Legislature(1995 - 1996)

02/20/1996 01:36 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     HOUSE FINANCE COMMITTEE                                   
                        February 20, 1996                                      
                            1:36 P.M.                                          
  TAPE HFC 96-44, Side 1, #000 - end.                                          
  TAPE HFC 96-44, Side 2, #000 - end.                                          
  CALL TO ORDER                                                                
  Co-Chair  Mark Hanley  called  the  House Finance  Committee                 
  meeting to order at 1:36 p.m.                                                
  Co-Chair Hanley               Representative Martin                          
  Co-Chair Foster               Representative Mulder                          
  Representative Brown          Representative Navarre                         
  Representative Grussendorf    Representative Parnell                         
  Representative Kelly          Representative Therriault                      
  Representative Kohring                                                       
  ALSO PRESENT                                                                 
  Representative  Alan  Austerman;  Neil  Slotnick,  Assistant                 
  Attorney  General,  Department   of  Law;  Bob  Bartholomew,                 
  Assistant  Director,   Income  and   Excise  Tax   Division,                 
  Department of Revenue.                                                       
  HB 397    An   Act  relating   to   the  seafood   marketing                 
            assessment; and providing for an effective date.                   
            CSHB 397 (FIN) was reported  out of Committee with                 
            "no  recommendation"  and with  two  fiscal impact                 
            notes; one by  the Department of Revenue;  and the                 
            Department of Commerce  and Economic  Development,                 
            dated 2/2/96.                                                      
  HB 428    An   Act   giving  notice   of  and   approving  a                 
            lease-purchase  agreement  for   construction  and                 
            operation of a correctional facility in  the Third                 
            Judicial  District,  and  setting  conditions  and                 
            limitations  on  the  facility's construction  and                 
            HB 428 was  assigned to a subcommittee  consisting                 
            of    Representative    Mulder   as    Chair   and                 
            Representatives Kelly and Navarre.                                 
  HB 437    An   Act   establishing   the  Judicial   Officers                 
            Compensation   Commission;    relating   to    the                 
            compensation of supreme  court justices, judges of                 
            the  court  of  appeals,  judges  of  the superior                 
            court, and  district court  judges; and  providing                 
            for an effective date.                                             
            HB 437 was rescheduled to another time.                            
  Representative Martin  provided members with work  draft #9-                 
  LS1723\A, dated 2/19/96  (Attachment 1).  He  requested that                 
  the  legislation   be  introduced   by  the   House  Finance                 
  Committee.   He noted that the legislation  was requested by                 
  the Permanent Fund Board.   He observed that the  market has                 
  changed  over  the past  20 years.    He explained  that the                 
  legislation would allow the Board to  maximize the corpus of                 
  the Permanent Fund.  He clarified that the Board of Trustees                 
  crafted  the  legislation.   There  being NO  OBJECTION, #9-                 
  LS1723\A,  dated  2/19/96 will  be  introduced by  the House                 
  Finance Committee  (This legislation  was  introduced as  HB
  HOUSE BILL NO. 428                                                           
       "An Act giving notice of and approving a lease-purchase                 
       agreement   for  construction   and   operation  of   a                 
       correctional facility  in the Third  Judicial District,                 
       and   setting   conditions  and   limitations   on  the                 
       facility's construction and operation."                                 
  Co-Chair Hanley noted  that HB  428 would be  assigned to  a                 
  Representative  Mulder  observed  that   the  Department  of                 
  Corrections'  budget has  grown  by over  600  percent.   He                 
  stressed that the intent of HB 428 is to come to  grips with                 
  the spiraling cost of corrections.  He noted that HB 428 was                 
  influenced  by  hearings  held  during   the  interim.    He                 
  explained that the legislation allows, but does not mandate,                 
  the Department  of Corrections  to contract  with a  private                 
  contractor  to  construct  and operate  up  to  a  1,000 bed                 
  facility.   The total  cost would  be up  to $100.0  million                 
  dollars.   He  observed that  private  contractors projected                 
  that a 1,000 bed facility could  be built for $60.0 to $75.0                 
  million dollars.   He maintained  that savings derived  from                 
  the  private  sector stem  from  the fact  that  the private                 
  sector  does  not have  to contend  with  all the  rules and                 
  inefficiencies of the public system.                                         
  Representative   Mulder   addressed   misconceptions.     He                 
  clarified   that  the  legislation   does  not  require  the                 
  construction  of  1,000 beds.    The legislation  allows the                 
  commissioner to authorize construction of  up to 1,000 beds.                 
