Legislature(2017 - 2018)ADAMS ROOM 519
04/09/2018 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB129 | |
| HB233 | |
| HB399 | |
| SB165 | |
| HB306 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 233 | TELECONFERENCED | |
| + | SB 165 | TELECONFERENCED | |
| + | HB 306 | TELECONFERENCED | |
| += | HB 399 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 129 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 9, 2018
2:05 p.m.
2:05:33 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 2:05 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Sylvan Robb, Deputy Commissioner, Department of
Administration; Representative Chris Tuck, Sponsor; Brandon
S. Spanos, Deputy Director, Tax Division, Department of
Revenue; Brodie Anderson, Staff, Representative Neal
Foster; Kara Moriarty, President, CEO, Alaska Oil and Gas
Association (AOGA); Senator Anna McKinnon, Sponsor; Ms.
Lori Wing-Heier, Director, Division of Insurance,
Department of Commerce, Community and Economic Development;
Kathy Ms. Lea, Chief Pension Officer, Division of
Retirement and Benefits, Department of Administration.
PRESENT VIA TELECONFERENCE
Susan Cox, Workers' Compensation Attorney, Office of the
Attorney General, Department of Law; Carol Petraborg,
Director, Administrative Services, Department of Fish and
Game; Colonel Steve Hall, Wildlife Trooper, Department of
Public Safety; Aaron Peterson, Attorney IV, Criminal Office
of Special Prosecution, Department of Law.
SUMMARY
HB 129 FISH & GAME: OFFENSES;LICENSES;PENALTIES
CSHB 129 (FIN) was REPORTED out of committee with
an "amend" recommendation and with one new zero
fiscal note from the Department of Fish and Game;
one new indeterminate fiscal note from the
Department of Administration; and one previously
published zero fiscal note: FN4 (DPS).
HB 233 EDUCATION TAX CREDITS; SUNSET; REPEALS
CSHB 233 (FIN) was REPORTED out of committee with
four "do pass" recommendations, three "no
recommendation" recommendations, and four "amend"
recommendations, and with one previously
published fiscal impact note: FN1 (REV).
HB 306 PERS/TERS DISTRIBUTIONS
HB 306 was HEARD and HELD in committee for
further consideration.
HB 399 CORP. TAX: REMOVE EXEMPTIONS/CREDITS
HB 399 was HEARD and HELD in committee for
further consideration.
SB 165 COMPREHENSIVE HEALTH INSURANCE FUND
SB 165 was REPORTED out of committee with a "do
pass" recommendation and with two previously
published fiscal notes, one zero fiscal note: FN1
(ADM); and one fiscal impact note: FN3 (CED).
Co-Chair Foster reviewed the agenda for the day. The
committee would be hearing 5 bills. He indicated that there
were so many bills on the docket it was possible that
HB 306 would be rolled to the following meeting. He
intended to move HB 129, HB 233, and SB 165 from committee.
It was also possible, if it was the will of the committee,
to move HB 399, and HB 306.
HOUSE BILL NO. 129
"An Act relating to sport fishing, hunting, or
trapping licenses, tags, or permits; relating to
penalties for certain sport fishing, hunting, and
trapping license violations; relating to restrictions
on the issuance of sport fishing, hunting, and
trapping licenses; creating violations and amending
fines and restitution for certain fish and game
offenses; creating an exemption from payment of
restitution for certain unlawful takings of big game
animals; relating to commercial fishing violations;
allowing lost federal matching funds from the Pittman
- Robertson, Dingell - Johnson/Wallop - Breaux
programs to be included in an order of restitution;
adding a definition of 'electronic form'; and
providing for an effective date."
2:07:22 PM
Co-Chair Foster relayed that the committee heard HB 129
earlier in the day. There had been a discussion on Section
3(h). The committee had worked with the Department of Law
and Legislative Legal Services to have an amendment
drafted.
Representative Wilson asked if someone from the Civil
Division was online.
2:08:17 PM
SUSAN COX, WORKERS' COMPENSATION ATTORNEY, OFFICE OF THE
ATTORNEY GENERAL, DEPARTMENT OF LAW (via teleconference),
introduced herself.
Representative Wilson had a question regarding a liability
issue in HB 129. The example given in the earlier meeting
was her being pulled over in her boat by a trooper, handing
over her phone that contained her fishing license, and the
trooper dropping the phone into the water. The bill
indicated the trooper would have no liability for the
phone. She asked if the committee was reading the section
correctly referring to the bill on page 2, line 25. She
asked if the language provided immunity.
Ms. Cox responded that the language in the bill would
provide immunity from any liability regarding damage to the
devise which would include dropping it in the water.
Representative Wilson thought there should be some
responsibility on the part of the trooper. If someone had
their fishing license and hadn't broken the law, she
wondered if there was a way to take care of the issue.
Ms. Cox responded that the way the bill was written, it
provided immunity precluding any lawsuit. The language
could be changed to eliminate the immunity leaving a
possibility open. She understood there was an amendment
that had been drafted to prove an exception to the immunity
for intentional misconduct on the part of a peace officer.
Representative Wilson would wait to further address the
issue until the amendments were brought up.
Representative Grenn MOVED to ADOPT Amendment 1, 30-
GH1687\J.1 (Bullard, 4/2/18) (copy on file):
Page 2, line 27, through page 3, line 5:
Delete all material.
Renumber the following bill sections accordingly.
Representative Wilson OBJECTED for discussion.
Representative Grenn explained that the amendment deleted
material that was added by the House Judiciary Committee
regarding the verification of low income licensees - people
who were looking to get the low-income price for their
sport fishing license or hunting license. Initially, he
thought the amendment was a good addition. However, in
talking with the Department of Fish and Game (DFG), the
department would need to hire short-term non-permanent
staff to cover the peak season from June to September.
Since the department had already purchased their paper
license stock, they would have to buy and print new stock
costing the state an additional $31,000. Additionally, they
would have to enhance their computer system in the amount
of $8,000. He referred to the fiscal note with component
number 479. He thought Ms. Petraborg could provide
verification. Fraud had not been a problem in the past when
using these types of licenses. In talking with the
department, he reported they were not entirely sure that
external vendors like Walmart or Sportsman's Warehouse
would be able to sell low-income licenses due to their
inability to verify income levels. He thought the addition
in the House Judiciary Committee grew government too large
and increased the fiscal note for the bill. He opined the
state could do better without it.
Representative Kawasaki referred to page 2, line 27. He
wondered about the deletion of material. He asked if the
current costs for resident hunting, trapping, and
sportfishing licenses were deleted. Representative Grenn
responded that it ended on page 3, line 5.
2:13:30 PM
Representative Kawasaki relayed that starting on page 2,
line 28 it showed the resident hunting, trapping, and
fishing sport license fee at $75. Following the fee, the
bill talked about how a person could obtain a lower-income
license on page 2, line 29. It also outlined that proof of
eligibility was required. He suggested that by deleting the
section, it would also delete residential hunting,
trapping, and sport fishing licenses and the ability to
have a lower-income fee.
Representative Pruitt commented that the language that was
contained was already part of statute. He indicated that
only the highlighted portions on page 2 reflected the
changes made in the House Judiciary Committee. He suggested
that by deleting it, the committee would be deleting those
changes. The committee would not be deleting the statute
that currently existed. He pointed to Section 4 where it
stated that AS 16.05.034(a)(6) was amended to read. It
meant that the current statute was "X" and it was being
amended with the black line. Representative Grenn thought
it reverted back to current statute.
Representative Wilson was unsure how to get a low-income
license. She wondered if someone had to apply in person to
DFG. Representative Grenn deferred to Ms. Petraborg.
