Legislature(2011 - 2012)HOUSE FINANCE 519

04/07/2011 08:30 AM FINANCE

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Heard & Held
Heard & Held
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                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 7, 2011                                                                                            
                         8:39 a.m.                                                                                              
8:39:09 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 8:39 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Bill Thomas Jr., Co-Chair                                                                                        
Representative Anna Fairclough, Vice-Chair                                                                                      
Representative Mia Costello                                                                                                     
Representative Mike Doogan                                                                                                      
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Mike Hawker (alternate)                                                                                          
Representative Reggie Joule                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Susan  K.   Bell,  Commissioner,  Department   of  Commerce,                                                                    
Community  and Economic  Development; Curtis  Thayer, Deputy                                                                    
Commissioner,   Department  of   Commerce,  Community,   and                                                                    
Economic  Development; Johanna  Bales, Acting  Director, Tax                                                                    
Division, Department of  Revenue; Mike Hanley, Commissioner,                                                                    
Department  of   Education  and  Early   Development;  Diane                                                                    
Barrans,   Executive   Director,    Alaska   Commission   on                                                                    
Postsecondary Education,  Department of Education  and Early                                                                    
PRESENT VIA TELECONFERENCE                                                                                                    
Dan   White,   Associate   Vice  Chancellor   of   Research,                                                                    
University  of  Alaska  Fairbanks;  Allan  Johnston,  Encore                                                                    
Career, TEAM Network; Christi  Bell, Director, University of                                                                    
Alaska  Center  for  Economic  Development;  Peter  Stitzel,                                                                    
Sitka  Meal,  Oil, and  Gelatin;  Bill  Popp, President  and                                                                    
Chief  Executive  Officer,  Anchorage  Economic  Development                                                                    
Corporation; Karen Eeks, Self, Ketchikan.                                                                                       
HB 104    ALASKA PERFORMANCE SCHOLARSHIPS                                                                                       
          HB 104 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 118    RESEARCH AND DEVELOPMENT TAX CREDIT                                                                                   
          HB 118 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HOUSE BILL NO. 118                                                                                                            
     "An Act relating to a tax credit for corporate income                                                                      
     taxes paid for qualified research and development                                                                          
    expenditures; and providing for an effective date."                                                                         
8:40:00 AM                                                                                                                    
SUSAN  K.   BELL,  COMMISSIONER,  DEPARTMENT   OF  COMMERCE,                                                                    
118  worked  to  stimulate private  sector  investment,  and                                                                    
business  activity and  expansion.  She  discussed that  the                                                                    
bill would  allow Alaskan corporate  taxpayers to  receive a                                                                    
20 percent tax credit that  would not exceed $10 million per                                                                    
tax payer  per year. The  bill required either  research and                                                                    
development  activity or  the payroll  of employees  to take                                                                    
place  in Alaska.  There  was a  "three  year look-back"  to                                                                    
ensure  that the  credit was  applied  only to  expenditures                                                                    
above a base-line. The bill  mirrored the federal definition                                                                    
related to research,  development, and allowable activities,                                                                    
including,  the discovery  of technological  information and                                                                    
the  development  of  new or  improved  business  components                                                                    
through a process  of experimentation. Qualifying activities                                                                    
included the  development of  new prototypes,  processes, or                                                                    
formulas;   building   or  improvements   of   manufacturing                                                                    
facilities;  and  the  development of  new  technologies  or                                                                    
patents, etc. Customary market  research and data collection                                                                    
were excluded.  Exploration activity  used to  determine the                                                                    
existence or quality of any  ore or mineral deposits was not                                                                    
allowable and  included mining and oil  and gas exploration;                                                                    
however,  the   industries  were  eligible   for  processes,                                                                    
manufacturing,   and   patents    under   the   legislation.                                                                    
Entrepreneurial  successes  in  the  state  included  Alaska                                                                    
berry growers  that had been exploring  the antioxidant rich                                                                    
nutraceutical value  of berries  and sawmills that  had been                                                                    
turning mill  waste into fuels.  She discussed  biofuels and                                                                    
that  the tax  credit  would help  solve  the high  moisture                                                                    
content  that  existed  particularly  in  Southeast  Alaska.                                                                    
Other examples  included the use  of tidal energy  to create                                                                    
ice at  sea that  was currently being  done at  a university                                                                    
outside   of   Alaska,   and  turning   seafood   processing                                                                    
byproducts into  valuable products.  Forty other  states had                                                                    
established  a similar  tax credit,  including North  Dakota                                                                    
that  had one  of the  most  aggressive tax  credits in  the                                                                    
nation. She communicated that  Alaska's universities had not                                                                    
been as engaged.                                                                                                                
Ms.  Bell relayed  that the  University of  Alaska Fairbanks                                                                    
chancellor Brian  Rogers had submitted  a letter  of support                                                                    
for HB 118  and the university looked  forward to increasing                                                                    
its engagement on  issues that faced Alaska  and had created                                                                    
an office of Intellectual Property and Commercialization.                                                                       
8:44:44 AM                                                                                                                    
Vice-chair Fairclough  asked whether  the tax credit  was in                                                                    
the  amount of  $10  million. Ms.  Bell  responded that  the                                                                    
credit was up  to $10 million per tax payer.  She noted that                                                                    
in  many  of   the  examples  she  had   provided  that  the                                                                    
applicable uses  would be  much less.  Industries, including                                                                    
aerospace, had  indicated that their  scale of  research was                                                                    
far above  the $10  million limit; however,  they encouraged                                                                    
the passage of the legislation.                                                                                                 
Vice-chair Fairclough  wondered how the state  would project                                                                    
whether it had the funds to  offer the credit in the future.                                                                    
She  discussed  that the  film  credit  had  a cap  of  $100                                                                    
million.  Ms. Bell  replied that  the fiscal  note from  the                                                                    
Department of Revenue was  indeterminate. She suggested that                                                                    
the committee  could consider setting  a ceiling.  She noted                                                                    
that DCEED did not anticipate any operational expenses.                                                                         
Vice-chair  Fairclough   conveyed  that  the   credit  could                                                                    
