Legislature(2013 - 2014)HOUSE FINANCE 519

03/12/2014 08:30 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
--Delayed to 9:00 a.m.--
+= HB 266 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
Moved CSHB 266(FIN) Out of Committee
+= HB 267 APPROP: MENTAL HEALTH BUDGET TELECONFERENCED
Moved CSHB 267(FIN) Out of Committee
+= HB 306 EVAL. INDIRECT EXPENDITURES; TAX CREDITS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 12, 2014                                                                                            
                         9:07 a.m.                                                                                              
                                                                                                                                
9:07:00 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Austerman called the House Finance Committee                                                                           
meeting to order at 9:07 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                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Daniel George, Staff, Representative Bill Stoltze; Brodie                                                                       
Anderson, Staff, Representative Steve Thompson.                                                                                 
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 266    APPROP: OPERATING BUDGET/LOANS/FUNDS                                                                                  
                                                                                                                                
          CSHB 266(FIN) was REPORTED out of committee with                                                                      
          a "do pass" recommendation.                                                                                           
                                                                                                                                
HB 267    APPROP: MENTAL HEALTH BUDGET                                                                                          
                                                                                                                                
          CSHB 267(FIN) was REPORTED out of committee with                                                                      
          a "do pass" recommendation.                                                                                           
                                                                                                                                
HB 306    EVAL. INDIRECT EXPENDITURES; TAX CREDITS                                                                              
                                                                                                                                
          HB 306 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HOUSE BILL NO. 266                                                                                                            
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     loan  program  expenses  of state  government  and  for                                                                    
     certain  programs,   capitalizing  funds,   and  making                                                                    
     reappropriations; making appropriations  under art. IX,                                                                    
     sec. 17(c),  Constitution of the State  of Alaska, from                                                                    
     the constitutional budget reserve fund."                                                                                   
                                                                                                                                
HOUSE BILL NO. 267                                                                                                            
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     capital    expenses   of    the   state's    integrated                                                                    
     comprehensive mental health program."                                                                                      
                                                                                                                                
9:07:13 AM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze MOVED to  REPORT CSHB 266(FIN), 28-GH2671\Y                                                                    
out of committee with individual recommendations.                                                                               
                                                                                                                                
Co-Chair Austerman OBJECTED for discussion.                                                                                     
                                                                                                                                
Representative Gara discussed an  amendment he had submitted                                                                    
the  prior day  that had  failed. The  amendment related  to                                                                    
cuts to substance  abuse treatment. He pointed  to high drug                                                                    
addiction rates in  Alaska. He relayed that the  state had a                                                                    
massive  shortage  of   residential  treatment  options  for                                                                    
heroin addiction treatment in  the state. He elaborated that                                                                    
people with major drug addictions  were only willing to seek                                                                    
treatment  for a  short period  of time  and that  treatment                                                                    
should be  available when  the addict  was ready.  He stated                                                                    
that heroin users  committed felonies. He shared  that not a                                                                    
single  male had  been treated  in  the Anchorage  methadone                                                                    
clinic  in the  past year.  The cuts  would cause  increased                                                                    
agony, child  abuse, prosecutor costs, jail  costs, domestic                                                                    
violence, court costs, and other  problems. Waiting lists in                                                                    
the  treatment centers  had already  been lengthy;  the cuts                                                                    
would increase the wait.                                                                                                        
                                                                                                                                
Representative Gara  stressed that $1 million  should not be                                                                    
taken  from  residential  treatment and  put  in  outpatient                                                                    
treatment.  Those needing  residential treatment  had severe                                                                    
addictions;  outpatient treatment  would  not be  successful                                                                    
for  the  individuals. He  understood  the  pressure on  the                                                                    
Department   of   Health    and   Social   Services   (DHSS)                                                                    
subcommittee  chair  to  make cuts  with  the  least  damage                                                                    
possible, but  he could  not support  the cuts.  He believed                                                                    
the past three years of cuts should be reversed.                                                                                
                                                                                                                                
Representative   Guttenberg  discussed   that  he   and  his                                                                    
colleague  had offered  multiple  amendments  the prior  day                                                                    
that had failed. He relayed  that the state needed to invest                                                                    
in its  children who would  become the future of  the state.                                                                    
He  stated that  Alaska continued  to be  a rich  state with                                                                    
resources  in oil,  gas, mining,  timber, and  fisheries. He                                                                    
stressed  that the  committee had  a big  responsibility and                                                                    
needed  to  take its  job  seriously.  He thought  that  the                                                                    
committee should  examine the  repercussions of  budget cuts                                                                    
to  services such  as drug  treatment  centers to  determine                                                                    
whether it  impacted the  Department of  Corrections budget.                                                                    
He  believed  the  legislature needed  to  address  problems                                                                    
holistically. He spoke about the  success of the therapeutic                                                                    
court programs.  Society set the agenda  and the legislators                                                                    
had to  address the  issues. He acknowledged  the difficulty                                                                    
of  the issues  and  believed that  the  dialogue needed  to                                                                    
continue.                                                                                                                       
                                                                                                                                