2:15:12 PM
CAROL PETRABORG, DIRECTOR, ADMINISTRATIVE SERVICES,
DEPARTMENT OF FISH AND GAME (via teleconference), responded
that currently, the low-income licenses could be purchased
at any DFG vendor. There was an affidavit on the back of
the license where the licensee signed verifying that they
met the low-income requirements. If the changes in the
amendment were adopted, then the vendors would no longer be
able to issue licenses. It would move all of the traffic to
DFG where the department would have to verify the low-
income limits just like the department did with the
permanent identification cards. It could deter people from
purchasing a license. It would certainly slow down the
process, and there would be associated costs.
Representative Wilson asked about signing an affidavit. Ms.
Petraborg responded that the department did not typically
verify the information. However, they could be asked to
present the documentation by a trooper in the field.
Historically, the department had not seen gross negligence
in the issuance of such licenses. There were approximately
18,000 licenses sold each year.
Representative Wilson asked if a person would have to carry
proof of income with them while fishing. Ms. Petraborg
replied that the troopers might ask such questions. She was
unclear about a timeframe when the information would have
to be presented. She did not believe the person would have
to have low-income verification on their person.
Representative Wilson asked someone from DFG to review the
process. She was fairly certain troopers would not be
asking income questions in the field. She did not have to
have an explanation in the current meeting.
Vice-Chair Gara wondered about the meaning of "Delete all
material." He thought that all that would be deleted were
the changes. He asked Representative Grenn to triple check
the issue before the bill was heard on the floor.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment 1 was ADOPTED.
Representative Gara MOVED to ADOPT Amendment 2, 30-
GH1687\J.3 (Bullard, 4/4/18) (copy on file):
Page 2, line 21:
Delete "30"
Insert "90"
Representative Wilson OBJECTED for discussion.
Vice-Chair Gara MOVED to AMEND Amendment 2.
Representative Wilson OBJECTED.
Vice-Chair Gara spoke to his amendment to Amendment 2.
Page 2, line 20:
Delete "in"
Insert "to"
2:20:31 PM
AT EASE
2:20:48 PM
RECONVENED
Vice-Chair Gara noticed when reviewing the bill, in order
to not be convicted, a person would have to present proof
in the office. A person might live in a community without
an office. He was hoping the person could send the
information to an office. The purpose of the amendment was
to also be able to send the proof to an office rather than
having to get on an airplane to travel to an office.
Representative Wilson asked if the committee could hear
from the department.
Co-Chair Foster asked if Ms. Petraborg was available.
2:22:15 PM
COLONEL STEVE HALL, WILDLIFE TROOPER, DEPARTMENT OF PUBLIC
SAFETY (via teleconference), reported that the change from
"in" to "to" on line 20 would satisfy Vice-Chair Gara's
intent. It was essentially what happened presently.
Representative Wilson asked if someone would be able to
send the information to any office to show proof of a
license on the date that they did not have their
verification with them.
Colonel Hall responded that it would allow them to send the
information to an office of the arresting agency such as an
office of the Alaska Wildlife State Troopers.
Representative Wilson had hoped the answer would be, "yes."
Colonel Hall responded that it was essentially a "yes"
answer, however, the difference between the DFG and the
Alaska Wildlife Troopers had to do with transfer of
information. The transfer of information would have to go
to an office of the arresting agency based on the rest of
the sentence.
Representative Wilson WITHDREW her OBJECTION to Conceptual
Amendment 1 to Amendment 2.
There being NO OBJECTION, it was so ordered. Conceptual
Amendment 1 to Amendment 2 was ADOPTED.
Vice-Chair Gara presented closing comments for Amendment 2.
He suggested that 90 days was a reasonable amount of time
to present information.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment 2 as amended was
ADOPTED.
Representative Pruitt MOVED to ADOPT Amendment 3 (copy on
file):
Page 2, line 26:
Delete "any"
Following "devise":
Insert, "except that a piece officer may be
liable for civil damages that are the result of
the peace officer's intentional misconduct"
Representative Kawasaki OBJECTED for discussion.
Representative Pruitt explained that the amendment would
not provide complete and total immunity in a case where
there was misconduct. He asked the colonel whether a peace
officer would take physical hold of an electronic devise
displaying a person's license. He asked the colonel to
distinguish between the point of viewing a license versus a
point of search. He provided a hypothetical scenario.
Colonel Hall replied that a sequence of events could be
that an individual holds up their device to show their
license to a trooper keeping it in their hands. It might be
that an individual handed the device to a trooper to view
the screen. Depending on the size, the picture might have
to be expanded. The circumstance could occur either way
where it was in the trooper's hand or the owner's hand. He
deferred to the Department of Law.
2:28:22 PM
AARON PETERSON, ATTORNEY IV, CRIMINAL OFFICE OF SPECIAL
PROSECUTION, DEPARTMENT OF LAW (via teleconference),
replied that in a scenario where a trooper was holding
someone's devise to view a license and a text came through
saying that a person took way over limit and the trooper
happened to know that person was down river, the trooper
could use the text as information to initiate proceedings
against the person that sent the text. It was akin to a
plain view search. It would be different if a trooper were
to go into the text messages without authorization. If
someone was worried that their friends were going to start
texting, they could put the phone in airplane mode or take
whatever remedial measures that might be necessary.
Representative Pruitt asked whether it was typical practice
for an office to take a device into their hands or to allow
the owner to hold the device for them.
Mr. Peterson responded that it depended on how DFG
developed the electronic license. Currently, there was no
electronic license, therefore, there was nothing to give to
a trooper. He could not speak from past experience what had
happened. A picture of a license was not technically a
legal license. He reported there had been several proposals
talked about in the bill and in committee. One of the ideas
was to have a QR code that popped on a person's phone that
then the troopers or just a picture of a license.
Everything in between the two ideas have been discussed. It
would really depend on what was developed such as an
application. He spoke about limited or no bandwidth being a
challenge.
Representative Pruitt surmised that not enough was known
yet. He thought the amendment did not do everything he
needed but was better than what was currently in the bill.
At least if there was some intentional misconduct, the
owner of the device would have some sort of recourse. He
asked members to support his amendment.
2:32:38 PM
Representative Kawasaki WITHDREW his OBJECTION.
There being NO OBJECTION, it was so ordered. Amendment 3
was ADOPTED.
Vice-Chair Gara reviewed the fiscal notes for HB 129. He
began with an indeterminate fiscal note, OMB Component
3134, from the Department of Administration (DOA). The
appropriation was Shared Services of Alaska and the
allocation was accounting. There was a slight change in
fines and restitution. The Department of Administration had
a roll in receiving the fines. The fiscal note was
indeterminate because people had never really kept track of
small amounts of money in the past.
Representative Wilson understood that no one kept track,
but she relayed that the indeterminate portion was in the
operating expenditure rather than the fund source. She did
not believe the bill changed such that the department would
be adding any positions or needing any extra money. She
could understand if the indeterminate portion was part of
revenue without any extra revenue.
Vice-Chair Gara responded that Representative Wilson was
correct. The explanation had to do with a change in
revenue. However, the fiscal note had to do with a change
in costs. He agreed it was correct to ask why, because it
was not explained in the fiscal note. He wanted to hear
from DOA.
2:35:03 PM
SYLVAN ROBB, DEPUTY COMMISSIONER, DEPARTMENT OF
ADMINISTRATION, explained that the fiscal note was
indeterminate because the role that Shared Services played
in the bill was that when fines and fees were assessed by
the court and not collected, they were transferred to
Shared Services of Alaska, which did debt collection for
the State of Alaska. Currently, all of the fines and fees
came over in the aggregate. The department did not track
which ones came from DFG or other departments where people
might accrue a debt to the State of Alaska. The department
had no way of knowing what percentage was from DFG,
therefore, she did not know what the increase might be as
the result of the bill.
Representative Wilson asked if it was possible DOA would
have to hire additional positions in 2020. She wondered if
the department saw any of the revenue. Ms. Robb responded
that debt to the State of Alaska that was collected was
returned to the general fund. The funds did not go to the
division or to the department that was owed. In the case of
the fiscal note, the fines and fees assessed by the court
system did not go to DFG.
