Legislature(2017 - 2018)HOUSE FINANCE 519

03/30/2017 01:30 PM FINANCE

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                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 30, 2017                                                                                            
                         1:38 p.m.                                                                                              
1:38:24 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 1:38 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative David Guttenberg                                                                                                 
ALSO PRESENT                                                                                                                  
Ken Alper,  Director, Tax  Division, Department  of Revenue;                                                                    
Brandon   S.   Spanos,   Deputy  Director,   Tax   Division,                                                                    
Department of  Revenue; April Wilkerson,  Director, Division                                                                    
of  Administrative  Services,   Department  of  Corrections;                                                                    
Randall  Hoffbeck,  Commissioner,   Department  of  Revenue;                                                                    
Kristin   Kranendonk,   Staff,   Representative      Harriet                                                                    
Drummond;  Ben Brown,  Chair, Alaska  State  Council on  the                                                                    
PRESENT VIA TELECONFERENCE                                                                                                    
Kate    Hudson,   Executive    Director,   Violent    Crimes                                                                    
Compensation  Board,  Juneau;  Alice Bioff,  Kawerak,  Inc.,                                                                    
Nome; Andrea Noble-Pelant,  Executive Director, Alaska State                                                                    
Council on the Arts, Eagle River.                                                                                               
HB 115    INCOME TAX; PFD CREDIT; PERM FUND INCOME                                                                              
          HB 115 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 137    ST. COUNCIL ON THE ARTS: PUBLIC CORP.                                                                                 
          HB 137 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
Co-Chair Foster  addressed the meeting agenda.  He indicated                                                                    
that  the  discussion  focused   around  the  Department  of                                                                    
Revenue (DOR) fiscal notes for HB 115.                                                                                          
HOUSE BILL NO. 115                                                                                                            
     "An  Act  relating  to  the  permanent  fund  dividend;                                                                    
     relating  to the  appropriation of  certain amounts  of                                                                    
     the earnings reserve account;  relating to the taxation                                                                    
     of  income  of  individuals;   relating  to  a  payment                                                                    
     against the  individual income  tax from  the permanent                                                                    
     fund  dividend  disbursement;   repealing  tax  credits                                                                    
     applied  against  the  tax  on  individuals  under  the                                                                    
     Alaska  Net  Income  Tax  Act;  and  providing  for  an                                                                    
     effective date."                                                                                                           
1:39:23 PM                                                                                                                    
Representative Wilson discovered that  a consultant had been                                                                    
hired  by the  administration  to work  on  tax issues.  She                                                                    
stated  that  the  individual  had  been  hired  through  an                                                                    
$85,000 contract.  She wondered whether the  committee would                                                                    
have the  opportunity to hear testimony  from the consultant                                                                    
in-person.  She voiced  the department's  lack of  knowledge                                                                    
regarding trusts.                                                                                                               
1:41:01 PM                                                                                                                    
AT EASE                                                                                                                         
1:43:26 PM                                                                                                                    
Co-Chair  Foster asked  the  administration  to address  the                                                                    
KEN ALPER,  DIRECTOR, TAX  DIVISION, DEPARTMENT  OF REVENUE,                                                                    
provided  background information  about  the consultant.  He                                                                    
informed the committee that Professor  Rick Pomp's role with                                                                    
the administration  related to the development  of an income                                                                    
tax bill. He  relayed that Prof. Pomp was an  attorney and a                                                                    
professor  at the  University of  Connecticut. He  explained                                                                    
that during  the prior  session the  governor had  offered a                                                                    
similar  income tax  bill. He  learned through  the process,                                                                    
that the  income tax  language used  in the  governor's bill                                                                    
was  obsolete and  needed updating.  He delineated  that DOR                                                                    
placed a request  for approval of a 2017 income  tax bill to                                                                    
the  governor's  office  "long  before"  it  was  determined                                                                    
whether the  bill would be  introduced. He wanted  to update                                                                    
the  language in  the bill  regarding  using adjusted  gross                                                                    
income rather than  a share of federal  liability. He shared                                                                    
that issues  had arisen related  to using  federal liability                                                                    
such  as,  its elimination  in  every  other state  and  the                                                                    
difficulty  to apportion  income between  resident and  non-                                                                    
resident among  others. The Department of  Law (DOL) alerted                                                                    
DOR that  it did  not have the  in-house expertise  to draft                                                                    
the updated language. He subsequently  issued a RFP (request                                                                    
for proposal) that  was awarded to Prof. Pomp  in the amount                                                                    
of $85  thousand to draft  an income tax bill.  He qualified                                                                    
that  during  the process,  the  governor  had not  approved                                                                    
introduction of  the bill. When  DOR learned that  the House                                                                    
Finance Committee  was introducing  its own income  tax bill                                                                    
DOR offered the  language on the "structure" of  the tax and                                                                    
technical  language  to  the committee.  He  clarified  that                                                                    
Prof.  Pomp  contributed  the tax  structure  and  technical                                                                    
language but the tax tables,  personal exemption, and amount                                                                    
of revenue  was directed by  the Co-Chairs of  House Finance                                                                    
in the  committee substitute  (CS) version.  He communicated                                                                    
that  Prof.  Pomp  completed  the   contract  but  would  be                                                                    
available to testify although he  was not a trust expert. He                                                                    
clarified  that  he  was  an   expert  on  state  and  local                                                                    
taxation.  The  question  on  how   trusts  were  taxed  was                                                                    
"technical and complex." He believed  it would be beneficial                                                                    
to  the committee  to hear  how the  bill was  structured in                                                                    
regards to  trusts but did  not know whether Prof.  Pomp was                                                                    
the appropriate person.                                                                                                         
Representative Pruitt  asked where  the money had  come from                                                                    
to pay  for the contract.  Mr. Alper replied that  the money                                                                    
had come  from the Tax  Division's general fund  (GF) budget                                                                    
due  to  the  hiring  freeze.  Representative  Pruitt  asked                                                                    
whether  the   division  followed  the   normal  procurement                                                                    
process and why Prof. Pomp  was chosen. Mr. Alper delineated                                                                    
that the  money was  transferred through an  RSA to  DOL who                                                                    
"headed  up  the  contract" due  to  its  legal  procurement                                                                    
expertise through  a typical  RFP process.  He did  not know                                                                    
the  specific criteria  DOL employed.  Representative Pruitt                                                                    
asked whether the governor had  intended to introduce income                                                                    
tax  legislation  if  one  had   not  been  offered  by  the                                                                    
legislature.  Mr.  Alper replied  that  the  issue was  left                                                                    
undecided  and his  goal was  to be  prepared with  a "good"                                                                    
bill containing  attention to  technical details  that could                                                                    
be  implemented and  was enforceable.  He did  not know  the                                                                    
governor's  intention regarding  introducing  an income  tax                                                                    
1:49:31 PM                                                                                                                    
Representative Pruitt  spoke to  the $85  thousand contract.                                                                    
He  believed  that  the  cost  was  too  high  to  spend  on                                                                    
something  that  may  or  may  not  have  action  taken.  He                                                                    
wondered  how often  DOR engaged  in  similar contracts  for                                                                    
things that  might not come  to fruition and what  the costs                                                                    
were. Mr. Alper did not  have any specific example under his                                                                    
two years  as tax director.  He noted that the  contract was                                                                    
the only outside contract the  division funded. The division                                                                    
discussed the need for "better  income tax language" and the                                                                    
contract  seemed   to  be  a  "reasonable   investment."  He                                                                    
emphasized  that the  department  was not  in  the habit  of                                                                    
spending money  on things  that was  not necessary.  The tax                                                                    
language contained  in last year's  bill was  incomplete and                                                                    
based on the repealed tax in 1979.                                                                                              
Vice-Chair  Gara did  not  want members  to  think that  Mr.                                                                    
Alper  attempted to  conceal the  information regarding  the                                                                    
contract.  He shared  that  prior to  session  he asked  Mr.                                                                    
Alper whether  the governor planned to  introduce income tax                                                                    
legislation.  He   emphasized  that   Mr.  Alper   had  been                                                                    
completely forthright  about the contract. He  asked whether                                                                    
Mr.  Alper would  have provided  the  information about  the                                                                    
contract to other  members of the committee if  they had the                                                                    
same  conversation. Mr.  Alper answered  in the  affirmative                                                                    
and  furthered  that he  spoke  to  "many people"  prior  to                                                                    
