Legislature(2013 - 2014)HOUSE FINANCE 519

03/05/2014 08:30 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 112 REPEAL FILM PRODUCTION TAX CREDIT TELECONFERENCED
Heard & Held
+ HB 181 MINING LICENSE REVENUE; REVENUE SHARING TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 5, 2014                                                                                            
                         8:34 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
8:34:21 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 8:34 a.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mia Costello                                                                                                     
Representative Bill Stoltze                                                                                                     
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative  Neal Foster;  Senator  Peter Micciche;  Paul                                                                    
Labolle,  Staff, Representative  Foster;  Joe Michel,  Staff                                                                    
Representative   Bill   Stoltze;  Donald   Donald   Bullock,                                                                    
Legislative   Counsel,  Division   of  Legal   and  Research                                                                    
Services,  Legislative   Affairs  Agency;   Bruce  Tangeman,                                                                    
Deputy Commissioner, Tax Division, Department of Revenue.                                                                       
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Joy  Baker,  Port  of  Nome;  Scott  Pexton,  Department  of                                                                    
Natural  Resources;  Johanna  Bales,  Deputy  Director,  Tax                                                                    
Division,  Department of  Revenue; Maya  Salganek, Director,                                                                    
Film Program  at University of Alaska  Fairbanks, Fairbanks;                                                                    
Michael Collier, Random  Acronyms, Anchorage; D.K. Johnston,                                                                    
Tri-Seven  Pictures, Anchorage;  Steven Rychetnik,  Owner of                                                                    
Sprocketheads,  Anchorage; Charles  Hewitt, Mirror  Studios,                                                                    
Anchorage;  Ron Holmstrom,  Actors  in  Alaska; Eric  Lizer,                                                                    
International Alliance  of Theatrical Stage  Employees Local                                                                    
918;  Brad   Swenson,  Goldring  Group,   Wasilla;  Kavelina                                                                    
Torres,  North Pole;  Deborah  Schildt,  Alaska Film  Group,                                                                    
Anchorage; Stacey Boles, Alaska New Media, Anchorage.                                                                           
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 112    REPEAL FILM PRODUCTION TAX CREDIT                                                                                     
                                                                                                                                
          HB 112 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HB 181    MINING LICENSE REVENUE; REVENUE SHARING                                                                               
                                                                                                                                
          HB 181 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HOUSE BILL NO. 181                                                                                                            
                                                                                                                                
     "An Act  relating to the accounting  for money received                                                                    
     by the state from the  mining license tax, mining lease                                                                    
     payments, and  royalties from mining on  state tide and                                                                    
     submerged  land  seaward  of a  municipality,  and  the                                                                    
     availability  of   that  money  for   appropriation  to                                                                    
     certain  boroughs  and   municipalities  outside  of  a                                                                    
     borough."                                                                                                                  
                                                                                                                                
8:35:04 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   NEAL   FOSTER,   introduced   himself.   He                                                                    
introduced  his  PowerPoint  presentation:  "HB  181  Mining                                                                    
License Revenue Tax" (copy on  file). He began with slide 2:                                                                    
"Bill Language."                                                                                                                
                                                                                                                                
     "An Act  relating to the accounting  for money received                                                                    
     by the state from the  mining license tax, mining lease                                                                    
     payments, and  royalties from mining on  state tide and                                                                    
     submerged   land  within   a   municipality,  and   the                                                                    
     availability  of   that  money  for   appropriation  to                                                                    
     certain  boroughs  and   municipalities  outside  of  a                                                                    
     borough."                                                                                                                  
                                                                                                                                
Representative  Foster  continued  with slide  3:  "Language                                                                    
Clarification."                                                                                                                 
                                                                                                                                
   · Two types of revenue:                                                                                                      
        o Mining lease payments and royalties = Competitive                                                                     
         bids for tracts of off-shore mining areas                                                                              
        o Mining license = Tax on profits                                                                                       
   · "State tide and submerged land" = Off-shore                                                                                
                                                                                                                                
8:37:23 AM                                                                                                                    
                                                                                                                                
Representative Foster  discussed slide 4: "Bill  in Laymen's                                                                    
Terms."                                                                                                                         
                                                                                                                                
   · By request of:                                                                                                             
        o Commissioner of Commerce Community and Economic                                                                       
          Development, or                                                                                                       
        o Commissioner of Department of Natural Resources                                                                       
   · Legislature may appropriate funds:                                                                                         
        o From mining leases and taxes                                                                                          
        o To municipalities                                                                                                     
        o If the mining occurs off-shore and in municipal                                                                       
          boundaries                                                                                                            
                                                                                                                                
8:38:20 AM                                                                                                                    
                                                                                                                                
Representative Foster  continued with  slide 5:  "Reason for                                                                    
Legislation."                                                                                                                   
                                                                                                                                
   · State revenue associated with mineral lease sales:                                                                         
        o Off-shore and within Nome's municipal boundaries                                                                      
        o have brought in over $700,000 in recent years to                                                                      
          the State                                                                                                             
   · Caused increased traffic in Nome's port and harbor                                                                         
   · Need more infrastructure and personnel                                                                                     
                                                                                                                                
8:39:01 AM                                                                                                                    
                                                                                                                                
Representative  Foster  continued  with  slide  6:  "Current                                                                    
Funding."  The  funding   mechanism  included  revenue  from                                                                    
mining lease, rents and mining taxes.                                                                                           
                                                                                                                                
