02/10/2011 10:15 AM House ECON. DEV., TRADE & TOURISM
| Audio | Topic |
|---|---|
| Start | |
| HB67 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 67 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT, INTERNATIONAL
TRADE AND TOURISM
February 10, 2011
10:15 a.m.
MEMBERS PRESENT
Representative Bob Herron, Chair
Representative Neal Foster
Representative Wes Keller
Representative Cathy Engstrom Munoz
Representative Steve Thompson
Representative Berta Gardner
Representative Chris Tuck
MEMBERS ABSENT
Representative Kurt Olson, Vice Chair
Representative Peggy Wilson
OTHER LEGISLATORS PRESENT
Representative Kyle Johansen
COMMITTEE CALENDAR
HOUSE BILL NO. 67
"An Act relating to transferable film production tax credits;
and providing for an effective date by amending the effective
dates of secs. 3 and 4, ch. 63, SLA 2008."
- OVERVIEW: ALASKA FILM OFFICE BY WANETTA AYERS, DIRECTOR,
DIVISION OF ECONOMIC DEVELOPMENT
- PRESENTATION(S): ALASKA FILM TAX INCENTIVE - CASE STUDY
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 67
SHORT TITLE: FILM PRODUCTION TAX CREDIT
SPONSOR(s): REPRESENTATIVE(s) TUCK, HERRON
01/18/11 (H) PREFILE RELEASED 1/7/11
01/18/11 (H) READ THE FIRST TIME - REFERRALS
01/18/11 (H) L&C, FIN
01/26/11 (H) EDT REFERRAL ADDED BEFORE L&C
02/10/11 (H) EDT AT 10:15 AM BARNES 124
WITNESS REGISTER
ROB EARL, Staff
Representative Bob Herron
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided background information and a
sectional analysis of HB 67 on behalf of Representative Herron,
co-prime sponsor.
Wanettta Ayers, Director
Anchorage Office
Division of Economic Development
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Provided an overview of the Alaska Film
Office (AFO) and its activities.
CURTIS THAYER, Deputy Commissioner
Office of the Commissioner
Department of Commerce, Community & Economic Development
Juneau, Alaska
POSITION STATEMENT: Answered questions during the overview of
the Alaska Film Office (AFO).
RALPH SAMUELS, Vice-President
Government & Community Relations
Holland America Line
Anchorage, Alaska
POSITION STATEMENT: As a guest of the committee, spoke on his
experience as a legislator and on the subject of tourism.
ACTION NARRATIVE
10:15:25 AM
CHAIR BOB HERRON called the House Special Committee on Economic
Development, International Trade and Tourism meeting to order at
10:15 a.m. Present at the call to order were Representatives
Herron and Gardner. Representatives Munoz, Foster, Thompson,
Tuck, and Keller arrived as the meeting was in progress.
Representative Johansen was also present.
10:15:32 AM
CO-CHAIR HERRON recessed the meeting.
[Although not previously stated, the meeting was recessed to a
call of the chair.]
10:15:46 AM
CO-CHAIR HERRON brought the meeting back to order at 10:17 a.m.
Present at the call back to order were Representatives Herron,
Foster, Thompson, Gardner, Tuck, and Keller.
HB 67-FILM PRODUCTION TAX CREDIT
OVERVIEW(s): ALASKA FILM OFFICE; ALASKA FILM TAX INCENTIVE -
CASE STUDY
10:18:14 AM
CHAIR HERRON announced that the first order of business would be
HOUSE BILL NO. 67, "An Act relating to transferable film
production tax credits; and providing for an effective date by
amending the effective dates of secs. 3 and 4, ch. 63, SLA
2008."
10:18:30 AM
CO-CHAIR HERRON noted that the bill's co-prime sponsors are
Representative Tuck and himself, and that the intent of the
chair is to move the bill out of committee on 2/17/11.