represent a substantial  amount of money that  the state may                                                                    
have  trouble forecasting.  She thought  that the  committee                                                                    
may want to  consider a ceiling. She added that  it would be                                                                    
helpful  to  use other  states  as  an example  regarding  a                                                                    
potential  ceiling and  the  use of  the  credit. She  cited                                                                    
concern that  the ability  to carry  the credit  forward for                                                                    
seven  years  increased  the  state's  liability.  She  also                                                                    
wondered  about language  that did  not allow  the use  of a                                                                    
federal credit (Page 2, Line 10).                                                                                               
Co-Chair   Stoltze   noted  that   Vice-chair   Fairclough's                                                                    
questions  would   be  addressed  during  the   fiscal  note                                                                    
Representative Wilson  wondered how  the $10  million figure                                                                    
had been  determined. Ms. Bell  replied that  the department                                                                    
had mirrored  the federal law  in order to keep  the concept                                                                    
Representative Wilson asked for  verification that a company                                                                    
could  not sell  its tax  credit. Ms.  Bell answered  in the                                                                    
affirmative.  She   detailed  that  the  credits   were  not                                                                    
transferrable and had  to be used by  the company conducting                                                                    
research and development.                                                                                                       
Representative  Gara   wondered  whether   those  conducting                                                                    
explorational  drilling would  receive over  100 percent  of                                                                    
their  cost  with  credits  that  included  the  20  percent                                                                    
taxpayer credit, a 20 percent  capital expenditure credit, a                                                                    
40  to 50  percent  deduction, and  a  federal research  and                                                                    
development credit.  He discussed that  directional drilling                                                                    
could be considered  a new or improved  component that would                                                                    
apply under  the research and development  definition of the                                                                    
credit.  He explained  that improvements  were  made on  the                                                                    
North Slope on  a daily basis in order for  the oil industry                                                                    
to   remain  competitive.   The   legislature  had   devised                                                                    
legislation that  contained numerous credits  and deductions                                                                    
to  impact the  industry.  He referred  to  charts that  had                                                                    
shown that with the  combination of deductions, credits, and                                                                    
oil  prices above  $80 a  barrel that  the state  was paying                                                                    
between 70 to 80 percent  of the activity cost. He expressed                                                                    
doubt that the  taxpayer credit should be added  to the list                                                                    
of credits that the oil industry would potentially receive.                                                                     
8:50:56 AM                                                                                                                    
CURTIS THAYER, DEPUTY  COMMISSIONER, DEPARTMENT OF COMMERCE,                                                                    
COMMUNITY, AND ECONOMIC DEVELOPMENT,  replied that a company                                                                    
would not  receive both a  federal tax credit and  the state                                                                    
tax credit for  resource development. The bill  had a three-                                                                    
year  look-back and  the resource  and development  would be                                                                    
over and  above the normal  resource and development  that a                                                                    
company would expend.                                                                                                           
Representative Gara  wondered why  it would  be a  good idea                                                                    
for the state  to pay for the tax credit  in addition to the                                                                    
other credits and deductions that  existed under the oil tax                                                                    
law. He reiterated  that a company could  obtain an improved                                                                    
component through directional  drilling expansion. He stated                                                                    
that the three-year look-back would  be solved because costs                                                                    
went up  every year on the  North Slope and the  most recent                                                                    
year would always be more expensive.                                                                                            
Mr. Thayer responded that the  "exploration activity for the                                                                    
ascertation of  existence, location,  extent, or  quality of                                                                    
ore or mineral deposit" did not qualify.                                                                                        
Representative Gara responded that  some of the activity was                                                                    
not related to  exploration and there were  many things that                                                                    
happened on the North Slope that might qualify.                                                                                 
JOHANNA BALES, ACTING DIRECTOR,  TAX DIVISION, DEPARTMENT OF                                                                    
REVENUE,  replied  that there  were  currently  oil and  gas                                                                    
credits including  the qualified capital  expenditure credit                                                                    
and the annual loss carry-forward  credit that could be used                                                                    
in  conjunction with  the resource  and development  credit.                                                                    
She opined  that it  was something that  could occur  but it                                                                    
would  be  under limited  circumstances.  She  noted that  a                                                                    
simple change  could be made  to the legislation  to prevent                                                                    
tax payers from receiving credits from multiple locations.                                                                      
Representative Edgmon observed that  there were two types of                                                                    
corporate  income   taxes  and   he  wondered   whether  the                                                                    
fisheries business tax  and mining license tax  would be the                                                                    
largest  participants  under the  tax  credit  that did  not                                                                    
apply to the oil industry.                                                                                                      
8:55:05 AM                                                                                                                    
Ms. Bales replied  that the corporate income  tax applied to                                                                    
all  industries, but  there were  minor  differences in  the                                                                    
statute  related to  oil and  gas  companies. She  explained                                                                    
that all companies  that paid corporate income  tax would be                                                                    
eligible  for  the  credit   for  research  and  development                                                                    
outside of exploration activities.                                                                                              
Representative  Edgmon asked  whether  all industries  would                                                                    
have an equal  opportunity to take advantage  of the credit.                                                                    
Ms. Bell responded in the  affirmative. She relayed that the                                                                    
intent    had   been    to   help    stimulate   investment,                                                                    
manufacturing, and innovation.                                                                                                  
Representative  Doogan asked  whether the  credits would  be                                                                    
stackable  with any  other existing  credits that  a company                                                                    
was  eligible  for. Ms.  Bales  responded  that the  credits                                                                    
would not be stackable. She  explained that if a company was                                                                    
allowed a  federal credit  that it  could choose  either the                                                                    
state  or federal  corporate income  tax credit.  In limited                                                                    
circumstances   the  expenditures   for  the   resource  and                                                                    
development credit  could be  utilized for  some of  the oil                                                                    