session and  it was  well known  that an  outside contractor                                                                    
was helping the division  with tax language. Vice-Chair Gara                                                                    
announced that  he was a  proponent of the  state developing                                                                    
its  own income  tax  rates because  using  a percentage  of                                                                    
federal income  tax prohibited the state  from exempting the                                                                    
Permanent  Fund  Dividends  (PFD). He  inquired  whether  an                                                                    
exemption for the  PFD was allowable if the  state adopted a                                                                    
percentage of  federal income  tax as  a foundation  for its                                                                    
income  tax.  Mr.  Alper  replied that  the  bill  could  be                                                                    
written however the legislature  desired and that included a                                                                    
deduction. He recognized that an  income tax tied to federal                                                                    
liability  was  vulnerable to  changes  in  the federal  tax                                                                    
code.  He  deduced  that  if  federal  taxes  were  lowered,                                                                    
Alaska's   revenue   from   the    income   tax   would   be                                                                    
simultaneously lowered. A tax  based on gross income created                                                                    
a  more dependable  and  predictable  revenue stream.  Vice-                                                                    
Chair  Gara  had not  spoken  to  Prof. Pomp.  He  concluded                                                                    
through his own  analysis that a tax system  tied to federal                                                                    
liability  created instability  due to  probable changes  in                                                                    
the tax  code and  felt that  many others  came to  the same                                                                    
conclusion without the help of an outside consultant.                                                                           
1:53:50 PM                                                                                                                    
Mr.  Alper  agreed  that  a consultant  was  not  needed  to                                                                    
recommend the type  of tax; however, the  bill was extremely                                                                    
technical.  He   reiterated  that  DOL  did   not  have  the                                                                    
expertise and  requested outside  council. He knew  that the                                                                    
state hired outside council for  a variety of reason, mostly                                                                    
for litigation but also for consulting reasons.                                                                                 
Representative  Wilson clarified  that she  had asked  about                                                                    
the  consultant   because  she   wanted  answers   that  the                                                                    
committee had not  yet received and believed her  job was to                                                                    
find the  answers and had  no other motive for  the request.                                                                    
She asked  when the contract  ended. Mr. Alper did  not know                                                                    
if there was  a specific end date or whether  Prof. Pomp had                                                                    
been paid;  the deliverable was  the draft bill  he produced                                                                    
and he  "deserved to be paid."  Representative Wilson agreed                                                                    
that  Prof. Pomp  should have  been paid  for his  work. She                                                                    
asked when  the "deliverable had been  delivered." Mr. Alper                                                                    
replied that an  early draft was received in  December and a                                                                    
final draft  had been delivered in  January. He communicated                                                                    
that DOL  used the draft to  write a final bill  version and                                                                    
the bill was  received by DOR in the later  part of January.                                                                    
Representative  Wilson spoke  to the  cost of  the contract.                                                                    
She spoke to  deductions and exemptions that  would be given                                                                    
to residents  versus non-residents  and heard  from previous                                                                    
testimony that  taxing them differently was  prohibited. She                                                                    
asked  whether  Prof. Pomp  had  any  information on  how  a                                                                    
residential versus  non-resident tax  would be  treated. Mr.                                                                    
Alper explained  that the technically complex  provisions in                                                                    
an  income  tax  bill  was  properly  apportioning  in-state                                                                    
versus out-of-state  income and  Prof. Pomp  devised tightly                                                                    
defined  language that  allowed  the  duality. He  specified                                                                    
that a few provisions in the  bill favored a resident over a                                                                    
non-resident.  The   $4  thousand  personal   exemption  was                                                                    
essentially prorated  for a non-resident  and was  only able                                                                    
to  exempt  the  portion  of income  earned  in  Alaska.  He                                                                    
exemplified  an  individual  non-resident  with  a  seasonal                                                                    
business  in   Alaska  earning  $50  thousand   and  another                                                                    
business  in   a  different  state  earning   $200  thousand                                                                    
totaling $250,000 in income. The  tax payer would pay income                                                                    
tax from  the $250 thousand  bracket but only 20  percent of                                                                    
the tax,  since only 20  percent of total income  was earned                                                                    
in  the state.  He  noted  that the  pro  rata  was a  small                                                                    
benefit but  was a way  to favor  the Alaskan over  the non-                                                                    
1:59:01 PM                                                                                                                    
Representative Wilson  was uncomfortable that  the committee                                                                    
members  had  been  asked  to   provide  amendments  by  the                                                                    
following day.  She did not  have the expertise to  write an                                                                    
amendment.  She  hoped that  Prof.  Pomp  would be  able  to                                                                    
answer some of the member's  questions. She did not want the                                                                    
bill  to   have  consequences   in  the  future   that  were                                                                    
unintended. Co-Chair  Foster noted that the  committee would                                                                    
take an "at ease" later in  the meeting to determine when it                                                                    
could hear from Prof. Pomp.                                                                                                     
Representative Pruitt asserted that  expert help for answers                                                                    
to questions was previously  requested. He expressed concern                                                                    
that Prof. Pomp  was not mentioned to  the committee before.                                                                    
He was  frustrated by  the issue. He  thought some  time may                                                                    
have been wasted by not  retaining Prof. Pomp to testify and                                                                    
answer questions before the committee.                                                                                          
Co-Chair   Seaton  recounted   that   trust  attorneys   had                                                                    
testified and  expressed concern about  problematic language                                                                    
in the  bill. The  co-chairs were  taking the  concerns into                                                                    
account.  He  was  working with  the  attorneys  on  getting                                                                    
answers  as   best  as  possible   and  would   put  forward                                                                    
amendments.   He   presumed    Representative   Pruitt   and                                                                    
Representative Wilson were also  speaking to trust attorneys                                                                    
to  get opinions  about the  bill's language.  He maintained                                                                    
that  inquiry was  part  of the  committee  process and  the                                                                    
reason  the  trust  attorneys were  invited  to  testify  to                                                                    
answer all of the committee member's questions.                                                                                 
2:04:13 PM                                                                                                                    
Representative Pruitt appreciated  the response; however, he                                                                    
remarked that Mr. Alper had just  stated there was no one in                                                                    
Alaska  with  the expertise  on  trusts.  He reiterated  his                                                                    
frustration that  the person who  wrote aspects of  the bill                                                                    
was not available to testify before the committee.                                                                              
Vice-Chair  Gara  knew  the  comments   were  not  meant  as                                                                    
accusations but  the "rhetoric" bothered  him. He  wanted to                                                                    
clarify  the  record. He  stated  that  the suggestion  that                                                                    
Prof. Pomp "wrote the bill  was patently untrue." He relayed                                                                    
that  legislators  were  not "helpless"  when  dealing  with                                                                    
legislation  and  could  undertake their  own  research  and                                                                    
utilize  resources. He  noted his  own personal  attempts to                                                                    
find answers for the trust issues.                                                                                              
Representative  Pruitt  clarified  that he  was  not  making                                                                    
2:07:01 PM                                                                                                                    
Mr. Alper  moved on  to address the  fiscal notes.  He noted                                                                    
that four  were from DOR.  He turned  to the new  DOR fiscal                                                                    
note  allocated  to  the tax  division  showing  income  tax                                                                    
revenues  only.  The fiscal  note  reported  that the  state                                                                    
would raise over $700 million  each year. He delineated that                                                                    
the first full  year of income tax collected was  FY 20. The                                                                    
income tax provisions  in the bill had an  effective date of                                                                    
January 1,  2019. The first withholdings  from paychecks was                                                                    
subsequent to  January 2019; hence,  the figure for  FY 2019                                                                    
represented  half  a  year's worth  of  revenue.  The  first                                                                    
actual tax  filings would not  happen until April  15, 2020.                                                                    
Mr.  Alper  explained  the capital  costs  reported  in  the                                                                    
fiscal  note  analysis of  $14  million;  2 percent  of  one                                                                    
year's  amount of  projected  revenues.  The division  would                                                                    
embark  on  four  short term  projects  if  the  legislation                                                                    
passed.   A  very   "aggressive,  lengthy,   and  extensive"                                                                    
regulations  writing  project  was  necessary  to  clean  up                                                                    
details and address specifics and  "gray areas." He expected                                                                    
that  outside  contractors  would be  required.  A  database                                                                    
would need  to be built  in order to collect  and administer                                                                    
the tax  costing approximately  $10 million.  He highlighted                                                                    
that  DOR  recently  completed a  $25  million  contract  to                                                                    