Representative Wilson wondered if DOA would have to make a
budget request for additional people in the future. Ms.
Robb responded that they currently used a vendor to collect
debts. They operated on a fee basis. If they needed to hire
additional positions to collect the additional debts, there
would be no costs to the state. They took a portion of
whatever debt was collected.
Representative Wilson suggested that if a vendor was being
used, then the number would not be indeterminate. If the
vendor was basing it on fees there would not be any cost to
DOA. She thought that was what Ms. Robb had just stated.
Ms. Robb replied that DOA did not know what the impact
would be since she did not know the impact of the bill. Her
understanding was that the idea behind the increase in
fines was to deter people from breaking DFG's rules. There
were several unknowns in terms of what the impact might be.
Representative Wilson wondered how a vendor would be
impacted if the state was utilizing a vendor and the vendor
was charging a fee. She would do more research.
Vice-Chair Gara indicated that if the bill passed, no money
would be put into the budget, whether the fiscal note was
indeterminate or zero. He thought the fiscal note was
okay.it sounded like there would be no change in operating
costs for DOA. However, there might be a change in the
revenue received. He suggested Ms. Robb took a look at the
fiscal note when the bill moved along. He thought the
indeterminate portion needed to be in the revenue part
rather than the operating part.
Ms. Robb replied that the department would be happy to
reexamine the fiscal note.
Vice-Chair Gara moved to fiscal note, OMB Component 479,
from DFG. The appropriation was for Statewide Support
Services and the allocation was for administrative
services. He thought the fiscal note might be amended based
on the amendment from Representative Grenn. It had to do
with the administration of the low-income license fees. He
thought there might be a new fiscal note that followed the
bill.
Vice-Chair Gara reviewed fiscal note 4, OMB Component 2746,
a zero fiscal note from the Department of Public Safety
(DPS). The appropriation was for the Alaska State Troopers
and the allocation was for the Alaska Wildlife Troopers.
Vice-Chair Gara reviewed the last fiscal note, OMB
component 2175, from DPS. The appropriation was for
Statewide Support Services, and the allocation was for the
Commissioner's Office. The note had a zero fiscal impact.
2:40:04 PM
Representative Tilton referred to page 6 of the bill which
indicated an inflation proofing measure every 5 years. She
did not see this noted in any of the fiscal notes. In a
previous bill the finance committee heard there was a cost
for inflation proofing in a fiscal note. She did not see a
cost for inflation proofing in the current bill. She
wondered if the cost was being absorbed.
Vice-Chair Gara asked if Ms. Petraborg could look into
Representative Tilton's point of whether fines could be
changed over time. He wondered whether there needed to be
any statement in the DGF fiscal note about revenue in later
years. Ms. Petraborg responded that they were all criminal
in nature. Therefore, none of the funds would go to DFG.
Rather, the funds would go into the general fund.
Vice-Chair Gara asked Representative Tilton to restate her
question. Representative Tilton relayed that on page 6 of
the bill it stated that beginning on July 2023 and every 5
years thereafter, the department recalculated and updated
by regulation the restitution amounts provided. Inflation
proofing occurred every 5 years. In a previous bill heard
by the committee, there was a cost to inflation proofing.
She wondered if such a cost would be shown on the fiscal
notes.
Mr. Peterson responded that he did not have any information
about the fiscal note or about what it would cost to adjust
for inflation. It was his understanding that there was a
method established in SB 91 [Legislation passed in 2016 -
Short Title: OMNIBUS CRIM LAW & PROCEDURE; CORRECTIONS] for
crimes that involved a financial threshold. He presumed the
same sort of method would be utilized.
2:42:39 PM
AT EASE
2:43:07 PM
RECONVENED
Co-Chair Foster directed his staff to contact the creators
of the fiscal notes to see if an adjustment could be made.
Representative Wilson did not want it added to the fiscal
note. However, she suggested that his staff might want to
talk to the Department of Labor and Workforce Development
(DLWD). What she had seen in some of the fiscal notes was
that the department had already had done some of the work
regarding inflation. It was a mathematical computation and
would not take extra money. She did not want to encourage
another fiscal note.
Co-Chair Seaton MOVED to report CSHB 129 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal notes.
There being NO OBJECTION, it was so ordered.
CSHB 129 (FIN) was REPORTED out of committee with an
"amend" recommendation and with one new zero fiscal note
from DFG; one new indeterminate fiscal note from the DOA;
and one previously published zero fiscal note: FN4 (DPS).
2:45:22 PM
AT EASE
2:45:26 PM
RECONVENED
HOUSE BILL NO. 233
"An Act relating to the insurance tax education
credit, the income tax education credit, the oil or
gas producer education credit, the property tax
education credit, the mining business education
credit, the fisheries business education credit, and
the fisheries resource landing tax education credit;
providing for an effective date by repealing the
effective dates of secs. 3, 5, 7, 10, 14, 16, 18, 21,
23, 25, 28, 30, 32, 35, 37, 39, 42, 44, 46, 49, 51,
53, and 55, ch. 92, SLA 2010, sec. 14, ch. 7, FSSLA
2011, secs. 15, 17, 19, 21, 23, and 25, ch. 74, SLA
2012, sec. 49, ch. 14, SLA 2014, secs. 37, 40, 43, and
46, ch. 15, SLA 2014, and secs. 26 and 31, ch. 61, SLA
2014; providing for an effective date by amending the
effective date of secs. 1, 2, and 21, ch. 61, SLA
2014; and providing for an effective date."
Co-Chair Foster relayed that the committee had last heard
HB 233 on March 27, 2018. At the hearing the committee had
an introduction of the bill and closed public testimony.
The committee had 2 amendments for the bill. He called
Representative Tuck and his aide, Kendra Kloster, to the
table. He provided the opportunity for the bill sponsor to
make comments.
2:46:01 PM
REPRESENTATIVE CHRIS TUCK, SPONSOR, introduced himself. He
explained that originally, when he was looking at extending
education tax credits, he was aware there were several
statutes involved. He had thought about ways to make
improvements and to make things cleaner when considering
introducing the legislation. He continued that because of
the time restrictions and the expiration date approaching,
he decided to make it a clean bill only extending it. He
might try to work on other items at a future date.
Co-Chair Seaton MOVED to ADOPT Amendment 1 30-LS0152\O.1
(Nauman, 3/28/18) (copy on file).
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton thought the amendment brought up an issue
that needed to be discussed in detail. There was a
situation where after the first $100,000 the state was
giving a 100 percent tax credit for the following $200,000.
It was essentially allowing someone that wanted to donate
not to donate at all. It would direct the taxes they would
pay to the state to one of the approved groups by doing it
without any additional money coming from an organization or
tax payer. The amendment was structured at the 50 percent
tax credit and would stay the same across the entire $5
million range. He was aware that a significant amount of
discussion would be necessary. He thought the topic was
very important, especially because of the state's current
fiscal situation. He wanted to encourage contribution to
educational institutions. The question was how much the
state wanted to put into the tax payer's hands without any
additional skin in the game. He thought the issue was
definitely something to look at and discuss. He did not
think it was currently the appropriate time. He thought the
issue should be dealt with in a separate bill.
Co-Chair Seaton WITHDREW Amendment 1.
Co-Chair Seaton MOVED to ADOPT Amendment 2 30-LS0152\O.5
(Nauman, 3/29/18) (copy on file).
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton moved Conceptual Amendment 1 to Amendment
2:
In line 2 of the amendment insert the words "as they"
after "delete" and before "appear"
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton explained that when Legislative Legal
Services drafted the amendment, they did not take out all
of the words that needed to be removed.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, it was so ordered. Conceptual
Amendment 1 to Amendment 2 was ADOPTED.
Co-Chair Seaton explained Amendment 2. The amendment was
eliminating one of the criteria for a tax credit for cash
contributions; an annual intercollegiate sports tournament.
The item occurs in several places with several different
taxes. The words being deleted would be "or an annual
intercollegiate sports tournament."