Representative   Foster  pointed   to  slide   7:  "Proposed                                                                    
Funding."  One  half  of  the  revenue  was  placed  in  the                                                                    
Permanent Fund,  while the  other half  went to  the general                                                                    
fund.  The  legislation proposed  that  up  to half  of  the                                                                    
general fund portion would be allocated to municipalities.                                                                      
                                                                                                                                
8:39:32 AM                                                                                                                    
                                                                                                                                
Representative  Foster  discussed  slide 8:  "Mineral  lease                                                                    
rental,  royalties, and  royalty sale  proceeds in  the Nome                                                                    
area for  2011-2013." The slide's  data was compiled  by the                                                                    
Department of Natural Resources.  He stated that the revenue                                                                    
was calculated based on leases  within Nome's boundaries. He                                                                    
noted that rents, royalties and  lease sales in 2011 equaled                                                                    
$704,676. Nome's  share based on  the actual  allocation for                                                                    
the same year would be $176,169.                                                                                                
                                                                                                                                
8:40:48 AM                                                                                                                    
                                                                                                                                
Representative  Foster discussed  slide  9: "So  what do  we                                                                    
mean  when  we say  off-shore  but  within a  municipality's                                                                    
boundaries?" He discussed the map's details.                                                                                    
                                                                                                                                
8:41:26 AM                                                                                                                    
                                                                                                                                
Representative  Foster  skipped  to  slide  11:  "2011  Nome                                                                    
Offshore Lease  Sale Tract Location  Map." The  map depicted                                                                    
the different  tracts of  lease sale  areas. He  stated that                                                                    
the  City  of  Nome's   boundaries  extended  off-shore.  He                                                                    
explained  that the  lease sales  impacted  Nome's port  and                                                                    
harbor. The  bill requested a  small area be subject  to the                                                                    
legislation.                                                                                                                    
                                                                                                                                
8:42:09 AM                                                                                                                    
                                                                                                                                
Representative  Foster  discussed   slide  12:  "Nome  Beach                                                                    
Public  Mining Areas."  He explained  that  the yellow  line                                                                    
illustrated Nome's boundary. He  stated that Nome's boundary                                                                    
extended approximately 1-2 miles from the shore.                                                                                
                                                                                                                                
8:42:52 AM                                                                                                                    
                                                                                                                                
Representative  Foster  moved  the   map  on  slide  13.  He                                                                    
explained  the docks  identified  on the  map and  mentioned                                                                    
that  Nome would  require  a "middle  dock"  to address  the                                                                    
increased congestion.                                                                                                           
                                                                                                                                
8:43:17 AM                                                                                                                    
                                                                                                                                
Representative Foster pointed to  slide 14: "Area Within the                                                                    
Municipality."                                                                                                                  
                                                                                                                                
   · What makes Nome unique is its municipal boundaries go                                                                      
     off-shore                                                                                                                  
   · Nome cannot impose a property tax on open water                                                                            
   · Legislation would only capture  revenue from the leases                                                                    
     that fall within the municipal boundary                                                                                    
   · This area is small compared  to the total mining leases                                                                    
     that affect Nome's port and harbor.                                                                                        
                                                                                                                                
8:43:54 AM                                                                                                                    
                                                                                                                                
Representative  Foster  discussed  slide  15:  "Port  Vessel                                                                    
Traffic."  He stated  that  lease sales  began  in 2005.  He                                                                    
noted  the graph's  depiction of  increased  traffic due  to                                                                    
lease sales.                                                                                                                    
                                                                                                                                
8:44:19 AM                                                                                                                    
                                                                                                                                
Representative   Foster   discussed   slide   16:   "Effects                                                                    
Increased Traffic."                                                                                                             
                                                                                                                                
   · Increased traffic  of smaller  vessels are  driving the                                                                    
     need for expansion of the inner harbor                                                                                     
   · As  leases are  developed larger  vessels (too  big for                                                                    
     the inner harbor) are competing for already cramped                                                                        
     space in the outer port's two docks                                                                                        
   · The  number of  dredges, vehicles  and equipment  being                                                                    
     shipped in for the mining industry is exacerbating the                                                                     
     delays and congestion at the port                                                                                          
                                                                                                                                
8:44:58 AM                                                                                                                    
                                                                                                                                
Representative Foster concluded with slide 17: "Final                                                                           
Message."                                                                                                                       
                                                                                                                                
   · HB  181   offers  one  small  portion   of  relief  for                                                                    
     infrastructure and funding needs                                                                                           
   · Yesterday the Department notified  us that there are no                                                                    
     more lease sales planned within Nome's boundaries                                                                          
   · This  means  that going  forward  there  would only  be                                                                    
     about $4 thousand per year in revenue available to the                                                                     
     City. The funding request for the planned middle dock                                                                      
     alone is $3 million                                                                                                        
   · Solutions:                                                                                                                 
        o Retroactivity                                                                                                         
        o Area Expansion                                                                                                        
        o Capital Request                                                                                                       
                                                                                                                                
8:46:50 AM                                                                                                                    
                                                                                                                                
Representative Holmes commented that  two areas in the state                                                                    
were interested  in offshore mining leases.  She asked about                                                                    
the type of mining occurring in Nome.                                                                                           
                                                                                                                                
PAUL LABOLLE,  STAFF, REPRESENTATIVE FOSTER,  responded that                                                                    
suction and  traditional dredging comprised  Nome's offshore                                                                    
mining practices.                                                                                                               
                                                                                                                                
Representative Holmes asked about the  impact on Nome of the                                                                    
increased  number  of  dockings.   She  wondered  about  the                                                                    
proposed harbor changes.                                                                                                        
                                                                                                                                