  He noted  that $100.0  million dollars  is the  upward limit                 
  that  can be  spent.   He  added that  the safety  record of                 
  privately operated facilities is roughly comparable to state                 
  operated facilities.  He  asserted that the new prison  will                 
  relieve overcrowding.   He observed  that the State  is over                 
  capacity by 100 -250 prisoners  per day.  He noted that  the                 
  State  is  being   fined  $300  hundred  dollars   for  each                 
  institution each day that the facility is over capacity.  He                 
  maintained that the legislation will allow the new prison to                 
  take pretrial prisoners.                                                     
  Representative  Mulder  acknowledged that  the  new facility                 
  will have  associated operating costs.  He observed that the                 
  State currently spends $6.0 million  dollars in the state of                 
  Arizona to house  Alaskan prisoners.   He stressed that  the                 
  bill will not take jobs away  from Alaskans.  The bill calls                 
  for  a project labor  agreement for the  construction of the                 
  facility that will maximize Alaskan hire and employment.  He                 
  emphasized that  Alaskan  Native  corporations  and  Alaskan                 
  private   businesses   have   expressed  interest   in   the                 
  legislation.    He  maintained that  HB  428  represents new                 
  economic opportunities for Alaskan businesses.   He observed                 
  that corrections is a growth industry.   He pointed out that                 
  as long as  the State  continues to pass  get-tough-on-crime                 
  legislation   the   State   will   be   incarcerating   more                 
  individuals.  He noted  that the State is projected  to need                 
  962 new beds by the year 2002.                                               
  Representative Mulder noted that the  facility will be built                 
  some where in the  Third Judicial District.  He  stated that                 
  the facility will not be built at the location of the Alaska                 
  Village in Anchorage.                                                        
  Representative Mulder summarized  that HB  428 represents  a                 
  win/win  situation.    He maintained  that  HB  428 relieves                 
  overcrowding, brings  prisoners  back to  Alaska, saves  the                 
  State money, and provides jobs for Alaskans.                                 
  Representative  Brown  stated that  she  shares many  of the                 
  goals expressed by  the Subcommittee Chairman.   In response                 
  to a question by Representative Brown, Representative Mulder                 
  emphasized that he has  no personal tie to  the legislation.                 
  He  noted  that  several  Native  corporations  and  private                 
  businesses have expressed  interest in the legislation.   He                 
  could not provide  details of plans  by the private  sector.                 
  He stated that no  particular site has been identified.   He                 
  observed concerns by the Mayor of Anchorage.  He pointed out                 
  that  arrests in  Anchorage  have  more  than doubled.    He                 
  emphasized that the Commissioner has latitude in selecting a                 
  Representative Brown expressed concern with the overall cost                 
  of the legislation.   She questioned if  operating costs and                 
  land purchase  are included  in the  total construction  and                 
  related  costs  as  contained  on  page  3,  line  9.    She                 
  emphasized  the   need  to   compare  "apples   to  apples."                 
  Representative  Mulder noted  that the Subcommittee  has not                 
  received a plan by the Administration.                                       
  Representative Mulder  noted  that the  Commissioner of  the                 
  Department  of Corrections  recommends the  deletion of  the                 
  requirement that contract facilities abide by court  orders.                 
  The restriction  on housing male maximum  security prisoners                 
  will be removed  at the  request of the  Commissioner.   The                 
  Department  felt  that this  provision  was confusing.   The                 
  removal of this  provision will  allow the Commissioner  the                 
  full range of options  for housing inmates at  the facility.                 
  In addition,  the facility  accreditation provision  will be                 
  removed at the request  of the Commissioner.  He  noted that                 
  design cost will  be included in  the cost of  construction.                 
  Operating costs will not be included.                                        
  Representative Mulder reiterated his belief that the private                 
  sector can built  the facility cheaper  than the State.   He                 
  observed that the Department of Corrections estimated that a                 
  400 bed facility would cost $104.0 million dollars.  Private                 
  contractors have indicated that the  facility could be build                 
  for approximately $65.0  million dollars.  He  observed that                 
  operating costs will be part of the private bid process.  If                 
  the Department feels it can operate  the facility at a lower                 
  cost the  Commissioner does not need to  accept the bid.  He                 
  observed that it  would be prudent  to construct the RFP  to                 
  state that  if none  of the  bids meet  the requirements  in                 
  terms of cost savings no bid will be accepted.                               