Representative Kawasaki commented on the way the amendment
read. He was wondering if the word "by" should be replaced
with "of" [Line 19 of the amendment].
2:52:11 PM
AT EASE
2:53:25 PM
RECONVENED
Co-Chair Foster invited Mr. Spanos to comment.
2:53:39 PM
BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION,
DEPARTMENT OF REVENUE, responded that the "by" was
referring back to subsection (a) where it read "for
contributions accepted." It would be "by the non-profit,
public or private, Alaska two-year or four-year college."
It was not referring back to the facility, but the funds
that were received by the organization.
Representative Grenn assumed that the item was in reference
to the Great Alaska Shootout which no longer existed. He
asked if there were other annual intercollegiate sports
tournaments that had received funds through this particular
tax credit. Mr. Spanos responded that he was not aware of
any. Representative Grenn relayed that he was looking for
any unintended consequences of the removal.
Representative Pruitt asked about other sports that might
potentially put on a tournament. With adopting this
amendment there would no longer be the ability for people
to utilize the tax credit to support other potential
tournaments. He noted a number of sports that might have a
tournament in the future. Mr. Spanos indicated, based on
the plain language, that was how he would interpret it.
Representative Pruitt suggested that if Alaska was to host
a regional final, donors would not be able to utilize the
education tax credit. Mr. Spanos replied that a corporation
would no longer be able to receive a tax credit.
Representative Pruitt did not see harm in leaving the
credit available. He did not believe getting rid of it was
needed.
Co-Chair Seaton clarified that the tax credit was meant for
an annual event rather than a onetime credit. He argued
that the tax credit should be concentrated on pre-K, K-12,
and University education. It was not a sports credit.
2:57:48 PM
Representative Pruitt MOVED Conceptual Amendment 2 to
Amendment 2.
Delete only the word "annual"
Representative Kawasaki OBJECTED.
Representative Pruitt explained his amendment to the
amendment. He believed that sports were a part of
education. He suggested that the National Collegiate
Athletic Association (NCAA) consistently promoted that
their athletes did very well in school and moved on to
become very successful. He spoke of Olympic athletes and
the discipline they learned and applied in many areas of
their lives. He felt that sports were important, and it
would be an opportunity for people to support an event
where they showcased student athletes.
Vice-Chair Gara spoke to his objection. He suggested that
with this tax credit the legislature did not get to direct
where the funds went. The state gave up $6.8 million in
revenue per year. He understood the benefits but did not
believe they had been sorted out. For example, if a person
donated to any collegiate sports event at the university,
they could donate through the non-profit which was tax
deductible at the federal level already. A person was
likely receiving a 25 percent tax deduction, which was
similar to a credit of their federal taxes. Certainly, the
university could go to Exxon or GCI and request a donation.
He was unsure if a state tax credit on top of a federal tax
credit made much of a difference. He agreed with Co-Chair
Seaton that the bill got amended when the state had a huge
amount of money. Currently, the state had a deficit of
roughly $2.5 billion. He would rather rely on a federal tax
bonus that a donor received by being able to deduct the
costs from their federal taxes. He noted the importance of
ranking things. He was not willing to forego state revenue.
Representative Guttenberg objected to the amendment. He
thought there were many bragging rights that accompanied
sponsorship. Corporations and individuals participated for
a variety of reasons. He thought the cream of having an
additional tax deduction was beyond the pale.
3:02:55 PM
Representative Thompson asked for Representative Pruitt to
repeat the conceptual amendment. Co-Chair Foster responded
that the amendment to the amendment removed the annual part
of the language.
Representative Pruitt explained that the conceptual
amendment would leave the language "or an intercollegiate
sports tournament" in the various places in the bill. The
only portion being removed was the word, "annual." He
thought the first two lines would have to be removed. It
would allow for donations to a collegiate tournament like
the Great Alaska Shootout.
Representative Thompson thought that even if the word
"annual" was left in, the bill was still being altered, He
spoke of several intercollegiate tournaments. He thought it
would be beneficial to the state if there could be more
intercollegiate tournaments and suggested the amendment
might clarify things. Representative Pruitt's intent was
that even something that was held annually but not in
Alaska would be able to participate in the tax credit.
Co-Chair Seaton indicated that the amendment was broadening
the tax deductions and making it so that more general fund
revenue could be diverted from being received in the
general fund. The donor could receive a 100 percent tax
credit with donations between $100,000 - $300,000. It would
be diverting money that otherwise would go into the general
fund. He did not believe the state was in a fiscal
situation to be broadening tax credits. He opposed the
conceptual amendment. It not only gutted the restrictions
but expanded where tax credits applied.
Representative Wilson suggested that by taking the word
"annual" out, it would mean that the committee would be
deleting "or an intercollegiate sports tournament". The
word annual would be left in the bill. She did not believe
that was the intent of the maker of the amendment.
3:07:36 PM
Representative Pruitt explained that in the conceptual
amendment the brackets were placed around the word
"annual", rather than where they were currently in the
amendment. Representative Wilson commented that the
amendment made more sense.
Representative Kawasaki cautioned that the conceptual
amendment would broaden the tax credit. He was unaware of
the fiscal impact but thought it could be high. He would be
opposing it.
Representative Kawasaki MAINTAINED his OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Pruitt, Thompson, Tilton, Grenn
OPPOSED: Wilson, Gara, Guttenberg, Kawasaki, Ortiz,
Foster, Seaton
The MOTION to adopt Conceptual Amendment 2 to Amendment 2
FAILED (4/7).
Representative Pruitt did not have a problem with an event
such as the Great Alaska Shootout or the Top of the World
Classic tournament returning. He did not see a problem with
leaving the language in the bill. He thought it would be
great to have the credit available. He continued to speak
in favor of leaving the language in statute.
3:11:17 PM
Representative Thompson commented that the Great Alaska
Shootout and the Top of the World Classic tournament had
millions of dollars' worth of impact on communities. He
thought the option should remain open for future
utilization.
Vice-Chair Gara was a big supporter of the Great Alaska
Shootout and the Top of the World Classic tournaments.
Businesses could still be approached with the incentive of
a 25 percent tax deduction off their federal corporate
taxes if they contributed. He posed the questions whether
the tax credit really did anything and whether the state
could afford it. He wondered about where the issue fell on
everyone's priority list. He did not believe it was a
priority. He appreciated the efforts of the American
Legion. They had been working diligently to bring
tournaments back.
Representative Wilson WITHDREW her OBJECTION.
Representative Pruitt OBJECTED.
Representative Pruitt reiterated that there was no harm in
leaving the language in place. He thought it was a means of
encouragement and celebration. He did not think the state
was losing anything, as there were currently no
tournaments.
A roll call vote was taken on the motion.
IN FAVOR: Wilson, Gara, Guttenberg, Kawasaki, Seaton,
Foster
OPPOSED: Pruitt, Thompson, Tilton, Grenn, Ortiz
The MOTION to adopt Amendment 2 as amended PASSED (6/5).
Vice-Chair Gara reported that the fiscal note continued the
estimated cost in lost revenue for the tax credits. He
relayed that for half of FY 19, by continuing, lost revenue
would be $3.42 million. In the out years it was estimated
to continue at its current level, $6.84 million per year,
of tax credits the state did not receive in revenue.
Co-Chair Foster asked if the bill sponsor had any closing
comments. Representative Tuck remarked that there had been
a good dialog and thanked the committee.
Co-Chair Seaton MOVED to report CSHB 233 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal note.
Representative Wilson OBJECTED for discussion.
Representative Wilson asked whether there would be a
forthcoming fiscal note or a previously published fiscal
note. Co-Chair Seaton responded that it was a previously
published fiscal note.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, it was so ordered.
CSHB 233 (FIN) was REPORTED out of committee with four "do
pass" recommendations, three "no recommendation"
recommendations, and four "amend" recommendations, and with
one previously published fiscal impact note: FN1 (REV).