8:48:12 AM                                                                                                                    
                                                                                                                                
Mr.  Labolle  responded  that  52  percent  of  the  vessels                                                                    
docking in  Nome were associated  with the leases,  with the                                                                    
remainder associated with  recreational mining areas located                                                                    
outside of the lease boundary.                                                                                                  
                                                                                                                                
8:49:19 AM                                                                                                                    
                                                                                                                                
Representative  Wilson asked  about  the  mechanism used  to                                                                    
determine the harbor's users.                                                                                                   
                                                                                                                                
Mr. Labolle  replied that Ms.  Baker was the best  person to                                                                    
answer the question.                                                                                                            
                                                                                                                                
JOY  BAKER, PORT  OF NOME  (via  teleconference), asked  the                                                                    
representative to repeat her question.                                                                                          
                                                                                                                                
Representative  Wilson repeated  her question.  She wondered                                                                    
about  the  utilization and  upgrades  for  the harbor.  She                                                                    
asked about a vessel tax that would address those issues.                                                                       
                                                                                                                                
Ms. Baker replied  that the city had an  indication of users                                                                    
of  the harbors  in the  port. She  stated that  the smaller                                                                    
dredgers  utilized the  recreational areas  outlined by  the                                                                    
Department  of Natural  Resources. She  mentioned a  medium-                                                                    
sized fleet that used the  harbor when working the off-shore                                                                    
leases. She noted  the increase in larger  vessels that were                                                                    
too  deep  for the  harbor  and  were crowding  the  already                                                                    
congested docks at  the port. She stated that  the volume of                                                                    
the  inner   harbor  was  the   initial  concern,   but  the                                                                    
congestion now affected both facilities.                                                                                        
                                                                                                                                
8:51:33 AM                                                                                                                    
                                                                                                                                
Representative Wilson asked if  the vessels could be charged                                                                    
a fee that would be used to add to or maintain the harbor.                                                                      
                                                                                                                                
Ms. Baker replied that port  fees were charged and increased                                                                    
in  2012  and  2013  and the  municipality  was  considering                                                                    
another tariff increase. She stated  that the fees could not                                                                    
be so large that smaller vessels could not afford them.                                                                         
                                                                                                                                
8:52:57 AM                                                                                                                    
                                                                                                                                
Vice-Chair Neuman asked about sales tax in Nome.                                                                                
                                                                                                                                
Representative Foster stated that Nome had a sales tax.                                                                         
                                                                                                                                
Vice-Chair Neuman asked the percentage.                                                                                         
                                                                                                                                
Representative Newman replied 5 percent.                                                                                        
                                                                                                                                
Representative Neuman stated that  he watched the television                                                                    
show  "Bering Sea  Gold," which  was based  out of  Nome. He                                                                    
discussed  the  mineral royalty  sales.  He  noted that  the                                                                    
sales in 2011 were different  from other years. He asked how                                                                    
long the leases were.                                                                                                           
                                                                                                                                
Representative Foster replied that the  leases were 10 to 20                                                                    
years.                                                                                                                          
                                                                                                                                
8:54:41 AM                                                                                                                    
                                                                                                                                
SCOTT   PEXTON,  DEPARTMENT   OF   NATURAL  RESOURCES   (via                                                                    
teleconference),  replied that  the off-shore  mining leases                                                                    
could be issued for 10-year to 20-year terms.                                                                                   
                                                                                                                                
Vice-Chair  Neuman stated  that  gold was  a  boom and  bust                                                                    
mining  industry.   He  asked   about  the  effect   on  the                                                                    
department related to the leases.   He asked how much of the                                                                    
lease revenue covered the department's expenses.                                                                                
                                                                                                                                
8:55:54 AM                                                                                                                    
                                                                                                                                
Mr. Pexton  replied that he  did not have the  exact figures                                                                    
requsted. Precise  time would be  difficult to  account for,                                                                    
but  he  did  not  anticipate   a  great  expense  would  be                                                                    
discovered.  He  stated  that   the  majority  of  the  work                                                                    
occurred during the actual lease sale.                                                                                          
                                                                                                                                
8:57:08 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman  noted   that  the  statutorily  required                                                                    
mandate included  coverage of the management  of the leases.                                                                    
He  imagined   that  additional  revenue  could   cover  the                                                                    
municipality  costs  related  to  building  and  maintaining                                                                    
infrastructure for the port of Nome.                                                                                            
                                                                                                                                
8:57:38 AM                                                                                                                    
                                                                                                                                
Representative Foster  offered to  work with  the department                                                                    
on some exact figures.                                                                                                          
                                                                                                                                
8:57:50 AM                                                                                                                    
                                                                                                                                
Representative  Munoz asked  about mining  activity off  the                                                                    
coast of  Yakutat. She  wondered why  the community  was not                                                                    
included in  the organization for  coverage of  their harbor                                                                    
costs.                                                                                                                          
                                                                                                                                
Mr.  Labolle replied  that lease  sales in  Yakutat did  not                                                                    
occur within the municipal boundary.                                                                                            
                                                                                                                                
Representative Munoz asked to  know more about the off-shore                                                                    
mining practices and boundaries in Yakutat.                                                                                     
                                                                                                                                
Mr.  Labolle was  unsure about  specifics.  He deferred  the                                                                    
question to the department.                                                                                                     
                                                                                                                                