and gas tax credits as well.                                                                                                    
8:58:06 AM                                                                                                                    
AT EASE                                                                                                                         
8:58:38 AM                                                                                                                    
Representative  Doogan   asked  whether  the   credits  were                                                                    
stackable in  some circumstances.  Ms. Bales  responded that                                                                    
the  credits  were  not stackable  because  there  were  two                                                                    
separate  tax  programs  involved. She  expounded  that  the                                                                    
corporate income taxes could only be used with one credit.                                                                      
Representative Doogan wondered whether  the tax credit could                                                                    
potentially be an additional 20  percent on top of other tax                                                                    
breaks  that the  state provided  to the  oil industry.  Ms.                                                                    
Bales responded  in the affirmative.  She read from  Page 2,                                                                    
Line  11 of  the bill,  "any  federal credit  that had  been                                                                    
apportioned to  the state and  claimed under  AS 43.20.021,"                                                                    
and explained that  the removal of the  words "AS 43.20.021"                                                                    
and  the insertion  of the  words "under  this title"  would                                                                    
eliminate the ability to use  the expenses in a separate tax                                                                    
credit  program.  She  expressed that  the  committee  might                                                                    
consider  making  the revision  if  it  had strong  concerns                                                                    
about   the  issue,   but   she  did   not   know  how   the                                                                    
administration  would feel  about  the  change. She  relayed                                                                    
that  the circumstances  in which  a company  could use  the                                                                    
same  expenditures  for  credits  could only  occur  when  a                                                                    
company had a loss in the oil and gas tax.                                                                                      
Representative  Doogan was  concerned that  Alaska could  be                                                                    
responsible  for  a $300,000  million  per  year program  if                                                                    
there  were  a  high  number of  oil  companies  that  could                                                                    
potentially  take advantage  of the  $10 million  credit. He                                                                    
stressed that he did not support the portion of the bill.                                                                       
9:03:16 AM                                                                                                                    
Representative Guttenberg wondered how  it would be possible                                                                    
to know the  tax credit was working in the  intended way. He                                                                    
asked whether there would be  an audit or accountability for                                                                    
the   credits.  Ms.   Bales   responded   that  the   credit                                                                    
piggybacked  the  federal  definition  that  was  relatively                                                                    
strict. She  detailed that tax  payers would be  required to                                                                    
provide  proof  that  research   and  development  had  been                                                                    
conducted in  Alaska and that  it met the definition  of the                                                                    
federal  law. The  department  would  provide oversight  and                                                                    
would report how many people  took advantage of the program.                                                                    
The  intent  of   the  legislation  was  to   bring  in  new                                                                    
technology, industry, and  research and development activity                                                                    
into the state.                                                                                                                 
Representative  Guttenberg  wondered  whether  the  research                                                                    
would be  public at  any point. Ms.  Bales replied  that the                                                                    
information  may or  may not  be reported  due to  tax payer                                                                    
confidentiality.   Companies  were   hesitant  to   disclose                                                                    
business processes  that could  help their  competition. She                                                                    
observed that  there was  a balance between  a need  to know                                                                    
and   public   curiosity  and   that   faith   in  the   tax                                                                    
administration was important.                                                                                                   
9:06:11 AM                                                                                                                    
DAN   WHITE,   ASSOCIATE   VICE  CHANCELLOR   OF   RESEARCH,                                                                    
UNIVERSITY  OF ALASKA  FAIRBANKS (UAF)(via  teleconference),                                                                    
supported HB 118 and believed  that it would allow the state                                                                    
to provide an  incentive to businesses to  take advantage of                                                                    
new opportunities. The legislation  helped contribute to the                                                                    
university's  mission to  conduct  resource and  development                                                                    
and  move it  into the  private sector  that was  a critical                                                                    
element of  economic development  in Alaska. He  stated that                                                                    
the bill would build a  bridge between business and industry                                                                    
and that  funded research  at the  university would  lead to                                                                    
job growth  and economic diversification.  Businesses gained                                                                    
competitive  advantages  in  the   global  market  when  UAF                                                                    
conducted applied  research and  licensed the  technology to                                                                    
the private sector.  He detailed that the  link was enhanced                                                                    
when  businesses  were  able   to  invest  in  resource  and                                                                    
ALLAN   JOHNSTON,   ENCORE   CAREER,  TEAM   NETWORK,   (via                                                                    
teleconference), voiced  strong support of  the legislation.                                                                    
He was  very supportive  of economic development  in Alaska.                                                                    
He  had been  a  sponsor of  business  plan competitions  at                                                                    
Alaska's universities. He discussed  that Alaska had come in                                                                    
last in  the entrepreneurial capacity index  that was listed                                                                    
in the  2008 Milken  survey. It  was important  to encourage                                                                    
the ability  to dream  big in  Alaska. He  thought it  was a                                                                    
good idea  to put  a cap  on the amount  the bill  would pay                                                                    
out. He  expressed that the  state needed to  take advantage                                                                    
of  the many  opportunities that  were available  and to  be                                                                    
competitive  on a  national and  global basis.  He supported                                                                    
the  university's ability  to commercialize  and its  tie to                                                                    
the private sector.                                                                                                             
9:10:16 AM                                                                                                                    
CHRISTI  BELL, DIRECTOR,  UNIVERSITY  OF  ALASKA CENTER  FOR                                                                    
ECONOMIC DEVELOPMENT  (via teleconference), stated  that the                                                                    
university  system was  very  supportive of  HB  118 and  of                                                                    
greater   private  sector   research  and   development  and                                                                    
opportunities  through  public and  private  collaborations.                                                                    
With  the  tax  credit   the  university  could  market  the                                                                    
incentives  to  private firms  to  encourage  assets at  the                                                                    
university  such as  the  super  computing system.  Research                                                                    
helped  the ability  to offer  scholarships  and would  help                                                                    
students  grow, to  foster innovation,  and to  create jobs.                                                                    
The National  Science Foundation  had found that  73 percent                                                                    