  In  response  to   a  question   by  Representative   Brown,                 
  Representative Mulder reiterated  that maximum security male                 
  prisoners are being excluded to  allow the Commissioner more                 
  flexibility.   He  noted that  Spring Creek  is the  State's                 
  primary maximum prison facility.                                             
  Representative Navarre  pointed out  that  a prohibition  on                 
  housing  maximum  security   prisoners  could  restrict  the                 
  housing  of  pretrial prisoners.    Removal of  the language                 
  would allow the housing of pretrial  prisoners.  He asked if                 
  the   facility  would   displace   current  facility   beds.                 
  Representative Mulder stated  that the  new facility is  not                 
  projected  to  displace  any current  state  employees.   He                 
  observed  that  the Mayor  of  Anchorage is  considering the                 
  closure  of  the 6th  Avenue  facility.   He  estimated that                 
  employees  of  the  6th Avenue  facility  could  be absorbed                 
  within the current system.                                                   
  Representative Brown  asked the  estimated operating  costs.                 
  She observed  that the annual  operating cost of  the Spring                 
  Creek facility is $14.0 million dollars.   She asked how the                 
  operating costs would be provided for in the State's budget.                 
  Representative Mulder  emphasized that  the  State is  being                 
  fined for being  overcrowded.  Representative Brown  pointed                 
  out  that  the  fine  is  returning  to  the  General  Fund.                 
  Representative Mulder observed that options for  adding beds                 
  include,  additional  prisoners   being  sent  to   Arizona,                 
  construction  of   additional   beds   in   existing   state                 
  facilities, or  the  construction of  a new  facility.   All                 
  three options have  associated costs.  He  acknowledged that                 
  sending prisoners  out-of-state represents the  lowest cost.                 
  He  emphasized  that it  is  good  public policy  to  employ                 
  Representative Brown  asked the estimated  per day operating                 
  cost per prisoner.  Representative Mulder noted that private                 
  contractors have given rough estimates of $55 to $69 dollars                 
  a  day.   He estimated  that  bids would  be  less than  the                 
  current state average.  He noted that public employee groups                 
  can form cooperatives to bid on the contract.                                
  Representative Mulder  noted that the  legislation allows  a                 
  lease purchase  option.  The  facility could also  remain in                 
  the ownership of  the private  entity.  He  stressed that  a                 
  private  entity  would  pay  property tax.    Representative                 
  Navarre estimated that the private owner would roll property                 
  costs into the contract bid.                                                 
  Co-Chair Hanley assigned HB 428 to a subcommittee consisting                 
  of Representative Mulder as  Chair and Representatives Kelly                 
  and Navarre.                                                                 
  Co-Chair Hanley noted that the  legislation does not require                 
  that  a  facility be  built by  a  private enterprise.   The                 
  Commissioner  could   request   capital   funds   from   the                 
  HOUSE BILL NO. 397                                                           
       "An Act relating to  the seafood marketing  assessment;                 
       and providing for an effective date."                                   
  Co-Chair  Hanley   provided  members   with  a   spreadsheet                 
  detailing  Education Credits  claimed  in FY  94  and FY  95                 
  prepared by the Department of Revenue on  HB 397 (Attachment                 
  2).     He   noted  that  an   amendment  was   provided  by                 
  Representative Brown to include the Winn Brindle Scholarship                 
  in HB 397 (Attachment 3).                                                    
  explained  Amendment  1,  Attachment 3.    He  observed that                 
  Amendment  1  corrects an  oversight.   The  amendment would                 
  incorporate the  Winn Brindle Scholarship  into the  Landing                 
  Tax credit.                                                                  
  Co-Chair  Hanley  noted  that  Amendment  1 would  make  the                 
  credits equal.  Mr. Slotnick noted that the two taxes have a                 
  compensatory tax doctrine.  The legislation  would eliminate                 
  arguments by tax payers of discrimination.                                   
  Co-Chair Hanley asked when the  Winn Brindle Scholarship was                 
  DIVISION, DEPARTMENT OF REVENUE noted  that the Winn Brindle                 
  Scholarship was added to the Fisheries Business Tax  in 198.                 
  The credit against  the Fisheries Business Tax for  the Winn                 
  Brindle Scholarship was  $446.0 thousand  dollars in FY  95.                 
  He  noted that  $39 million  dollars was  collected for  the                 
  Fisheries Business  Tax.   The tax  credit is  limited to  5                 
  percent of liability.                                                        
  Co-Chair Hanley summarized  that the  revenue loss would  be                 
  approximately  $51.0  thousand  dollars  for  the  Education                 
  Credit and $80.0 thousand dollars  for the Scholarship Fund.                 
  Representative Navarre  asked if  the calculation  considers                 
  what  percentage  is available  for  deduction that  the tax                 
  credit  has  not   previously  been   used  against.     Mr.                 