10:20:27 AM
REPRESENTATIVE CHRIS TUCK, Alaska State Legislature, Juneau,
Alaska, introduced proposed HB 67, as co-prime sponsor. He
informed the committee the bill extends tax incentive credits
for the film industry. The film industry is an important step
in the diversification of Alaska's economy, and the Alaska Film
Incentive Program enacted in 2008, is largely responsible for
the recent growth of this industry. The bill will extend the
tax credits that have played a major role in the success of
Alaska's film industry and continuing interest in filming large-
scale productions in Alaska brings opportunities to Alaska
businesses and workers. From the time of the first tax credits
in 2008, 15 productions have received tax credits and 910 film
production days in Alaska resulted in a total "Alaska spend" of
$14,910,810. As of January 2011, there are 28 film productions
prequalified for the Alaska Film Incentive Program; the
projected Alaska spend for these productions totals $83,805,000,
which brings the total projected boost to Alaska's economy to
over $100,000,000. Representative Tuck concluded that proposed
HB 67 will extend the sunset on this program for an additional
10 years, and assure the film industry that Alaska is open for
business.
10:23:16 AM
ROB EARL, staff, Representative Bob Herron, Alaska State
Legislature, said that with support from Alaska businesses, the
legislature created the Alaska Film Office and the Alaska Film
Production Incentive Program in 2008 to encourage growth of the
film industry in Alaska. Credits are structured to encourage
film productions all across the state, and to put Alaskans to
work year-around. Mr. Earl explained that the existing program
contains a sunset after five years, or after $100 million in
credits are issued. Currently, the program offers a
transferrable tax credit of 30 percent of qualified spending, an
additional 10 percent for Alaska-hire, 2 percent for shooting in
rural Alaska, and 2 percent for working during the winter
months. Furthermore, eligible productions can sell tax credits
to any company with a corporate tax liability, thereby offering
tax relief. Tax credits are issued only after filming is
complete and an independently-owned Alaska-certified public
accountant (CPA) has verified Alaska expenditures. Mr. Earl
restated the tax credit schedule and pointed out that the
average tax credit was about 32.5 percent, and the highest was
about 37.5 percent. The bill proposes to extend the tax credits
for ten years past the existing sunset date of 7/1/13, to
7/1/23, and to continue the funding level at $100 million for
each five-year period. He then highlighted portions of the
sectional analysis: Section 1 authorizes $200 million in tax
credits over ten years, limiting the amount of tax credits in
the first five years to $100,000, to ensure that $100,000 will
be available in each five-year period; Section 2 changes the
qualifying period from 24 months to 36 months, in order to
accommodate larger productions; Section 3 sets in statute
protection of a production company's commercially valuable
information; Section 4 adds the transfer of digital media to
tape or film to the list of qualifying expenditures; Section 5
updates statutory references to match the program extension
date; Section 6 requires the commissioner of revenue to report
tax credits equal to $200 million; Section 7 extends the program
for 10 years past the scheduled sunset date, unless the ceiling
is reached before then; Section 8 updates the audit and recovery
language in the bill.
10:29:09 AM
REPRESENTATIVE MUNOZ asked how the tax credits are brokered to
prospective companies.
10:29:33 AM
REPRESENTATIVE TUCK advised that most are brokered through
financial institutions, although some are pre-sold and others
are matched up with companies that have a high corporate tax
liability with the state. In further response to Representative
Munoz, he said Alaska is pretty competitive with other states
such as Louisiana, which has a similar program except that it
guarantees the sale of the tax credits.
10:30:49 AM
REPRESENTATIVE GARDNER asked how close the program is to the
current limit of $100,000, and for a timeline of the claims.
10:31:12 AM
REPRESENTATIVE TUCK advised qualified tax credits of about $15
million, plus the projected amount of $83 million, puts the
program very close to its limit.
10:31:43 AM
CO-CHAIR HERRON observed Southcentral is a very desirable
location for film production. He questioned whether a 2 percent
tax credit for filming in rural locations is "the best we can
do."