9:20:14 AM                                                                                                                    
                                                                                                                                
Representative Costello  thanked the committee for  its hard                                                                    
work  on the  budget. She  voiced that  by the  time current                                                                    
kindergarteners  were in  high  school most  of the  state's                                                                    
savings  will  have been  spent  on  Medicaid and  education                                                                    
spending.                                                                                                                       
                                                                                                                                
Co-Chair  Stoltze  followed   on  Representative  Costello's                                                                    
comments. He  stated that the  budget reality  was sobering.                                                                    
He  detailed  that,  if  the  budget  was  all  consumed  by                                                                    
Medicaid and education expenditures  there would be no other                                                                    
budget  options.  He  discussed efforts  to  curtail  budget                                                                    
growth.  The process  had  been painful  and  the state  was                                                                    
looking at  unsustainable budgets  for the  future. Reducing                                                                    
the budget below  the governor's level had been  a source of                                                                    
angst for the committee.                                                                                                        
                                                                                                                                
Co-Chair Austerman thanked committee  members for their work                                                                    
on the  budget. He understood  how difficult it had  been to                                                                    
make   budget  cut   recommendations.   Given  the   current                                                                    
financial situation  the decisions were pertinent  to future                                                                    
goals.  He  thanked  the  departments  for  their  work.  He                                                                    
expected the budget decisions to get harder in the future.                                                                      
                                                                                                                                
Co-Chair Austerman WITHDREW his OBJECTION.                                                                                      
                                                                                                                                
There being NO further  OBJECTION CSHB 266(FIN) was REPORTED                                                                    
out of committee with a "do pass" recommendation.                                                                               
                                                                                                                                
Co-Chair Stoltze MOVED to  REPORT CSHB 267(FIN), 28-GH2673\O                                                                    
out of committee with individual recommendations.                                                                               
                                                                                                                                
There being NO  OBJECTION CSHB 267(FIN) was  REPORTED out of                                                                    
committee with a "do pass" recommendation.                                                                                      
                                                                                                                                
9:27:21 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:29:42 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 306                                                                                                            
                                                                                                                                
     "An Act  relating to tax credits  and administration of                                                                    
     tax  credit  programs;   requiring  the  Department  of                                                                    
     Revenue  to report  indirect expenditures;  relating to                                                                    
     the   duties   of   state   agencies;   requiring   the                                                                    
     legislative   finance  division   to  analyze   certain                                                                    
     indirect  expenditures;  relating  to lapse  dates  for                                                                    
     appropriations for capital  projects; repealing certain                                                                    
     statutes   authorizing   indirect   expenditures;   and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
9:29:48 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman MOVED  to  ADOPT  the proposed  committee                                                                    
substitute  for  HB  306, Work  Draft  28-LS1396\R  (Nauman,                                                                    
3/11/14).                                                                                                                       
                                                                                                                                
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
                                                                                                                                
DANIEL GEORGE,  STAFF, REPRESENTATIVE BILL  STOLTZE, briefly                                                                    
discussed the  changes in the committee  substitute (CS). He                                                                    
stated that on  the first line of the title  the words, "tax                                                                    
credits"  were  removed  and changed  to  "the  review."  He                                                                    
turned to  page 1, line  5 through page  2, line 1,  each of                                                                    
the tax credits were  delineated instead of stating specific                                                                    
statutes  that authorized  direct expenditures.  He reported                                                                    
that Section 1  was a new section  that contained conforming                                                                    
language  pertaining  to  the repealing  the  insurance  tax                                                                    
education credit.                                                                                                               
                                                                                                                                
Co-Chair  Stoltze clarified  that "repealing"  was referring                                                                    
to a sunset process, which was repealed and then removed.                                                                       
                                                                                                                                
Mr. George noted  that Section 2 and  the following sections                                                                    
were  renumbered.  He pointed  to  Section  4, page  3,  and                                                                    
reported  that  the  indirect expenditure  report  had  been                                                                    
changed from every year to  every two years. Former Sections                                                                    
7  and 8  had  been  removed and  were  related to  minerals                                                                    
exploration   tax  credits   and  conforming   language.  He                                                                    
referenced the new Section 8, page 5, line 14 and read:                                                                         
                                                                                                                                
     Sec.43.05.095.Indirect   expenditure   report.   (a)The                                                                    
     commissioner  shall not  later than  July 1  before the                                                                    
     first regular session of each legislature…                                                                                 
                                                                                                                                
Mr. George  stated that "July 1"  previously read, "November                                                                    
1." He read Section 8, item (7):                                                                                                
                                                                                                                                
     (7)  the  estimated annual  effect  on  revenue of  the                                                                    
     indirect  expenditure  for  the  previous  five  fiscal                                                                    
     years, excluding the  fiscal year immediately preceding                                                                    
     the date the report is due;                                                                                                
                                                                                                                                