rebuild  the  tax  management  system.  He  noted  that  the                                                                    
results  were very  successful; the  department expected  to                                                                    
employ the same contractor for  the income tax database. The                                                                    
department would  provide outreach  to the public  about the                                                                    
tax and how  it was structured. Finally,  the division would                                                                    
also  need to  hire new  staff  to administer  the tax.  The                                                                    
division estimated  that about 60 individuals  were required                                                                    
to administer the  tax by the time it  was fully implemented                                                                    
in  FY 2020.  He  delineated that  the department  currently                                                                    
operated  25 tax  programs. The  largest  was the  corporate                                                                    
income  tax that  had 18  thousand tax  payers; most  were S                                                                    
corporations filing  zero tax returns. The  income tax would                                                                    
add 400  thousand Alaskan households  as "customers"  to the                                                                    
division's customer base. The  division would need auditors,                                                                    
technical   expertise,    appeals   officers,   programmers,                                                                    
accounting  technicians, and  supervisors.  The fiscal  note                                                                    
contained a  table listing  the staff needs  on page  4. The                                                                    
ramp up would  be gradual. He included four staff  in the FY                                                                    
18  budget  for  a leadership  team;  supervisor,  technical                                                                    
expert, programmer, and regulations staff.                                                                                      
2:13:16 PM                                                                                                                    
Mr. Alper  shared the cost  of the  staff was a  little over                                                                    
$6.4  million   per  year  plus  the   associated  costs  of                                                                    
personnel. He  reported that currently the  division had 110                                                                    
employees and  an income  tax would  increase the  staff and                                                                    
costs half  again as much  as current expenses.  He remarked                                                                    
that implementing  the tax took substantial  effort, but the                                                                    
department  was up  for the  challenge. Mr.  Alper continued                                                                    
that  the  analysis  on  pages 2  through  4  described  the                                                                    
specific provisions  in the  bill such  as tax  brackets and                                                                    
withholding  in "plain  English."  He cited  the two  tables                                                                    
contained in  the analysis: one  summarized the  revenue and                                                                    
the other summarized the anticipated staffing needs.                                                                            
Representative Wilson  asked whether  any analysis  had been                                                                    
done on  the cost to  businesses to fill out  the paperwork.                                                                    
Mr.  Alper  deferred  the  question  to  his  colleague.  He                                                                    
remarked that businesses were already  doing the work at the                                                                    
federal  level  and felt  that  the  state's forms  did  not                                                                    
create an extra burden.                                                                                                         
2:16:12 PM                                                                                                                    
BRANDON   S.   SPANOS,   DEPUTY  DIRECTOR,   TAX   DIVISION,                                                                    
DEPARTMENT  OF REVENUE,  expected that  the largest  cost to                                                                    
businesses  was  related to  the  withholding  tax that  was                                                                    
specific to  the state.  The other  forms required  would be                                                                    
the   same   forms   the   IRS   received,   therefore   the                                                                    
administration  did  not   anticipate  additional  costs  to                                                                    
businesses   for   other    forms.   Representative   Wilson                                                                    
ascertained that businesses needed  to purchase some type of                                                                    
programming  in order  to  comply. She  pointed  to the  $14                                                                    
million cost  for the  state and assumed  the tax  would add                                                                    
costs to businesses too. Mr.  Alper answered that most small                                                                    
business  typically used  a commercially  available computer                                                                    
program  like Quick  Books that  automatically downloaded  a                                                                    
state's  updated tax  tables. He  offered that  the division                                                                    
would  ensure  the  national  accounting  software  programs                                                                    
internalized  the  Alaska's  tax tables.  A  business  owner                                                                    
would be  able to rely on  a program to withhold  the income                                                                    
tax from their  employees and the business  could send their                                                                    
monthly reports and checks.                                                                                                     
Representative Wilson  contended that  there would  be costs                                                                    
to  businesses  and  wanted to  determine  the  amount.  She                                                                    
listed S  corporations, trusts, estates, and  individual tax                                                                    
payers and wanted a breakdown  of the amount of revenue that                                                                    
would  be generated  from each  group. She  requested better                                                                    
analysis  of  where the  funds  would  be coming  from.  She                                                                    
wondered  whether certain  groups would  be "hit"  more than                                                                    
others. Mr. Alper  clarified that "all of  the revenue would                                                                    
be coming  from individuals."  He voiced that  earnings from                                                                    
the various entities  she listed were passed  through to the                                                                    
owners who  filed as an  individual tax payer.  He indicated                                                                    
that the  tax division was  not aware  of the source  of the                                                                    
income but obtained  information on the complete  set of IRS                                                                    
(Internal  Revenue  Service)  data  for  the  population  of                                                                    
Alaska, the various income levels,  and how many types (e.g.                                                                    
filing jointly) of filers there  were. The IRS did not break                                                                    
out  the type  of income.  He  reiterated that  the tax  was                                                                    
specifically  for  individuals  and  the  various  sorts  of                                                                    
income they earn.                                                                                                               
2:20:54 PM                                                                                                                    
Co-Chair  Seaton  clarified  that the  CS  included  another                                                                    
category of  non-grantor resident  trusts that would  file a                                                                    
distribution  if one  was retained.  Grants  or trusts  were                                                                    
also attributed to the individual.                                                                                              
Representative Wilson  asked whether  any analysis  had been                                                                    
done related  to the loss of  jobs in the private  sector in                                                                    
the last 2  prior years. Mr. Alper answered  that the income                                                                    
tax was modeled  using a complete set of  calendar year 2014                                                                    
IRS data.  The 2015 data  had recently become  available and                                                                    
the  model would  be updated.  The division  was working  on                                                                    
breaking  down the  tax liability  in  fifths. He  explained                                                                    
that the model  was straight forward and was  based on types                                                                    
of  filer and  the  various income  levels. The  calculation                                                                    
then  used the  tax  tables and  made  certain estimates  on                                                                    
averages, added up  the data to determine  the total revenue                                                                    
impact. Representative  Wilson stated she understood  how to                                                                    
do taxes. She  noted that the information was  based on data                                                                    
from 2014.  She believed that  the economic impact  from low                                                                    
oil prices impacted the economy  and job losses in 2016. She                                                                    
surmised that the  fiscal notes did not  reflect the current                                                                    
level of  unemployment. She believed the  committee received                                                                    
information based  on older data  and was not  accurate. She                                                                    
advised integrating  DOL statistics on employment  data into                                                                    
the  forecasted revenue  projections for  a better  estimate                                                                    
than  what  was included  in  the  fiscal notes.  Mr.  Alper                                                                    
stressed that it  was not possible to know  exactly what the                                                                    
numbers  were in  the future  and the  figures reflected  in                                                                    
2020 were forecasted.                                                                                                           
Mr.  Spanos  relayed  that the  division's  economists  were                                                                    
listening  during the  previous  meetings to  Representative                                                                    
Wilson's questions  and confirmed that the  fiscal notes did                                                                    
factor in the Department  of Labor and Workforce Development                                                                    
(DOL)   statistics   for   the  current   years,   but   not                                                                    
specifically  job losses  on the  North Slope.  However, the                                                                    
DOL  data did  include job  losses in  the entire  state. He                                                                    
elucidated  that the  economists determined  that the  total                                                                    
job loss  figure was  a better indicator  on what  the total                                                                    
revenue was versus just looking at the North Slope numbers.                                                                     
Representative   Thompson  stated   that  the   fiscal  note                                                                    
analysis was based on Montana's  tax agency to determine the                                                                    
number of  new staff that  would be necessary in  Alaska. He                                                                    
asked how  the state  could do  the work  with half  as many                                                                    
staff as Montana had. He  wondered who would be auditing the                                                                    
companies  to  ensure  they   properly  withheld  taxes.  He                                                                    
questioned the employment numbers of 60 staff by 2020.                                                                          
2:27:31 PM                                                                                                                    
Mr. Alper replied  that the question was  fair. He explained                                                                    
the  rationale  used  to  calculate   the  fiscal  note.  He                                                                    
indicated that the department had  rounded down a bit due to                                                                    
the  fact  that  Montana  had a  specific  department  built                                                                    