10:32:24 AM
REPRESENTATIVE TUCK warned about the public's perception of
granting "such a huge tax break." However, because of the high
cost of fuel, transportation, and other challenges to filming in
rural areas, he agreed that 2 percent may not be enough. He
discussed two movie productions that were filmed in Barrow.
10:33:30 AM
REPRESENTATIVE GARDNER recalled that the list of qualified
expenses allowed by the original legislation limited film stars'
salaries. She asked whether there are in-state expenses that
are not deductible.
10:34:02 AM
REPRESENTATIVE TUCK noted that the industry divides costs
"above the line and below the line." He explained that below
the line expenses are for production people and actors, and
above the line expenses are for producers, writers, and
directors. The state grants tax credits for salaries above and
below the line, with an additional 10 percent for Alaska hire.
He deferred to the film office for more specifics.
10:34:42 AM
REPRESENTATIVE GARDNER surmised any money spent in Alaska is a
qualified expense with the possible exception of a portion of
salaries for "big stars."
10:35:01 AM
REPRESENTATIVE TUCK said correct. He added that an Alaska-
based CPA firm must verify the expenses.
10:35:07 AM
REPRESENTATIVE FOSTER observed the 2 percent added tax credit
for film production in a rural area is a good incentive, and
could be expanded. The production of a film would have a
positive impact on jobs in villages that are at the poverty
line.
10:35:53 AM
CHAIR HERRON opined it is important to think of workforce
development in this industry, and strive to supply Alaskan
workers at all technical levels.
10:36:17 AM
REPRESENTATIVE TUCK also encouraged local and rural communities
to use this opportunity to develop their own productions about
their communities. He then pointed out the qualified
expenditures are listed in section 4 of the proposed bill, and
in regulations.
10:37:06 AM
WANETTTA AYERS, Director, Anchorage Office, Division of Economic
Development, Department of Commerce, Community & Economic
Development (DCCED), informed the committee the Alaska Film
Office (AFO) is located in the Anchorage office of the Division
of Economic Development, DCCED. She stated that the 2008
statutory authority establishing AFO tasked the office with the
following five actions: co-administer the Alaska Film
Production Incentive Program with the Department of Revenue
(DOR); cooperate with the private sector in the development of
the film industry; promote Alaska as a film location; provide
assistance to the private sector during filming activities;
address workforce development issues. Currently, some of AFO's
activities are: collaboration with the private sector through
its website, www.film.alaska.gov., which contains information on
the incentive program, details on filming in Alaska, and links
to specialized databases; engagement with industry
organizations, trade associations, and allied groups in the film
industry; promotion of Alaska as a film location through
speaking engagements, exchanging ideas with targeted contacts,
and fielding daily inquiries. Ms. Ayers provided an example of
display advertising that was a brochure placed in industry
magazines and directories such as Director's Guild of America
Quarterly and Monthly, Produced By, and Locations Magazine.
Although the website is the primary vehicle for the promotion of
Alaska as a filming location, the film office also makes
contacts through trade shows and other marketplaces by providing
information, conducting follow-up activities, and providing a
"leave-behind" piece on filming in Alaska. In terms of
providing assistance, Ms. Ayers stated that AFO and DCCED staff
respond to inquiries about filming in Alaska on a daily basis;
conduct follow-up and outreach after the initial contact is
made; meet regularly with producers and provide introductions to
state and local contacts; explain the incentive program and
assist producers with the application process; provide
alternatives and creative solutions to production challenges;
work with Alaska businesses, community representatives, and
other stakeholders about how to serve the industry.
10:43:24 AM
MS. AYERS turned attention to workforce development and relayed
in order to develop a skilled film industry workforce AFO is
working with a variety of organizations including: the
Department of Labor & Workforce Development (DLWFD) on
apprenticeships for technical careers in the film industry;
the University of Alaska (UA) on academic programs that are
recognized by the film industry; private sector businesses on
ways to provide on-the-job training; youth training programs
through school districts; rural outreach efforts to support
productions filmed in rural areas; skilled trade union training
on industry standards.
