies that incentives other than money can be offered, such as
land, a tax abatement or a resolution in support. This makes it
more flexible for smaller or rural communities that may be unable
to provide financial support to a business.
Number 0550
REPRESENTATIVE MARK HODGINS asked whether there was any legislation
or rule limiting involvement of any particular business.
MR. LAWSON replied that as far as he knows, there is no limitation
on how many different state grant programs a business might be
involved in.
Number 0624
REPRESENTATIVE HODGINS asked how long the process would take from
initial application to receiving the grant. He noted that many
grant revolving loan funds are tedious to use.
MR. LAWSON said that is hard to answer. The DCED will get involved
once AIDEA has signed off; it is a two-part process. He believes
once it is passed to the DCED, it will take less than 30 days, as
the department's job is mainly to process it, without doing formal
eligibility review.
Number 0668
REPRESENTATIVE HODGINS commented that it makes no difference how
big the pot is if not a dime hits the streets. He said he
sometimes gets frustrated about the difference between what is
available and what is actually practical.
Number 0718
REPRESENTATIVE J. ALLEN KEMPLEN asked who in the department would
make the decision for granting the money.
MR. LAWSON referred to page 2, lines 13 through 17. He said as he
understands it, once AIDEA has stated that the grant applicant is
eligible and forwarded the name to the DCED, the department would
process the grant if there is money in the fund.
CHAIRMAN SANDERS concurred.
Number 0772
REPRESENTATIVE KEMPLEN asked whether one applicant can apply for
all $3 million.
MR. LAWSON said that was the question he had. Referring to page 2,
line 16, he said it appears that AIDEA sets the level of the grant.
With that understood, unless a maximum amount per grant is set in
the bill, he would guess that AIDEA could give out all $3 million.
Mr. Lawson stated, "I'm just here to say that I think the bill is
great." He noted that other people present had worked on the bill.
Number 0838
REPRESENTATIVE KEMPLEN asked who would evaluate grants in terms of
their effectiveness and to ensure that organizations receiving
grants had used the money wisely.
MR. LAWSON said he understood that would be the DCED.
REPRESENTATIVE KEMPLEN asked whether the DCED already had a
process.
MR. LAWSON replied that the department had operated, for 17 years,
an economic development matching grant program. They monitor and
process grants, including measuring the success of projects.
Number 0886
REPRESENTATIVE IVAN IVAN made a motion to adopt Amendment 1, which
had been presented by Mr. Lawson. He asked Mr. Lawson to explain
it. Amendment 1 read:
Page 2, line 6
(3) if [IS] located within a municipality, the
municipality [THAT] has provided [FINANCIAL] support to the
business in a form [AND IN AN AMOUNT] acceptable to the
department.
Number 0929
MR. LAWSON explained that a business outside an organized local
government should also be eligible to obtain a grant. This
language says that if the business is located within a
municipality, the municipality has provided some form of support,
which does not need to be financial. The reason is that smaller or
more rural communities may not be able to offer financial support
but may certainly be in favor of the business.
REPRESENTATIVE IVAN said he supports the amendment, as it expands
the opportunity to the rest of the state.
Number 0997
CHAIRMAN SANDERS asked if there was any objection to the amendment.
There being none, Amendment 1 was adopted.
Number 1040
GREG WOLF, Vice President, Anchorage Economic Development
Corporation, testified via teleconference in support of HB 220. A
great part of his work involves interacting with companies in
Alaska, the Lower 48 and abroad, which are actively evaluating
locating a business in Alaska. Communities elsewhere often have
existing, fairly aggressive incentive programs in place, which
Alaska lacks. He emphasized that this competitive situation is
international in scope. Mr. Wolf believes this legislation helps
to level the playing field. He noted that it is not limited to
large companies.
Number 1176
PATRICIA M. DeMARCO, Ph.D., President, Anchorage Economic
Development Corporation, came forward to testify in support of HB
220. She described it as an additional tool in the kit available
to AIDEA and explained, "We've put precautions and provisions in
the bill that will secure the aid that we provide to a company so
that it does benefit Alaska. There are provisions that money be
repaid or returned if the company does not stay for five years or
more. It is tied to the number of jobs created or into definitive
kinds of businesses. We're looking at value-added manufacturing
kind of activity that is not currently going on in Alaska. We are
not trying to compete with existing businesses, and it is available
to businesses that would go into manufacturing or value-added
activities that may already be in Alaska. In fact, we would hope
to encourage that as an activity that results from this bill."