Mr.  George  noted that  the  later  part of  the  provision                                                                    
beginning with  the word, "excluding" was  added. Subsection                                                                    
(b) under Section 8, item 9 was added and read:                                                                                 
                                                                                                                                
     (b)For  purposes of  (a) of  this section,  federal tax                                                                    
     credits adopted under AS43.20.021  shall be reported in                                                                    
     the aggregate.                                                                                                             
                                                                                                                                
Mr.  George continued  that under  Section 8,  item (d)  the                                                                    
following language  was removed, "In this  section, indirect                                                                    
expenditure"   means   a   credit,   exemption,   deduction,                                                                    
deferral,   discount,  exclusion,   or  other   differential                                                                    
allowance designed  to encourage an activity  or benefit the                                                                    
public or a taxpayer and…" and changed to:                                                                                      
                                                                                                                                
     (d) "In  this section,  indirect expenditure"  means an                                                                    
     express  provision   of  state  law  that   results  in                                                                    
     foregone revenue for the state by providing…                                                                               
                                                                                                                                
Mr.  George  indicated  that the  previous  Section  10  was                                                                    
removed  from  the  bill.  The  language  conformed  to  the                                                                    
minerals exploration  tax credit.  The section  was replaced                                                                    
with the new Section 8, subsection (d) items 1 through 5.                                                                       
                                                                                                                                
REPRESENTATIVE  STEVE THOMPSON,  SPONSOR, believed  that the                                                                    
bill was misunderstood. The bill  allowed the legislature to                                                                    
review  indirect  expenditures  created by  tax  credits.  A                                                                    
report would  be submitted  to the  legislature in  order to                                                                    
determine whether  the tax credits  were in  compliance with                                                                    
legislative  intent,   and  would  examine  the   costs  and                                                                    
benefits  to the  state, job  creation, and  the effects  on                                                                    
industry. He thought  that it was the  responsibility of the                                                                    
legislature to  evaluate tax credits. The  bill provided the                                                                    
legislature  a  two year  review  period.  During that  time                                                                    
various  tax credits  could be  renewed for  six more  years                                                                    
until  another review  cycle would  begin.  The tax  credits                                                                    
would  not be  automatically  eliminated in  2015. A  review                                                                    
process  will  begin  over  the   following  two  years  and                                                                    
suitable tax credits will be  renewed. He pointed out that a                                                                    
business  evaluated  its  expenditures  to  determine  their                                                                    
merit and  so must the  state. He felt that  the legislative                                                                    
review of the tax credits was fiscally responsible.                                                                             
                                                                                                                                
Co-Chair  Stoltze interjected  that anyone  benefitting from                                                                    
tax credits  would naturally have  concerns over HB  306 but                                                                    
he  felt that  the legislature  had a  "duty" to  review all                                                                    
expenditures. He  hoped that the  University of  Alaska (UA)                                                                    
would have taken  a "more constructive role"  by engaging in                                                                    
a  dialog with  legislators over  its concerns  with HB  306                                                                    
instead of  campaigning to  "kill the  bill."   He indicated                                                                    
that tax  credits were  a "diversion  of general  funds." He                                                                    
appreciated  the sponsor's  time  invested in  the bill.  He                                                                    
thought that two years offered  ample time for evaluation of                                                                    
sunset extensions.                                                                                                              
                                                                                                                                
Co-Chair Austerman asked for a  couple of clarifications. He                                                                    
did not understand the removal of the mineral tax credit.                                                                       
                                                                                                                                
Representative Thompson  clarified that  the tax  credit was                                                                    
not a mineral tax credit  but was an exploration tax credit.                                                                    
He  felt  that  exploration  had the  potential  to  produce                                                                    
revenue and  jobs for  the state. He  deferred to  staff for                                                                    
further detail.                                                                                                                 
                                                                                                                                
BRODIE  ANDERSON,  STAFF,   REPRESENTATIVE  STEVE  THOMPSON,                                                                    
shared that  discussions about  the mineral  exploration tax                                                                    
credits contained  in Title  38, were  centered on  the fact                                                                    
that  oil and  gas or  mining corporations  made exploration                                                                    
and  long-term investment  decisions seven  to ten  years in                                                                    
advance,  and  based  those decisions  on  the  availability                                                                    
exploration  credits. The  consensus was  that expiring  oil                                                                    
and  gas   or  mineral  exploration  credits   could  stifle                                                                    
exploration incentives  and fail to attract  new exploration                                                                    
to the state. He felt that  it was important to exclude both                                                                    
oil and gas and mineral exploration credits.                                                                                    
                                                                                                                                
Co-Chair  Austerman understood  the intention  and contended                                                                    
that other exclusions  could be made for  other resources as                                                                    
well. He  thought that other renewable  resource industries,                                                                    
such  as fishing  made  long-term  investment decisions  but                                                                    
were  not  excluded.  He  argued   that  the  renewable  and                                                                    
nonrenewable  resource industries  were comparable  but that                                                                    
only the  nonrenewable industry was excluded.  He pointed to                                                                    
the fiscal notes  for the bill which totaled  $20 million in                                                                    
tax  credits  for  renewable industry  as  opposed  to  $300                                                                    
million  to $500  million in  tax  credits for  nonrenewable                                                                    
extraction that were exempted. He  wondered why one industry                                                                    
was treated differently than another.                                                                                           
                                                                                                                                