of finance  papers cited that  industry patents  were funded                                                                    
through  contracts  with   university  research  operations.                                                                    
Alaska was struggling  to bring new research  to the economy                                                                    
and  needed  to  be  competitive   in  new  innovations  and                                                                    
processes.  She emphasized  that  the  state ranked  between                                                                    
43rd and 51st in a  national survey. She discussed that many                                                                    
states offered  resource and  development tax  incentives to                                                                    
attract  corporations   and  businesses  and   to  encourage                                                                    
investment in resource and development facilities.                                                                              
9:15:07 AM                                                                                                                    
PETER   STITZEL,  SITKA   MEAL,   OIL,   AND  GELATIN   (via                                                                    
teleconference),   testified  in   strong  support   of  the                                                                    
legislation.  He believed  that  supported research  through                                                                    
the resource  and development  tax credit  could effectively                                                                    
inspire  firms  to  establish  Alaska-based  operations.  He                                                                    
expressed that  wild Alaska salmon  waste was a  special and                                                                    
rare opportunity and  that its presence in  Sitka had caught                                                                    
the  attention   of  nutraceutical,   feed,  and   pet  food                                                                    
companies.  He thought  the Sitka  facility would  become an                                                                    
incubator   for   the    offshoots   of   many   businesses,                                                                    
particularly in the nutraceutical business.                                                                                     
BILL POPP, PRESIDENT AND  CHIEF EXECUTIVE OFFICER, ANCHORAGE                                                                    
ECONOMIC   DEVELOPMENT  CORPORATION   (via  teleconference),                                                                    
spoke  in support  of  HB  118. He  thought  the bill  would                                                                    
diversify Alaska's  economy by  attracting new  business and                                                                    
innovation   including  tech   transfer  opportunities   and                                                                    
venture capital. He believed  the legislation represented an                                                                    
important component in a strategy  to develop new industries                                                                    
in information technology,  renewable energy, life sciences,                                                                    
biotech, and other.                                                                                                             
Co-Chair Thomas CLOSED public testimony.                                                                                        
Vice-chair  Fairclough  asked   whether  the  administration                                                                    
objected  to  a  CS  that would  eliminate  the  ability  to                                                                    
supplement  other  oil  and  gas  credits.  She  cited  that                                                                    
Lockheed  Martin  had  expressed interest  in  facility  and                                                                    
pharmaceutical   companies  could   be   big  ticket   items                                                                    
interested in research and development.                                                                                         
9:19:55 AM                                                                                                                    
Ms.  Bell responded  that the  department would  discuss the                                                                    
idea internally  and would  get back  to the  committee. She                                                                    
explained that  DCCED wanted to  be as open as  possible and                                                                    
recognized the existence of  technological challenges in all                                                                    
industries and  the opportunity  for processes  and patents,                                                                    
Vice-chair  Fairclough relayed  that she  had advocated  for                                                                    
the  oil  and gas  tax  credits  and  was open  to  economic                                                                    
development;  however, she  believed  that oil  and gas  tax                                                                    
credits belonged in the oil and  gas bill and not in HB 118.                                                                    
She  asked  the department  to  provide  information on  how                                                                    
other  states used  the tax  credit. She  expressed that  in                                                                    
terms  of fiscal  stability that  it was  important to  know                                                                    
what the  limit was that the  state could expend in  a year,                                                                    
but that job creation would  help ease her concern about the                                                                    
amount of  the $10 million  credit. She was interested  in a                                                                    
cap on  the amount and  did not want stackable  credits. She                                                                    
wondered why  a seven-year  carry-forward of the  credit was                                                                    
necessary for a large corporation  that was not dependent on                                                                    
stability and felt that the time period was too long.                                                                           
Representative Gara wondered whether  the credit would apply                                                                    
to  a  new tobacco  or  liquor  store  because of  the  "new                                                                    
component"  definition and  what  would  preclude them  from                                                                    
applying  under the  legislation. He  was troubled  that the                                                                    
state  would  be  incorporating   a  federal  definition  of                                                                    
research  and  development  and   cited  a  portion  of  the                                                                    
language: "for  development of a  new or  improved component                                                                    
of  the tax  payer." He  added that  he was  a proponent  of                                                                    
incentivizing high tech and new innovative business.                                                                            
Ms. Bell replied that the  first threshold that research and                                                                    
development  was required  to  meet  included the  following                                                                    
four items: "purposes  discovering information technological                                                                    
in  nature;  the application  of  which  is intended  to  be                                                                    
useful in the development of  a new or improved component of                                                                    
the  tax   payer;  substantially   all  of   the  activities                                                                    
constitute   a   process   of  experimentation;   and,   the                                                                    
experimentation is for a qualifying activity or purpose."                                                                       
9:25:08 AM                                                                                                                    
Representative Gara wondered  whether seafood companies that                                                                    
filed  as  C corporations  would  not  be eligible  for  the                                                                    
credit  because they  paid the  raw  fish tax  and were  not                                                                    
corporations. Ms.  Bell responded  that in order  to qualify                                                                    
the company  would need  to be  an Alaska tax  payer as  a C                                                                    
corporation eligible for corporate tax payers.                                                                                  
Representative  Gara recommended  a sunset  and a  report to                                                                    
allow the  legislature to review  the credit in  three years                                                                    
and to assess whether it had been working.                                                                                      
Co-Chair Thomas stressed that  communities were dependent on                                                                    
the raw  fish tax and  he hoped companies were  eligible for                                                                    
the credit.                                                                                                                     
9:27:59 AM                                                                                                                    
Representative  Doogan  requested  a better  explanation  of                                                                    
what would  be allowable  under the  bill. He  was concerned                                                                    
about the use  of federal tax codes  because the information                                                                    
was  not  very  specific  and the  language  was  broad.  He                                                                    
wondered  what  was included  under  the  federal code  that                                                                    
allowed development of new technology.                                                                                          