3:16:58 PM
AT EASE
3:18:24 PM
RECONVENED
HOUSE BILL NO. 399
"An Act disallowing a federal tax credit as a credit
against the corporate net income tax; repealing a
provision allowing the exclusion of certain royalties
accrued or received from foreign corporations for
purposes of the corporate net income tax; repealing
the reduced rate for the alternative tax on capital
gains for corporations; repealing an exemption from
filing a return under the corporate net income tax for
a corporation engaged in a contract under the Alaska
Stranded Gas Development Act; and providing for an
effective date."
3:18:43 PM
Co-Chair Foster invited his staff to the table to begin his
presentation.
BRODIE ANDERSON, STAFF, REPRESENTATIVE NEAL FOSTER,
explained that the opening remarks would be similar to a
piece of legislation that was heard in House Finance in the
previous week. Mr. Anderson read from a prepared statement:
HB 399 is a result of work done over the last few
years with various legislators to address foregone
revenue and to provide the state with the ability to
potentially capture new revenue.
Starting in 2014, the legislation was passed that
required both the Department of Revenue (DOR) and
Legislative Finance to create a report on indirect
expenditures in the amount of foregone revenue not
captured by the state. The first indirect expenditure
report was submitted in 2015. In that report, it
identified a list of indirect expenditures within DOR
that should be terminated.
Last year during the FY 18 budget process, House
Finance Subcommittee for the Department of Revenue
reviewed those indirect expenditures and recommended
the House Finance Committee offer legislation that
eliminates these indirect expenditures.
HB 399 repeals certain credits and exemptions from the
recommendations offered both in the indirect
expenditure and the subcommittee. The indirect
expenditures repealed in HB 399 were selected for the
following reasons: The indirect expenditures did not
meet legislative intent, had limited benefit or wasn't
used, or the purpose of conformity has change since
the credit, or exemptions were created.
House Finance Committee, House Bill 399 repeals the
following indirect expenditures:
• Federal Tax Credits - Currently tax payers can
claim 18 percent of all federal credits against
their corporate income tax regardless of where
the credits were earned. The Department of
Revenue provided an example of a housing credit
that would be eligible to be earned in New York
to be claimed against Alaska's tax liability for
that corporation here.
• Foreign Royalty Exclusions - Currently, tax
payers can hold 80 percent of their foreign
royalty payments against their corporate tax
liability.
• Reduced Rate for Capital Gains - Under Alaska
statutes, Alaska corporate tax payers have a
reduced rate of 4.5 percent on their capital
gains profits. With this repeal capital gains
would be treated like all other profits. In 1986,
the federal government removed their recognition
of a reduced rate for capital gains and then more
recently, through the Trump Administration tax
reform, they went ahead and cleaned up the
language repealing the complete capital gains
section within the federal URC.
• Credit associated with the Stranded Gas Act -
This credit was never utilized to encourage
development under the Stranded Gas Act.
The combined total of potential new revenue is
estimated to be $6.9 million according to the fiscal
note in front of the committee.
3:23:43 PM
Mr. Anderson read the sectional analysis:
Section 1
Statute: AS 43.20.021 (a)
Change: Amends current section
Purpose or Effect: Conforming language, removes the
list of federal credits as eligible items against
Alaska corporate income tax liability.
Indirect Expenditure Item: Federal Credits
Section 2
Statute: AS 43.20.145 (c)
Change: Amends current section
Purpose or Effect: Conforming language for "Affiliated
Groups", removing the reference to the subsection on
foreign royalty payments as eligible Alaska corporate
income tax liability.
Indirect Expenditure Item: Foreign Royalty Exemption
Section 3
Statute: AS 43.20.145 (d)
Change: Amends current section
Purpose or Effect: Conforming language for "Affiliated
Groups", removing the reference to subsection on
foreign royalty payments as eligible Alaska corporate
Income tax liability.
Indirect Expenditure Item: Foreign Royalty Exemption
Section 4
Statute: Repealer Section
Change: Repeals statutes
Purpose or Effect:
AS 43.20.021 (c)
Repeals the reduced rate for capital gains income.
Indirect Expenditure Item: Capital Gains
AS 43.20.21 (d)
Repeals the eligibility of federal credits for Alaska
corporate income tax liability.
Indirect Expenditure Item: Federal Credits
AS 43.20.036 (a) -
Repeals the eligibility of federal foreign tax credit
for Alaska corporate income tax liability.
Indirect Expenditure Item: Federal Credits
AS. 43.20.036 (b)
Repeals the eligibility of federal investment credit
for Alaska corporate income tax liability.
Indirect Expenditure Item: Federal Credits
AS 43.20.042
Repeals the eligibility of federal special industrial
incentive investment credit for Alaska corporate
income tax liability.
Indirect Expenditure Item: Stranded Gas Act Exclusion
AS 43.20.144 (g)
Repeals the exemption for Alaska Corporate tax
liability
for entities participating in contracts related to the
Stranded Gas Act.
Indirect Expenditure Item: Foreign Royalty Exclusion
AS 43.20.145 (b)(3)
Repeals the foreign royalty exclusion.
Indirect Expenditure Item: Stranded Gas Act Exclusion
AS 43.20.145 (g)
Repeals the Stranded Gas Act exclusion.
Indirect Expenditure Item:
Section 5
Statute: Uncodified Law
Purpose or Effect: Applicability Sections 1, 2, 3, and
portions of Section 4 as stated are subject to the
effective date.
Section 6
Statute: Uncodified Law
Change: Adds new section
Purpose or Effect: Transition: Regulations
Effective Date is January 1, 2019
Co-Chair Foster invited Mr. Spanos to the table for
questions.
Representative Wilson asked if the Capital gains being
discussed had to do with Alaskan projects.
BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION,
DEPARTMENT OF REVENUE, clarified that the capital gains
rate would apply to any capital gain under the federal
code. He added that when the language was originally
drafted there was a capital gains rate in the federal code.
The federal tax reform of 2017 removed it. It was the
Department of Revenue's position was that the bill was a
clean-up bill. Because the capital gains rate no longer
existed at the federal level, it no longer existed at the
state level. The state statute pointed to the statute that
was now gone. It was for any long-term capital gain a
corporation had.
Representative Kawasaki asked if it was possible to get an
idea of how many tax payers there were in each of the
different groups. He suspected the division would not be
able to release names because of confidential tax payer
information. Mr. Anderson responded in the affirmative. He
referred the committee to a letter in the back up materials
from the DOR. He relayed that for the reduced tax rate on
capital gains in 2015, the state had 195 recipients
equaling about $3.3 million of impacted revenue.
Representative Kawasaki found the handout with the
information.
3:27:14 PM
Co-Chair Foster OPENED public testimony.
KARA MORIARTY, PRESIDENT, CEO, ALASKA OIL AND GAS
ASSOCIATION (AOGA), read from a prepared statement:
Co-Chair Foster, Co-Chair Seaton, Members of the
Committee:
For the record, my name is Kara Moriarty and I'm the
President/CEO of the Alaska Oil and Gas Association,
commonly known as "AOGA." AOGA is a professional trade
association for the oil and gas industry and I thank
you for the opportunity to discuss the reasons of our
opposition to House Bill 399. Although I am here on
behalf of a diverse group of companies, my testimony
today represents the thoughts and sentiments of each
member, which was approved by unanimous consent.
As I mentioned, I did email the committee more
detailed comments for the record, but in the interest
of time I wanted to summarize our position and
concerns with this bill.
This bill makes several changes to how tax payers
compute Alaska corporate income tax. One of the major
changes is in Section 1 which is categorically
repealing a long list of federal tax credits to keep
them from being used and determining Alaska tax. In
the larger document I included the full list of these
credits in the written testimony.
A number of these federal tax credits do seem unlikely
ever to be used by a company doing business in Alaska.