Co-Chair Austerman  questioned whether  expiring all  of the                                                                    
tax  credits  identified  in  the  bill  at  the  same  time                                                                    
compounded the workload.                                                                                                        
                                                                                                                                
9:42:11 AM                                                                                                                    
                                                                                                                                
Representative Thompson answered  that extensive discussions                                                                    
took place  with the Department  of Revenue  (DOR) regarding                                                                    
the  amount of  work  required to  generate  the tax  credit                                                                    
reports. He related  that some of the sunset  dates had been                                                                    
changed  to  accommodate  the department's  other  workloads                                                                    
throughout  the  year.  The  date  changes  facilitated  the                                                                    
department's use of existing staff to generate the reports.                                                                     
                                                                                                                                
Mr.  Anderson   stated  that  widespread   discussions  were                                                                    
undertaken with  the department and the  Legislative Finance                                                                    
Division (LFD)  about the time commitment  needed to compile                                                                    
the   reports  and   turn  the   information  over   to  the                                                                    
legislature.  The  sponsor  had  worked to  find  a  balance                                                                    
between  DOR and  LFD's workloads  and  other deadlines.  He                                                                    
elaborated  that the  sponsor  extended the  date the  first                                                                    
report was due from November 1  to July 1. The November date                                                                    
coincided with year-end report deadlines  for DOR and budget                                                                    
duties for  LFD. The legislative  report deadline  was moved                                                                    
to July  1 for DOR, which  granted LFD time during  a slower                                                                    
work period to review the reports for the legislature.                                                                          
                                                                                                                                
Co-Chair  Austerman  asked  whether  the  reporting  to  the                                                                    
legislature was through DOR or LFD.                                                                                             
                                                                                                                                
Representative  Thompson responded  that  DOR would  compile                                                                    
the  reports and  send  them  to LFD  who  would review  the                                                                    
information and report to the legislature.                                                                                      
                                                                                                                                
Mr. Anderson  added that LFD  would receive the  report from                                                                    
DOR on  July 1 and  would present its report  to legislative                                                                    
leadership and the legislature on the first day of session.                                                                     
                                                                                                                                
Representative  Holmes  was  concerned  by  the  Section  10                                                                    
sunset provisions  that only applied  to certain  subsets of                                                                    
tax credits.  Future reports were  required every  two years                                                                    
but were  not attached to  sunset provisions. She  felt that                                                                    
the tax credits were  treated differently depending on which                                                                    
year  they  were audited.  She  felt  that all  tax  credits                                                                    
needed to be treated equally;  either they should all sunset                                                                    
or just be subject to analysis and a report.                                                                                    
                                                                                                                                
Mr.  Anderson responded  that the  difficulty with  drafting                                                                    
the bill was that it was  not possible to "tie the hands" of                                                                    
future   legislatures.  He   communicated   that  the   only                                                                    
mechanism  to  prompt future  legislatures  to  act was  the                                                                    
inclusion  of sunsets.  The sponsor  determined that  it was                                                                    
not  possible  to  mandate   future  audits  without  having                                                                    
additional  information about  the  tax credits.  Sufficient                                                                    
information was tracked by DOR  about the credits slated for                                                                    
sunset  and   review  listed   in  the   bill.  Insufficient                                                                    
information was  available about other tax  credits based in                                                                    
other  departments to  require that  the legislature  sunset                                                                    
and  review  them by  a  certain  date. Future  legislatures                                                                    
could repeal and review and  have the option to extend other                                                                    
tax credits.  The sponsor was not  "comfortable" identifying                                                                    
additional   tax  credits   and   including   them  in   the                                                                    
legislation this year.                                                                                                          
                                                                                                                                
Representative  Holmes  needed  more time  to  consider  the                                                                    
issue. She felt that the  sunset dates empowered the concept                                                                    
of  the bill  and not  requiring  sunset dates  for all  tax                                                                    
credits  was  inconsistent.  She was  "struggling  with  the                                                                    
concept."                                                                                                                       
Representative  Munoz  shared  similar concerns.  She  noted                                                                    
that the education tax credit had  a sunset date of 2021 but                                                                    
was scheduled for  an earlier repeal given  the timeframe of                                                                    
the  legislation.  She  asked  for  an  explanation  of  the                                                                    
removal of Section 12 from the CS.                                                                                              
                                                                                                                                
Mr.  Anderson replied  that the  previous Section  12 became                                                                    
the new  Section 10.  The tax  credits that  were eliminated                                                                    
from  Section  12  pertained   to  the  mineral  exploration                                                                    
credits contained  in the  following statutes:  AS 27.30.010                                                                    
through AS 27.30.0 99 and AS 43.20.44                                                                                           
                                                                                                                                