around administering  an income  tax. Alaska's  tax division                                                                    
was  embedded   in  a   department  that   already  employed                                                                    
administrative,  IT  (information  technology),  accounting,                                                                    
and etc. staff.  He presumed the increase could  be added on                                                                    
top  of  a  "pretty  robust  framework"  of  employees  that                                                                    
already  existed within  the tax  division and  the division                                                                    
could  administer  the tax  for  less.  He deemed  that  the                                                                    
information about  the number  of staff  precisely necessary                                                                    
was  not   yet  known   and  was  impossible   to  determine                                                                    
accurately  before any  tax was  collected. He  communicated                                                                    
that  the  costs  embedded  in   the  bill  divided  by  the                                                                    
anticipated revenue  equaled about  1.5 percent  of expected                                                                    
revenue. He  opined that  1.5 percent  on startup  costs and                                                                    
staffing "was a pretty good overhead" figure.                                                                                   
Representative   Thompson   referred  to   specialized   tax                                                                    
accounting software  that would need to  be reprogrammed. He                                                                    
asked  whether  tax  accountants   and  tax  preparers  were                                                                    
consulted  about the  costs to  reprogram their  software to                                                                    
accommodate a state income tax.  Mr. Spanos replied that the                                                                    
administration  had not  specifically reached  out to  those                                                                    
companies. He  knew that many  of the accounting  firms used                                                                    
either  proprietary software  or  customized  off the  shelf                                                                    
software that would need to  be reprogrammed. The department                                                                    
understood  there  would be  a  cost  for the  software  but                                                                    
anticipated a new stream of  revenue for tax accountants due                                                                    
to the  tax. He  shared the  concern about  administering an                                                                    
income tax  without enough staff. He  consulted with Vermont                                                                    
that had  a similar population to  Alaska; Vermont officials                                                                    
thought the number was too  high. He delineated that Vermont                                                                    
had a more  complicated tax structure than  the one proposed                                                                    
and  their  tax officials  recommended  that  fewer than  60                                                                    
employees were necessary to  administer Alaska's income tax.                                                                    
He envisioned  hiring a base  staff along with  some outside                                                                    
expertise to guide the division  until it was fully staffed.                                                                    
Representative Thompson  asked how much more  money it would                                                                    
cost  an  individual  to  have   their  taxes  prepared.  He                                                                    
stressed that a large number  of people had their taxes done                                                                    
by a  Certified Public Accountant (CPA)  or accounting firm.                                                                    
Mr.  Spanos replied  that off-the-shelf  systems cost  about                                                                    
the  same  in   many  states.  An  additional   $10  to  $20                                                                    
electronic filing fee was typically  added on or embedded in                                                                    
the cost  of the  software for  state's that  prohibited the                                                                    
filing fee.  He remarked that business  accounting typically                                                                    
costs more than individual tax preparation.                                                                                     
2:33:07 PM                                                                                                                    
Representative Pruitt asked about  the staffing needs listed                                                                    
on the  fiscal note.  He referenced the  money spent  on the                                                                    
contractor utilized from DOR  vacancies. He wondered whether                                                                    
the funding request was "above  and beyond" the savings from                                                                    
the vacancy  rates and other  additional funding.  Mr. Alper                                                                    
responded that  the vacancy rates were  "relatively high" in                                                                    
the current  year due  to the  partial hiring  freeze, which                                                                    
slowed  the  recruitment  process.  The  contract  cost  $85                                                                    
thousand and the tax division's  budget was $15 million. The                                                                    
division was  losing 8  positions in the  FY 18  budget. The                                                                    
staffing request  included all new positions.  He hoped that                                                                    
current DOR  employees losing  their current  positions were                                                                    
able to fill  some of the 60 new positions.  He spoke to the                                                                    
benefits of  experienced workers.  He pointed  to page  4 of                                                                    
the  fiscal  note  that  contained   a  chart  of  necessary                                                                    
positions  and  drew  attention  to  imaging  operators  and                                                                    
office  assistants. He  explained  that  the positions  were                                                                    
half-year positions  that scanned paper tax  returns and did                                                                    
data entry.  The fiscal note  assumed that 80 percent  to 85                                                                    
percent  of  Alaskans filed  electronically.  Representative                                                                    
Pruitt inquired  whether any additional  money left  over in                                                                    
FY 19  would be returned to  GF or used for  other things in                                                                    
the division.  Mr. Alper  responded that  he was  prudent by                                                                    
nature and would lapse money back into the general fund.                                                                        
2:37:12 PM                                                                                                                    
Vice-Chair  Gara  related,  in   response  to  the  previous                                                                    
discussion, that according to  the Institute of Taxation and                                                                    
Economic Policy (ITEP)  from a March 24, 2017  memo (copy on                                                                    
file)  approximately  40  percent of  Alaska's  lowest  wage                                                                    
earners  would pay  roughly  half of  one  percent of  their                                                                    
total  income  and the  top  1  percent  would pay  about  3                                                                    
percent  of  their  income  under  the  CS  version  of  the                                                                    
Representative Wilson emphasized  that she requested numbers                                                                    
rather than percentages.                                                                                                        
Mr.  Alper  continued  to  address   the  fiscal  notes.  He                                                                    
reviewed the  new Alaska  Permanent Fund  Corporation (APFC)                                                                    
zero  fiscal  note allocated  to its  Investment  Management                                                                    
Fees.  He  noted   that  the  bill  would   not  affect  its                                                                    
investment policy  therefore the fee structure  would remain                                                                    
the same. Mr.  Alper explained that the new  PFD fiscal note                                                                    
reported the  amount for dividends  in FY 18 under  the bill                                                                    
in  the  amount  of  $833  million.  He  reported  that  the                                                                    
legislation  altered the  existing dividend  calculation. In                                                                    
FY  18 and  FY  19,  a certain  percentage  of the  Earnings                                                                    
Reserve Account (ERA) would be  drawn and one-third would be                                                                    
dedicated   to  dividend   distribution.  Alternatively,   a                                                                    
minimum dividend amount was set  at $1250 if the calculation                                                                    
was below that  amount. Subsequently, beginning in 2020, the                                                                    
draw was reduced to a percent of market value (POMV).                                                                           
Representative   Wilson    pointed   to   the    PFD   funds                                                                    
appropriations  listed on  the  fiscal note.  She noted  the                                                                    
$881 million  in FY  19 and the  drop to $874  in FY  20 and                                                                    
began to  increase in  the out-years.  She wondered  why the                                                                    
amount fluctuated. Mr. Alper was  uncertain why the drop off                                                                    
occurred and deferred the question.                                                                                             
2:42:27 PM                                                                                                                    
Co-Chair Seaton  referred to the  chart on the  second page.                                                                    
The percent of  market value draw dropped  from 5.25 percent                                                                    
to 5 percent  in FY 20. The drop also  reflected that a full                                                                    
year of income tax was not expected until FY 21.                                                                                
Representative  Wilson  asked why  there  was  such a  large                                                                    
disparity from  FY 20 to FY  21. Mr. Alper replied  that the                                                                    
state anticipated average earnings  on the Permanent Fund of                                                                    
6.95  percent per  year. The  larger figure  represented the                                                                    
inherent  growth  or  the "underlying  real  growth  of  the                                                                    
fund."  Additionally,  a  POMV "allowed  for  self-inflation                                                                    
proofing  of the  fund" along  with the  royalties from  oil                                                                    
production.  Representative Wilson  thought  that the  stock                                                                    
market  would  be  performing well  for  several  years  and                                                                    
expected  different "average"  figures. Mr.  Alper explained                                                                    
that the  legislation provided a  larger dividend  than what                                                                    
was  included  in the  governor's  budget.  The fiscal  note                                                                    
shows  an additional  $181  million  appropriation over  the                                                                    
$652  million included  in the  governor's request  to total                                                                    
$833 million.  The $652 million  included in  the Governor's                                                                    
budget covered a dividend of  $1000. The $181 million in the                                                                    
"FY18  Appropriation  Requested"  column is  the  additional                                                                    
amount needed to  cover a dividend of $1,250  as proposed by                                                                    
this legislation.                                                                                                               
2:45:35 PM                                                                                                                    
Mr. Alper moved  to the new fiscal note  from Permanent Fund                                                                    
ERA  Appropriations  allocated  to   the  General  Fund.  He                                                                    
offered  that the  fiscal note  reflected  the 5.25  percent                                                                    
