Legislature(2013 - 2014)HOUSE FINANCE 519

03/11/2014 08:30 AM FINANCE

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08:36:53 AM Start
08:37:18 AM HB112
09:24:07 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 112(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 11, 2014                                                                                            
                         8:36 a.m.                                                                                              
8:36:53 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze called the House Finance Committee meeting                                                                     
to order at 8:36 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Johanna Bales, Deputy Director, Tax Division, Department of                                                                     
HB 112    REPEAL FILM PRODUCTION TAX CREDIT                                                                                     
          HB  112 was  REPORTED  out of  committee with  "no                                                                    
          recommendation"  and  with  one  new  zero  impact                                                                    
          fiscal  note  from  the  Department  of  Commerce,                                                                    
          Community and Economic  Development and one fiscal                                                                    
          impact note from the Department of Revenue.                                                                           
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."                                                                                      
8:37:18 AM                                                                                                                    
Co-Chair Stoltze asked  if there were any  amendments to the                                                                    
Representative Costello discussed the  zero fiscal note from                                                                    
the   Department  of   Commerce,   Community  and   Economic                                                                    
Development  (DCCED) and  the fiscal  impact  note from  the                                                                    
Department of Revenue (DOR).                                                                                                    
Co-Chair  Stoltze noted  that there  had been  approximately                                                                    
$40 million in  credits redeemed and $60  million in credits                                                                    
encumbrance; the total was $200 million.                                                                                        
Vice-Chair Neuman  MOVED to REPORT  HB 112 out  of committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
Representative  Gara pointed  to  the $40  million used.  He                                                                    
wondered if there was an annual limit.                                                                                          
JOHANNA BALES, DEPUTY DIRECTOR,  TAX DIVISION, DEPARTMENT OF                                                                    
REVENUE, responded that  the limitation was by  amount for a                                                                    
period of  time. The first  $100 million in the  program was                                                                    
through  the  end of  June  2013,  and the  additional  $200                                                                    
million was for the period running through 2023.                                                                                
Representative  Wilson wondered  why  the  tax credits  were                                                                    
allowed  to be  sold  versus the  industry  using them.  Ms.                                                                    
Bales replied  that the producers receiving  the tax credits                                                                    
were typically not tax payers.  They were not subject to any                                                                    
of the eight different tax  types, of which the credit could                                                                    
be  taken against.  In  order for  the  producer to  receive                                                                    
anything,  they would  need to  transfer the  credit to  tax                                                                    
Representative Wilson  asked how  the legislature  or public                                                                    
find  out  where  the  tax  credits  were  used.  Ms.  Bales                                                                    
responded  that the  department  tracked  where the  credits                                                                    
were used. She stated that when  a tax payer purchases a tax                                                                    
credit the receive  a certificate which must  be attached to                                                                    
the tax  return filing  against the tax  type that  would be                                                                    
claimed  under  the  credit.  She   agreed  to  provide  the                                                                    
information in the aggregate.                                                                                                   
Representative Wilson asked if the  public saw the detail of                                                                    
who utilizes the  credits. Ms. Bales replied  that she could                                                                    
provide the  tax types the  credits were taken  against, but                                                                    
not the name of the tax payer.                                                                                                  
Co-Chair  Stoltze  assumed  that there  was  anonymity.  Ms.                                                                    
Bales replied that there  were confidentiality statutes that                                                                    
prohibited DOR from distributing that information.                                                                              
Representative Thompson corrected the fiscal note.                                                                              
Representative Costello  restated the  fiscal note  from DOR                                                                    
showed that  the fiscal  impact for FY  15 was  $338,400, no                                                                    
fiscal  impact in  FY 16  and FY  17, and  a savings  to the                                                                    
state in FY 18 forward of $304,800.                                                                                             
8:43:58 AM                                                                                                                    
Representative  Costello wondered  about information  on the                                                                    
amount  of money  that went  to salaries  for Alaskans.  Ms.                                                                    
Bales replied that no tax  credits had been issued under the                                                                    
new  program.  The  prior  program  had  been  overseen  and                                                                    
administered  by  DCCED.  The   department  was  working  to                                                                    
decipher  the amount  of wages  that were  paid directly  to                                                                    
Co-Chair   Stoltze  asked   if  there   were  any   industry                                                                    
pronouncements to hire Alaskans.  Ms. Bales replied that the                                                                    
department  did   receive  information  from  some   of  the                                                                    
production companies, when they  were seeking Alaska talent.                                                                    
She stated that  she did not have  any information regarding                                                                    
what the companies had done to promote hiring Alaskans.                                                                         
Representative Costello remarked that  the amount of the tax                                                                    
credit  would equal  the amount  of money  that was  paid to                                                                    
Alaskans, because  that was how the  legislature drafted the                                                                    
bill. She  stressed that  the number would  be equal  to the                                                                    
salaries that were going to Alaskans.                                                                                           
Representative   Munoz   asked    about   clarification   on                                                                    
outstanding credits. Ms. Bales  replied that $42 million had                                                                    
been redeemed  of $86 million  rewarded. She stated  that $8                                                                    
billion  had been  prequalified under  the new  program, and                                                                    