Co-Chair  Stoltze asked  for an  explanation  of the  6-year                                                                    
review cycle.                                                                                                                   
                                                                                                                                
Mr.  Anderson  answered  that  every  two  years  DOR  would                                                                    
produce  a report  for all  departments, which  would go  to                                                                    
LFD; LFD  would then do  its own  review. LFD would  only be                                                                    
responsible  to  review  the  departments  included  in  the                                                                    
current  cycle.  He  explained   that  after  a  departments                                                                    
initial review  subsequent reviews were  set up a on  a six-                                                                    
year cycle.  The six year cycle  of review was based  on the                                                                    
fact that  fiscal notes were based  on a five year  cycle of                                                                    
appropriation projections. He added  that the sunset date in                                                                    
Section  10 of  the  CS pertained  to  the specific  credits                                                                    
listed.  He  reiterated  that   the  legislation  could  not                                                                    
mandate   future   sunset    dates   beyond   2016.   Future                                                                    
legislatures  could choose  to  extend sunset  dates in  the                                                                    
legislation.                                                                                                                    
                                                                                                                                
9:54:25 AM                                                                                                                    
                                                                                                                                
Representative Holmes expressed  confusion about the concept                                                                    
of  binding future  legislatures.  She  deduced that  future                                                                    
sunset  dates could  not be  designated in  the legislation.                                                                    
The  first  cycle   of  sunsets  and  reviews   need  to  be                                                                    
completed.                                                                                                                      
                                                                                                                                
Mr. Anderson answered in the  affirmative. He indicated that                                                                    
after 2016  a future  legislature would  need to  extend the                                                                    
sunsets and review cycle for another six years.                                                                                 
                                                                                                                                
Representative Holmes  surmised that  all tax  credits could                                                                    
be  set  to  sunset  in  2016 under  the  legislation  as  a                                                                    
compromise position to her issue  with the bill that not all                                                                    
tax credits were being treated equally.                                                                                         
                                                                                                                                
Vice-Chair Neuman pointed  to Sections 4 and 5 on  page 4 of                                                                    
the CS.  The legislation required that  the reviewer include                                                                    
an explanation  of the methodology  and assumptions  used in                                                                    
preparing  the report  to the  legislature. He  wondered why                                                                    
the  legislature  was  not   creating  the  assumptions  and                                                                    
methodology it wanted LFD to use.                                                                                               
                                                                                                                                
Representative Thompson  pointed to  Section 8  and believed                                                                    
the  legislation  identified  exactly what  information  the                                                                    
legislature  wanted.  Section  8 addressed  the  information                                                                    
required  in the  indirect expenditure  report. He  read the                                                                    
following:                                                                                                                      
                                                                                                                                
     (1) the name of the indirect expenditure;                                                                                  
     (2) a brief description of the indirect expenditure;                                                                       
     (3) the statutory authority for the indirect                                                                               
         expenditure;                                                                                                           
     (4) the date the statute authorizing the indirect                                                                          
         expenditure is to be repealed, if applicable;                                                                          
     (5) the intent of the legislature in enacting the                                                                          
      statute authorizing the  indirect expenditure;                                                                            
     (6) the public purpose served by the indirect                                                                              
         expenditure;                                                                                                           
     (7) the estimated annual effect on revenue of the                                                                          
         indirect expenditure for the previous five fiscal                                                                      
         years, excluding the fiscal year immediately                                                                           
         preceding the date the report is due;                                                                                  
     (8) the estimated cost to administer the indirect                                                                          
         expenditure, if  applicable;                                                                                           
     (9) the number of beneficiaries of the indirect                                                                            
         expenditure.                                                                                                           
                                                                                                                                
Vice-Chair  Neuman  restated that  the  bill  asked for  the                                                                    
assumptions and  methodologies used to generate  the report.                                                                    
He   preferred  to   see  a   methodology  defined   in  the                                                                    
legislation.  He felt  that the  methodology used  to review                                                                    
the  tax  credits  was related  to  legislative  intent.  He                                                                    
wondered whether  the tax credits  would be  repealed before                                                                    
the legislature could complete an adequate review.                                                                              
                                                                                                                                
Representative Thompson  replied that the bill  provided for                                                                    
a two  year review  period before the  tax credits  would be                                                                    
repealed.  The  legislation   required  the  legislature  to                                                                    
examine the report  before the tax credit  expired to ensure                                                                    
that a tax credit was deemed "worthy" to continue.                                                                              
                                                                                                                                
Mr. Anderson  referred to a  prior conversation he  had with                                                                    
David Teal,  Director of  the Legislative  Finance Division,                                                                    
about  the   methodology  and  assumptions  that   would  be                                                                    
employed.  He  planned  to include  an  explanation  of  the                                                                    
mechanisms at the end of the report.                                                                                            
                                                                                                                                
Co-Chair  Stoltze  relayed  that   the  reason  for  today's                                                                    
meeting  was to  determine the  committee's issues  with the                                                                    
bill.                                                                                                                           
                                                                                                                                
