Legislature(2013 - 2014)HOUSE FINANCE 519
02/27/2014 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB49 | |
| HB204 | |
| HB306 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 204 | TELECONFERENCED | |
| *+ | HB 306 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 49 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
February 27, 2014
1:45 p.m.
1:45:02 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:45 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Lindsey Holmes
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Senator John Coghill, Sponsor; Chad Hutchinson, Staff,
Senator John Coghill; Daniel George, Staff, Representative
Bill Stoltze; Jeff Backlund, North Pacific Seafoods;
Sinclair Wilt, Vice President, Westward Seafoods; Vince
O'Shea, Vice President, Pacific Seafood Processors
Association; Anna Kim, Tax Division, Department of Revenue;
Tim Cottongim, Fish Group, Tax Division, Department of
Revenue.
PRESENT VIA TELECONFERENCE
Tom Sunderland, Vice President of Marketing, Ocean Beauty
Seafoods; Johanna Bales, Deputy Director, Tax Division,
Department of Revenue.
SUMMARY
HB 204 SALMON & HERRING PRODUCT DEV'T TAX CREDIT
CSSSHB 204(FIN) was REPORTED out of committee
with a "do pass" recommendation and with one
previously published fiscal impact note: FN1
(REV).
[Note: The meeting was recessed until 9:30 a.m.
on February 28, 2014 and CSSSHB 204(FIN) reported
out of committee at that time. See February 28,
2014, 9:26 a.m. minutes for detail.]
HB 306 EVAL. INDIRECT EXPENDITURES; TAX CREDITS
HB 306 was HEARD and HELD in committee for
further consideration.
SSSB 49(FIN)
MEDICAID PAYMENT FOR ABORTIONS; TERMS
HCS SSSB 49(FIN) was REPORTED out of committee
with "no recommendation" and with two
indeterminate fiscal notes and one fiscal impact
note from the Department of Health and Social
Services.
1:45:10 PM
Co-Chair Stoltze discussed the agenda for the day.
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 49 am
"An Act relating to women's health services and
defining 'medically necessary abortion' for purposes
of making payments under the state Medicaid program."
1:46:29 PM
Representative Costello discussed the bill's three fiscal
notes including two indeterminate notes from Department of
Health and Social Services (DHSS) and one fiscal impact
note from DHSS with a cost of $55,200 in FY 15.
1:47:51 PM
Representative Gara MOVED to ADOPT Amendment 1:
Page 1, line 1, after "Act" insert "relating to
women's health services and"
Page 1, line 4, insert a new section to read:
Section 1. AS 4 7.07 .030 is amended by adding a
new subsection to read:
(g) The department shall make available to
eligible recipients a program for women's health
for the purpose of providing family planning
services, health screening examinations, and
related services.
Page 3, line 6, insert a new section to read:
Sec. 3. The uncodified law of the State of Alaska
is amended by adding a new section to read:
WOMEN'S HEALTH PROGRAM UNDER STATE MEDICAID.
The Department of Health and Social Services
shall immediately prepare and submit to the
United States Department of Health and Human
Services, for approval in accordance with the
provisions of 42. U.S.C. 1396a (Title XIX, Social
Security Act), an amendment
Co-Chair Stoltze OBJECTED and ruled Amendment 1 out of
order. He stated that the amendment was identical to a vote
that had previously taken place on the adoption of the CS
[the CS previously adopted by the House Finance Committee
had removed language that Amendment 1 would reinsert].
Representative Gara replied that the topic had been fully
debated before the committee had all of the information
about the women's health program. He believed that the
amendment should be discussed given the updated information
the committee had received.
Vice-Chair Neuman MOVED to REPORT HCS SSSB 49(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes.
Representative Guttenberg OBJECTED. He spoke to the
contentious nature of the bill topic. He remarked that a
considerable portion of the bill had been removed following
its passage from the Senate. He stated that if the goal was
to reduce the number of abortions, the most immediate way
was to prevent them from taking place. He stressed that the
CS eliminated the consideration from the bill. He remarked
that the constitutional issue would be played out in the
Alaska courts. He believed that without a prevention
component, the bill guaranteed the number of abortions
would increase. He was equally bothered by the definition
used in the legislation because it did not consider the
health or well-being of the mother or who the responsible
party would be for the unborn child. He believed that the
legislation's definition treated the mother as the vessel
carrying a child; that the mother had no responsibility and
that government was responsible. He found it problematic
that the bill did not honor a woman's decision about her
own health, especially if the decision related to mental
health. He believed the bill moved further away from a
point where people could agree on a definition that would
make things healthier for women and unborn children. He
emphasized that the bill did not come near to resolving the
issue. He noted that the courts had spoken on the issue; he
knew no one liked making end-runs around the courts. He
stated that the legislature was not getting closer to a
definitive answer because it was refusing to acknowledge
some of the more serious problems on the issue.