8:59:04 AM                                                                                                                    
                                                                                                                                
Mr. Pexton  replied that  most of  the offshore  activity in                                                                    
Cape Yakataga  was associated with  tide and  submerged land                                                                    
mining claims. He  stated that the activity  was minimal for                                                                    
off-shore mining  leases; very  little activity  compared to                                                                    
Nome.                                                                                                                           
                                                                                                                                
Representative  Guttenberg wondered  how  the definition  of                                                                    
municipalities was applied in the proposed legislation.                                                                         
                                                                                                                                
Mr.  Labolle replied  that  all incorporated  municipalities                                                                    
were included. Second class cities were included.                                                                               
                                                                                                                                
Representative  Guttenberg asked  about  a smaller  isolated                                                                    
area  and lease  sales. He  wondered about  incorporation of                                                                    
the municipality for the lease payments.                                                                                        
                                                                                                                                
Mr.  Labolle  replied  that  the bill  was  not  written  as                                                                    
retroactive.  Lease sales,  without boundaries  established,                                                                    
could participate.  He noted that many  community boundaries                                                                    
were based  on tides as  opposed to Nome's  property corners                                                                    
that were based on real space.                                                                                                  
                                                                                                                                
9:01:31 AM                                                                                                                    
                                                                                                                                
Representative Gara  opined that the problems  faced in Nome                                                                    
were understated  by the  sponsor. He  stated that  the food                                                                    
bank was  often raided  by miners  in the  area for  a short                                                                    
period of time each year.  He asked about the maximum amount                                                                    
of money sought  by Nome as revenue sharing  from the mining                                                                    
tax.                                                                                                                            
                                                                                                                                
Representative  Foster  replied   that  the  maximum  amount                                                                    
sought would be  $740 thousand over a  three-year period. If                                                                    
the "up to  50 percent" was applied, $185  thousand would be                                                                    
the   maximum  amount   over  the   same  time   period.  He                                                                    
appreciated  the  question   although  the  revenue  sharing                                                                    
contribution  was  a  small  step  in  the  direction  of  a                                                                    
solution.                                                                                                                       
                                                                                                                                
9:03:37 AM                                                                                                                    
                                                                                                                                
Mr.  Labolle highlighted  the point  that the  $185 thousand                                                                    
was  estimated  from the  combination  of  the sale  of  the                                                                    
initial  lease and  subsequent  rents  and royalties,  which                                                                    
were small reoccurring payments.                                                                                                
                                                                                                                                
9:04:35 AM                                                                                                                    
                                                                                                                                
Representative Gara discussed  the state's antiquated mining                                                                    
tax policies for large scale mining operations.                                                                                 
                                                                                                                                
9:05:15 AM                                                                                                                    
                                                                                                                                
Co-Chair Austerman OPENED public testimony.                                                                                     
                                                                                                                                
Co-Chair Austerman CLOSED public testimony.                                                                                     
                                                                                                                                
HB  181  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
9:05:58 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:08:21 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 112                                                                                                            
                                                                                                                                
     "An  Act  repealing  the film  production  tax  credit;                                                                    
     providing  for  an  effective  date  by  repealing  the                                                                    
     effective dates  of secs.  31 - 33,  ch. 51,  SLA 2012;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
9:08:29 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman MOVED  to  ADOPT  the proposed  committee                                                                    
substitute  for  HB  112, Work  Draft  28-LS0402/C  (Bullock                                                                    
3/4/14). Representative Thompson OBJECTED for discussion.                                                                       
                                                                                                                                
JOE MICHEL,  STAFF REPRESENTATIVE BILL STOLTZE,  stated that                                                                    
the workdraft was similar to  the one presented in the prior                                                                    
year.  Legislation   enacted  in   2012  for   two  programs                                                                    
necessitated  the   CS  and  its  proposed   repeal  of  the                                                                    
production film tax credit.                                                                                                     
                                                                                                                                
DONALD BULLOCK,  LEGISLATIVE COUNSEL, DIVISION OF  LEGAL AND                                                                    
RESEARCH SERVICES,  LEGISLATIVE AFFAIRS AGENCY  detailed the                                                                    
CS. He stated major changes  that occurred in 2012 including                                                                    
moving the  film credits to  the Department of  Revenue from                                                                    
the   Department  of   Commerce,   Community  and   Economic                                                                    
Development. Another change expanded  the application of the                                                                    
credit  to all  taxes. The  original credit  applied to  the                                                                    
corporation income  tax alone.  Effective July 1,  2013, the                                                                    
credit  was  applicable  to any  tax,  which  increased  the                                                                    
amount  to $200  million in  potential general  fund losses.                                                                    
With  the changes  that took  effect in  2013, the  original                                                                    
bill  repealed the  provisions that  allowed  the credit  to                                                                    
apply  against all  taxes and  allowed for  transfer of  the                                                                    
program to the Department of  Revenue. The original bill did                                                                    
not  pass last  year, which  allowed the  sections involving                                                                    
the transfer and  broader application of the  credit to take                                                                    
effect July  1, 2013.  The CS  must undo  the effect  of the                                                                    
process  by  repealing  the  current  film  program  in  the                                                                    
Department  of Revenue  that provided  a credit  up to  $200                                                                    
million.                                                                                                                        
                                                                                                                                
9:12:48 AM                                                                                                                    
                                                                                                                                
Mr. Bullock  discussed sections 1  and 2 of the  bill, which                                                                    
discussed  the fisheries  landing  and  business tax.  Those                                                                    
taxes allowed  municipalities a portion  of the  revenue. He                                                                    
informed  the  committee  that  the  Department  of  Revenue                                                                    
calculated the  revenue sharing for municipalities  prior to                                                                    
the application  of credits.  Sections 1  and 2  removed the                                                                    
reference  to  AS.43.98.030,  which  was  the  statute  that                                                                    
allowed the Department of Revenue to issue the credits.                                                                         
                                                                                                                                