Vice-Chair  Neuman  reiterated  his concerns.  He  wanted  a                                                                    
clearly defined methodology included  in the bill. He wished                                                                    
to know how legislative intent would be reviewed.                                                                               
                                                                                                                                
Representative  Thompson believed  LFD  would  need to  work                                                                    
with  the legislators  to  develop  an accurate  methodology                                                                    
based on the required  information listed in the legislation                                                                    
but  he  felt   that  the  analysts  were   the  experts  on                                                                    
developing methodology based on the information required.                                                                       
                                                                                                                                
Co-Chair   Stoltze  believed   that   the  committee   could                                                                    
potentially work out a more clarified method.                                                                                   
                                                                                                                                
10:02:58 AM                                                                                                                   
                                                                                                                                
Representative  Gara was  concerned  about  the 32  statutes                                                                    
that  would be  repealed. He  agreed  with the  part of  the                                                                    
legislation that required examination  of the tax credits to                                                                    
determine their merit. He cited  Section 10 and deduced that                                                                    
the CS repealed  32 separate tax credits. He  noted that the                                                                    
list  included  an  insurance  tax,  various  fisheries  tax                                                                    
credits,  municipal grants,  and  the film  tax credit.  The                                                                    
credits would be repealed in 2016.                                                                                              
                                                                                                                                
Representative  Gara spoke  to  the  two-year sunset  review                                                                    
timeline that  he did  not believe  would work.  He believed                                                                    
that  too  many "road  blocks"  existed  in the  legislative                                                                    
process where  the tax credit extensions  would get stalled.                                                                    
He  believed that  the legislation  was getting  rid of  the                                                                    
credits prior  to an  analysis being  done. He  thought that                                                                    
some of the  credits "should disappear", but  an analysis of                                                                    
the 32 tax credits listed  was not performed. He stated that                                                                    
substantial tax credits and municipal  rebates were not easy                                                                    
sunset dates  to extend through the  legislative process. He                                                                    
deemed  that, if  20  tax credits  were  determined to  have                                                                    
merit they would not get  passed in one legislative session.                                                                    
He supported  requiring a report  or an analysis on  each of                                                                    
the credits that  would be repealed. He did  not support the                                                                    
provisions  of  Sections 10  or  11  that repealed  the  tax                                                                    
credits.  He was  supportive of  an examination  of the  tax                                                                    
credits to  determine if  the tax  credits were  costing the                                                                    
state  too much  money and  were worth  the expenditure.  He                                                                    
found a "wholesale vote" on  repealing 32 statutes that were                                                                    
not discussed troublesome.                                                                                                      
                                                                                                                                
Representative Thompson  replied that the purpose  of the in                                                                    
-depth  analysis  was to  determine  the  merit of  the  tax                                                                    
credit. He emphasized that the  two-year sunset would ensure                                                                    
that the legislature  would "do its job" and  review the tax                                                                    
credit analysis.  He stressed that without  the inclusion of                                                                    
the  sunset  dates  the  analysis  would  be  "just  another                                                                    
report" that was sidelined.                                                                                                     
                                                                                                                                
Co-Chair Stoltze  emphasized that tax credits  were diverted                                                                    
from general fund revenues.                                                                                                     
                                                                                                                                
Representative  Gara  commented  that  testimony  should  be                                                                    
heard from  interested parties  related to  each of  the tax                                                                    
credits included in the CS  to determine whether they should                                                                    
be included  in the  sunset provision. He  remained doubtful                                                                    
that  the tax  credits could  be  re-enacted in  a two  year                                                                    
period of time.                                                                                                                 
                                                                                                                                
Mr.  Anderson  answered  that  there  were  only  seven  tax                                                                    
credits contained  in Section 10  of the bill that  were sun                                                                    
setting.  He  revealed  that one  tax  credit  reached  into                                                                    
multiple tax components.                                                                                                        
                                                                                                                                
Representative Edgmon  appreciated the underlying  intent of                                                                    
the bill  but realized  the potential "sweeping  impacts" if                                                                    
the legislation  was adopted. He asked  about unincorporated                                                                    
communities and lapsing grants under  Section 6. He outlined                                                                    
his  understanding   of  the  issue.   He  noted   that  the                                                                    
communities  were notified  by the  Department of  Commerce,                                                                    
Community  and  Economic  Development (DCCED)  seven  months                                                                    
before the grants lapsed and  core requirements needed to be                                                                    
verified  before  an  extension  was  granted.  He  wondered                                                                    
whether there was a specific  reason for including Section 6                                                                    
in  the  bill since  a  process  was established.  He  asked                                                                    
whether adoption  of Section  6 would  require establishment                                                                    
of  new procedures  and regulations  related  to grants  for                                                                    
unincorporated communities.                                                                                                     
                                                                                                                                
Representative  Thompson replied  that  currently grants  to                                                                    
incorporated   communities  were   sunset  in   five  years.                                                                    
Unincorporated communities did not  have sunset dates set in                                                                    
statute.   The   department  was   treating   unincorporated                                                                    
communities'  grants the  same as  incorporated communities'                                                                    
grants.                                                                                                                         
                                                                                                                                