1:53:42 PM
Representative Gara discussed that there were many
individuals in Alaska who were pro-choice and many others
who were not. However, constituents expected legislators to
come together where they agreed. He stated that there was
an opportunity to reduce the number of abortions by
adopting a women's family planning program that would have
covered 90 percent of the cost for contraception. He
believed the number of abortions should be reduced through
family planning. He believed it was a mistake to remove the
provision from the bill. He thought the bill may increase
the number of abortions and may also make them more
dangerous for women who could not afford to go to a medical
provider. He stated that women who had no children and were
not pregnant would be covered by a women's health program.
He stressed that contraception would result in fewer
unintended pregnancies and fewer abortions. He believed it
was a win-win for people on both sides of the pro-choice
pro-life debate. He addressed former comments by a bill
sponsor related to public health clinics. He discussed that
many public health clinics provided some family planning
services; however, women should have the right to go to
their personal doctor. He did not believe there should be a
law preventing women from going to their doctor when they
wanted family planning services. He noted there were no
public health clinics in Denali Park, Arctic Village,
Barrow, Kotzebue, Togiak, Naknek, or King Salmon. He
stressed that there had been an easy way for the bill to
limit the number of abortions; he intended to have the
discussion on the House floor.
Representative Gara addressed the bill as a whole. He
discussed that he was pro-choice, but that the topic of
abortion made him uncomfortable. He did not like having
fights in the legislature related to the divisive issue.
The system created by the bill allowed middle class and
wealthy woman to choose to have an abortion; however, it
did not cover lower class women. He stated that a similar
system had existed sometime in the past; unsafe abortions
had led to the death and serious injury of mothers. He
opined that states should each have a robust debate on the
right to choose; he believed the right should exist. He did
not believe in creating two classes of women; those who
could afford a safe abortion and those who could not.
1:59:22 PM
Representative Gara continued to discuss his objection to
the legislation. He reiterated that the bill would increase
the number of abortions for women due to a lack in family
planning services and would also make abortions less safe.
He did not support the legislation.
Representative Munoz observed that federal law limited
public funds for abortions. She noted that 547 abortions
had been performed the past year. She believed it was clear
that more abortions were happening than were medically
necessary. She wondered why the bill's definition did not
include diagnosed mental disabilities.
Co-Chair Stoltze relayed his intent to allow the sponsor to
provide clarity on the specific point.
Representative Guttenberg remarked that the committee was
in the middle of a motion and the sponsor was providing
comments on the legislation.
Co-Chair Stoltze explained his intent to have the sponsor
address the topic as part of the committee deliberation.
2:01:57 PM
Senator Coghill replied that the Alaska Mental Health Trust
Authority talked about the need for commitment. The sponsor
felt that the bill language left the issue well within the
purview of a doctor. He stated that if a mental condition
created a question [about the safety of a pregnancy] the
doctor would have every right to make the decision.
Representative Wilson spoke to her question from the prior
day. She pointed to occurrences in 2012 and who paid for
the service; she listed Medicaid, cash, insurance, and
other. She did not know if the "other" category was the
possibility for women to have the procedure who did not
have insurance or Medicaid. She stated that if the "other"
was another group taking care of women who did not qualify
under other insurance then the question became who paid for
the procedure. She was concerned about not knowing what the
other was. She was hoping to have the question answered
before it went to the House floor. She was bothered by the
difference between items that were paid for by state
insurance compared to Medicaid; she noted that state
insurance paid only for medically necessary abortions. She
stated that if a person did not qualify for a procedure
under state insurance they were on their own to determine
how to pay for it. She remarked on a definition used by
private insurance that appeared to work given that there
had been no legal suits. She was concerned that the state
may get sued in the future because regulations already
existed. She wondered why the state did not use the proven
method used by other insurances versus going in the
direction the bill went. She stressed that the state would
get sued under the current method. She continued that if
the state lost on the definition it cost money and meant
the legislature would be required to discuss the issue
again. She stressed that the term medically necessary was
used for all medical procedures. She believed the issue
should not have been made a "women's issue." She was
willing to let the bill out of committee, but reiterated
her hope for answers prior to hearing it on the House
floor.
2:06:41 PM
Co-Chair Austerman stated that he had always been pro-
choice. He acknowledged the efforts of the sponsors to
create a definition. He recognized that the debate was not
about pro-choice or pro-life. His concern was about pro-
life efforts to cumulatively move towards the pro-life
goal. He believed any movement down a cumulative path to
stop pro-choice created a long-term problem. He opposed the
legislation.