POMV amount decreasing  to 5 percent in FY 20.  In FY 18 the                                                                    
amount was $2.526  billion and reflected the  full draw from                                                                    
the   ERA.  The   amount   was   split  between   two-thirds                                                                    
appropriated to  GF and one-third  appropriated to  the PFD.                                                                    
The amount remaining  for GF was $181 million.  He noted the                                                                    
small decrease  when the POMV dipped  to 5 percent in  FY 20                                                                    
to  $2.650   billion  from  $2.669   billion  in   FY  2019.                                                                    
Representative Wilson asked how  the number would compare if                                                                    
the bill  used a "fifty/fifty"  split for the  complete draw                                                                    
from the ERA in FY 19  and only realized earnings were taken                                                                    
out. Mr. Alper answered that  he knew of two different 50/50                                                                    
bills. The bill  utilizing a POMV was the  exact same number                                                                    
but with  a different  split. He expounded  that he  did not                                                                    
remember the number for the one  tied to using 50 percent of                                                                    
the  "historic  lookback  of  statutory  net  earnings."  He                                                                    
offered  to  provide  the  information  upon  Representative                                                                    
Wilson's request.                                                                                                               
2:49:36 PM                                                                                                                    
Mr. Alper addressed the new  Various (for fiscal notes only)                                                                    
fiscal note  allocated to  All Branches.  He pointed  to the                                                                    
analysis relating  to the  transfer of  "Other" funds  to GF                                                                    
and  noted the  $54.9  million  figure in  FY  18 and  $62.2                                                                    
million in  FY 19.  He explained that  the bill  contained a                                                                    
provision  that   changed  certain  deposits   from  mineral                                                                    
royalty from  new oil to  the corpus  of the PF.  The fiscal                                                                    
note  reflected the  reduction of  royalty  deposits to  the                                                                    
permanent fund  to the constitutionally mandated  25 percent                                                                    
with the  remainder deposited into  GF. The  provision meant                                                                    
that an additional $55 million  in additional GF revenue the                                                                    
following year, which would grow  to $75.3 million by FY 23.                                                                    
He  moved to  the  new Department  of Administration  fiscal                                                                    
note  allocated to  the  Office  of Administrative  Hearings                                                                    
(OAH)  that  handled  tax  appeals.  He  reported  that  the                                                                    
allocation was a duplication of  funding from the DOR fiscal                                                                    
note.  The  fiscal  note changed  the  funding  source  from                                                                    
general funds  to interagency  receipts. He  elucidated that                                                                    
the  OAH would  attain  jurisdiction over  appeals from  the                                                                    
final  tax division's  informal appeals  process as  well as                                                                    
other disputes  relating to the  new tax. The  OAH estimated                                                                    
that additional staff was necessary.  He emphasized that the                                                                    
cost was covered  in the Tax Division's fiscal  note and DOA                                                                    
would send DOR an interagency bill for its services.                                                                            
Representative Wilson referred to page  2 of the fiscal note                                                                    
analysis and  posed a question regarding  trusts. She stated                                                                    
that  a  trust  was  "almost  like  a  person;"  assets  and                                                                    
"property and  everything else" comprised a  trust "entity."                                                                    
She ascertained that  if the trust made money  in the state,                                                                    
regardless of  where the trustee  lived, the trust  would be                                                                    
taxed under  the bill.  She asked  whether she  was correct.                                                                    
Mr. Alper  responded that it  was his understanding  that if                                                                    
the earnings were derived from  an Alaskan source they would                                                                    
be taxed.                                                                                                                       
Mr. Spanos agreed with Mr. Alper's answer.                                                                                      
Co-Chair  Seaton  clarified  that  "grantor  trusts,"  which                                                                    
involved a person  as the beneficiary, passed  all assets to                                                                    
an  individual and  were taxed  as an  individual. The  only                                                                    
thing under discussion was non-grantor trusts.                                                                                  
Representative  Wilson opined  that any  money removed  from                                                                    
the trust  should be  taxed versus  taxing any  earnings the                                                                    
trust made.  She referenced the  400,000 new tax  payers and                                                                    
inquired about the origin of  the number. Mr. Alper answered                                                                    
that  the  figure   was  the  estimate  of   the  number  of                                                                    
households in the state.                                                                                                        
2:55:34 PM                                                                                                                    
Representative Wilson  asked for  a breakdown of  the number                                                                    
of out-of-state  households represented in the  400,000. Mr.                                                                    
Spanos replied  that an estimated  13 percent of  the filers                                                                    
would be  non-resident. Mr. Alper  detailed that  the number                                                                    
of Alaskans filing federal taxes  were 128,000 joint filers,                                                                    
184 thousand  single filers, 37  thousand head  of household                                                                    
filers and  9 thousand "other"  filers adding up  to 358,000                                                                    
income tax filers in Alaska. He furthered that non-                                                                             
residents were added to total  400,000. He acknowledged that                                                                    
the  figure  was  a  rough estimate,  but  believed  it  was                                                                    
"reasonable." Representative  Wilson asked  how many  of the                                                                    
42,000 out-of-state were seasonal  workers or employed full-                                                                    
time  by the  state. Mr.  Alper deferred  the answer  to DOL                                                                    
data.  Representative Wilson  deduced  that not  all of  the                                                                    
358,000  Alaskan  taxpayers   worked  full-time.  Mr.  Alper                                                                    
clarified  that the  tax  filers from  the  358,000 data  he                                                                    
cited   identified    themselves   as    Alaska   residents.                                                                    
Representative  Wilson surmised  that  trusts, estates,  and                                                                    
all S corporations  was not included in  the 400,000 number.                                                                    
Mr. Alper agreed with the statement.                                                                                            
Vice-Chair Gara  voiced that it  would be desirable  to "tax                                                                    
as  many out-of-state  individuals as  possible" within  the                                                                    
constraints  of  statute. He  asked  whether  a person  from                                                                    
another state would pay taxes  on a trust managed in Alaska.                                                                    
Mr. Spanos answered  that the bill carved  out an exemption.                                                                    
He deemed  that the  intent of the  original drafter  was to                                                                    
capture  income from  trusts  to  the constitutional  limits                                                                    
that included  the corpus  of the  trust. Assets  that would                                                                    
not be taxed were ones  managed from Alaska but were trading                                                                    
in another  state. He added  that the amount of  the trust's                                                                    
corpus  that  was managed  from  an  Alaskan bank  would  be                                                                    
3:01:06 PM                                                                                                                    
Representative Thompson  asked how educational  savings from                                                                    
PFDs were factored in to  the income tax. Mr. Spanos thought                                                                    
that it  might be taxed  if the account  was part of  a non-                                                                    
grantor  trust,  but  an  educational  savings  account  was                                                                    
"potentially  exempt."  Representative   Thompson  spoke  to                                                                    
putting half  of the  PFD into  the college  savings account                                                                    
and wondered what was taxed.  Mr. Alper replied that if half                                                                    
of the  dividend was deposited into  the educational account                                                                    
then the amount of the dividend would be cut in half.                                                                           
Representative Wilson  surmised that  the interest  made off                                                                    
of an educational savings account  would be taxed as soon as                                                                    
a child was ready to go  to school and the same would happen                                                                    
when it  was removed from  a trust. Mr. Spanos  replied that                                                                    
whether the  interest was taxed  depended on whether  it was                                                                    
taxable at the  federal level. Therefore, if  it was subject                                                                    
to  a federal  tax it  would  be taxed  in Alaska  and if  a                                                                    
distribution was  made from a  non-grantor trust,  the trust                                                                    
received a deduction.                                                                                                           
Vice-Chair  Gara  stated that  the  dividend  was not  taxed                                                                    
under the  bill, therefore if  a dividend was placed  into a                                                                    
trust,  the dividend  amount would  not be  taxed. He  asked                                                                    
whether his  statement was accurate.  Mr. Spanos  replied in                                                                    
the affirmative. He mentioned  that only the interest earned                                                                    
on the dividend would be taxed.                                                                                                 
Representative Pruitt  remarked that the  discussion bounced                                                                    
between  two  different  topics, 529  accounts  and  trusts,                                                                    
which  were  separate and  strayed  away  from the  original                                                                    
question. He hoped to obtain a correct answer.                                                                                  
Mr. Alper turned  to the new zero DOA  fiscal note allocated                                                                    
to  the   Violent  Crimes  Compensation  Board   (VCCB).  He                                                                    
delineated  that  the  VCCB  currently  received  an  annual                                                                    
appropriation from  the dividend fund  based in part  by the                                                                    
number  of  individuals who  were  ineligible  to receive  a                                                                    