Mr. Anderson  expounded that  he had  spoken with  Mr. Scott                                                                    
Ruby, Director, Division of  Community and Regional Affairs.                                                                    
He relayed that AS  37.05.318 prohibited DCCED from enacting                                                                    
regulations regarding  the administration  of unincorporated                                                                    
community grants and named  recipients appropriated under AS                                                                    
37.05.315 through AS 37.05.317.  Regulation changes by DCCED                                                                    
were  prohibited unless  under  statutory authorization.  He                                                                    
restated that  the department dealt with  the unincorporated                                                                    
community  grants and  unnamed  recipients the  same as  for                                                                    
municipalities in order to establish  the best practices for                                                                    
management  of   public  funds.  The   legislation  actually                                                                    
granted  the department  the statutory  authority to  manage                                                                    
the  unincorporated   communities'  and   unnamed  recipient                                                                    
grants in the same manner as they currently were.                                                                               
                                                                                                                                
Representative  Edgmon wanted  to  ensure that  in order  to                                                                    
standardize the  grant process the smaller  communities were                                                                    
not disenfranchised along the way.                                                                                              
                                                                                                                                
Representative Costello  wondered how many other  states had                                                                    
similar programs for reviewing indirect expenditures.                                                                           
                                                                                                                                
Mr. Anderson did not have  the details but could provide it.                                                                    
He offered  that he worked  with the National  Conference of                                                                    
State Legislatures  (NCSL) and the Pew  Research Center with                                                                    
crafting the bill and knew  of twelve other states that were                                                                    
working on the same issue.                                                                                                      
                                                                                                                                
10:15:48 AM                                                                                                                   
                                                                                                                                
Representative   Costello   appreciated   the   transparency                                                                    
established  in the  legislation. She  wondered what  values                                                                    
were  weighed in  the decision  related to  including sunset                                                                    
provisions in the bill.                                                                                                         
                                                                                                                                
Mr.  Anderson believed  that the  primary factor  that drove                                                                    
the  decision was  the amount  of lost  revenue over  a five                                                                    
year   period  with   the  tax   credits  examined   in  the                                                                    
legislative    research   report    [Indirect   Expenditures                                                                    
Provisions  in Alaska  Law  (copy  on file)].  Approximately                                                                    
$120 million over a five-year  time period was lost revenue.                                                                    
Factors such as, sunset dates  that "extended far beyond the                                                                    
amount  of money  available" or  the scope  of a  tax credit                                                                    
that  reached  into  eight   major  tax  components  without                                                                    
knowing  the  benefits  to  the  state  contributed  to  the                                                                    
decision  to  put a  sunset  mechanism  as an  incentive  to                                                                    
review the tax credits.                                                                                                         
                                                                                                                                
Representative Costello informed the  committee that she did                                                                    
not have a problem with  the transparency section. She asked                                                                    
whether  the   impacts  of   impending  sunset   dates  were                                                                    
examined.                                                                                                                       
                                                                                                                                
Mr.  Anderson replied  that the  sunsets  were not  examined                                                                    
beyond  testimony  or  lobbying   efforts  speaking  to  the                                                                    
impact.                                                                                                                         
                                                                                                                                
Representative Costello asked whether  the inclusion of some                                                                    
tax  credits  sun  setting  and   excluding  others  was  in                                                                    
recognition of  the impact the  sunset date could have  on a                                                                    
tax credit.                                                                                                                     
                                                                                                                                
Representative  Thompson stated  that the  impacts were  not                                                                    
taken   into  consideration.   He   deduced   that  if   the                                                                    
legislature gets  to work in 2015  many of the fears  of the                                                                    
impacts could  be allayed because  the report would  be done                                                                    
and the legislature could begin renewing the sunsets.                                                                           
                                                                                                                                
Co-Chair Stoltze  referred to an  NCSL fiscal  conference he                                                                    
had  attended in  the past.  He recalled  a discussion  with                                                                    
various government officials about  not treating tax credits                                                                    
as "real money" and which had a "big impression" on him.                                                                        
                                                                                                                                
Co-Chair Austerman expressed concerns  with the bill related                                                                    
to  treating  tax  credits   inequitably.  He  recalled  Mr.                                                                    
Anderson's earlier discussion concerning  up to $120 million                                                                    
in lost revenue  to the state in tax credits.  He pointed to                                                                    
the  recent  $2  billion  tax  credit  in  the  nonrenewable                                                                    
resource extraction  industry in  Alaska. If  all industries                                                                    
were  not   treated  equitably  he  would   have  a  problem                                                                    
supporting  the bill.  He was  in total  agreement with  the                                                                    
concept of the legislation.  He stressed that the discussion                                                                    
should  be relevant  to  what  is being  lost  with all  tax                                                                    
credits. He noted  that some of the tax  credits targeted in                                                                    
HB  306 currently  had  sunset dates.  He  wondered why  the                                                                    
legislation did not mandate review  when the existing sunset                                                                    
dates  came  up. He  supported  "tightening  up" the  review                                                                    
process, but wondered why the  credits with sunset dates had                                                                    
been lumped in with credits without sunset dates.                                                                               
                                                                                                                                