Representative Holmes was disappointed that the bill did
not include a family planning program. She believed that
working to avoid unwanted pregnancies was the area that
everyone came together on. She urged the sponsors and
committee members to include family planning. She spoke to
the underlying language of the bill. She understood that
the topic pertained to funding and was not about pro-life
or pro-choice. The discussion related to who paid and under
what circumstances. She pointed to the list included in the
bill. She did not want to continue debating the issue, but
did not know if the nail had been hit on the head. She
believed the definition equated to the legislature telling
a doctor what was and was not medically necessary. She
agreed that under current laws Medicaid was only supposed
to pay for medically necessary abortions; she was okay with
that, but was uncomfortable with the list.
2:10:00 PM
Representative Costello commented on the family planning
portion that would not move forward with the legislation.
She believed there was a place for a discussion about
family planning, but she did not believe the language
belonged in the current bill. She noted that adoption was
not mentioned in the bill; she hoped that adoption would be
discussed when family planning was addressed at some point.
She shared personal information related to adoption.
Representative Edgmon had hoped to be given the opportunity
to vote on the family planning element. He discussed the
cause and effect relationship of family planning services
related to cost savings. He highlighted the lack of
facilities in his rural district. He believed that in the
current social environment (where there was an increased
need for Village Public Safety Officers) there were many
things occurring that family planning would enhance. He
believed the objective supported by all was fewer unwanted
pregnancies and abortions. He stated that without the
family planning element it was difficult for him to support
the legislation. He respected the sponsor, but he could not
support the legislation.
Vice-Chair Neuman spoke for the life of an unborn child. He
believed the definition represented a good effort to find a
scope of what medically necessary abortion meant. He
believed there were some issues related to family planning
that needed to be addressed. He supported bringing babies
to full term so they could be adopted into families. He
addressed Representative Wilson's concern related to
private insurance. He thought insurance companies may
choose to pay for an abortion even if a procedure was not
medically necessary if it may save the insurance company
money. He supported the bill and believed it was necessary
to include descriptive language in statute.
2:14:49 PM
Representative Costello MOVED to RESCIND previous motion on
the fiscal notes. There being NO OBJECTION, it was so
ordered. She moved two indeterminate and one fiscal impact
fiscal notes from the Department of Health and Social
Services.
A roll call vote was taken on the motion to report the bill
from committee.
IN FAVOR: Costello, Neuman, Thompson, Munoz, Wilson,
Stoltze
OPPOSED: Guttenberg, Gara, Holmes, Edgmon, Austerman
The MOTION PASSED (6/5).
There being NO further OBJECTION, HCS SSSB 49(FIN) was
REPORTED out of committee with "no recommendation" and with
two indeterminate fiscal notes and one fiscal impact note
from the Department of Health and Social Services.
2:16:19 PM
AT EASE
2:24:47 PM
RECONVENED
HOUSE BILL NO. 204
"An Act relating to a product development tax credit
for certain salmon and herring products; and providing
for an effective date."
Representative Costello MOVED to ADOPT the proposed
committee substitute for HB 204, Work Draft 28-LS0463\P
(Bullard, 2/24/14).
Co-Chair Stoltze OBJECTED for discussion.
DANIEL GEORGE, STAFF, REPRESENTATIVE BILL STOLTZE,
discussed the two changes included in the CS. Prior to the
word "herring" on pages 1 and 2, line 12 the word "or" was
replaced with "and."
There being NO further OBJECTION, the CS was ADOPTED.
2:26:36 PM
REPRESENTATIVE ALAN AUSTERMAN, SPONSOR, discussed that the
credit for salmon would sunset in 2015. He stated that a
number of changes within the industry had precipitated
action in the current year; an issue related to herring was
a part of the change. The tax credit had been in place for
10 years and had enabled the salmon industry to market new
products to compete in the marketplace. He shared that 10
years earlier the cost of pink salmon had been dire at
prices of $0.05 to $0.07 per pound. The tax credits had
done their job and prices had improved for fishermen;
markets had increased providing more places to sell
product. Additionally, there were different products to
sell. He detailed that to expand the commercial seafood
industry in Alaska the bill would add herring and would add
value-added products that could be created from the waste
stream currently going into the ocean, dumps or other. The
concept was that by adding the two items new markets would
be created.
Co-Chair Austerman explained that the bill would expand the
salmon credit to include herring and the underutilized
fisheries where significant waste occurred. He discussed
that in the past couple of years there had been money in
the state budget for the Alaska Seafood Marketing Institute
(ASMI) to market herring. He pointed to a can of herring
canned by ASMI. The organization had been able to show that
the world food aid market was buying protein in the U.S.
for global distribution. When efforts began in 2004 to
determine how new markets could be created, the tax credit
was one step and the other had been to hire someone to look
at the different marketplaces where no salmon existed.
There had been zero cases of salmon in the world food aid
market.