permanent  fund  dividend  because  they  were  incarcerated                                                                    
3:07:16 PM                                                                                                                    
KATE    HUDSON,   EXECUTIVE    DIRECTOR,   VIOLENT    CRIMES                                                                    
COMPENSATION  BOARD, JUNEAU  (via teleconference),  spoke to                                                                    
the zero fiscal note. She  explained that the board received                                                                    
the  dividend  appropriation  calculated annually  from  the                                                                    
Office  of Management  and Budget  (OMB)  and the  remaining                                                                    
portion  went to  the Department  of Corrections  (DOC). She                                                                    
understood  the current  funding method  would continue  and                                                                    
any  shortfall  due to  lowering  the  PFD payout  would  be                                                                    
covered through  DOC using GF.  She voiced that  the board's                                                                    
state funding  was entirely derived  from the  criminal fund                                                                    
and did not receive any GF.                                                                                                     
Vice-Chair Gara asked  whether the zero fiscal  note was not                                                                    
affected  by the  amount of  the dividend  and would  remain                                                                    
zero. Ms.  Hudson answered in  the affirmative.  The board's                                                                    
budget had  been flat for the  past couple of years  and may                                                                    
take a reduction in the current year.                                                                                           
Mr. Alper addressed  the new fiscal note  from DOC allocated                                                                    
to Physical Health  Care. He deferred to  the department for                                                                    
the explanation.                                                                                                                
APRIL  WILKERSON,   DIRECTOR,  DIVISION   OF  ADMINISTRATIVE                                                                    
SERVICES,  DEPARTMENT OF  CORRECTIONS,  explicated that  PFD                                                                    
Criminal Funds  were a portion  of the funds  that supported                                                                    
the  physical healthcare  component  within the  department.                                                                    
The funds were calculated based  on the number of ineligible                                                                    
applicants  who would  not receive  a  PFD due  to a  felony                                                                    
conviction  and  incarceration. The  department  anticipated                                                                    
fund changes  in FY  18 due  to the reduction  in the  FY 16                                                                    
PFD.  The  criminal funds  allocated  were  reduced by  $9.1                                                                    
million  and were  proposed from  another  fund source;  the                                                                    
Alaska Capital Income Fund.                                                                                                     
3:12:35 PM                                                                                                                    
Vice-Chair  Gara  did not  understand  the  fiscal note.  He                                                                    
noted that if  the bill passed, the dividend  in the current                                                                    
year would be larger than the  past year. He wondered why an                                                                    
increase  was necessary.  Ms. Wilkerson  responded that  the                                                                    
calculation was a based on  the previous fiscal year and the                                                                    
amount allocated was a year  behind. She offered that the FY                                                                    
18 budget was based on the  $1,022 PFD that was reduced from                                                                    
$2,072  and  reduced  the  PFD   amount  available  by  $9.1                                                                    
million. She furthered that an  increase in the PFD to $1250                                                                    
anticipated  in  FY  19  reflected   an  increase  into  the                                                                    
criminal  fund  by  $2.8  million  and  reduced  the  amount                                                                    
necessary to $6.289 million that  would carry over to FY 20.                                                                    
She added that  the PFD was anticipated  to increase further                                                                    
in FY  21 by  $1.3 million and  further reducing  the Alaska                                                                    
Capital  Fund request  to $4.95  million and  in FY  22. She                                                                    
anticipated close  to a  $400 thousand  increase in  the PFD                                                                    
and $410 thousand in FY 23 and FY 25.                                                                                           
Representative Wilson asked whether  the Alaska Capital Fund                                                                    
source  had  been the  same  in  past years.  Ms.  Wilkerson                                                                    
replied in the  negative. She stated that  in previous years                                                                    
the  department had  used  GF.  Representative Wilson  asked                                                                    
about  the purpose  of moving  the  money from  one fund  to                                                                    
another when  it was not  the original purpose of  the fund.                                                                    
Ms. Wilkerson did not know  the answer and would provide the                                                                    
answer  for why  the  funding source  was  changed when  she                                                                    
investigated the issue.  Representative Wilson was concerned                                                                    
that if  the funding remained  in the 1171 fund  source code                                                                    
it counted as an undesignated  general fund (UGF) spend. She                                                                    
added that  if the funding  changed to the 1197  fund source                                                                    
code for the Alaska  Capital Fund the appropriation appeared                                                                    
as  designated  general  fund  (DGF)  but  was  still  being                                                                    
utilized   for  the   original   purpose;  healthcare.   Ms.                                                                    
Wilkerson replied in  the affirmative. Representative Wilson                                                                    
thought that the funding source  change "looked like a shell                                                                    
game."  She  thought that  the  fiscal  note looked  like  a                                                                    
reduction in UGF but state money was still being spent.                                                                         
3:16:13 PM                                                                                                                    
Representative  Pruitt asked  whether  the  state filed  for                                                                    
PFD's  for  felons  in  order   to  obtain  the  money.  Ms.                                                                    
Wilkerson  replied that  typically  DOC,  the Department  of                                                                    
Public  Safety  and  the Permanent  Fund  Dividend  Division                                                                    
collaborated  and  identified  the  number  of  incarcerated                                                                    
individuals  who  were   ineligible.  Representative  Pruitt                                                                    
believed there was  about $91 million in  the Alaska Capital                                                                    
Fund  account and  asked how  much was  appropriated to  the                                                                    
fund in the current fiscal  year. Ms. Wilkerson replied that                                                                    
she  did   not  know.  Representative  Pruitt   stated  that                                                                    
typically the  fund had been  used for capital  projects. He                                                                    
wondered why  the decision was  made to cover  the shortfall                                                                    
with the fund. He stated  that it appeared that Capital fund                                                                    
funding  source  was  utilized   instead  of  UGF  to  avoid                                                                    
"growing  the  budget."  He  disagreed  with  using  Capital                                                                    
Budget  funds  since  the  Capital  budget  was  drastically                                                                    
reduced. Ms. Wilkerson  replied that she was  not the person                                                                    
to  speak to  the decision.  She would  have to  provide the                                                                    
answer  to the  committee  at a  later date.  Representative                                                                    
Pruitt understood  why the administration  did not  want the                                                                    
funds  to  be  classified  as   UGF,  but  warned  that  the                                                                    
appropriation   significantly   reduced  available   capital                                                                    
budget funds.                                                                                                                   
3:19:23 PM                                                                                                                    
Representative   Thompson   noted   that   in   regards   to                                                                    
incarcerated individuals PFD's, some  of the funding was for                                                                    
a prisoner's  health care  and a portion  of the  funds were                                                                    
appropriated to  the Violent  Crimes Compensation  Board. He                                                                    
asked whether  there was a  formula that specified  how much                                                                    
went to each use. Ms.  Wilkerson answered that the number of                                                                    
ineligible  individuals identified  was calculated  based on                                                                    
the amount  of the  PFD to  determine the  amount available.                                                                    
She noted  that $1.4 million  was appropriated to  the VCCB.                                                                    
Representative Thompson  thought he had recently  heard that                                                                    
the VCCB board's fund presently contained $20 million.                                                                          
Ms. Hudson clarified that the  VCCB fund did not contain $20                                                                    
million. Representative  Thompson remarked  that he  did not                                                                    
have any direct knowledge of the actual amount.                                                                                 
Co-Chair Seaton  offered that the $9.103.6  million had been                                                                    
included in  the governor's budget  from the  Alaska Capital                                                                    
Fund source.  He indicated that during  the operating budget                                                                    
process he had requested that  committee members look for GF                                                                    
instead  of  UGF and  make  comparisons  in order  to  avoid                                                                    
"crossovers" when  working on the budget.  He commented that                                                                    
following GF  in the budget  included both sources  of funds                                                                    
and  eliminated   any  confusions  or  problems   with  fund                                                                    
sources.  He relayed  that the  item  would be  taken up  in                                                                    
conference committee  on the  operating budget  item because                                                                    
the Senate funded the item through UGF.                                                                                         
Representative Wilson understood that  the PFD Criminal Fund                                                                    
was included  under GF  and the Alaska  Capital Fund  was in                                                                    
the  "other" fund  category and  was not  considered UGF  or                                                                    
DGF,  which made  it appear  that  GF was  decreased in  the                                                                    
budget, "when in reality it was a fund switch."                                                                                 
Representative  Pruitt  agreed   with  Co-Chair  Seaton  and                                                                    
disagreed  with the  focus on  UGF during  the prior  fiscal                                                                    
year. He  reminded the committee  that much of the  money in                                                                    
the Alaska  Capital Fund was  "swept" into the  fund through                                                                    
reappropriation money  by the Senate  a "couple  years ago".                                                                    