applications  were currently  being examined,  and could  be                                                                    
prequalified before July 1, 2014.                                                                                               
Co-Chair Stoltze surmised that it  was just higher than $100                                                                    
million. Ms. Bales agreed.                                                                                                      
Representative  Munoz   asked  if   the  $200   million  was                                                                    
repealed,  which  would  have carried  forward  to  2023.Ms.                                                                    
Bales replied  that the amount  would be slightly  less $200                                                                    
million in potentially increased  revenue if the program was                                                                    
Representative  Wilson asked  about residency  requirements.                                                                    
She understood that  one had to be present in  Alaska for 30                                                                    
days. Ms. Bales  replied in the affirmative.  Below the line                                                                    
wages  would  need  to  meet  the  Permanent  Fund  Dividend                                                                    
residency requirements.                                                                                                         
Representative Gara  understood that there was  a total $300                                                                    
million allocation for the program  over ten years, with $42                                                                    
million since  the program's inception. Apart  from the $200                                                                    
million leftover through 2023,  he understood that there was                                                                    
a certain amount that was  encumbered. He queried a range of                                                                    
estimates that the state would  pay for pending applications                                                                    
at  the top  and  bottom  end. Ms.  Bales  replied that  the                                                                    
department  had approved  $86  million  in credits,  meaning                                                                    
that the  companies had received  a transferable  tax credit                                                                    
certificate.  Of those,  $42 million  had been  used against                                                                    
taxes. The  department had  preapproved another  $8 million,                                                                    
which  meant  that  a  company  had  stated  that  they  had                                                                    
estimated  expenses for  a proposed  production. She  stated                                                                    
that there  were several current  applications that  had not                                                                    
been  prequalified   for  production.  She   announced  that                                                                    
approximately $100 million had been actually approved.                                                                          
8:50:45 AM                                                                                                                    
Representative  Guttenberg asked  for  clarification on  the                                                                    
prequalified number.  Ms. Bales replied that  the number was                                                                    
$8 million.                                                                                                                     
Representative  Guttenberg asked  how many  productions that                                                                    
made up. Ms. Bales replied that there were 29 productions.                                                                      
Representative  Gara  began  as  mildly  supportive  of  the                                                                    
program. He  believed the program should  be maintained. The                                                                    
state's  economy was  not diverse.  The Native  corporations                                                                    
had become  a driving force, so  did not have a  broad based                                                                    
economy. The program did not cost  the state a lot of money.                                                                    
It equated to approximately $20  million per year. The state                                                                    
had increased the  amount of money going to  local hire, and                                                                    
it  had a  side effect  of benefitting  the state's  tourism                                                                    
economy.  The flaw  in all  of the  state's tax  credits was                                                                    
that companies only paid a corporate  tax when they were a C                                                                    
corporation. He discussed the loophole  in the corporate tax                                                                    
program. He  believed the  committee would  have to  look at                                                                    
the issue in the future.                                                                                                        
8:56:07 AM                                                                                                                    
Representative  Gara continued  discussing taxes  in Alaska.                                                                    
He believed  the bill  helped move  the economy  forward. He                                                                    
pointed to past testimony that  the program had created many                                                                    
desirable jobs  for Alaskans. He  reiterated that  the state                                                                    
did  not have  many  ways  to diversify  the  economy. If  a                                                                    
person was not interested in  the oil industry or the health                                                                    
field there  were other jobs  offered. He restated  that the                                                                    
program cost approximately  $20 million per year;  a cap had                                                                    
been  put on  the  amount intentionally.  He discussed  that                                                                    
Senator  Johnny Ellis  had  been the  prime  sponsor of  the                                                                    
program. He pointed  to locations films ad  been produced in                                                                    
the past; films were now filmed  in Alaska due to the credit                                                                    
program. The  program brought jobs  to rural Alaska.  He did                                                                    
not believe  getting rid  of the  program was  necessary. He                                                                    
spoke in support of the program.                                                                                                
Vice-Chair Neuman  spoke against the program.  He pointed to                                                                    
an audit  of the program  (copy on  file). He read  from the                                                                    
audit. He spoke to the fiscal  impact of the bill. He stated                                                                    
that $21 million of investment  brought in $1 million to the                                                                    
state. He pointed to difficult  fiscal times and spoke about                                                                    
reductions in  the operating budget.  He wondered  where the                                                                    
state would  come up  with the  money. He  acknowledged that                                                                    
some money went to Alaskans. He supported the bill.                                                                             
9:02:15 AM                                                                                                                    
Representative  Costello  spoke  against  the  program.  She                                                                    
treated   the  program   like   capital   project.  As   the                                                                    
legislature weighed  whether it  wanted to spend  money, and                                                                    
stressed  the efforts  the state  had the  responsibility to                                                                    
spend money on.  She voted to move the  bill from committee.                                                                    
She believed  the full  legislature should  have a  voice on                                                                    