2:30:00 PM
Co-Chair Austerman continued that the U.S. had been
purchasing soy and corn [back in 2004], but no protein had
been included. He shared that in recent years there were
over 400,000 cases of salmon going into the food aid
marketplace, which created a place for pricing salmon and
improved things for the fishermen and processors involved.
He believed the same could be done for herring. He detailed
that in the past couple of years ASMI staff had been
selling the product. The reception had been strong and it
looked like the demand existed. He addressed the
underutilized waste of salmon and herring. He communicated
that ASMI had been purchasing wasted fish product and
turning it into a high grade food protein powder that could
be used to mix with rice, soybeans, and other. The product
could help around shipping cost issues.
Co-Chair Austerman addressed other reasons to get into the
dried protein powder business. He anticipated that at some
point 100 percent of retention would be required of all
fisheries in Alaska (similar to the current occurrence in
the European Union). He detailed that it would be necessary
to have a way of handling the waste stream that came ashore
instead of throwing the product away or turning it into pet
food; a higher value to the product was anticipated that
could allow the industry to grow. He had learned that
within the next few years the Environmental Protection
Agency (EPA) would no longer allow grinding of product and
dumping into the ocean. He detailed that given the change
it would become expensive for the industry to handle the
waste product; if a higher value for the product could be
determined it would become less costly to the industry.
2:33:07 PM
Representative Edgmon asked to hear public testimony.
Co-Chair Stoltze asked for a definition of cans.
Co-Chair Austerman deferred the question to the department
for detail on a definition. The bill would also give the
industry the option to change the size of its cans. In the
past the legislation had allowed the industry to begin
using pop-tops; however, the industry did not like pop-tops
due to the shelf-life. The goal was to allow the industry
to be able to change the size of the can.
2:34:39 PM
JEFF BACKLUND, VICE PRESIDENT, NORTH PACIFIC SEAFOODS,
spoke in support of the bill. He shared that the company
had five facilities in salmon producing areas in Alaska
including Alaska Pacific Seafoods in Kodiak; Sitka Sound
Seafoods; and three plants in Bristol Bay including Togiak
Fisheries, Peterson Point, and Red Salmon Cannery. He
discussed that in 2013 the company had processed over 50
million pounds of salmon. Since the program's inception it
had used the salmon tax credit for production changes that
had allowed the business to reach new markets and increase
the quality of the salmon items it produced. The company
had added vacuum packed fillet capacity to two operations
and was in the process of adding it to a third. He
communicated that ice-making capacity was an important
component to maintain product quality and was a needed
addition to the past reauthorization of the program. He
relayed that the tax credits had helped the company meet
changing market demands and to maintain high-quality salmon
products to benefit all segments of the value chain
including harvesters, processors, and coastal communities.
He shared that the continuation of the program provided the
company with the certainty needed for planning major
projects and the flexibility to respond to market changes.
The company planned to utilize the worthwhile program. He
urged the legislature to extend the salmon product
development tax credit.
Representative Gara wondered why pre-spiced frozen salmon
products were not available in stores. He believed there
would be a demand for the products. Mr. Backlund answered
that there were many changes occurring in the marketplace
pertaining to how companies were approaching the issue. He
noted that there had been a big shift from headed and
gutted and some canned to fillet production. He thought it
may be the next shift.
Representative Gara offered it as a suggestion.
Vice-Chair Neuman asked if the company used the credits to
reduce its corporate tax credits to the state. Mr. Backlund
responded that the credits offset capital investment in
changing product forms. For example, part of the tax paid
by a company could be used as a credit toward investing in
processing fish beyond headed and gutted in a fillet line.
2:39:00 PM
Vice-Chair Neuman pointed to Section 5 of the legislation
and wondered how the credits were claimed each year. He
observed that the credits changed from year to year. He
discussed claiming credits for capital investments and
noted that the bill offered incentive to purchase
equipment. He wondered whether there would be a point where
doubling up could occur. For example, new equipment could
be used for processing herring and other items as well. He
asked about paying revenue.
Mr. Backlund replied that the administration of the tax
credit went through the company's accounting department. He
understood that there was a pre-application process with
the Department of Revenue (DOR); the department provided an
indication of which items would qualify based on the
submitted project. He believed it was for new production,
not for replacement of existing equipment.
Co-Chair Stoltze asked if the company was involved in
financially supporting a law suit involving the United Cook
Inlet Drift Association and the Cook Inlet Fishermen's
Fund.
Mr. Backlund did not know.
2:41:25 PM
SINCLAIR WILT, VICE PRESIDENT, WESTWARD SEAFOODS and
GENERAL MANAGER, ALYESKA SEAFOODS, spoke in support of the
legislation. The companies had two plants in Dutch Harbor
and one in Kodiak; the Kodiak plant was the one involved in
the salmon business. He shared that the companies were
members of the Pacific Seafood Processors' Association. He
referred to a letter of support he had provided to the
committee (copy on file). He communicated that the Kodiak
plant had been a beneficiary of the program in prior years.