He spoke to the sustainability  of drawing the criminal fund                                                                    
amount  out of  the  account without  knowing  how much  was                                                                    
added every year.                                                                                                               
3:24:10 PM                                                                                                                    
Mr.  Alper relayed  that the  sweep  of the  funds into  the                                                                    
Alaska  Capital   Fund  was  an  unusual   circumstance.  He                                                                    
indicated that  typically each year money  was deposited and                                                                    
expended in the  same year. He referred to  the Amerada Hess                                                                    
lawsuit  from the  1990s and  instructed the  committee that                                                                    
much of  the revenue  deposited into the  fund was  from the                                                                    
Amerada Hess  lawsuit. He explained that  the judgement from                                                                    
a  dispute  over  royalties stipulated  that  a  portion  of                                                                    
Permanent  Fund earnings  were  excluded  from the  dividend                                                                    
calculation in  the amount of approximately  $23 million per                                                                    
year. The  Alaska Capital Fund  received a total  of roughly                                                                    
$40  million per  year with  additional earnings  from other                                                                    
state funds.                                                                                                                    
Co-Chair Seaton  asked for the administration's  position on                                                                    
the bill.                                                                                                                       
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
voiced that the administration believed  a draw limit was an                                                                    
important component to  include in the bill and  that a 5.25                                                                    
percent  draw   was  sustainable   over  time   without  the                                                                    
reduction to  5 percent.  The administration  disagreed with                                                                    
the  increase  to a  $1,200  dividend  and deemed  that  the                                                                    
increase placed  additional burden on the  budget that would                                                                    
have to be  achieved with cuts; the  administration was more                                                                    
comfortable with a $1,000 PFD.                                                                                                  
HB  115  was  HEARD  and   HELD  in  committee  for  further                                                                    
HOUSE BILL NO. 137                                                                                                            
     "An Act  redesignating the Alaska State  Council on the                                                                    
     Arts   as  a   public   corporation  and   governmental                                                                    
     instrumentality of  the state; defining the  powers and                                                                    
     duties  of  the  Alaska  State  Council  on  the  Arts;                                                                    
     providing  exemptions  from  certain statutes  for  the                                                                    
     Alaska  State Council  on the  Arts; making  conforming                                                                    
     amendments; and providing for an effective date."                                                                          
3:27:59 PM                                                                                                                    
KRISTIN KRANENDONK, STAFF, REPRESENTATIVE HARRIET DRUMMOND,                                                                     
read from prepared remarks.                                                                                                     
     House  Bill  137   quasi-privatizes  the  Alaska  State                                                                    
     Council on  the Arts  (ASCA) by  restructuring it  as a                                                                    
     public  corporation  in  order  to  help  the  ASCA  to                                                                    
     continue  its work  with self-employed  Alaskan artists                                                                    
     and  art  businesses  during these  challenging  fiscal                                                                    
     times. This new status will  allow the ASCA to increase                                                                    
     its  ability to  leverage  funds from  non-governmental                                                                    
     contributors and better adapt  to the shifting economic                                                                    
     This  bill  adds  Alaska  State  Council  on  the  Arts                                                                  
     employees  to  exempt  employee status.  Currently  the                                                                  
     ASCA  has 4  full  time employees,  and Rep  Drummond's                                                                  
     office  reached out  to those  employees and  they were                                                                  
     all  supportive  of  this change.  This  section  makes                                                                  
     those employees exempt from the State Personnel Act.                                                                       
     The bill  adds artists' submission made  in response to                                                                    
     an  inquiry  initiated  by  the ASCA  to  the  list  of                                                                    
     records that  are exempt  from public  inspection. This                                                                    
     does not include artists awarded a commission however.                                                                     
     The bill adds appropriate  board member language needed                                                                    
     to  create "trustees"  since  the  corporation will  be                                                                    
     governed  by  a  board  of trustees.  And  it  replaces                                                                    
     language that  entitles trustees  to be  reimbursed for                                                                    
     travel expenses  at the same  rate as members  of other                                                                    
     state boards.                                                                                                              
     HB137 also adds "literary  arts" as a field represented                                                                    
     within the board  and replaces "educational" objectives                                                                    
     with  "strategic"  objections  as  it  relates  to  the                                                                    
     councils ability to enter into contracts.                                                                                  
     Other   changes  include   exemption  from   the  State                                                                    
     Procurement  Code, while  still  providing for  formal,                                                                    
     appropriate    procurement    protocols    for    ASCA.                                                                    
     Restructuring will  keep ASCA's operating  budget under                                                                    
     the   Executive    Budget   Act   for    openness   and                                                                    
     transparency.  Transition  language will  allow  ASCA's                                                                    
     advisory  committees,  and   the  public  process  will                                                                    
     remain in  place as ASCA administers  grants, programs,                                                                    
     and services.                                                                                                              
     Finally there  is transition language in  the bill that                                                                    
     will also allow Council members  to remain on the board                                                                    
     until their  term is over  and allow  current employees                                                                    
     to remain on staff.                                                                                                        
     The  effective date  for this  legislation  is July  1,                                                                    
     The State Council  on the Arts wants to  ensure that it                                                                    
     is in a position to  expand its important work to serve                                                                    
     all  Alaskans. Private  funders across  the nation  are                                                                    
     increasingly   approaching  ASCA   to  offer   support.                                                                    
     Carefully  considered  restructuring efforts  have  the                                                                    
     potential  to   allow  the   Council  to   advance  the                                                                    
     opportunity to  grow the development  base, as  well as                                                                    
     reduce its reliance on State funds.                                                                                        
     HB137  will  improve  the ability  of  the  Council  to                                                                    
     leverage  non-state  funding   and  represents  a  real                                                                    
     opportunity to  realign ASCA to  better perform  in the                                                                    
     environment which exists in Alaska today.                                                                                  
3:32:13 PM                                                                                                                    
BEN BROWN, CHAIR,  ALASKA STATE COUNCIL ON  THE ARTS, agreed                                                                    
with Ms.  Kranendonk's remarks. He elaborated  that the bill                                                                    
represented over a  year's efforts by all of  the members of                                                                    
the council and staff,  and partners at Rasmussen Foundation                                                                    
and other  foundation partners. He believed  the legislation                                                                    
was carefully crafted.                                                                                                          
Co-Chair Foster OPENED public testimony.                                                                                        
ALICE  BIOFF,  KAWERAK,  INC.,  NOME  (via  teleconference),                                                                    
spoke  in  support  of  the legislation.  She  read  from  a                                                                    
prepared statement:                                                                                                             
     Dear Honorable Committee Chair and Committee members,                                                                      
     My  name  is Alice  Bioff,  resident  of Nome,  Alaska,                                                                    
     currently  employed  at  Kawerak, Inc.  and  an  Alaska                                                                    
     State Council on the Arts  (ASCA) council member. Thank                                                                    
     you all  for the opportunity  to testify in  support of                                                                    
     HB137. I am testifying today  in my capacity as an ASCA                                                                    
     council  member. I  am a  tribal member  of the  Native                                                                    
     Village of  Koyuk, and  grew up there  and in  Nome. My                                                                    
     family and I have lived in  Nome for the last 17 years.                                                                    
     For  much  of  that  time,  I  have  been  employed  by                                                                    
     Kawerak,   Inc.,   the   regional   Native   non-profit                                                                    
     consortium of  tribes for the Bering  Strait region, as                                                                    
     a Business Planning Specialist.                                                                                            
     Through  our work  here at  Kawerak, I  am honored  and                                                                    
     privileged  to work  with  artist entrepreneurs  within                                                                    
     our   communities.   We    provide   direct   technical                                                                    
     assistance  offering  tools  and  resources  to  assist                                                                    
     artists continue  their work  so that they  can sustain                                                                    
     themselves,  their families  and their  communities. It                                                                    
     is through  this work  that I  have seen  firsthand how                                                                    
     important  it   is  for  these  artists   who  live  in                                                                    
     communities    with    very     few    resources    and                                                                    
     infrastructure,  to   grow  their   businesses  through                                                                    
     opportunities  such  as  those  that  become  available                                                                    