HB  118  was  HEARD  and   HELD  in  committee  for  further                                                                    
9:29:49 AM                                                                                                                    
AT EASE                                                                                                                         
9:36:16 AM                                                                                                                    
HOUSE BILL NO. 104                                                                                                            
     "An  Act renaming  the  Alaska performance  scholarship                                                                    
     and  relating  to  the   scholarship  and  tax  credits                                                                    
     applicable   to  contributions   to  the   scholarship;                                                                    
     establishing   the   Alaska   performance   scholarship                                                                    
     investment fund and  the Alaska performance scholarship                                                                    
     award   fund  and   relating  to   the  funds;   making                                                                    
     conforming amendments;  and providing for  an effective                                                                    
9:36:16 AM                                                                                                                    
MIKE  HANLEY,  COMMISSIONER,  DEPARTMENT  OF  EDUCATION  AND                                                                    
EARLY  DEVELOPMENT  (DEED), relayed  that  HB  104 had  been                                                                    
introduced by the  governor to fund a program  that had been                                                                    
established by  the legislature the  prior year.  He relayed                                                                    
that  the  bill  would  offer incentives  for  students  and                                                                    
families  across the  state and  would ultimately  transform                                                                    
kindergarten  through   college  and  career   education  in                                                                    
Alaska.  The  scholarship   rewarded  students  that  sought                                                                    
postsecondary education  in the state and  had taken courses                                                                    
to prepare for success beyond  high school, worked hard, and                                                                    
performed well  in school.  He explained  that the  bill had                                                                    
three components,  including, the  name change from  a merit                                                                    
scholarship to  a performance scholarship in  order to avoid                                                                    
potential copyright issues; second,  the establishment of an                                                                    
award  fund  and an  investment  fund  that the  legislature                                                                    
could appropriate funds into and  taxpayers could donate to;                                                                    
three,  corporate tax  credits  to  incentivize donors.  The                                                                    
governor  was  looking  for a  sustainable  and  predictable                                                                    
source of funding to ensure  the success of the program. The                                                                    
department  had  been  working hard  with  statewide  school                                                                    
districts to utilize the scholarship program.                                                                                   
KAREN EEKS, SELF, KETCHIKAN  (via teleconference), urged the                                                                    
passage of HB  104. She discussed that she  had been heavily                                                                    
involved in  improving the graduation rate  and was involved                                                                    
in  the  local  Empowering  Youth task  force.  The  program                                                                    
researched national,  state, and local drop  out statistics,                                                                    
including  the various  reasons that  students dropped  out,                                                                    
and recommended  solutions. One  of the  recommendations had                                                                    
been for  the funding and implementation  of the performance                                                                    
scholarship. The  task force was deeply  concerned about the                                                                    
dropout rate not  only for the students but  for the state's                                                                    
economic and  social future. She  discussed that  there were                                                                    
devastating  repercussions  for   the  state's  economy  and                                                                    
society  when  youths  dropped   out  of  high  school.  She                                                                    
explained  that   the  scholarship   program  would   be  an                                                                    
important  signal  to  young  people  throughout  the  state                                                                    
regarding the  importance of their education.  She urged the                                                                    
committee  to make  modifications to  the bill  if they  had                                                                    
concerns  about equal  access to  the  program for  students                                                                    
throughout the  state. She stressed that  over the long-term                                                                    
the investment in  Alaska's students would come  back to the                                                                    
9:43:15 AM                                                                                                                    
Representative  Gara wondered  whether  she had  information                                                                    
about  the  "alternative  pathway" approach  that  had  been                                                                    
offered in other states. He  explained that the approach had                                                                    
allowed bright students, who had  not been able to take some                                                                    
of the  required coursework  or who  had received  their GED                                                                    
[General   Education  Development],   to  qualify   for  the                                                                    
Ms. Eeks was not familiar  with the alternative pathway. She                                                                    
thought that the scholarship should  be available to as many                                                                    
students  as  possible.  She  felt  that  many  youths  were                                                                    
falling  through the  cracks and  that it  was important  to                                                                    
support them.                                                                                                                   
Co-Chair Stoltze CLOSED public testimony.                                                                                       
DIANE  BARRANS,  EXECUTIVE  DIRECTOR, ALASKA  COMMISSION  ON                                                                    
POSTSECONDARY EDUCATION,  DEPARTMENT OF EDUCATION  AND EARLY                                                                    
DEVELOPMENT,  discussed  that  the House  Education  CS  had                                                                    
continued  with  the  use  of  the  new  program  name.  She                                                                    
explained that the CS and  added two additional requirements                                                                    
for postsecondary  institutions under  Section 6.  The first                                                                    
requirement was  mandatory counseling  for students  and the                                                                    
availability  of  courses  for students  to  complete  their                                                                    
degree in a timely fashion.  The department was currently in                                                                    
the  process   of  approving  institutions   to  participate                                                                    
beginning  in the  fall of  2011;  therefore, the  effective                                                                    
date  on the  new requirements  would be  FY 13.  The second                                                                    
requirement stipulated that scholarships  would be paid on a                                                                    
pro  rata  basis  and  that no  new  scholarships  would  be                                                                    
awarded  if  funding  was  insufficient.  The  Education  CS                                                                    
created  a non-lapsing  investment fund  within the  general                                                                    
fund  that  would   accept  appropriations,  donations,  and                                                                    
investment income. Additionally, the  CS created a provision                                                                    
similar  to community  revenue  sharing  that anticipated  a                                                                    
time  at  which  new  appropriations   would  no  longer  be                                                                    
accepted.  The fund  would  accept up  to  $160 million  and                                                                    
would  provide  sufficient  funding  for  students  who  had                                                                    
received  the   scholarship  to   continue  to   receive  it                                                                    
throughout their  college career. She relayed  that no other                                                                    
changes had been made to the bill.                                                                                              
9:49:23 AM                                                                                                                    