He relayed that the program was a valuable incentive to
encourage innovation and new product opportunities and in
dealing with waste products. He shared that one of the
Dutch Harbor plants had been working with an alternative
use of Pollock skins by converting it into collagen.
Co-Chair Stoltze asked if the company was involved in
financially supporting a law suit involving the United Cook
Inlet Drift Association and the Cook Inlet Fishermen's
Fund. Mr. Wilt replied that the company had not provided
any funds to the organizations.
Representative Gara asked about the law suit referenced by
Co-Chair Stoltze. Co-Chair Stoltze explained that the law
suit was seeking to bring federal management into the Cook
Inlet region. The suit had been brought forward by the
United Cook Inlet Drift Association and the Cook Inlet
Fishermen's Fund. He stated that the groups had previously
attempted to eliminate dip net fisheries.
Representative Gara asked if the company sold canned
salmon. Mr. Wilt replied in the negative.
2:45:07 PM
VINCE O'SHEA, VICE PRESIDENT, PACIFIC SEAFOOD PROCESSORS
ASSOCIATION (PSPA), spoke in support of the legislation. He
shared that PSPA members operated 18 plants that processed
salmon throughout the state from Ketchikan to Bristol Bay.
He believed the bill had a proven track record of
increasing the value of the salmon pack in Alaska. He
remarked that great progress had been made since the early
2000s when salmon prices had been in the single digits. He
communicated that the program had evolved over time; the
current bill added provisions for centrifuges to make food-
grade fish oil, which was currently a significant market.
Ice machines had been added to the legislation in 2010,
which had gone far to improve the quality of fish in
Bristol Bay. He believed the program benefited harvesters,
processors, fishermen, communities, and Alaskans in
general. The program expired in 2015, but it would be
beneficial to renew it in the current year to allow for
budget planning. He believed the five-year period provided
assurance that the state was encouraging the industry to
respond quickly to market and technology developments that
may evolve.
2:48:04 PM
Co-Chair Stoltze asked if the company was involved in
financially supporting a law suit involving the United Cook
Inlet Drift Association and the Cook Inlet Fishermen's
Fund. Mr. O'Shea replied that the company did not provide
any funds to the law suit.
Representative Gara wanted to see Alaska's salmon make as
much money for the state's fishermen as possible. He
remarked that fresh pink salmon was less expensive than red
or king; he wondered why it was not sold in Alaska
supermarkets. He asked why salmon was not marketed as pre-
spiced. He discussed that New Zealand sold a variety of
spiced tuna (e.g. curry, lemon, garlic, and other) that was
easy and convenient to eat. He wondered about doing
something similar with canned salmon. He wondered if the
issues were worth looking into. He noted that canned pink
and red salmon would bring in a limited amount of money.
Mr. O'Shea answered that he was not a marketing or
promotional person. He pointed to frozen salmon burgers
sold at a local retail store that were made with spiced
pink and keta salmon. He believed the product was cheaper
than hamburgers. He would be happy to get back with the
committee about the food ready pouch products the company
was making. He stated that an overall trend existed to move
from canned products to fresh/frozen fillets. The shelf-
life of canned salmon was terrific. He believed the advice
to look for a variety of product forms was good.
2:51:20 PM
Representative Guttenberg had traveled to Japan in the past
and had visited a fish market in Tokyo. He recalled that
all parts of the fish were marketed there. He asked if the
association was receiving any pushback on wild Alaska
salmon related to the Fukushima nuclear disaster. Mr.
O'Shea replied in the negative. He believed the issue was
on ASMI's radar related to protecting the Alaska brand. He
remarked on the difficulty of the question because it
related to how hard to push back or how much to continue
the story depending on credibility. He detailed that from a
science standpoint the evidence was clear that the disaster
did not have an effect on Alaskan products. He was
confident that ASMI was watching Japanese and other foreign
markets to ensure the Alaska brand remained respected for
its high quality.
2:53:17 PM
Co-Chair Austerman believed some Alaskan salmon fishing
industry 101 was needed to ensure everyone was on the same
page. He discussed various ways salmon had been handled
historically. He detailed that in 2003 and 2004 the
industry had been bleak in Alaska; the state had been doing
nothing but cans due to the marketplace. He stated that
many different products existed. There was significant
research underway by major processors to find the right
niche for salmon products. He listed various products
including salmon burgers, pouched spiced salmon, and dried
salmon.