10:23:21 AM                                                                                                                   
                                                                                                                                
Co-Chair Austerman commented  on the zero tax  rates on Cook                                                                    
Inlet gas and  oil when tax credits were  factored in, which                                                                    
fueled his concern over equity  issues between renewable and                                                                    
nonrenewable industry tax credits.                                                                                              
                                                                                                                                
Representative  Thompson replied  that  he did  not want  to                                                                    
delve  into  oil  and  gas  credits  that  were  "thoroughly                                                                    
vetted"  over  the  last  several  years  and  would  hinder                                                                    
passage of  the legislation. He  felt that it was  a subject                                                                    
for future legislatures  to address. The tax  credits in the                                                                    
bill  were included  because he  felt the  process could  be                                                                    
completed by the twenty-ninth legislature.                                                                                      
                                                                                                                                
Co-Chair   Austerman  questioned   how  the   "cost  benefit                                                                    
structure" of  each of the  credits would be  determined. He                                                                    
felt the structure was not  defined in the bill. He wondered                                                                    
what criteria DOR and LFD would use.                                                                                            
Representative Thompson  replied that the criteria  had been                                                                    
set in the legislation.                                                                                                         
                                                                                                                                
Co-Chair Stoltze  remarked that Vice-Chair  Neuman expressed                                                                    
the same concerns  and would be addressed in  a future draft                                                                    
of the bill.                                                                                                                    
                                                                                                                                
Co-Chair  Austerman requested  that  LFD be  present at  the                                                                    
subsequent bill hearing.                                                                                                        
                                                                                                                                
Representative  Wilson  concurred with  Co-Chair  Austerman.                                                                    
She believed  that when  tax credits  were removed  from the                                                                    
bill it  was much  more difficult  to justify  the remaining                                                                    
credits  left in.  She viewed  the  bill in  two parts;  tax                                                                    
credits with  sunset dates and  those without  sunset dates.                                                                    
She  stated  that  credits without  sunset  dates  were  not                                                                    
reviewed  and  that  credits with  sunset  dates  should  be                                                                    
reviewed  fairly. She  agreed that  tax credits  represented                                                                    
lost revenue and should be examined.                                                                                            
                                                                                                                                
Representative  Guttenberg pointed  to Sections  5 and  6 on                                                                    
pages  4 and  5 related  to grants  to named  recipients and                                                                    
unincorporated   municipalities.  He   discerned  that   the                                                                    
unincorporated   municipalities   were    not   granted   an                                                                    
opportunity to apply for a  reappropriation or an extension.                                                                    
He asked for clarification.                                                                                                     
                                                                                                                                
Representative Thompson  replied that they would  be treated                                                                    
the same  as a  municipality or  borough. He  explained that                                                                    
the  purpose  of  the  section  was  to  ensure  that  named                                                                    
recipients and  unincorporated municipalities had  a process                                                                    
for  extension. The  reappropriation  process  would be  the                                                                    
same as the process for a municipality.                                                                                         
                                                                                                                                
Representative  Guttenberg   understood  but  did   not  see                                                                    
provision in the bill. He requested the statute.                                                                                
                                                                                                                                
Mr. Anderson  informed the committee that  the provision was                                                                    
controlled  at the  regulation  level  versus the  statutory                                                                    
level.                                                                                                                          
                                                                                                                                
Co-Chair Stoltze  WITHDREW his OBJECTION to  the adoption of                                                                    
the  CS.  There  being  NO  further  OBJECTION,  it  was  so                                                                    
ordered.                                                                                                                        
                                                                                                                                
HB  306  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
10:31:46 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 10:31 a.m.                                                                                         
                                                                                                                                

Document Name Date/Time Subjects
HB306 House Finance Committee Questions.pdf HFIN 3/12/2014 8:30:00 AM
HB 306
HB 306 Section 12 Repealers.pdf HFIN 3/12/2014 8:30:00 AM
HB 306
HB 267 CS FIN O version.pdf HFIN 3/12/2014 8:30:00 AM
HB 267
HB 266 CS FIN Y version.pdf HFIN 3/12/2014 8:30:00 AM
HB 266
HB 266 HB 267 Operating Budget Agency Summaries-3.pdf HFIN 3/12/2014 8:30:00 AM
HB 266
HB 267
HB 306 CS WORKDRAFT 28-LS1396_R.pdf HFIN 3/12/2014 8:30:00 AM
HB 306
HB 306 Version Changes N-R.pdf HFIN 3/12/2014 8:30:00 AM
HB 306
HB 306 NEW FN DCCED 3-11-14.pdf HFIN 3/12/2014 8:30:00 AM
HB 306
HB 266 HB 267 Operating Budget Testimony Additional.pdf HFIN 3/12/2014 8:30:00 AM
HB 266
HB 267