Mr. Bullock  discussed section  3 of the  CS. He  noted that                                                                    
the  section  was  not  immediately  repealed.  The  section                                                                    
allowed for the  collection of credits that  should not have                                                                    
been issued  or an amount of  damages caused as a  result of                                                                    
the  film production  tax credits.  The section  would allow                                                                    
the  department time  to  recover credits  due  back to  the                                                                    
state.                                                                                                                          
                                                                                                                                
9:14:09 AM                                                                                                                    
                                                                                                                                
Mr.  Bullock continued  with section  4 and  the requirement                                                                    
that  the  Legislative  Budget  and  Audit  (LB&A)  division                                                                    
review the film credit program  and report their findings to                                                                    
the legislature. He noted  that statute AS.43.98.030 allowed                                                                    
the  department to  issue the  credits. Additional  statutes                                                                    
allowed  the  authority  to the  Department  of  Revenue  to                                                                    
operate the film office and  designate the criteria used for                                                                    
credit qualification  and operation  of the program.  All of                                                                    
the sections  of the  law would be  repealed. He  noted that                                                                    
section  44.33.231(c) was  the  section  that addressed  the                                                                    
Department of  Commerce, Community and  Economic Development                                                                    
and  its  assistance  in  managing   the  program  with  the                                                                    
Department of  Revenue. Since the film  credit program would                                                                    
be  eliminated,  the  need  for  assistance  was  no  longer                                                                    
relevant.                                                                                                                       
                                                                                                                                
9:15:32 AM                                                                                                                    
                                                                                                                                
Mr. Bullock stated  that section 5 extended  the repeal date                                                                    
for the  recovery of the  film production tax  credit. After                                                                    
the  credit  was eliminated,  the  section  would remain  in                                                                    
effect until 2020.                                                                                                              
                                                                                                                                
9:15:58 AM                                                                                                                    
                                                                                                                                
Mr.  Bullock  discussed section  6  and  the repeal  of  the                                                                    
provisions in  the 2012  law. Section  7 was  different from                                                                    
last year's proposed  legislation due to the  new program in                                                                    
effect as of July 1, 2013.  Section 7 noted that if a person                                                                    
received  qualification prior  to July  1, 2031,  the credit                                                                    
would continue to be evaluated  by the department. Section 2                                                                    
referred  to  the program  that  took  effect July  1,  2013                                                                    
stating  that a  notice of  qualification received  prior to                                                                    
the effective  date of July  1, 2014 would  allow continuing                                                                    
review of expenditures by the Department of Revenue.                                                                            
                                                                                                                                
Mr. Bullock moved to subsection (b)  on page 3 of the CS. He                                                                    
noted that the subsection  allowed the credit, once received                                                                    
to offset taxes  or be sold or exchanged  for a transferable                                                                    
tax  credit within  3 years.  Because the  credits could  be                                                                    
transferred, the  market would  remain healthy.  He provided                                                                    
an example of credit exchange  with an oil company. He added                                                                    
that  subsection  (c)   stated  that  certain  circumstances                                                                    
allowed  the   department  to  hold  a   credit  that  would                                                                    
otherwise be paid.                                                                                                              
                                                                                                                                
Mr. Bullock stated  that section 8 repealed  sections of the                                                                    
2012   law  that   included   effective   dates  no   longer                                                                    
applicable. He provided an example.                                                                                             
                                                                                                                                
9:18:49 AM                                                                                                                    
                                                                                                                                
Mr.  Bullock explained  that section  9 addressed  the Act's                                                                    
effective  date.  He  stated that  section  5  included  the                                                                    
delayed repeal  date for the collection  statute. Section 10                                                                    
stated that  the bill would  take effect  immediately except                                                                    
for  the special  effective dates  listed in  section 9.  He                                                                    
noted that the  Department of Revenue was  present to answer                                                                    
specific questions about the administration of the tax.                                                                         
                                                                                                                                
9:19:32 AM                                                                                                                    
                                                                                                                                
Representative  Gara   clarified  that  the   House  Finance                                                                    
Committee   substantially  rewrote   the  film   tax  credit                                                                    
provisions to  limit the amount  of money  to million-dollar                                                                    
actors and  actresses. He asked  if that  provision remained                                                                    
in current law.                                                                                                                 
                                                                                                                                
Mr.  Bullock  replied  that adjustments  were  made  to  the                                                                    
credits  that  allowed a  greater  emphasis  on the  use  of                                                                    
Alaskan talent  and reduced the  credit available  for above                                                                    
the line  expenditures related to writers  and directors. He                                                                    
believed  that  the  provisions  benefitting  Alaskans  were                                                                    
included in the 2012 bill.                                                                                                      
                                                                                                                                
9:20:53 AM                                                                                                                    
                                                                                                                                
BRUCE   TANGEMAN,   DEPUTY   COMMISSIONER,   TAX   DIVISION,                                                                    
DEPARTMENT OF REVENUE was available to answer questions.                                                                        
                                                                                                                                
Representative Gara  stated that when a  corporation visited                                                                    
Alaska, they were obligated to pay corporate tax as a C-                                                                        
corporation.  He  asked for  an  estimate  of corporate  tax                                                                    
revenue taken by the department.                                                                                                
                                                                                                                                