TOM SUNDERLAND, VICE PRESIDENT OF MARKETING, OCEAN BEAUTY
SEAFOODS (via teleconference), provided a market
perspective on the legislation. He believed the most
important measure was the gauge of effectiveness. He
discussed the success of the tax credit program and pointed
to testimony related to the much improved price of fish. He
discussed that the fishing industry in Alaska needed to
determine a way to defend its gains. Currently the industry
products were facing severe market price pressure. The
pressure was distressing because maximum value should be
returned to Alaska; however, some customers were relaying
that the product price points were not sustainable. He
addressed different ways to approach the problem. For
example, the bill gave the ability to reduce the size of
the can. He noted that other industries used the strategy
when prices rose. He continued that consumers bought
packaged goods by shelf price, not by the pound as they did
a side of salmon or other commodities. He provided cereal
boxes as an example. He detailed that the tuna industry had
reduced the size of cans almost exclusively to 5 ounces;
other locations such as Australia sold tuna in 3.3 ounce
cans. He continued that it was more difficult for Alaska
fisheries due to the seasonal and remote nature of the
processing.
Mr. Sunderland continued that the reduction in can size
would enable the industry to respond to the issue of
absolute price. He stated that it was unreasonable to
expect consumers to always accept a higher price for a
product. He shared that a tall Bumblebee tuna can cost
$10.39 in a Seattle, Washington supermarket ($11.28 per
pound). He believed a can of tuna that size for the cost
would not sell easily. He stressed that without the ability
to reduce can size the company would have a severe problem
maintaining the value of its product. He discussed fishery
byproduct utilization. Currently when product was canned or
filleted much of the fish was ground and dumped for no
value.
2:59:18 PM
Mr. Sunderland communicated that value would increase by
turning the portion of the fish that was not used into
saleable product. There were some small operations running
related to fish oil; however, there was a tremendous
untapped resource. Both of the items [reduction in can size
and byproduct usage] had a significant impact on the
ability to protect gains made over the past 10 years. He
discussed the EPA's plan to change regulations related to
remote discharge of fish waste. He believed it could be
beneficial to show the EPA that the industry in Alaska was
working to eliminate waste. He summarized that the company
was facing severe market pressure to act on the items he
had discussed. He relayed that the bill would enable the
company to act on the items in ways that were responsible
to the fishermen and coastal communities of Alaska while
maintaining product value.
Co-Chair Stoltze recognized that Ocean Beauty Seafoods was
a great Alaskan company.
3:00:53 PM
Representative Edgmon thanked Mr. Sunderland for hosting a
seafood event in Juneau over recent years. He believed the
event helped to educate legislators on the commercial
fishing industry and its contributions. He asked about
value-added products including sauces, spices, and other.
Mr. Sunderland answered that there had been considerable
growth of the sauces and spices product type. Most of the
products were done by retailers under their own private
label products. He listed various retailers with their own
brand including Whole Foods, Trader Joe's, Kroger, Safeway,
and other. He added that Ocean Beauty Seafoods made many of
the products. However, plain portioned product always sold
better than flavored product. He communicated that globally
the bestselling products tended to include sauces, pasta,
or vegetables; however, the products almost universally
failed to succeed in the U.S. He noted that there had been
some successes including a pouched product from Thailand.
He pointed to more success related to flavored and sauced
frozen products.
Co-Chair Stoltze asked if the company was involved in
financially supporting a law suit involving the United Cook
Inlet Drift Association and the Cook Inlet Fishermen's
Fund. Mr. Sunderland did not believe so but would double
check.
3:04:06 PM
Vice-Chair Neuman rephrased his prior question. He pointed
to Section 5 of the legislation and wondered how the
credits were claimed each year. He observed that the
credits decreased from year to year. He thought the bill
would enable a processing facility to replace almost all of
its equipment. He mentioned the inclusion of both salmon
and herring.
TIM COTTONGIM, FISH GROUP, TAX DIVISION, DEPARTMENT OF
REVENUE, replied that the credit would allow a facility to
replace old equipment as long as the qualifications were
met.
Vice-Chair Neuman asked if the state would pay up to 50
percent of the costs or 100 percent in the first year. Mr.
Cottongim explained that 50 percent of an investment
qualified for a credit. Under the legislation the credit
was limited annually to 50 percent of the tax on salmon and
herring. The remaining credit could be carried forward
three additional years to be offset against the taxes on
salmon and herring.
Vice-Chair Neuman asked for verification that the credits
were not transferrable. Mr. Cottongim replied in the
affirmative.
3:08:03 PM
Representative Gara was supportive of the concept. He was
interested in the state's total gross tax on fish and what
the state was left with after tax credits were factored in
for the prior fiscal year. He surmised that if every
industry got to use its industry tax there would be no
funding left for education and other state services.
Co-Chair Stoltze asked for the FY 14 and FY 15 fisheries
business and fisheries resource landing taxes.
Co-Chair Austerman remarked that the Department of
Commerce, Community and Economic Development could provide
the answers.