They could stop being adopted by reference for purpose
of Alaska's income tax without impacting any tax
payers. Yet, except for the historically based
credits, like those for Hurricanes Katrina, Rita, and
Wilma, which were very time specific because they all
occurred in 2005, why should and why would Alaska
preemptively disallow credits for activities simply
because those activities don't occur here yet (almost
similar to the conversation you were having on the
previous bill about sporting tournaments). So why not
leave the door open to credits for bringing new
activities to Alaska. If there proves to be a problem
with the federal credit for Alaskan purposes, then it
could be dealt with at the specific time.
It seems far more appropriate and prudent to my
members to consider the merits of these credits
individually since a good number of them do seem to
reflect sound tax policy for Alaska's purposes. A
couple of examples: Why would you want to exclude the
credit under Internal Revenue Code, Section 45(a), for
employing Alaska Natives to be disallowed. We think
it's good policy for the state to encourage the hiring
of Alaska Natives? Similarly, why should the credit
under Internal Revenue Code, Section 45(p), be
disallowed for Alaskan employers who make up the wage
difference for employees on active duty in military
service? Certainly, I used to be very involved with
the employer support of the Guard and Reserve. We know
we have a lot of people in Alaska who serve in the
National Guard and similar services. Why should
Alaskan small employers providing health insurance for
their employees not get a tax credit for those costs
under Internal Revenue Code, Section 45(r). Again, the
majority of businesses in Alaska are small.
Coming to our own industry, why should the enhanced
oil recovery, or the EOR credit under Internal Revenue
Code, Section 43(a) be disallowed for our corporate
income tax under Alaska Statute 43.20. Surely getting
more oil out of Alaska's aging fields is a good thing.
It's essential for our future, for the industry, and
both for the state.
Specifically, on the EOR credit, it is different than
most of the credits in our current tax system and it's
different in two important ways. First, the credits
that have been most talked about recently in Alaska's
tax code were primarily credits against the production
tax. While HB 399 deals generically with federal tax
credits that Alaska adopted many years ago for the
corporate income tax under AS 43.20.
3:32:13 PM
Ms. Moriarty continued reading from a statement:
Second, and more fundamentally, oil companies' taxable
income is based on their worldwide net income and part
of that net income is apportioned to the Alaskan part
of the business on the basis of the percentages of
their worldwide production, worldwide sales, and
worldwide property at original cost that are in
Alaska.
This means an oil company could actually be losing
money in its Alaska business but still have sufficient
profits elsewhere to have a positive net income
overall of which a part would be apportioned to the
Alaska business on the basis of these percentages and
taxes.
All of this brings us to a second major point overall
with this bill. Just last year HB 111 created the
legislature's oil and gad fiscal system working group,
a bicameral, bipartisan working group to analyze the
state's oil and gas fiscal regime. The working group
to-date, has only met twice since HB 111 was passed
last session and both meetings were more
organizational in nature and they have not yet
considered major policy issues, much less ever
discussed how to change the present fiscal regime. We
would encourage you to think about putting this bill
aside and allowing the legislative working group to do
its work including considering changes to the
corporate income tax.
On the remaining sections of the bill there is a
serious constitutional issue with the language of
Alaska Statute 43.20.145 that HB 399 does not yet
address, which is the definition of "affiliated
group." Again, the written testimony goes into much
more detail on this point. But, if HB 399 is going to
be amending this section of statute AS 43.20.145 we
think that it should replace the obsolete text in that
paragraph based on the 50 ownership or more which
dates back to 1978 and replace it with the unitary
business concept that the United States Supreme Court
has extensively developed after Alaska adopted that 50
percent ownership percentage. We think if you are
going to be making changes, it would be prudent to
make a similar amendment to AS 43.20.144(h)(ii) for
oil companies.
3:34:50 PM
Section 3 doesn't necessarily pertain to us but we
just wanted to highlight that it would repeal the
reference to royalties from the existing phrase of
dividends and royalties taxable to a corporation.
These royalties, again, are not royalties in the oil
and gas sense that we're all very familiar with, but
our royalties used for using intellectual property or
something that has been invented and patented, which
is very commonplace. Again, it did not have an impact
to our members but just thought we would highlight it.
Section 4 repeals eight existing sections. The rest of
the written comments goes into much detail.
I would just close, Mr. Chairman by saying we
currently oppose the bill for those various reasons.
It is more complex than it seems because it is
repealing several sections of federal tax code or our
ability to use credits from the federal tax code. We
would just encourage to utilize the working group for
that purpose.
Representative Kawasaki mentioned that in Ms. Moriarty's
testimony she had mentioned the Internal Revenue Code (IRC)
45(a) for employing Alaska Natives and IRC 45(p) which
talked about active duty military service and another
regarding providing insurance. He asked if corporations did
not currently take advantage of the specific credits she
noted.
Ms. Moriarty answered that they believed corporations were
taking advantage of the credits. Her understanding was that
HB 399 would repeal the ability for corporations to do so.
She reiterated that the legislature might want to take a
pause to really evaluate the laundry list of tax credits
that were under consideration to be repealed to make sure
they were understanding the full impact.
Representative Kawasaki asked if there were companies that
could voluntarily provide information to confirm that they
took advantage of the IRC 459(a) for instance, or the IRC
45(p) for active duty military. Could a company voluntarily
provide the information. He would like to hear from
companies that took advantage of the credit.
Ms. Moriarty replied that if a company wanted to
voluntarily disclose any portion of what they paid in
federal or state taxes, they were entitled to do so. She
could follow up with member organizations to find out if
there was anyone wanting to provide specific examples. She
also suggested reaching out to other Alaska Native
corporations and their subsidiaries, the Alaska Chamber of
Commerce, Resource Development Council, and other business
organizations. She reemphasized that the tax committee was
filled with brilliant minds who loved to get into the
details. As they were getting into the details little red
flags went off prompting the question about whether the
sections should be repealed.
3:38:25 PM
Representative Wilson asked about the foreign royalty
portion of the bill. She wondered about the impact to the
oil industry. Ms. Moriarty deferred to DOR.
Co-Chair Seaton asked if she was saying that the statute
was repealing the federal tax credit. Companies could still
take advantage of those federal tax credits on their
federal returns. They would just not be able to deduct them
against their state corporate income tax. He wondered if he
was correct.
Ms. Moriarty answered in the affirmative. The state
legislature did not have the ability to repeal federal tax
code. However, the legislature had the ability to disallow
companies from using an apportionment against the Alaska
Corporate income tax (companies could not take the full
federal tax credit anyway). However, it was an example of
an incentive the state could offer to make Alaska look more
attractive than other states in the nation.
Co-Chair Foster CLOSED public testimony. He provided the
committee email address for additional written testimony
submissions.
Representative Wilson referred to the fiscal note, OMB
2476, by DOR on page 2. It showed the change in revenue and
had it split out. She asked about the federal credits of
$1.8 million and the reduced rate on capital gains. She
wondered if they were no longer available through the
federal government.
Mr. Spanos responded that the changes on page 2 for federal
credits of $1.8 million and foreign royalties of $1.7
million in revenue impact would only apply if the bill were
to pass. The Department of Revenue had generated the fiscal
note prior to discovering that the reduced rate for capital
gains was affected by the federal tax reform. The
Department of Law noted that the capital gains rate was
eliminated in the federal code and no longer available to
an Alaskan corporation. He confirmed that the $3.4 million
was gone, but the $1.8 million and $1.7 million would be
revenue added to the general fund if the bill were to pass.
Representative Wilson asked for clarification regarding a
foreign royalty.
Mr. Spanos replied that a foreign royalty was only
available for a water's edge corporation, a non-oil and gas
company. Oil and gas companies filed under the worldwide
apportionment which included their income from everywhere.
He had used an example in a previous hearing about total
income being the pie. For oil and gas companies that pie
was their worldwide income. Whereas, for all other non-oil
and gas companies the pie was called "Water's edge" or "US"
income.
3:42:49 PM
Representative Wilson asked if the federal credit applied
to all industries. Mr. Spanos replied that the federal
credit would apply to both oil and gas and non-oil and gas.