Mr. Tangeman deferred the question to the tax division.                                                                         
                                                                                                                                
JOHANNA BALES, DEPUTY DIRECTOR,  TAX DIVISION, DEPARTMENT OF                                                                    
REVENUE  (via  teleconference),   responded  that  companies                                                                    
eligible for the  tax credits were not  corporate income tax                                                                    
payers. No additional corporate  income tax revenue was seen                                                                    
as  a  result  of  the  credit  addressed  in  the  proposed                                                                    
legislation.                                                                                                                    
                                                                                                                                
Representative  Gara asked  about  the  corporate tax  which                                                                    
applied  to  C-corporations  alone.  He asked  if  the  film                                                                    
companies were C-corporations.                                                                                                  
                                                                                                                                
Ms. Bales replied that even  a C-corporation would not apply                                                                    
due to  the time  spent filming in  Alaska. She  stated that                                                                    
most  of the  productions companies  were Limited  Liability                                                                    
Corporations (LLC).                                                                                                             
                                                                                                                                
Representative  Gara understood  that  some states  utilized                                                                    
revenue for  work created in  Alaska. He noted that  part of                                                                    
the  revenue  obtained  from some  C-corporations  had  been                                                                    
partially created in Alaska. He  asked if the department had                                                                    
made an effort to tax the C-corporations.                                                                                       
                                                                                                                                
9:24:25 AM                                                                                                                    
                                                                                                                                
Ms.  Bales replied  that most  production  expenses for  the                                                                    
film industry were performed by companies that were not C-                                                                      
corporations. The  companies generally  sold the  rights for                                                                    
the productions to the large  distributors like Paramount or                                                                    
Fox.  The  production  companies   themselves  were  not  C-                                                                    
corporations and were not subject  to tax. She agreed that a                                                                    
portion of revenue  earned while in Alaska was  taxed by the                                                                    
department, but only for C-corporations.  She stated that he                                                                    
department   had  accurate   awareness   of  the   companies                                                                    
producing in  the state  and the  nature of  their business;                                                                    
most if not all were LLC.                                                                                                       
                                                                                                                                
Representative  Gara wondered  why  the  department had  not                                                                    
collected any revenue from C-corporations.                                                                                      
                                                                                                                                
Ms. Bales replied  that the state would  collect tax returns                                                                    
from   C-corporations,   but   significant  tax   from   the                                                                    
productions in the state had not been collected.                                                                                
                                                                                                                                
Representative  Gara requested  current  data regarding  the                                                                    
revenues collected for the film industry in Alaska.                                                                             
                                                                                                                                
9:26:22 AM                                                                                                                    
                                                                                                                                
Representative  Guttenberg asked  about the  audit performed                                                                    
last year.                                                                                                                      
                                                                                                                                
Mr. Michel  replied that the  LB&A audit control  number for                                                                    
last year's audit was 08-30066-12.                                                                                              
                                                                                                                                
Representative   Guttenberg  asked   for  audit   highlights                                                                    
related to economic benefit.                                                                                                    
                                                                                                                                
Mr.  Michel  replied that  the  audit  in 2012  displayed  a                                                                    
multiplier  effect when  a company  did  business and  spent                                                                    
money  in  the state.  He  stated  that recommendations  and                                                                    
conclusions  of the  audit would  be made  available to  the                                                                    
committee  members. The  audit  did not  display a  positive                                                                    
fiscal impact  to the  state. The  corporations did  not pay                                                                    
corporate  income  tax. He  noted  that  the state  did  not                                                                    
receive  the amount  of income  in tax  revenue required  to                                                                    
counter the expense of the  tax credits. He stated that some                                                                    
Alaskan businesses benefitted from  a film company coming to                                                                    
the state.                                                                                                                      
                                                                                                                                
Representative  Guttenberg  understood  that  the  film  tax                                                                    
credit notion was in its  infancy and a spontaneous eruption                                                                    
of tax revenue could not be expected.                                                                                           
                                                                                                                                
9:29:22 AM                                                                                                                    
                                                                                                                                
Representative Guttenberg  asked about  a calculation  of an                                                                    
increase in  applications for  the tax  credits in  2013. He                                                                    
wondered about a rise in industry activity.                                                                                     
                                                                                                                                
Mr.  Tangeman  replied that  the  applications  for the  tax                                                                    
credits  were fairly  consistent  during the  time that  the                                                                    
department had overseen the process.                                                                                            
                                                                                                                                
Representative Guttenberg  asked if  the film  companies had                                                                    
three years to file for credits.                                                                                                
                                                                                                                                
Mr.  Tangeman  replied that  $40  thousand  in credits  were                                                                    
issued. He  noted that $60 million  in pre-approved projects                                                                    
were pending.  Most of the qualifications  occurred when the                                                                    
program was under the Department  of Commerce, Community and                                                                    
Economic  Development. The  Department of  Revenue continued                                                                    
the pre-approval process.                                                                                                       
                                                                                                                                
Representative  Guttenberg   wondered  about   the  public's                                                                    
viewpoint on the benefits of the tax credit program.                                                                            
                                                                                                                                