Representative   Costello   asked  whether   students   that                                                                    
graduated from the Nine Star  High School Completion Program                                                                    
would be  eligible under  the definition  of high  school on                                                                    
Page  4,  Lines  27-28.  Commissioner Hanley  did  not  know                                                                    
whether  the  Nine  Star  program   would  qualify  for  the                                                                    
scholarship.  He  noted  that  he  would  get  back  to  the                                                                    
committee with an answer.                                                                                                       
Representative Costello requested  information regarding the                                                                    
eligibility  for alternative  programs that  served at  risk                                                                    
youth and on  an expansion to the definition  to include the                                                                    
programs  if they  did not  currently qualify.  Commissioner                                                                    
Hanley replied  that the intent  was that the  program would                                                                    
be available  to all  students. He  explained that  the bill                                                                    
did not  look at the  format of  the school, but  focused on                                                                    
student qualifications  that included required  course work,                                                                    
and sufficient ACT scores.                                                                                                      
Representative  Gara   queried  whether  the   two  programs                                                                    
available  under   the  bill  were  the   need-based  Alaska                                                                    
Advantage  Education   Grant  and  the   merit-based  Alaska                                                                    
Performance  Scholarship Award.  Ms. Barrans  responded that                                                                    
the  Education CS  expanded the  scholarship award  fund and                                                                    
the investment  fund to  include Alaska  Advantage Education                                                                    
Grant funding.                                                                                                                  
Representative  Gara  asked  whether  the  Alaska  Advantage                                                                    
Education Grant  was the  existing needs-based  program. Ms.                                                                    
Barrans replied in the affirmative.                                                                                             
Representative  Gara wondered  whether  the bill  determined                                                                    
how  money  was apportioned  to  each  program. Ms.  Barrans                                                                    
replied that the legislature would  be required to determine                                                                    
how the money was divided on an annual basis.                                                                                   
Representative  Gara  discussed  an amendment  that  he  had                                                                    
distributed. He  wondered whether the department  would help                                                                    
the legislature to consider an  alternative pathway that was                                                                    
used by other  states that would allow students  who did not                                                                    
have all of  the courses available to them or  who had a GED                                                                    
to participate in  the program. He believed  that the merit-                                                                    
based  program the  former DEED  commissioner had  advocated                                                                    
for had a couple of  flaws including that many districts did                                                                    
not offer the  courses that a student needed  to qualify and                                                                    
that the scholarship  was not available to  students who had                                                                    
received a GED due to extenuating circumstances.                                                                                
Commissioner  Hanley  responded   that  the  department  was                                                                    
working very closely  with school districts that  may not be                                                                    
able to  offer all of  the courses that were  required under                                                                    
the  legislation.  He  expressed confidence  that  districts                                                                    
across  the  state  could   provide  the  required  courses;                                                                    
however, he  was willing to consider  it as a hardship  if a                                                                    
district  could   not  provide  the  required   courses.  He                                                                    
discussed  that  there  was  a  two-year  grace  period  for                                                                    
students who  experienced situations that were  beyond their                                                                    
control.  He elaborated  that students  would be  allowed to                                                                    
take a course  during the summer or during  their first year                                                                    
at  the university  level. He  expressed  concern about  the                                                                    
incorporation  of the  GED  into a  program  that worked  to                                                                    
provide   incentives    for   students   to    continue   in                                                                    
postsecondary  education  and  that   required  them  to  be                                                                    
prepared for college.                                                                                                           
Co-Chair    Stoltze    shared    similar    concerns    with                                                                    
Representative Gara.                                                                                                            
9:56:22 AM                                                                                                                    
Representative   Gara   understood  that   the   performance                                                                    
scholarship  was directed  at  high  achieving students.  He                                                                    
opined  that  merit-based  scholarships  should  not  go  to                                                                    
students who  received a 2.5  GPA and that the  money should                                                                    
go to needs-based  students. He did not  want the department                                                                    
to  offer   the  scholarship  to  low   achieving  students;                                                                    
however,   he  did   not  want   to   punish  students   for                                                                    
circumstances that  had been  out of  their control  if they                                                                    
were able to take other steps  to meet SAT or ACT and course                                                                    
Representative Wilson wondered how  the bill's definition of                                                                    
high school would  apply to children who  were home schooled                                                                    
to ensure that they were eligible for the scholarship.                                                                          
Commissioner  Hanley responded  that  the goal  was to  keep                                                                    
expectations high  without putting up hurdles  for students.                                                                    
A home  schooled student's  eligibility would  be determined                                                                    
based  on the  courses  that  they had  taken  and on  their                                                                    
SAT/ACT  scores.   He  noted  that  the   first  scholarship                                                                    
applicant  that had  recently been  accepted  had been  home                                                                    
Ms.  Barrans  added that  the  department  had developed  an                                                                    
eligibility  determination process.  She  explained that  an                                                                    
application and  an assessment were required  to ensure that                                                                    
a home school program ran parallel to high school.                                                                              
Representative Wilson  wondered whether  requiring different                                                                    
qualifications for  a needs-based program and  a merit-based                                                                    
program  in  one bill  took  away  from  the intent  of  the                                                                    
legislation. She thought a student  could just apply for the                                                                    
needs-based program  if they  did not  meet those  under the                                                                    
merit-based program.                                                                                                            
10:00:37 AM                                                                                                                   
Ms.  Barrans  responded  that  the  only  combinations  that                                                                    
occurred  in the  bill related  to  the award  fund and  the                                                                    
investment  fund.  She  relayed  that there  were  no  other                                                                    
changes  to  the  Alaska   Advantage  Grant  or  performance                                                                    
scholarship   requirements.   There    were   two   separate                                                                    