  Bartholomew explained  that each individual  tax payer under                 
  the  education  credit is  going  to  have a  cap  of $150.0                 
  thousand dollars that can be taken against any of six taxes.                 
  The  Division looked at which tax  payers had contributed to                 
  the  Education  Credit  under  the  corporate  tax  and  the                 
  Fisheries Business Tax.  He observed that there is not a lot                 
  of duplication.  A new series  of taxpayers will be eligible                 
  by adding  the  Education Credit  to the  Fish Landing  Tax.                 
  Those that  have already taken the maximum  credit would not                 
  be affected.  The  first $100.0 thousand dollars is  subject                 
  to the 50/50 split.  The majority of tax payers who  work in                 
  off shore fisheries are not based in Alaska.                                 
  (Tape Change, HFC 96-44, Side 2)                                             
  In response  to a  question by  Representative Navarre,  Mr.                 
  Bartholomew  explained that businesses that are organized as                 
  taxable  corporations  would  be  subject to  the  corporate                 
  income  tax.   Companies not  based in Alaska  pay corporate                 
  income tax based  on an apportionment.   A formula based  on                 
  the amount of wages, sales and property in Alaska is used to                 
  allocate income and pay taxes.  There are 4,000 corporations                 
  that are registered  as S Corporations for  tax purposes and                 
  are not subject to state or federal corporate income tax.                    
  Mr. Bartholomew explained that $7.0 million was collected in                 
  FY 95  for the Landing Tax.   Seven thousand of  this amount                 
  went to the Alaska  Seafood Marketing Institute (ASMI).   He                 
  observed that HB 397 would align the Fisheries  Business Tax                 
  to  the  Fisheries Resource  Landing  Tax.   Co-Chair Hanley                 
  summarized that after  the reduction for the  Alaska Seafood                 
  Marketing Institute the  50/50 split would be  $3.15 million                 
  dollars each.  All the credits come out of the $3.15 million                 
  dollars  that goes  to  the State.   If  there is  a million                 
  dollars  worth  of  credits the  State  would  receive $2.15                 
  million dollars.                                                             
  Representative  Brown noted  that the  State spends  between                 
  $62.0 and $100.0  thousand dollars a year to  administer the                 
  program.    She suggested  that the  cost  be spread  to the                 
  municipalities which are receiving part of the benefit.  She                 
  asked what the State would receive in  offsetting revenue if                 
  local governments pick up their  share of the administrative                 
  costs.   Mr. Bartholomew replied that wording could be added                 
  to clarify that the State  and local governments would share                 
  the amount less  the allocated  costs of administrating  the                 
  tax  program.    The  State  would  receive  back the  local                 
  government  share of $100.0 thousand dollars.  He noted that                 
  more than 90 percent  of the shared taxes relate  to fishery                 
  Representative  Brown  stated  that   she  would  prefer  to                 
  eliminate  the  credit.    Co-Chair  Hanley  summarized that                 
  Representative Brown would  like to not adopt  the amendment                 
  and  eliminate the  education credit.   Representative Brown                 
  added that the credits  would have to be eliminated  for the                 
  Fisheries Resource  Landing Tax  and the Fisheries  Business                 
  Tax.  Co-Chair  Hanley noted  that there would  be a  $596.6                 
  thousand  dollar  decrease  to  the  institutions  that  are                 
  receiving the credits and a  $596.6 thousand dollar increase                 
  to the State.  Mr. Slotnick  noted that the Education Credit                 
  and/or the Winn Brindle Scholarship Credit could be retained                 
  as long as they are in or out of both the Fisheries Resource                 
  Landing Tax and the Fisheries Business Tax.                                  
  Representative Martin  asked if  the share  amount given  to                 
  ASMI could be used to provide their state match.                             
  MARKETING  INSTITUTE  testified  that  ASMI  receives  three                 
  sources  of revenues,  assessments  against the  processors,                 
  assessments against fishermen and a federal grant matched by                 
  state general funds.   He observed that currently  the state                 
  match  is  currently made  with  general fund  dollars.   He                 
  stated that  these funds are  program receipts and  could be                 
  used for the federal match.  He added that the ASMI Board of                 
  Directors is presenting a plan to  phase out the state match                 
  over the next  few years.   He requested  that ASMI's  state                 
  match be held harmless in FY 96.  He noted that the price of                 
  salmon is currently low.                                                     
  Representative Brown asked  if the program would  be revenue                 
  neutral if both  the credits  and administrative costs  were                 
  taken off the top.                                                           
  Representative Grussendorf spoke  in support of  maintaining                 
  the Educational Tax  Credit.  Co-Chair Hanley  observed that                 
  when the credit  was allowed against the  Fisheries Resource                 
  Landing  Tax  it  was  not  understood  that  the  Fisheries                 
  Business Tax needed to  be treated equally.  He  stated that                 
  the credits  could be  continued in both  programs with  the                 
  administrative costs taken from both portions.                               