9:30:59 AM                                                                                                                    
                                                                                                                                
MAYA  SALGANEK,  DIRECTOR,  FILM PROGRAM  AT  UNIVERSITY  OF                                                                    
ALASKA FAIRBANKS,  FAIRBANKS (via teleconference),  spoke in                                                                    
support of tax credits for  the film industry. She testified                                                                    
in  opposition to  the legislation.  The university  program                                                                    
had seen a 67 percent  increase in its film-class enrollment                                                                    
since  2008.  She  stated  that  projects  produced  by  the                                                                    
students were  recognized nationally  and the  students were                                                                    
excited  about their  prospects and  employment by  the film                                                                    
industry. She  believed that the film  tax incentive program                                                                    
connected industry  members with the students  in Fairbanks.                                                                    
She opined  that a loss  of the  tax incentive would  mean a                                                                    
loss of  students. She  spoke about  the investment  made by                                                                    
the university for film students  that was the result of the                                                                    
incentive program.                                                                                                              
                                                                                                                                
9:35:53 AM                                                                                                                    
                                                                                                                                
MICHAEL   COLLIER,    RANDOM   ACRONYMS,    ANCHORAGE   (via                                                                    
teleconference),  discussed the  economic  potential of  the                                                                    
film  industry  in  Alaska.  He  stated  opposition  to  the                                                                    
legislation, which  he believed was  an effort to  cripple a                                                                    
burgeoning industry.  He stated that his  production company                                                                    
was  growing   quickly;  the  film   technicians  benefitted                                                                    
substantially. He  pointed out that the  rental car agencies                                                                    
also benefitted. He stated that  the filming allowed for the                                                                    
creation of  new jobs in  Alaska. He spoke about  New Mexico                                                                    
and  the  beneficial  use  of  the  film  industry  and  tax                                                                    
credits.  He  believed   that  each  production  represented                                                                    
millions of dollars spent in  state and he compared the film                                                                    
industry to tourism.                                                                                                            
                                                                                                                                
9:40:22 AM                                                                                                                    
                                                                                                                                
Representative   Guttenberg  appreciated   the  benefit   of                                                                    
Alaskans telling their own story.                                                                                               
                                                                                                                                
9:40:43 AM                                                                                                                    
                                                                                                                                
D.K.   JOHNSTON,   TRI-SEVEN    PICTURES,   ANCHORAGE   (via                                                                    
teleconference), voiced  opposition to  the bill.  He stated                                                                    
that  the   film  industry  jobs  created   in  Alaska  were                                                                    
substantial and  growing. He urged the  committee members to                                                                    
vote against the passage of the bill.                                                                                           
                                                                                                                                
9:42:37 AM                                                                                                                    
                                                                                                                                
STEVEN  RYCHETNIK, OWNER  OF  SPROCKETHEADS, ANCHORAGE  (via                                                                    
teleconference),  testified in  opposition to  the bill.  He                                                                    
stated  that he  was a  lifelong  Alaska and  a film  making                                                                    
professional since 1977.  He noted that the  film tax credit                                                                    
program  was vetted  and the  new and  improved program  was                                                                    
signed  into  law  until  2023. He  stated  that  the  law's                                                                    
progress was  halted by Co-Chair  Stoltze. He  stressed that                                                                    
HB 112 was  the sequel that no one wanted  to see. He opined                                                                    
that  the  repeal  was risky  for  producers  interested  in                                                                    
Alaska.                                                                                                                         
                                                                                                                                
9:45:35 AM                                                                                                                    
                                                                                                                                
CHARLES    HEWITT,    MIRROR   STUDIOS,    ANCHORAGE    (via                                                                    
teleconference),    testified   in    opposition   to    the                                                                    
legislation.  He  requested  time   for  the  tax  incentive                                                                    
program to prove  itself. He informed the  committee that he                                                                    
was a Republican and owner  of a post-production facility in                                                                    
Anchorage.  He noted  the  challenge  of convincing  out-of-                                                                    
state  colleagues   to  film  in   Alaska  because   of  the                                                                    
additional  costs associated  with the  geographic location.                                                                    
The film  tax credit  program opened  doors and  allowed for                                                                    
the  attraction  of  a  new  industry  to  the  state  while                                                                    
showcasing Alaska to the rest of the world.                                                                                     
                                                                                                                                
9:47:51 AM                                                                                                                    
                                                                                                                                
RON  HOLMSTROM,  ACTORS   IN  ALASKA  (via  teleconference),                                                                    
testified in  opposition to the legislation.  He stated that                                                                    
the initial bill  allowed support for the  film industry. He                                                                    
informed the  committee that  offers to  film in  Alaska had                                                                    
been withdrawn following the introduction  of the repeal. He                                                                    
noted that some films showcasing  Alaska were filmed in Utah                                                                    
or  Iceland because  of the  instability  introduced by  the                                                                    
bill. He wished  that the bill would revert  to its original                                                                    
form where  it attracted  millions of  dollars to  the state                                                                    
and put many Alaskans to work with the film industry.                                                                           
                                                                                                                                
9:50:00 AM                                                                                                                    
                                                                                                                                
ERIC  LIZER,  INTERNATIONAL  ALLIANCE  OF  THEATRICAL  STAGE                                                                    
EMPLOYEES  LOCAL  918  (via  teleconference),  testified  in                                                                    
opposition to the legislation. He  stated that his union had                                                                    
28 members prior to the  introduction of tax credits for the                                                                    
film industry. Following the  tax credit program, membership                                                                    
rose to 85 members. He  considered the film industry a state                                                                    
resource  because of  the taxes  and  revenues yielded  from                                                                    
film  industry visitors.  He spoke  about the  popularity of                                                                    
television shows and movies featuring Alaska.                                                                                   
                                                                                                                                