Mr. Anderson added that Alaska was currently the only state
that copied all federal credits. He suggested that many
states either piggy-backed on a federal tax credit or would
have language stipulating that federal tax credits applied
only to the expenses that occurred in the state. If a
corporation used a federal tax credit in the state, they
would potentially be eligible for the federal tax credit at
18 percent. He referred to IRC 45(a), the Indian Employment
credit. Any multi-state corporation hiring federally
recognized Indian employees would be able to hold 18
percent of that credit against their Alaska tax liability.
Many states applied it to what was incurred in-state. He
encouraged Mr. Spanos to expand on his comments.
Mr. Spanos noted that the federal credits included what was
available on the federal tax return which was unusual in
that most states would want to incentivize something in
their own state. Alaska's statute would allow the credit
for an expense anywhere. He thought it was important to
note that if it was the intent of the legislature to allow
a credit to incentivize something in Alaska, it would be an
Alaska specific credit rather than a federal credit.
Representative Wilson asked if the bill would be removing
all of it. However, it was possible to insert language that
would tie a federal credit to Alaska. Mr. Anderson
confirmed she was correct. It would be a policy decision by
the legislature.
Representative Guttenberg asked Mr. Spanos to describe the
foreign royalties credit being repealed. Mr. Spanos
explained that what was being repealed was for a water's
edge company (non-oil and gas company) to be allowed an 80
percent exclusion of foreign royalties. For example, if
Company A held a patent and had a foreign affiliate Company
B using the patent, Company B would pay Company A royalties
for the use of that patent. Company A would be able to
exclude 80 percent of those royalties.
3:47:02 PM
Mr. Anderson used Microsoft as an example regarding their
cloud option. The company had been paying a royalty to
Ireland to run the Cloud. If Microsoft had a corporate
income tax in Alaska, they would be able to apply 80
percent of the royalty payment amount against Alaska's
corporate tax liability.
Representative Pruitt suggested that the state might be
putting itself at a disadvantage by repealing the credit.
It might limit the appeal to a future large investor such
as Microsoft or Google.
Mr. Spanos could not speak to any specific company or the
representative's example. However, in general, if the
intellectual property was foreign owned and an Alaskan
business was receiving a royalty from that foreign
business, it would be unusual for a state to allow an
exemption of that income from a foreign payor.
Co-Chair Foster indicated that amendments were due by
5:00 P.M. on Wednesday, April 11, 2018.
HB 399 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster announced that the committee would be
taking a 10-minute break until 4:00 P.M.
3:50:16 PM
AT EASE
4:01:50 PM
RECONVENED
SENATE BILL NO. 165
"An Act relating to the Alaska comprehensive health
insurance fund; and providing for an effective date."
4:02:03 PM
Co-Chair Foster invited Senator MacKinnon and her staff to
the table.
SENATOR ANNA MCKINNON, SPONSOR, read the bill sponsor
statement:
In 2015, the individual health care market in Alaska
was in a precarious state. There were only two
insurers with current enrollees in individual
healthcare plans in Alaska, and each insurer was
experiencing significant losses. Average premium rate
increases in 2015 were 38.7 percent for one insurer
and 39.9 percent for the other. In 2016, one of
Alaska's only two remaining insurers gave notice that
they would be withdrawing from the Alaska individual
market effective January 2017.
Senator MacKinnon noted that at the time the state's
insurance division came up with a suggestion - a way to
address folks that were driving up the costs of the
insurance market in Alaska. They were looking at those high
utilizers and trying to do something different. She
continued reading the sponsor statement:
The 29th Legislature passed HB 374 in 2016, which
created the Alaska Reinsurance Program, and allowed
the Division of Insurance to apply for a federal
Section 1332 state innovation waiver under the
Affordable Care Act (ACA). That legislation included a
sunset date of June 30, 2018 to ensure that the
diversion of insurance premium taxes from the general
fund was not relied upon as a long-term funding
mechanism. In July 2017, the waiver was approved by
both the Department of Health and Social Services and
the Department of Treasury based on the application
submitted by the division, which requested pass-
through funding for the Alaska Reinsurance Program.
The federal award for this waiver was approximately
$322 million over five years. The award is to be used,
in conjunction with the Alaska Reinsurance Program, to
continue to stabilize the individual healthcare market
in Alaska.
This legislation extends the sunset provision on the
Alaska comprehensive health insurance fund by six
years, from June 30, 2018 to June 30, 2024 to allow
for the continuation of the Alaska Reinsurance Program
and receipt of the federal funding.
Senator MacKinnon reported that the federal money and the
approval was contingent on the passage of SB 165. The
federal funds were guaranteed for 5 years. However, the
bill requested a 6-year extension. It would provide time
for the state to true up all claims that might remain in
the system should the state not have the 1332 waiver
extended and because the center for Medicaid and Medicare
Services had indicated that they might extend the 1332
waiver for another year. Other states were following
Alaska's lead in providing cost savings to the federal
government. The bill would reroute or take the diverted
insurance premium taxes that were currently being deposited
in the Alaska Comprehensive Health Insurance Fund and place
them back where they were into the general fund. It would
create $63 million of general fund revenue in the current
year. She reminded the body that the program had already
brought to the state, through the supplemental process, a
return of $205 million from Premera Blue Cross - one of the
insurers experiencing significant losses in the Alaska
market.
The bill also removes the requirement that funds
collected under AS 21.09.210 (tax on insurers), AS
21.33.055 (unauthorized insurance premium tax), AS
21.34.180 (surplus lines tax) and AS 21.66.110 (annual
tax on title insurance premiums) are to be deposited
into the Alaska comprehensive health insurance fund
within the general fund.
Passage of HB374 by the 29th Legislature has resulted
in stabilization of the individual insurance market.
The Section 1332 state innovation waiver provides
funding for the Alaska Reinsurance Program, through
the Alaska comprehensive health insurance fund. Now
this legislation is necessary to ensure the continued
effectiveness of the Alaska Reinsurance Program, meet
the intent of the waiver, and receive the federal
funding.
Co-Chair MacKinnon was open to questions.
Representative Guttenberg asked if the bill simply kept it
extending with no other changes. Co-Chair MacKinnon
responded that it also diverted the insurance premiums from
the insurance fund to the general fund. Co-Chair Foster
indicated that the director of the Division of insurance,
Ms. Wing-Heier, was available for questions.
4:07:14 PM
Co-Chair Foster OPENED and CLOSED public testimony.
Representative Guttenberg had been at a legislative
conference and had received positive feedback from
legislators of other states about Alaska's program.
Co-Chair Foster asked Co-Chair Seaton to read the fiscal
notes into the record.
Co-Chair Seaton reviewed the first fiscal note from DOA
which had an appropriation of Centralized Administrative
Services and an allocation of Finance. The OMB component
number was 59. The second fiscal note was from the
Department of Commerce, Community and Economic Development
(DCCED). It had an appropriation and allocation of
Insurance Operations. The component number was 354. The
note reflected no expenditures and a change in other
revenues of $61.537 million in FY 19. Revenues were
expected to increase to $75.859 million in FY 22.
Representative Wilson asked if there was anything tied to
the money that would be going into the general fund. She
wondered if the money could be used in the budget as
needed. Co-Chair MacKinnon replied that it went to the
general fund and could be allocated at the will of the
legislature.
MS. LORI WING-HEIER, DIRECTOR, DIVISION OF INSURANCE,
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT,
offered thanks for the waiver. There had been significant
support of the bill from both bodies. There had been
significant thought given to it because the state did not
want it to become a permanent reinsurance program unless
the waiver could be obtained. She was happy the waiver went
through and thought it was showing the benefits that had
been discussed in 2016.
Co-Chair Seaton MOVED to report SB 165 out of Committee
with individual recommendations and the accompanying fiscal
notes.
There being NO OBJECTION, it was so ordered.