  Representative Navarre suggested  that unless  the State  is                 
  able to choose which  taxes the credit is applied  against a                 
  shifting would occur from what the credit is counted against                 
  toward taxes that are not  shared with municipalities.  This                 
  would minimize the impact on municipalities.                                 
  Representative Navarre  suggested the Committee  address all                 
  taxes collected in  which the  administrative costs are  not                 
  charged.    He  observed   that  municipalities  receive   a                 
  significant benefit from taxes collected by the State.                       
  Co-Chair Hanley clarified that the  corporate net income tax                 
  is a pure state revenue which is not shared.  Representative                 
  Navarre observed that companies can  take the credit against                 
  any  tax they want.  He  suggested that municipalities would                 
  encourage businesses to  take the tax against  the corporate                 
  Representative  Navarre  suggested  that the  House  Finance                 
  Committee draft a bill to address the whole issue.  He noted                 
  that HB 397 corrects  an immediate legal problem.   He spoke                 
  in support of passage of HB 397.                                             
  Representative Austerman urged the Committee  to pass HB 397                 
  from  Committee.  He recommended that all taxes collected by                 
  the  State  for  municipalities  be  addressed  in  separate                 
  legislation at another time.                                                 
  Representative Navarre MOVED  to adopt  Amendment 1.   There                 
  being NO OBJECTION, it was so ordered.                                       
  Representative Brown pointed out  that a new fiscal  note is                 
  needed to show the negative impact on the General Fund.  Co-                 
  Chair Hanley noted that a  Department of Revenue fiscal note                 
  should show a negative $130.0 thousand dollar  impact on the                 
  General Fund.                                                                
  Representative  Navarre  estimated   that  $130.0   thousand                 
  dollars is overstated.   Representative Brown observed  that                 
  use of the tax credit has  increased.  She expressed concern                 
  that  the  tax  credit is  unconstitutional  because  of the                 
  provision against public support for private education.  She                 
  asked that the House Finance Committee consider  legislation                 
  to  require the administrative  cost of all  shared taxes be                 
  taken from both the state and local share.                                   
  Representative Mulder  asked for  a legal opinion  regarding                 
  the constitutionality of the Educational Tax Credit.                         
  Members  discussed  which taxes  should  be identified  in a                 
  proposed  House  Finance  Committee  bill.    Representative                 
  Navarre  suggested  that all  shared  taxes should  have the                 
  administrative  cost  taken  off  the  top before  they  are                 
  shared.   He  suggested that the  amount could  be graduated                 
  over a period of years.                                                      
  Mr. Bartholomew  clarified that $130.0  thousand dollars  is                 
  what  it costs to administrate the  sharing of the collected                 
  tax.  Additional  costs are  associated with collection  and                 
  processing.    The  total  cost  of administrating  the  tax                 
  programs would be more than $130.0 thousand dollars.                         
  Representative Navarre pointed out that some taxes collected                 
  by the state  pass 100 percent  back to municipalities.   He                 
  added that the majority of the  increase in tax credits were                 
  in  Corporate  Net Income  and  Insurance Premium  Tax.   He                 
  stressed that the impact of HB 397 would be negligible.                      
  Representative Navarre MOVED to report  CSSSHB 397 (FIN) out                 
  of Committee  with individual  recommendations and  with the                 
  accompanying fiscal notes.                                                   
  Co-Chair  Hanley  directed Mr.  Bartholomew  to provide  the                 
  Committee  with  draft  legislation  which  would  take  the                 
  administrative cost of  share programs  off the  top of  the                 
  collected  tax   before  sharing.     Representative   Brown                 
  recommended that if the amount  is significant the Committee                 
  consider a phase-in approach.  Mr. Bartholomew observed that                 
  the  cost of  collection of  the Fisheries  Business Tax  is                 
  several  hundred  thousand  dollars.    He stated  that  the                 
  Division would prepare  a spread  sheet listing options  for                 
  the Committee.                                                               
  Mr. Bartholomew  noted that the Community  Development Quota                 
  (CDQ) is  the only  other credit  allowed.  Co-Chair  Hanley                 
  asked that a  spreadsheet be  developed to show  CDQ's.   He                 
  also asked  that the  spreadsheet identify  which taxes  are                 
  The meeting adjourned at 2:54 p.m.                                           

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