9:55:36 AM                                                                                                                    
                                                                                                                                
BRAD SWENSON, GOLDRING  GROUP, WASILLA (via teleconference),                                                                    
testified  in opposition  to the  legislation. He  expressed                                                                    
excitement  about keeping  the  film tax  program alive.  He                                                                    
spoke about the competitive nature  in Alaska. He noted that                                                                    
the cost of  doing business in Alaska was  higher than other                                                                    
states.  He explained  that the  film tax  incentive program                                                                    
allowed the industry to affordably operate in-state.                                                                            
                                                                                                                                
9:57:23 AM                                                                                                                    
                                                                                                                                
KAVELINA TORRES, NORTH  POLE (via teleconference), testified                                                                    
in opposition to  the legislation. She spoke  about the many                                                                    
different  employment  opportunities  offered to  her  as  a                                                                    
writer because of  the film industry tax  credits. She spoke                                                                    
about the importance of sharing the Alaska story.                                                                               
                                                                                                                                
10:02:19 AM                                                                                                                   
                                                                                                                                
DEBORAH   SCHILDT,  ALASKA   FILM   GROUP,  ANCHORAGE   (via                                                                    
teleconference),    testified   in    opposition   to    the                                                                    
legislation. She stated  that the Alaska Film  Group was the                                                                    
state's  largest nonprofit  trade  association  of film  and                                                                    
video   professionals.  She   noted  the   positive  impacts                                                                    
received by  members as  a result of  the film  tax credits.                                                                    
She  believed that  the film  production  dollars created  a                                                                    
healthy  and  diversified   Alaskan  economy.  Alaskan-based                                                                    
corporations  were  able to  utilize  the  credits to  bring                                                                    
savings to  their bottom line,  which allowed  businesses to                                                                    
grow and hire additional employees.  She spoke to the impact                                                                    
of   film  production   in  Alaskan   communities  such   as                                                                    
Anchorage, Barrow, Eagle  River, Fairbanks, Ketchikan, Nome,                                                                    
Juneau, Palmer, Sitka, Sutton and Wasilla.                                                                                      
                                                                                                                                
10:05:57 AM                                                                                                                   
                                                                                                                                
STACEY   BOLES,    ALASKA   NEW   MEDIA,    ANCHORAGE   (via                                                                    
teleconference),    testified   in    opposition   to    the                                                                    
legislation. She spoke about the  interest in film education                                                                    
by  students in  Alaska. She  stated that  she had  prepared                                                                    
students for entry-level positions  in the film industry and                                                                    
supported   their   advancement.   She   spoke   about   the                                                                    
opportunities   for  advancement   in   the  industry.   She                                                                    
mentioned the  value of the  Alaskan crewmember in  the film                                                                    
industry.  She  urged  the committee  to  vote  against  the                                                                    
legislation.                                                                                                                    
                                                                                                                                
10:08:28 AM                                                                                                                   
                                                                                                                                
Co-Chair Austerman CLOSED public testimony.                                                                                     
                                                                                                                                
Representative  Wilson asked  why residency  was established                                                                    
at 30 days for the film industry.                                                                                               
                                                                                                                                
Representative  Gara noted  one class  of people  that would                                                                    
qualify for a credit if  they met the residency requirements                                                                    
used by the Permanent Fund Dividend (PFD) program.                                                                              
                                                                                                                                
Co-Chair  Austerman  asked  for  laymen's  terms  describing                                                                    
sections 1 and 2 of the CS.                                                                                                     
                                                                                                                                
Mr.  Michel  replied  that the  sections  were  added  after                                                                    
consultation with  the Department of Revenue  due to concern                                                                    
from  the municipalities  regarding their  share of  revenue                                                                    
from   the  fishery   landing  tax.   He  stated   that  the                                                                    
municipality took their share prior  to the application of a                                                                    
tax  credit. The  municipalities  were  held harmless  under                                                                    
sections 1 and 2.                                                                                                               
                                                                                                                                
10:10:59 AM                                                                                                                   
                                                                                                                                
Vice-Chair  Neuman discussed  the  audit  performed by  LB&A                                                                    
(copy on file). He noted  that the credits available to non-                                                                    
residents  comprised 54  percent of  the credits  issued. He                                                                    
stated that the  data showed that most  employees hired were                                                                    
non-Alaskans. He wondered if the audit findings were                                                                            
researched and whether improvements had been discovered.                                                                        
                                                                                                                                
Mr. Michel replied that the information comparing resident                                                                      
to non-resident wages was not available.                                                                                        
                                                                                                                                
Representative Thompson WITHDREW his OBJECTION. There being                                                                     
NO OBJECTION, it was so ordered. The CS was adopted.                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
10:12:35 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 10:12 a.m.                                                                                         

Document Name Date/Time Subjects
Distribution HB 181.pptx HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181 leg research applicability.pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181 Support East West Nome Beach Public Mining Area R (3) (1).pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181- Supporting Documents Mayor letter.pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181-Sponsor Statement.pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181-Supporting Documents legal service memo.pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181-Supporting Documents Nome Leases Rental Royalties and Royalty Sale Proceeds.pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181-Supporting Documents Nome Mining Map.pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181-Supporting Documents Nome Offshore Lease Tract Map (March 2012).pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181-Supporting Documents Nome Vessel Calls Chart at 11 06 12 edited.pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181-Supporting Documents Nome Vessel Stats Spread at 11 06 12.pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 181 PPT presentationpdf.pdf HFIN 3/5/2014 8:30:00 AM
HB 181
HB 112 CS WORKDRAFT FIN - C VERSION.pdf HFIN 3/5/2014 8:30:00 AM
HB 112