10:44:18 AM
REPRESENTATIVE GARDNER asked about the source of funding for the
workforce development programs.
10:44:24 AM
MS. AYERS responded that the programs are in the very early
stages of development; in fact, some may begin with existing
funding from the agencies and institutions that are involved.
She acknowledged that these programs would not be funded through
AFO, but noted that related agencies in other states regard
workforce development as an important aspect of attracting the
film industry.
10:45:35 AM
REPRESENTATIVE FOSTER asked for examples of applicable
apprenticeships.
10:46:15 AM
MS. AYERS said the best example is that the film industry
requires skilled electricians who understand the specific needs
of the film industry; further examples are forthcoming from
DLWFD. She then provided a slide that illustrated the process
to pre-qualify for the Alaska Film Production Incentive Program.
The pre-qualification process involves: evaluation; pre-
qualification approval; production phase; audit of production
costs; application for tax credits; review and approval of tax
credits; movement of approved applications to DOR; issuance of
the tax credit certificate. Over the last three fiscal years
forty-five applications for pre-qualification have been
submitted and forty-four were approved. There have been
fourteen tax credit applications and all have been approved.
The total for pre-qualified tax credit applications at this date
is approximately $34.5 million, and the total for approved tax
credits is $4.8 million. Ms. Ayers turned attention to staffing
and budget, and stated that AFO is staffed by 1.5 full-time
positions with additional support from DCCED officials. The
operating budget for Fiscal Year 2011 (FY 11) is $283,000 in
direct program costs, additional support costs of an
undetermined amount, and unallocated overhead costs of $27,800,
for a total of $310,800.
10:50:53 AM
CHAIR HERRON asked how often the website is refreshed.
10:51:07 AM
MS. AYERS assured the committee the website is updated regularly
by a skilled website manager; in fact, the website will migrate
to the new state website development program soon.
10:51:55 AM
CHAIR HERRON asked to be notified of that change. He then asked
whether television productions qualify.
10:52:29 AM
MS. AYERS said television productions qualify for the incentive
program, however, a television production may not achieve the
"minimum spend." In further response to Chair Herron, she said
the website includes guidelines for television productions.
10:52:36 AM
CHAIR HERRON asked for a description of AFO's outreach methods.
10:53:24 AM
CURTIS THAYER, Deputy Commissioner, Office of the Commissioner,
Department of Commerce, Community & Economic Development, said
he consulted with the commissioner of DCCED and they determined
that the film office is one of the department's programs worthy
of emphasis. Mr. Thayer noted that AFO is growing, and has
potential for more growth; in fact, representatives from the
commissioner's office have met on a regular basis with
production companies in Anchorage, and have traveled to Los
Angeles on an outreach trip to contact producers looking at
filming in Alaska. He described past movie productions in
Anchorage and Barrow and said there are three productions
currently considering filming in Alaska because of the tax
incentive program and its longevity. Although Alaska's lack a
sound stage limits some filming, there is a possibility that the
private sector will build a sound stage in Southcentral, even
though that project will not qualify for tax credit incentives.
Mr. Thayer concluded that outreach by the film office includes
meeting with production companies, but not "wining and dining."
10:55:42 AM
CHAIR HERRON asked whether the film industry collaborates with
other industries.
10:56:02 AM
MR. THAYER indicated yes. He explained that DCCED wants to see
AFO working with the Alaska Travel Industry Association (ATIA),
and the Alaska Seafood Marketing Institute (ASMI). For example,
the film office is providing to film scouts scenic footage of
Alaska locations produced from advertising funded by the
legislature through ATIA. He said, "Where the state has spent
money in one hand, supporting tourism, we have been able to
utilize that and turn that into site locations for the film
office, at no additional cost to the state."