SB 165 was REPORTED out of committee with a "do pass"
recommendation and with two previously published fiscal
notes, one zero fiscal note: FN1 (ADM); and one fiscal
impact note: FN3 (CED).
4:11:00 PM
AT EASE
4:11:46 PM
RECONVENED
Co-Chair Foster indicated the committee would be hearing
HB 306. It was the committee's first hearing on the bill.
He invited DOA's representatives to the table.
HOUSE BILL NO. 306
"An Act relating to disbursement options under the
Public Employees' Retirement System of Alaska and the
Teachers' Retirement System of Alaska for participants
in the defined contribution plan; and providing for an
effective date."
4:12:15 PM
Representative Wilson asked if there was a legal opinion
about why there was not an actuarial on the bill. She could
not find one in the back-up documents.
SYLVAN ROBB, DEPUTY DIRECTOR, DEPARTMENT OF ADMINISTRATION,
introduced herself. She indicated Commissioner Ridle was
not available.
KATHY MS. LEA, CHIEF PENSION OFFICER, DIVISION OF
RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION,
answered that there was only a requirement for an actuarial
analysis if there was an impact to the funds. HB 306 had no
financial impact to the funds.
Representative Wilson remarked that she did not understand
the bill. Ms. Robb relayed that currently the disbursement
options for PERS Tier IV and TRS Tier III were contained in
statute. She reported that the bill moved the disbursement
from statute to regulation. Currently, any changes the
department would like to make in order to modernize the
disbursement options or to meet new Internal Revenue
Service (IRS) regulations required a statutory change. The
bill would allow the division to be nimbler and to offer
better services to state retirees. She added that there
were vested employees in the two tiers that were impacted
that were starting to retire. Moving the disbursement
options from statute to regulation would offer the same
flexibility the state currently had for the SBS and the
deferred compensation plans. It still provided significant
transparency for the public. The discussion of new
disbursement options would be covered at ARM Board meetings
that were done in a public forum and again once the
recommendations were done by the ARM Board before going to
regulation. There was a public comment period at regulation
as well. The ARM Board had unanimous approval for the
change proposed in the bill.
Co-Chair Seaton understood that under Tier III and Tier IV
TRS they were separate accounts that were accounted for.
The bill only had to do with the disbursement of an
individual's money. It would not impact the fund because
the money was held for particular individuals. He wondered
if he was correct. Ms. Lea confirmed Co-Chair Seaton was
correct. She elaborated that she was talking about the
disbursement of an employee's contribution account
comprised of their contributions, the employer's
contributions made during employment, and any gains or
losses on the fund.
4:16:12 PM
Representative Wilson was trying to figure out the problem
with disbursement. Ms. Lea answered that currently the
state offered a lump sum disbursement, a periodic payment
of twice per year, and different annuity options (lifetime,
joint survivor, and various period-certain annuities). The
ARM Board was considering some newer products that were on
the market that mimicked a guaranteed income. One of them
was called a qualified longevity annuity contract, which
allowed an employee to postpose any disbursements from a
portion of an employee's account until they reached 80 or
82 years of age. The option was designed to do two things:
It removed that portion of an employee's account from the
required minimum distribution that currently occurred when
an employee reached 72 years of age. It also protected
against longevity risk. If a person was running out of
money, they would have a pot of money to draw on later.
Ms. Lea continued that another disbursement option, a
guaranteed lifetime withdrawal, which provided an insurance
wrapper around the amount in an employee's account. A
person would typically enroll in the option anytime 10
years before retirement or up to retirement. They would not
enroll before that time. During the time a person was
enrolled in the program they would pay an insurance
premium. The employee's monthly benefit would be based on
whatever the highest balance was at the end of the term
(when a person was past retirement and even when the state
was paying out benefits). It protected the individual from
the downside of investments but allowed them to have the
upside.
Representative Guttenberg had been reading more about his
investments. He suggested that there was a plethora of
different payout options. He liked the idea of having
additional options. He thought that having the options in
statute made it difficult for the ARM Board to offer other
options.
Representative Pruitt asked if there was not a risk to the
state. He wondered if there were risks for the
participants. He asked about the disbursement of funds if
an employee died. He asked for clarification.
Ms. Lea responded that the change was simple. The division
was not looking to change any of the options for
disbursement currently available. The ARM Board was looking
at adding options that would benefit participants. The
state was required by the IRS to fully disclose all fees
and conditions on any of the disbursement products. In
terms of his question regarding survivors, the options
under review were those that would provide full survivor
benefits to participants should they die before they
exhausted their funds.
4:21:58 PM
Co-Chair Foster OPENED and CLOSED public testimony for
HB 306.
Co-Chair Foster asked to review the fiscal notes.
Representative Wilson wanted to wait until the following
meeting before moving the bill, as she needed a better
understanding of the bill.
Co-Chair Foster wanted to make sure members were
comfortable with the bill.
Representative Guttenberg provided a hypothetical scenario.
If his pension annuity paid out $1000 per month until he
was 92, but he lived to be 125, and he bought the lifetime
guarantee which paid him $750 per month, he wondered if the
state would take the other $250 to purchase insurance. In
other words, he would be losing money by receiving less
money per month, but in doing so the state was covering the
liability.
Ms. Lea answered that she would hesitate to claim a
specific number because different products had different
ways of funding a benefit. The division had eight different
products presented to them. The Treasury Division was also
developing a few custom products. Usually, it was a
combination of the insurance premium paid by the employee
while employed that guaranteed the payment. Some companies
would also have a reduction to the paid benefit. Much of it
depended on how long an individual had been in the program.
Representative Guttenberg thought the payout money had to
come from some place. He suggested it would come from the
employee's benefit. He wondered if he was accurate. Ms. Lea
responded that he was absolutely correct. She elaborated
that the fees that were paid through the insurance premium
or reductions taken from the benefit amount was particular
to the participant. The participant sustained the cost and
there was no cost to the plan.
4:25:57 PM
Representative Pruitt suggested that the deletions in the
bill helped to simplify the products. He wondered why the
legislature chose to put specific products in statute
rather than leaving it open.
Ms. Lea recalled that at the time there was no specific
reason for certain products to be in statute. In drafting
the bill, the bill sponsor used a combination of a bill
structure that came from the National Council of
Legislators and different provisions lifted from the
state's supplemental annuity plan. The disbursement options
that could currently be seen in the PERS and TRS
distribution plan were the ones that were in the SBS plan
at the time of the bill's passage. The difference was that
the SBS structure was codified in statute. However, it was
operated by a plan document. The division had an easier way
to make changes for SBS or the Alaska Deferred Compensation
plan. In order to add any new options or provisions to the
plan they went through the ARM Board process and a
regulation process. The legislature was notified every time
regulations were promulgated. The public was invited and
those groups that represented the public were invited to
the ARM Board meetings. She emphasized that when the
division made a change to SBS and deferred compensation the
process was much faster. Unfortunately for the PERS and TRS
DCR plans, the disbursement information was placed in
statute requiring a bill to make changes. The division was
not nimble.
4:28:32 PM
Co-Chair Seaton added that he had been involved in the
process of changing from a defined benefit to a defined
contribution system. There were several details everyone
wanted to lock down. The newer products were not available
at the time. The disbursement options were ones the state
was already using and were incorporated in statute.
Everyone knew there was a full plan and how it would be
used. He favored making the plan work better for
individuals.
Co-Chair Foster suggested that for those who wanted to
offer amendments, they should submit them to his office by
5:00 PM on Wednesday, April 11, 2018. He would bring the
bill up at the afternoon meeting on the following day.
HB 306 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the agenda for the following day.
4:30:32 PM
AT EASE
4:31:23 PM
RECONVENED
Representative Wilson asked if there were documents
available for tomorrow's meeting at 5:00 P.M. Co-Chair
Foster responded in the affirmative.
ADJOURNMENT
4:31:56 PM
The meeting was adjourned at 4:31 p.m.