complimentary  programs in  statute  that  did not  conflict                                                                    
with each  other. The performance scholarship  was available                                                                    
beginning  with 2010  high school  graduates and  the Alaska                                                                    
Advantage  Grant  Program  was   available  to  any  student                                                                    
attending an accredited institution  in the state. A student                                                                    
was  required  to make  good  progress  and earn  sufficient                                                                    
credits to be eligible for the needs-based program.                                                                             
Representative Wilson  thought the  goal had been  create an                                                                    
equal  opportunity  for  students  to  excel;  however,  she                                                                    
believed that the existence of  two paths created by the two                                                                    
separate programs took away from the goal.                                                                                      
Ms.  Barrans disagreed.  She clarified  that there  were two                                                                    
programs with  different policy  objectives that  shared the                                                                    
goal  of preparing  students as  trained  Alaskans who  were                                                                    
ready to  enter the workforce.  The maximum award  under the                                                                    
scholarship  program was  $4,755  per year  and the  maximum                                                                    
needs-based grant was $2,000 per  year. She explained that a                                                                    
low income student  that qualified for the grant  and one of                                                                    
the three levels  of the scholarship would  receive funds to                                                                    
assist  them with  attendance fees.  The  cost of  full-time                                                                    
attendance  was   typically  about  $18,000  per   year  and                                                                    
provided incentive  for students  to maximize  the resources                                                                    
provided by the state.                                                                                                          
Co-Chair Thomas  wondered about  the eligibility  of out-of-                                                                    
state  religious   correspondence  courses.  He   had  voted                                                                    
against  the  legislation  the  previous  year  because  the                                                                    
majority of  his constituents had expressed  that they would                                                                    
not qualify under  the program. He believed  that there were                                                                    
rural districts and others that  would be left behind due to                                                                    
their inability to offer all of the required courses.                                                                           
Ms. Barrans believed  that the assessment would  be based on                                                                    
the curriculum  and not  on the source  of the  classes. She                                                                    
detailed that the curriculum would  need to pass assessment,                                                                    
along with sufficient test scores and GPA.                                                                                      
Co-Chair  Thomas  requested  a   definitive  answer  in  the                                                                    
language of the bill.                                                                                                           
Co-Chair Stoltze  requested written correspondence  from the                                                                    
department that would provide clarity  on the eligibility of                                                                    
home and  charter schools. Commissioner Hanley  replied that                                                                    
a  correspondence  course  that   was  incorporated  into  a                                                                    
student's high  school transcript would be  accepted as part                                                                    
of their transcript.                                                                                                            
Co-Chair Thomas wondered whether  scholarship funds would be                                                                    
refunded  to  the state  if  a  student dropped  out  during                                                                    
college. He reiterated his concern  about the eligibility of                                                                    
out-of-state  correspondence  courses. Ms.  Barrans  replied                                                                    
that there  were refund policies that  schools were required                                                                    
to comply with.  She expounded that the  state would receive                                                                    
a refund  in an amount  that would  depend on the  length of                                                                    
time the student had attended school prior to leaving.                                                                          
Co-Chair Thomas  remarked that he  could not  guarantee that                                                                    
he would  vote in  favor of  the bill even  if the  bill was                                                                    
amended to reflect his concerns.                                                                                                
10:07:44 AM                                                                                                                   
Representative   Guttenberg   wondered  whether   the   only                                                                    
eligibility  requirements  for  the Alaska  Advantage  Grant                                                                    
were the  ability to prove a  need for the funds  and active                                                                    
enrollment.  Ms. Barrans  replied  that a  student would  be                                                                    
required to maintain "academic  good progress," meaning that                                                                    
a student  would need to take  at least 12 credits  per term                                                                    
and maintain a minimum 2.0 GPA.                                                                                                 
Representative Guttenberg  asked whether there was  a "look-                                                                    
back" provision  related to grant eligibility.  He wanted to                                                                    
make certain  that a  student applying  for school  later in                                                                    
life was  not deemed ineligible  for the grant funds  due to                                                                    
previous  high  school  or   college  records.  Ms.  Barrans                                                                    
responded  that the  only time  there would  be a  look-back                                                                    
would be in  circumstances in which a student  had taken the                                                                    
grant  and  had  subsequently  dropped  out  of  college.  A                                                                    
student would be required to  attend one term to reestablish                                                                    
their eligibility before they could apply for the grant.                                                                        
Representative Guttenberg  echoed Co-Chair  Thomas's concern                                                                    
that a student's  location in Alaska should  not limit their                                                                    
ability to obtain either the scholarship or the grant.                                                                          
10:10:26 AM                                                                                                                   
Representative Joule wondered whether  a student was allowed                                                                    
a semester  probationary period if  their GPA  dropped below                                                                    
2.0. Ms.  Barrans responded that  a student was  required to                                                                    
have a 2.0 GPA at the end of their freshman year.                                                                               
Representative  Joule wondered  whether a  student that  had                                                                    
not  initially qualified  for funding  would be  eligible if                                                                    
they  began college  and  achieved  a 3.0  to  3.5 GPA.  Ms.                                                                    
Barrans replied that  the student would not  be eligible for                                                                    
the performance scholarship, but  they would be eligible for                                                                    
the education grant.                                                                                                            
Representative  Joule   explained  that  he  had   not  been                                                                    
speaking  only of  needs-based  students.  He surmised  that                                                                    
students  who  had  left  the state  to  attend  school  and                                                                    
performed  well   would  not   ever  be  eligible   for  the                                                                    
performance  scholarship.  He  discussed  the  incentive  to                                                                    
encourage  students  to return  to  the  state. Ms.  Barrans                                                                    
replied  that  he  was  correct.  She  understood  that  the                                                                    
legislature may  have many policy  objectives, but  the main                                                                    
objective of  the program that  had been approved  the prior                                                                    