     through ASCA and others.                                                                                                   
     Artist Entrepreneurs  are economic  development drivers                                                                    
     in their  communities and the  Alaska State  Council on                                                                    
     the Arts supports these  communities through their work                                                                    
     and  advocacy. With  their partnerships,  resources and                                                                    
     programs,   we  see   a   bright   future  and   growth                                                                    
     opportunity to support all artists across the State.                                                                       
     Through  the  restructuring  initiative,  we  see  ASCA                                                                    
     services  continued  and  strengthened to  support  the                                                                    
     artists through  improved ability  to react  to funding                                                                    
     opportunities   and  better   represent,  support   and                                                                    
     advance the artists by offering  the tools and services                                                                    
     needed to strengthen an  already existing and important                                                                    
     economy.   This  is   critical  to   strengthening  and                                                                    
     sustaining  our  rural  communities  in  this  fiscally                                                                    
     challenging time.                                                                                                          
     HB137 streamlines the process  ASCA will use to present                                                                    
     opportunities  to artists  all  over Alaska,  including                                                                    
     those artists  we have  worked with  for years  here in                                                                    
     the  Bering Strait  region. From  my perspective,  this                                                                    
     will  be  a great  benefit  for  all artists  including                                                                    
     those in rural Alaska.                                                                                                     
3:36:09 PM                                                                                                                    
ANDREA  NOBLE-PELANT,   EXECUTIVE  DIRECTOR,   ALASKA  STATE                                                                    
COUNCIL  ON  THE  ARTS, EAGLE  RIVER  (via  teleconference),                                                                    
testified  in support  of the  legislation. She  shared that                                                                    
she was a council member for  11 years. She offered that the                                                                    
council's  purpose  was  to  support  and  advance  Alaska's                                                                    
creative  industries and  its  cultural infrastructure.  She                                                                    
believed a  thriving arts community created  a ripple effect                                                                    
around the  state and connected the  population. The council                                                                    
was  in   existence  for   51  years   and  was   ready  for                                                                    
organizational  change.  She  noted that  Alaska's  creative                                                                    
industries was  growing due to  targeted public  and private                                                                    
investment in  the state's cultural infrastructure  over the                                                                    
past  10   years,  experiencing   rapid  growth   in  grants                                                                    
programs,  and  public  private  partnerships.  The  council                                                                    
worked  on national  and international  levels on  projects,                                                                    
initiatives,  and policies  through  arts organizations.  In                                                                    
addition,  the  council  provided  professional  development                                                                    
throughout the  state. She commented  that the  bill enabled                                                                    
the council's  staff to manage  projects in a  timely manner                                                                    
and   increased   its   work    across   sectors   such   as                                                                    
transportation,   healthcare,   economic  development,   and                                                                    
tourism. She  mentioned that  the council's  mission evolved                                                                    
to "expand  access to  arts experiences;"  art as  a process                                                                    
versus  art as  a  product. The  council's programs  reached                                                                    
military  service  members  for   treatment  of  PTSD  (Post                                                                    
Traumatic  Stress  Disorder)  and  incarcerated  individuals                                                                    
learning  how to  create art  for post-release  success. The                                                                    
council assisted  teachers who wanted  to live and  teach in                                                                    
rural   communities   and   provided  children   and   youth                                                                    
opportunities  to  learn  through   arts  and  culture.  She                                                                    
related that HB 137 allowed  the council to be responsive in                                                                    
implementing projects that affected  its performance and the                                                                    
ability to  seek and secure private  funding. She emphasized                                                                    
that  the  council  worked  with partners  and  all  of  the                                                                    
revenues  from the  funders was  funneled back  into Alaskan                                                                    
communities in the form of grants, programs, and resources.                                                                     
3:40:08 PM                                                                                                                    
Ms.  Noble-Pelant provided  the list  of partners  including                                                                    
the  Rasmussen  Foundation,  the  Alaska  Arts  and  Culture                                                                    
Foundation,  Atwood Foundation,  National Endowment  for the                                                                    
Arts, Margaret A Cargill  Philanthropy, the SERI Foundation,                                                                    
SeaAlaska  Heritage  Institute,   Alaska  Humanities  Forum,                                                                    
Western  States Arts  Federation, and  the American  for the                                                                    
Co-Chair Foster CLOSED public testimony.                                                                                        
Representative Wilson  asked about required  matching funds.                                                                    
She asked for  evidence on whether matching funds  had to be                                                                    
GF.  Mr. Brown  answered in  the affirmative  and emphasized                                                                    
that the provision  was laid out in federal  code. He termed                                                                    
it  as "black  letter law."  He  relayed that  the state  of                                                                    
Kanas  eliminated  their  state match  and  ultimately  lost                                                                    
their  entire federal  grant. He  reported that  the council                                                                    
discussed ways to increase its  earned income that qualified                                                                    
as a state  match. He exemplified a license  plate bill from                                                                    
the previous session that included  a provision for the arts                                                                    
license plates.  The council currently had  a design contest                                                                    
for Alaskans  to design license  plates and then  sell them,                                                                    
although he did  not anticipate a large  revenue stream from                                                                    
the venture. However, it was  an example of program receipts                                                                    
that  can offset  the state  matching  funds. He  maintained                                                                    
that  private  match  money will  not  work.  Representative                                                                    
Wilson had asked the question  because she thought that some                                                                    
additional  federal dollars  were available  that the  state                                                                    
was not  receiving. Mr. Brown  replied that  the partnership                                                                    
agreement was  for a  three-year period  and the  amount was                                                                    
determined  by  the  National Endowment  for  the  Arts.  In                                                                    
addition, the council  sought merit-based competitive funds.                                                                    
He  specified  that  programs  like   Poetry  Out  Loud  and                                                                    
Creative Forces  did not require matching  funds. He assured                                                                    
the  committee  that  the  council had  done  very  well  in                                                                    
attaining funding of  all types and that  the council "would                                                                    
never leave a federal dollar on the table."                                                                                     
3:44:47 PM                                                                                                                    
Representative Pruitt asked whether  the council was able to                                                                    
utilize  private funds  to receive  more federal  funds. Mr.                                                                    
Brown responded that  over half of the  council's budget was                                                                    
derived  from  private foundation  money  and  the rest  was                                                                    
state  appropriation and  NEA match.  Any private  money was                                                                    
used over and above the funding to support its mission.                                                                         
Representative  Kawasaki asked  whether the  council was  at                                                                    
the  maximum  federal match.  Mr.  Brown  answered that  the                                                                    
council was at  "the right amount." He  elucidated that some                                                                    
states  appropriated  more  than  necessary.  Representative                                                                    
Kawasaki  asked for  verification  that the  bill would  not                                                                    
jeopardize  any  of  the National  Endowment  for  the  Arts                                                                    
match.  Mr.  Brown  replied  that  the  funds  were  not  in                                                                    
jeopardy  and assured  the committee  that he  confirmed the                                                                    
matter with the NEA.                                                                                                            
Representative  Kawasaki asked  whether  it  was typical  or                                                                    
necessary  for states  to  have a  council  or committee  to                                                                    
receive NEA funding. Mr. Brown  answered in the affirmative.                                                                    
He  elaborated that  the  state  had to  have  some sort  of                                                                    
council  containing public  members  and  within the  larger                                                                    
mandate,  states did  it differently.  Alaska  would be  the                                                                    
first state  with a  quasi-private corporation.  He reported                                                                    
that  other states  were watching  Alaska  with interest  in                                                                    
adopting  the idea.  He thought  that the  bill could  set a                                                                    
positive example for the rest of country.                                                                                       
HB  137  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair  Seaton addressed  the schedule  for the  following                                                                    
3:49:05 PM                                                                                                                    
The meeting was adjourned at 3:49 p.m.                                                                                          

Document Name Date/Time Subjects
HB137 Supporting Document Brown.pdf HFIN 3/30/2017 1:30:00 PM
HB 137
HB137 Letter of Support Kawerak.pdf HFIN 3/30/2017 1:30:00 PM
HB 137
HB137 Sectional 3.3.17.pdf HFIN 3/30/2017 1:30:00 PM
HB 137
HB137 Sponsor 3.3.17.pdf HFIN 3/30/2017 1:30:00 PM
HB 137
HB137 Supporting Document Alaska Public Media.pdf HFIN 3/30/2017 1:30:00 PM
HB 137
HB115 Supporting Document - Draw Limit Matrix CS SB 26 (3.29.17 DOR).pdf HFIN 3/30/2017 1:30:00 PM
HB 115
SB 26
HB 115 Fiscal Note Packet.pdf HFIN 3/30/2017 1:30:00 PM
HB 115
HB 115 DOC Response to House Finance HB 115 Fiscal Note Questions.pdf HFIN 3/30/2017 1:30:00 PM
HB 115