DR. DeMARCO said it is a partnership in the truest sense of the
word. Funds would be reimbursed to the private sector applicant,
not paid out in advance. Therefore, the issue of performance would
be less than when money is given in advance with the hope of
something being delivered later. She described it as a catalyst
for action that will broaden the economic base of Alaska and as
seeds for a harvest that would occur in a relatively short time.
"We are looking for a way to have the corporations that will be
providing high-value jobs to find a reason to locate in Alaska,"
she stated.
Number 1313
REPRESENTATIVE ETHAN BERKOWITZ referred to page 2, line 2, relating
to manufacturing products primarily for export. He asked whether
products necessarily must be for export.
DR. DeMARCO said the principal thing is that it not compete with
people already providing products to the Alaskan market. They are
concerned about value come into the economy. One way to do that is
to make things in Alaska that are sold out of state, although not
necessarily exclusively.
Number 1348
REPRESENTATIVE BERKOWITZ said he is sure many goods are imported
from elsewhere.
DR. DeMARCO replied that she had often pursued that and cited an
example. She said the biggest problem has been attracting
companies to Alaska that are willing to locate a manufacturing
activity in the state. And if they argue that the market is not
big enough, there is increasingly a global marketplace that makes
that argument irrelevant.
Number 1393
REPRESENTATIVE BERKOWITZ suggested the language in the bill would
preclude a grant to that type of business, which is primarily for
export.
DR. DeMARCO replied that basically this was designed to be
"primarily not funding a company that would be in competition with
an existing Alaskan operation."
Number 1421
REPRESENTATIVE HODGINS asked whether the bill is specific to any
one business or industry.
DR. DeMARCO responded, "We were trying to have it be value-added
kinds of businesses, manufacturing, global logistics, those kinds
of things, rather than like a Walmart. We were looking at things
that would be adding value to the economy, and manufacturing
generally captures that concept. It is a very small part of our
total economy. If you look at the multipliers for various kinds of
economic activity, the multipliers on manufacturing are something
in the neighborhood of five to seven, whereas the multipliers on
services or trade are something in the neighborhood of two to
three. So we're looking at the kind of jobs that have higher value
and higher multipliers in our economy as the objective of this
bill, because that's the kind of thing we need to `incentivize.'
This is not designed to generally `incentivize' business at random
in every manifestation thereof. We're trying to focus it on those
things that return the highest value to our economy, because there
an incentive is justified."
Number 1470
REPRESENTATIVE HODGINS asked for verification that this bill is not
being brought forward for one specific project or applicant.
DR. DeMARCO replied that three or four people have been talking
with them seriously about locations in Anchorage. Three people had
been in her office in the last week who "are not yet before AIDEA."
She said the first thing they ask is: What is your incentive
program? Prospects turn up in other locations because someone
builds them a factory or already has space available, and she is
getting tired of that. She concluded by indicating this bill is
relevant to a variety of industries.
Number 1510
REPRESENTATIVE ALAN AUSTERMAN cited the example of a satellite-
launching business off of Kodiak Island. He said he could envision
with this type of program that Bill Gates or somebody could be
building satellites in Anchorage, for example. In Kodiak, there is
major seafood processing, but secondary value-added processing is
done elsewhere. He suggested this could apply to some of those
major players moving their plants to Alaska. In addition, in
Kodiak there is waste seafood that could be processed. He noted
that a community had to get behind this program as well.
Number 1603
REPRESENTATIVE KEMPLEN reported that there has been discussion in
the Anchorage area of taking advantage of the cargo and air-lift
capacity developing there, to encourage movers to build warehouses,
repair computers and do other value-added work, for example. He
asked if that type of economic activity would qualify.
DR. DeMARCO stated that value-added activity to components would
apply in a variety of ways, and she indicated her belief that this
area is critical. Many cargo airplanes go through Anchorage. She
stated, "You've seen what happens in a business situation when
people have a reason to move their cargo transfer activity to
another location. If they can fly farther before they refuel, they
often will. You have to give them a business reason for stopping
here. A business reason is stopping to pick up cargo." She said
there is a lot of opportunity for that.
Number 1667
CHAIRMAN SANDERS advised that the object of this bill is to bring
money in from outside and to leverage that money.
Number 1725
DONNA TOLLMAN, Copper Valley Economic Development Council,
testified via teleconference from Glennallen in support of HB 220.
She described the bill as a breath of fresh air addressing revenue
streams into the state. They believe it is relevant to the whole
state and the ability of rural communities to provide manufacturing
opportunities, and it levels the playing field. They too are
continually asked what incentives they provide for businesses, and
they see this as a wonderful effort.