Co-Chair Stoltze communicated that for FY 14 the fisheries
business and fisheries resource landing taxes totaled $27.4
million. He remarked that there was a better chance of
receiving revenue from tobacco taxes, insurance, and
mining; the items were substantially bigger than money
available for items mentioned by Representative Gara. He
believed there was a façade that fisheries fueled the state
treasury. He stressed that the amount was de minimis in the
state's budget. He stated that far more was spent on
commercial fisheries research; the state was funding $30
million over the next three years for salmon research. The
industry did provide jobs, but commercial fishing taxes
were not a part of the state's economic future.
3:11:12 PM
Representative Thompson referred to the bill's provision
that would enable eligible parties to replace their
freezers and equipment. He shared that he had received a
new business tax credit to purchase a $96,000 crank grinder
for his machine shop business. He was expected to profit
from the crank grinder so he could purchase one on his own
in 10 years' time. He believed profitable businesses should
have a replacement plan for aging equipment. He wondered
why the state would buy the company replacement equipment
if the business was profitable.
Mr. Cottongim replied that he did not have the expertise to
answer the question.
Co-Chair Austerman asked for verification that there were
certain criteria a business had to meet in order to replace
equipment. He pointed to a recent Ocean Beauty Seafoods
can; less than 50 percent of its new equipment had been
used to produce cans and had not met the department's
criteria. He explained that the credit did not provide a
blank check to businesses; a set of criteria existed.
ANNA KIM, TAX DIVISION, DEPARTMENT OF REVENUE, agreed.
JOHANNA BALES, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE (via teleconference), agreed with Co-Chair
Austerman's statement. She explained that the salmon
product development tax credit was for equipment that would
produce value added salmon or herring. The concept was that
the credit would enable the production of potentially new
types of products to allow Alaska's seafood industry to
compete worldwide. She noted that the credit was 50
percent; therefore businesses were required to come up with
money for the equipment as well. The intent was to make
Alaskan seafood products (specifically salmon and herring)
more marketable.
3:15:41 PM
Vice-Chair Neuman asked for verification that the credit
only applied to production of new product that was not
currently on the market. Ms. Bales answered that the credit
was directed at new products in addition to existing value-
added product. She detailed that the processing would need
to enhance the product value. Over time there had been an
increase in the price of Alaskan salmon due to the types of
activities undertaken by the seafood industry and in which
the state had offered a credit to assist.
Vice-Chair Neuman surmised that filleting or canning salmon
alone added value. Ms. Bales replied that the bill was more
specific; in order to qualify for the credit further
processing was required beyond heading or gutting a salmon.
Vice-Chair Neuman asked about the creation of a powdered
product. He asked whether a company could continue to get
credit for equipment used on an unsuccessful product. He
provided an example about deboning equipment that had
failed.
Ms. Bales answered that it would be possible; however, she
found it hard to imagine that a company would be willing to
pay 50 percent of the equipment price if there was
absolutely no market for the product.
3:18:32 PM
Vice-Chair Neuman clarified that he was referring to
unsuccessful equipment, not unsuccessful product.
Ms. Bales answered that he was correct; however, a
provision included on page 2 (lines 24 through 31) required
that a company recapture the credit. She explained that a
business would be required to repay the state if it stopped
using the new equipment; if the equipment was taken out of
service in the first year the company would have to pay
back the entire credit; if the equipment was used for two
years the company would be required to repay 75 percent of
the credit; and if the equipment was used for three years
it would be required to repay 50 percent. The company would
be required to keep the equipment in service for a minimum
of three years to receive the credit in its entirety.
Co-Chair Austerman directed attention to Section 8 of the
legislation that included a program definition. He pointed
to a list of qualified and disqualified equipment from
Department of Revenue titled "SPDC Equipment" (copy on
file).
Representative Guttenberg asked if the credits were
stackable with any other incentive or tax credit program.
Mr. Cottongim replied in the affirmative. He elaborated
that other credits could be claimed against the fisheries
business tax including education credits (e.g. Winn Brindle
scholarship).
Representative Guttenberg asked for a list of the available
credits and asked if credits were currently stackable. Mr.
Cottongim replied in the affirmative.
Ms. Bales asked for clarification on stackable.
Representative Guttenberg wondered if there were additional
tax credits that could be used for one piece of equipment.
Ms. Bales replied in the negative. She expounded that it
was not possible to use expenses for the equipment to claim
a credit in any other tax program.
HB 204 was HEARD and HELD in committee for further
consideration. [Note: This meeting was recessed at 3:30
p.m. until 9:30 a.m. on February 28, 2014; CSSSHB 204(FIN)
reported out of committee at that time. See February 28,
2014, 9:26 a.m. minutes for detail.]