10:56:57 AM
MS. AYERS recognized the residual benefits of the images of
Alaska that are broadcast in film and television, thereby
holding value for other industries such as tourism and fishing.
In response to Chair Herron, she opined AFO will not exceed the
proposed $200 million funding limit; furthermore, proposed HB 67
provides a level of certainty that will stimulate the needed
private sector investment in order to strengthen the industry's
infrastructure in Alaska, and to provide a trained workforce.
10:58:20 AM
REPRESENTATIVE TUCK corrected his response to Representative
Gardner and said that $4.9 million in tax credits have been
granted thus far, and it is projected that an additional $10
million will be granted. Therefore the program is not close to
reaching its limit of $100 million on the amount of tax credits
allowed, but almost $100 million has been spent in Alaska.
10:58:57 AM
REPRESENTATIVE FOSTER re-stated that the construction of a sound
stage would not be a qualified expenditure, and asked whether
the committee should examine how to spur this type of activity.
10:59:31 AM
MS. AYERS observed that there are other states that have
included the construction of a sound stage into their film
development program. She opined that the extensions and
modifications in proposed HB 67 will assure the private sector
that an investment in film industry infrastructure is worth
making.
11:00:12 AM
REPRESENTATIVE FOSTER requested information on other states'
actions "to incentivize infrastructure."
11:00:42 AM
MR. THAYER cautioned that a sound stage is a unique structure of
10,000-15,000 square feet, requiring 40-foot ceilings, with no
posts, and sited on 10 acres of land. He advised that there are
no existing buildings like that in Alaska.
11:01:42 AM
CHAIR HERRON inquired as to whether the administration supports
the proposed legislation.
11:02:07 AM
MR. THAYER said the governor introduced the legislation in its
original form. In further response to Chair Herron, he
confirmed that the governor supports the legislation in its
current form on 2/10/11.
[HB 67 was heard and held.]
11:02:52 AM
CHAIR HERRON introduced former legislator Ralph Samuels.
11:03:56 AM
RALPH SAMUELS, Vice-President, Government & Community Relations,
Holland America Line, recalled that his six years as a
legislator "was the experience of a lifetime." He advised
members of the committee to take a long-term economic view on
matters of state policy.
11:07:03 AM
CHAIR HERRON asked for a preview of Mr. Samuels's presentation
at the "Lunch and Learn."
11:07:15 AM
MR. SAMUELS said his presentation will focus on tourism as a
whole, and how the various facets of tourism fit together in
Alaska. He displayed a map of the most common cruise routes
from Seattle to Seward, and explained that there are two
separate cruise markets: "gulf sailings" and Southeast.
Sailings along the Southeast corridor are primarily from Seattle
or Vancouver and there is vigorous competition between the
cruise agencies for customers interested in this route. The
gulf sailings cross the Gulf of Alaska to Seward or Whittier,
and bring in tourists who support the visitor industry in
Anchorage, Kenai, Fairbanks, and Denali. The demographics and
offerings are different for each of these itineraries, and
transferring a cruise ship to another area means "taking it from
somebody else." He pointed out that cruise ship passengers have
many options to choose from if they are not pleased with a trip
or a destination. In Southeast, residents are more aware of the
presence of cruise ships than are Anchorage residents; however,
60 percent of the visitors to Alaska began their trip on a
cruise ship and 25 percent of independent travelers previously
visited on a cruise. This adds up to 70 percent of visitors
associated with the cruise industry. Mr. Samuels noted that
"everybody flies" to Hawaii, and cruise visitors represent only
4-5 percent of the tourism industry. In Alaska, however, the
return of one ship for the 2012 season will be equal to three
full planeloads of tourists per day for 100 days; in fact, there
is no other way to bring in the volume of tourists needed to
support the tourism industry.