the issue.                                                                                                                      
Representative Thompson  went back  and forth on  the issue.                                                                    
He felt like  the there was an effect happening  as a result                                                                    
of the  program; however, he  looked at the  state's budget.                                                                    
He  wondered  if  repealing the  program  would  reduce  the                                                                    
number of  employed persons  in Alaska. He  had not  made up                                                                    
his mind on the issue.                                                                                                          
9:05:16 AM                                                                                                                    
Representative Munoz  spoke from the perspective  of a small                                                                    
business owner.  She did not  believe it made sense  to pull                                                                    
back completely  on the program.  She pointed  to television                                                                    
programs  and  advertising;  she believed  the  program  was                                                                    
providing Alaska  with media benefits.  She recalled  a John                                                                    
Sales film that had been  filmed in the state years earlier.                                                                    
She  wanted to  see the  program continue.  She acknowledged                                                                    
that it  may need to be  ramped back. She spoke  against the                                                                    
Representative Guttenberg  spoke in support of  the program.                                                                    
He believed repealing  the program would be  pulling the rug                                                                    
out from  underneath a  new industry that  did not  have the                                                                    
feet to be self-sustaining at  the time. He stressed that it                                                                    
was important to optimize what  the state had. He reiterated                                                                    
that  the industry  was gaining  momentum. He  spoke to  the                                                                    
development  of talent.  He pointed  to an  Alaskan who  had                                                                    
just  received an  academy award  for work  done outside  of                                                                    
Alaska. He stressed the importance  of bringing those people                                                                    
9:12:33 AM                                                                                                                    
Representative  Gara referred  to a  Legislative Budget  and                                                                    
Audit (LB&A)  study, and believed  the study was  done prior                                                                    
to 2012. Co-Chair Stoltze agreed.                                                                                               
Representative Holmes  noted that the numbers  reflected the                                                                    
old program.  There were not  updated numbers. She  liked to                                                                    
see talent  developed locally. She  was struggling  with the                                                                    
issue. She  would like to support  tourism, small businesses                                                                    
and other  industry, but noted  that the credits  issued may                                                                    
have a negative impact on state funds.                                                                                          
Co-Chair  Austerman spoke  to his  encouragement  of how  to                                                                    
expand the  state's economic base.  Until the  state figured                                                                    
out what its tax base and  tax structure would look like, it                                                                    
would be  difficult to measure  the success of  the program.                                                                    
He stated that  $20 million per year  provided no comparison                                                                    
to  the  oil  industry.  He believed  the  state  needed  to                                                                    
continue to  pursue developing new industries  in the state.                                                                    
He pointed  to other  legislation taking a  look at  how tax                                                                    
credits benefited  the state. He  did not oppose  moving the                                                                    
bill from committee but could not support it on the floor.                                                                      
Representative Wilson would not  stop the bill; however, she                                                                    
was concerned about data collection  in the state related to                                                                    
taxes. She noted  it was not the fault of  the industry. She                                                                    
read from  the audit. She  stated that $20 million  per year                                                                    
was  significant.  She  was   concerned  about  whether  the                                                                    
program was  beneficial to the  state because of the  way it                                                                    
portrayed the state. She stated  that small miners felt they                                                                    
were regulated more  because some of the shows  made it look                                                                    
like  they were  not  adequately regulated.  She pointed  to                                                                    
another  bill  in  committee related  to  tax  credits,  and                                                                    
emphasized that the companies were  out of state. She agreed                                                                    
that  Alaska  should  focus   developing  our  talents,  but                                                                    
reminded  about  that  when   oil  taxes  were  changed  the                                                                    
subcontracting jobs moved  out of state. She  stated that it                                                                    
was important  to pressure the  companies making  the movies                                                                    
to know where the credits were going.                                                                                           
9:20:32 AM                                                                                                                    
Co-Chair  Stoltze   remarked  that  the  tax   credits  were                                                                    
subsidies. He felt that the  program would only work with an                                                                    
income  tax, but  he would  not  support an  income tax.  He                                                                    
stressed that a tax credit  would only work within an actual                                                                    
tax  structure. He  stressed that  any dollar  put into  the                                                                    
program was money that was taken away from savings.                                                                             
Co-Chair Stoltze WITHDREW his OBJECTION.                                                                                        
There being NO further OBJECTION  HB 112 was REPORTED out of                                                                    
committee  with "no  recommendation" and  with one  new zero                                                                    
impact  fiscal   note  from  the  Department   of  Commerce,                                                                    
Community  and Economic  Development and  one fiscal  impact                                                                    
note from the Department of Revenue.                                                                                            
Co-Chair Austerman  discussed the  agenda for  the afternoon                                                                    
9:24:07 AM                                                                                                                    
The meeting was adjourned at 9:24 a.m.                                                                                          

Document Name Date/Time Subjects
HB 112 Public Testimony PKT- 1 - 2014.pdf HFIN 3/11/2014 8:30:00 AM
HB 112
HB 112 Public Testimony PKT- 2 - 2014.pdf HFIN 3/11/2014 8:30:00 AM
HB 112
HB 112 DOR Response to Rep. Stoltze.pdf HFIN 3/11/2014 8:30:00 AM
HB 112
HB 112 Alaska Film Office Reports.pdf HFIN 3/11/2014 8:30:00 AM
HB 112