year was to keep the  pipeline flowing from high school into                                                                    
postsecondary  education.  The  idea  was  to  increase  the                                                                    
stakes in high school and  to transform the system to reduce                                                                    
the  number  of students  that  did  not perform  well.  The                                                                    
program  required   that  students   begin  and   use  their                                                                    
eligibility within six years of high school graduation.                                                                         
10:14:22 AM                                                                                                                   
Representative Joule  communicated that  he would  prefer to                                                                    
see a  needs-based component  as it  was currently  laid out                                                                    
instead  of  a  performance-based scholarship.  He  believed                                                                    
that  the  performance part  became  an  indicator of  where                                                                    
problems  resided in  Alaska's  school  districts and  could                                                                    
help with the  ability to learn how to  develop the capacity                                                                    
for all  of Alaska's students  to qualify for  a performance                                                                    
scholarship  that would  allow them  to go  on to  academics                                                                    
and/or  a   vocational  field.  He  expressed   hope  for  a                                                                    
Representative  Edgmon  asked   for  confirmation  that  the                                                                    
governor's  FY 12  funding level  was $8.2  million for  the                                                                    
performance  scholarship and  $1.1  million  for the  Alaska                                                                    
Advantage Grant. Ms. Barrans replied in the affirmative.                                                                        
Representative Edgmon believed that  there should be more of                                                                    
a  needs-based  component  in   the  program.  He  expressed                                                                    
concern about students in smaller communities.                                                                                  
Vice-chair  Fairclough  had   learned  from  a  presentation                                                                    
related  to  standards in  math,  science  and reading  that                                                                    
Alaska's schools did not have  an aligned K-12 curriculum or                                                                    
standards for grades  11 and 12. She had  heard concern from                                                                    
the university that K-12 had  not been preparing students to                                                                    
attend college  and the K-12  schools had  communicated that                                                                    
the  university would  accept all  standards, which  was the                                                                    
reason remedial courses were needed  at a college level. She                                                                    
read a standard  for a tenth grader in  math: "explaining in                                                                    
words  or identifying  the  difference between  experimental                                                                    
and  theoretical probability  of  independent and  dependent                                                                    
events." She  believed that the measurement  had no relevant                                                                    
meaning. She  quoted from a  tenth grade  standard regarding                                                                    
writing about  a topic: "organizing ideas  using appropriate                                                                    
structure  to maintain  the unity  of the  composition (e.g.                                                                    
chronological  order, order  of  importance, comparison  and                                                                    
contrast,    cause   and    effect,   classification,    and                                                                    
identification) using  a variety  of transitional  words and                                                                    
phrases."  She   communicated  her  frustration   about  the                                                                    
complexity and  confusing nature of the  state's high school                                                                    
standards  and the  finger pointing  between the  university                                                                    
and K-12.                                                                                                                       
Commissioner Hanley replied that the  state had scored a "D"                                                                    
on  the  understandability  of  its  standards  based  on  a                                                                    
national level.  The department  was currently  developing a                                                                    
time-line to  change Alaska standards.  He had  recently met                                                                    
with  commissioners  outside  of Alaska  and  had  discussed                                                                    
national standards that other states had adopted.                                                                               
Vice-chair  Fairclough  expressed  the importance  of  clear                                                                    
standards and  of input from  PTA members and  Alaskans that                                                                    
spoke  local  languages  such as  Inupiat,  Athabascan,  and                                                                    
other.  She believed  that it  would  not help  if the  same                                                                    
people who  wrote the current  standards were the  ones that                                                                    
reviewed the new standards.                                                                                                     
Representative  Guttenberg  wondered  whether  there  was  a                                                                    
place  the   legislature  could  go  to   better  understand                                                                    
terminology used within the education  system. He noted that                                                                    
he had done  and appreciated the legislature  in a classroom                                                                    
10:24:24 AM                                                                                                                   
Commissioner Hanley  responded that DEED was  working on the                                                                    
development  of  clear  standards   that  met  national  and                                                                    
international  norms  and  on the  development  of  relevant                                                                    
place-based curriculum that varied  throughout the state. He                                                                    
hoped to bring  a new set of standards  before the committee                                                                    
the following legislative session.                                                                                              
Representative  Gara  asked  whether  the  Alaska  Advantage                                                                    
Grant  Program remained  available for  vocational education                                                                    
and  certificated courses.  Ms. Barrans  replied that  there                                                                    
had been no changes to the structure, eligibility                                                                               
requirement, or other to the grant program.                                                                                     
Representative Gara  asked whether  the bill  still included                                                                    
accountability language that required  a student to maintain                                                                    
a  certain GPA  to qualify  for the  needs-based grant.  Ms.                                                                    
Barrans replied in the affirmative.                                                                                             
HB 104 was HEARD and HELD in committee for further                                                                              
10:26:19 AM                                                                                                                   
The meeting was adjourned at 10:26 AM.                                                                                          

Document Name Date/Time Subjects
CSHB104(EDC)Sectional ACPE 3 21 11.pdf HFIN 4/7/2011 8:30:00 AM
HB 104
HB104 NEW FN CS(EDC)-EED-ACPE-03-23-11.pdf HFIN 4/7/2011 8:30:00 AM
HB 104
HB104 AWIBAPSResolution.pdf HFIN 4/7/2011 8:30:00 AM
HB 104
HB104 APS Chenault Transmittal.pdf HFIN 4/7/2011 8:30:00 AM
HB 104
HB104 NEW FN(EDC)-DOR-TAX-03-29-11.pdf HFIN 4/7/2011 8:30:00 AM
HB 104
HB104 NEW FN-DOR-TRS-03-21-11.pdf HFIN 4/7/2011 8:30:00 AM
HB 104
HB104 Sectional EDC012811 ACPE(2) HB 104.pdf HFIN 4/7/2011 8:30:00 AM
HB 104
SB43 HB104 one pagerFIN2.pdf HFIN 4/7/2011 8:30:00 AM
HB 104
SB 43
26 USC 41(d) Explanation.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB 118 - Letter of Support - Allan Johnston.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB 118 - Letter of Support - Brian Rogers.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB 118 - Letter of Support - John Wanamaker.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB 118 - Letter of Support - Kathryn Dodge.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB 118 - Letter of Support - Lockheed Martin.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB 118 Explanation of Changes HFIN.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB 118 Hearing Request HFIN.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB 118 Sectional Analysis HFIN.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB118-CCED-DED-2-18-11-Powerpoint.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
HB118-Letter of Support-AEDC.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
RD Tax Credit Rep Holmes questions 25feb11.pdf HFIN 4/7/2011 8:30:00 AM
HB 118
CSHB104(EDC)PublicTestHouseFin40711.docx HFIN 4/7/2011 8:30:00 AM
HB 104