Number 1776
CHAIRMAN SANDERS offered Amendment 2, 0-LS0868\E.1, Cook, 4/17/97,
originally drafted as an amendment to SB 159, which read:
Page 1, line 10:
Delete "The amount"
Insert "Up to $3,000,000 may be"
Page 1, line 11:
Delete "may equal $3,000,000"
CHAIRMAN SANDERS explained this makes the language more clear and
is just housekeeping. He asked if there was any objection. There
being none, Amendment 2 was adopted.
Number 1825
CHAIRMAN SANDERS offered Amendment 3, 0-LS0868\E.2, Cook, 4/17/97,
originally drafted as an amendment to SB 159, which read:
Page 3, line 9, following "money.":
Insert "The terms and conditions may include requirements
for the repayment of grant money even though repayment is not
required under (a) of this section."
Number 1836
REPRESENTATIVE KEMPLEN objected for discussion.
CHAIRMAN SANDERS explained that if AIDEA felt that this could be
repaid as a loan instead of a grant, this is a mechanism for
possible repayment.
REPRESENTATIVE KEMPLEN removed his objection.
Number 1870
CHAIRMAN SANDERS advised that there being no further objection,
Amendment 3 was adopted.
Number 1891
REPRESENTATIVE HODGINS made a motion to move HB 220, as amended,
from committee with individual recommendations and accompanying
fiscal notes.
Number 1905
REPRESENTATIVE BERKOWITZ objected for discussion. He said he sat
on the commerce and economic development finance subcommittee and
watched as they dismantled some good programs that helped build
existing industries including tourism and trade. He stated that he
was happy to see that they were turning around here and trying to
get some manufacturing going. He stated the hope that the
legislature would find funding for it.
Number 1938
REPRESENTATIVE AUSTERMAN said he had added his name to the bill
because he believes it is exactly what legislators need to do to
encourage new businesses in the state that have some type of tax
base. He stated his strong support for the bill.
Number 1970
REPRESENTATIVE KEMPLEN referred to the analysis section of the
AIDEA fiscal note, which states in part, "If amendments are made to
the Bill so that the requirements to qualify for the incentive and
the amount of the incentive are based on objective standards, an
additional staff person would not be necessary and the fiscal note
would be -0-." He said right now, the DCED is saying they need
$74,000 for a staff person to provide oversight of the program and
analysis on each applicant. He asked for more information about
this comment.
Number 2015
MR. LAWSON advised that at a hearing on the similar bill in the
Senate Labor and Commerce Committee, someone on teleconference from
AIDEA had stated concerns, which Senator Leman had asked them to
submit. However, Mr. Lawson did not have those and could not speak
to them.
MR. LAWSON referred to the fiscal note provided by the DCED.
They estimate it would require 20 percent of a staff person's time.
Number 2058
KATELYN MARKLEY, Alaska Industrial Development and Export Authority
(AIDEA), testified via teleconference from Anchorage. She
indicated AIDEA's comments had not yet been provided to Senator
Leman, nor could she say what they would recommend. She offered to
provide comments within the next couple of days.
REPRESENTATIVE KEMPLEN said there are ways, when crafting
legislation, to minimize the need for additional money for staff.
He suggested that would be appropriate in terms of public policy.
CHAIRMAN SANDERS advised that the bill has a referral to the House
Finance Committee. He suggested taking up that issue there.
REPRESENTATIVE HODGINS said he has no problem with the bill.
However, he would like to see a sunset clause. That way, if there
was no activity with the program, it would not generate a $75,000-
per-year job. He suggested there are several programs that do not
produce but that "generate reasons for people to draw wages."
Number 2156
REPRESENTATIVE BERKOWITZ indicated when he had suggested sunset
clauses in other bills, the response he had received was that the
next legislature could pull it if they want to.
Number 2167
REPRESENTATIVE IVAN stated his belief that they would not be
handing out money to just anybody. There are protection guidelines
in the legislation, and he is certain the House Finance Committee
will look at financial aspects.
Number 2185
REPRESENTATIVE BERKOWITZ withdrew his objection and indicated he
would cosponsor the bill.
CHAIRMAN SANDERS advised that there being no objection, CSHB
220(ECD) moved from the House Special Committee on Economic
Development.
ADJOURNMENT
CHAIRMAN SANDERS adjourned the meeting of the House Special
Committee on Economic Development at 3:48 p.m.
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