3:23:13 PM
AT EASE
3:24:31 PM
RECONVENED
HOUSE BILL NO. 306
"An Act relating to tax credits and administration of
tax credit programs; requiring the Department of
Revenue to report indirect expenditures; relating to
the duties of state agencies; requiring the
legislative finance division to analyze certain
indirect expenditures; relating to lapse dates for
appropriations for capital projects; repealing certain
statutes authorizing indirect expenditures; and
providing for an effective date."
3:25:00 PM
REPRESENTATIVE STEVE THOMPSON, SPONSOR, spoke to the bill's
goal pertaining to fiscal responsibility. The bill would
create a process by which lost revenue through indirect
spending was reviewed by the legislature. The bill would
enable the legislature to make sound policy decisions on
whether certain indirect spending should continue. He read
from a prepared statement:
House Bill 306 creates the process which lost revenue
through indirect spending is reviewed by the
legislature and enables them to make sound policy
decisions on whether certain indirect spending should
continue. With our future budget declining, this
legislature must have a mechanism established that
routinely brings indirect spending under legislative
scrutiny. Indirect spending in the State of Alaska is
authorized through provisions in law that confers
preferential treatment through credits, exemptions,
deductions, deferrals, discounts, exclusions, and
differential allowances. Like direct spending,
indirect spendings are designed to encourage certain
kinds of activities for public benefit or to aid tax
payers. Unlike direct spending programs, indirect
expenditures are not itemized and do not go through
the scrutiny of any budget process that we have. An
indirect expenditure provision may continue
indefinitely without any fiscal oversight. [Discounts]
were designed to encourage benefit for taxpayers and
encourage business.
What this bill does is require that the Department of
Revenue prepare and deliver a report to include the
name of the indirect expenditure, a brief description,
statutory authority, sunset date, date of repeal if
applicable, legislative intent, public purpose,
estimated annual effect for the past five years, cost
to administer the indirect expenditure, and the number
of beneficiaries. The report would be prepared by
November 1, before the first regular session of each
new legislature.
All the department agents and agencies and public
corporations are directed to work with the Department
of Revenue commissioner to complete this information.
This requires Legislative Finance to prepare and
deliver a report to the legislature that includes the
estimate of the lost revenue from the indirect
expenditure, the estimate of the monetary benefit of
the indirect expenditure to the recipients, a
determination if legislative intent was met or not and
why the intent was not met if applicable, a
recommendation whether this indirect expenditure
should continue, and an explanation of the methodology
and the assumptions used to create the report.
Representative Thompson explained that the report would
analyze all departments, agencies, and public corporations
beginning with the FY 15 legislative two-year session and
including: Department of Fish and Game, Department of
Health and Social Services, Department of Labor and
Workforce Development, and Department of Revenue. The
legislative session beginning in 2017 would include the
Alaska Court System and the Department of Administration.
All remaining agencies would be reviewed in 2019. After
initial review, reviews would be conducted every 6 years.
The report would be delivered on the first day of the first
regular session of each new legislature. The legislature
would have two years to review the reports.
3:29:56 PM
Representative Thompson continued to read a statement.
Sunsets the following credits on the day after the
last day of the regular session of the 29th
Legislature. First up would be education tax credits,
film tax credits, veteran employment tax credits, Winn
Brindle scholarship tax credits, salmon production tax
credits, salmon utilization tax credits, CDQ tax
credits.
Representative Thompson acknowledged that many of the
credits were important and created jobs; therefore, the
vast majority of the items would most likely be renewed. He
pointed to an extensive study that compiled the list of
credit programs over the prior interim. He stated that the
bill would not place a significant burden on the Department
of Revenue. He believed it was important for the
legislature to review credits it had created years earlier
and to determine their effectiveness. Additionally, the
bill included a claw-back provision that would lapse unused
appropriations when substantial and ongoing work on capital
projects failed to begin within five years of the
appropriation; including named recipients, unincorporated
communities, and state agencies. Currently municipalities
and boroughs were the only entities required to use or
loose within five years. Entities would either be granted a
reappropriation or the funds would be returned to the
state. He thanked the committee for its time.
3:32:03 PM
Co-Chair Stoltze disclosed that he was co-sponsoring the
legislation. He discussed that the bill would address the
state's general fund expenditures. He relayed that the bill
included much more than the film industry credit. He
believed the bill reflected substantial change in the way
business was done.
Representative Thompson replied that every piece of
legislation representing an indirect expenditure to the
state had been included. He spoke to the importance of
providing equal scrutiny to all programs.
HB 306 was HEARD and HELD in committee for further
consideration.
Co-Chair Stoltze discussed his intent to recess the meeting
until the following morning.
RECESSED UNTIL 9:30 A.M. FEBRUARY 28, 2014.
3:34:12 PM