11:13:44 AM
CHAIR HERRON asked whether proposed HB 67, through its support
for reality television shows and other media, helps the cruise
business.
11:14:00 AM
MR. SAMUELS expressed no opinion on the bill, but acknowledged
that Alaska's repeated exposure to the American public is good.
He stressed, however, that media exposure does not take the
place of a sustained marketing campaign, even though all
businesses profit from media productions in the state. He spoke
of the impact of television and radio marketing competition from
other states and destinations. Mr. Samuels then displayed a
list of the cruise lines that left the Alaska market in 2010 and
which indicated a total loss of 142,000 passengers. He
explained the loss of 12,000 passengers by Holland America Line
was due to a change of route. The business perspective of a
decision by the cruise line to make a change of route is based
upon the passenger's cost of the cruise.
11:20:17 AM
REPRESENTATIVE KELLER asked whether the Alaska Railroad was
affected.
11:20:32 AM
MR. SAMUELS stated that railroad passenger numbers dropped with
the loss of cruise passengers. He opined the loss impacted many
entities.
11:21:43 AM
REPRESENTATIVE GARDNER observed that hotel stays and restaurants
were also affected because the change in route caused passengers
to stay on the ship.
11:22:02 AM
MR. SAMUELS agreed that local taxes and hotel revenue are
affected by cruise passengers because some spend one night
before or after a one-way cruise. He then displayed a chart
that indicated that cruise lines leaving the market in 2011
resulted in a total loss of 35,454 passengers leaving, and a
loss of 14,995 passengers due to itinerary changes. Additions
to the market for 2011 are 58,510. passengers for a total gain
of 7,061 cruise passengers. For the 2012 season, the
projection is for 90,000 passengers below the 2008 season,
although not all itineraries have been published, and Princess
Cruises and Holland America Line have announced additions to
their schedules. He provided an example of a marketing
publication prepared by businesses of the Florida-Caribbean
Cruise Association that encourages ships to come to a specific
region, and noted that the Alaska Cruise Association can do the
same. Mr. Samuels concluded that there is now more
"conversation" between the government and the cruise industry
than there was after the Alaska Cruise Ship Initiative of 2006
was enacted.
11:27:07 AM
REPRESENTATIVE FOSTER opined the cruise industry is good for
rural Alaska when visitors begin to explore other parts of the
state.
11:28:19 AM
MR. SAMUELS agreed and expressed his hope that the Bush caucus
will meet with Holland America Line staff on how to open the
door to the Western Alaska area.
11:29:27 AM
REPRESENTATIVE JOHANSEN referred to ports in the Caribbean that
compete against each other for cruise industry business and
cautioned that Southeast Alaska ports cannot compete against
each other. He surmised that the state and the cruise industry
must market all of Alaska as one package for the benefit of
everybody.
11:30:18 AM
MR. SAMUELS agreed. In further response to Representative
Johansen, he said that the reason ships cannot increase cruise
ship port time in Ketchikan is because of the geography of the
route.
11:32:33 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Economic Development, International Trade
and Tourism meeting was adjourned at 11:32 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB067-CCED-DED-02-07-11.pdf |
HEDT 2/10/2011 10:15:00 AM |
HB 67 |
| HB67-DOR-TAX-02-05-11 film production tax credit.pdf |
HEDT 2/10/2011 10:15:00 AM |
HB 67 |
| HB 67 News Stories 020811.PDF |
HEDT 2/10/2011 10:15:00 AM |
HB 67 |
| HB 67 Sectional.pdf |
HEDT 2/10/2011 10:15:00 AM |
HB 67 |
| HB 67 Sponsor Statement.pdf |
HEDT 2/10/2011 10:15:00 AM |
HB 67 |
| HB 67 Support Letters 020811.PDF |
HEDT 2/10/2011 10:15:00 AM |
HB 67 |
| HB 67 Background.PDF |
HEDT 2/10/2011 10:15:00 AM |
HB 67 |