Legislature(2017 - 2018)ADAMS ROOM 519

04/09/2018 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 2:00 pm --
Moved CSHB 233(FIN) Out of Committee
Moved SB 165 Out of Committee
-- Public Testimony --
Heard & Held
-- Public Testimony --
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 129(FIN) Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 9, 2018                                                                                            
                         2:05 p.m.                                                                                              
2:05:33 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 2:05 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Sylvan    Robb,   Deputy    Commissioner,   Department    of                                                                    
Administration; Representative Chris  Tuck, Sponsor; Brandon                                                                    
S.  Spanos, Deputy  Director,  Tax  Division, Department  of                                                                    
Revenue;   Brodie  Anderson,   Staff,  Representative   Neal                                                                    
Foster; Kara  Moriarty, President,  CEO, Alaska Oil  and Gas                                                                    
Association  (AOGA);  Senator  Anna McKinnon,  Sponsor;  Ms.                                                                    
Lori   Wing-Heier,   Director,    Division   of   Insurance,                                                                    
Department of Commerce,  Community and Economic Development;                                                                    
Kathy   Ms.  Lea,   Chief  Pension   Officer,  Division   of                                                                    
Retirement and Benefits, Department of Administration.                                                                          
PRESENT VIA TELECONFERENCE                                                                                                    
Susan  Cox, Workers'  Compensation Attorney,  Office of  the                                                                    
Attorney  General,  Department   of  Law;  Carol  Petraborg,                                                                    
Director,  Administrative Services,  Department of  Fish and                                                                    
Game; Colonel  Steve Hall,  Wildlife Trooper,  Department of                                                                    
Public Safety; Aaron Peterson,  Attorney IV, Criminal Office                                                                    
of Special Prosecution, Department of Law.                                                                                      
HB 129    FISH & GAME: OFFENSES;LICENSES;PENALTIES                                                                              
          CSHB 129 (FIN) was  REPORTED out of committee with                                                                    
          an "amend"  recommendation and  with one  new zero                                                                    
          fiscal note from the Department  of Fish and Game;                                                                    
          one  new   indeterminate  fiscal  note   from  the                                                                    
          Department of  Administration; and  one previously                                                                    
          published zero fiscal note: FN4 (DPS).                                                                                
HB 233    EDUCATION TAX CREDITS; SUNSET; REPEALS                                                                                
          CSHB 233 (FIN) was  REPORTED out of committee with                                                                    
          four   "do   pass"  recommendations,   three   "no                                                                    
          recommendation" recommendations,  and four "amend"                                                                    
          recommendations,    and   with    one   previously                                                                    
         published fiscal impact note: FN1 (REV).                                                                               
HB 306    PERS/TERS DISTRIBUTIONS                                                                                               
          HB  306  was  HEARD  and  HELD  in  committee  for                                                                    
          further consideration.                                                                                                
HB 399    CORP. TAX: REMOVE EXEMPTIONS/CREDITS                                                                                  
          HB  399  was  HEARD  and  HELD  in  committee  for                                                                    
          further consideration.                                                                                                
SB 165    COMPREHENSIVE HEALTH INSURANCE FUND                                                                                   
          SB 165  was REPORTED out  of committee with  a "do                                                                    
          pass"  recommendation  and   with  two  previously                                                                    
          published fiscal notes, one  zero fiscal note: FN1                                                                    
          (ADM); and one fiscal impact note: FN3 (CED).                                                                         
Co-Chair  Foster  reviewed  the  agenda  for  the  day.  The                                                                    
committee would be hearing 5  bills. He indicated that there                                                                    
were  so many  bills  on  the docket  it  was possible  that                                                                    
HB 306  would  be  rolled  to   the  following  meeting.  He                                                                    
intended to move HB 129, HB  233, and SB 165 from committee.                                                                    
It was also  possible, if it was the will  of the committee,                                                                    
to move HB 399, and HB 306.                                                                                                     
HOUSE BILL NO. 129                                                                                                            
     "An  Act   relating  to  sport  fishing,   hunting,  or                                                                    
     trapping  licenses,  tags,   or  permits;  relating  to                                                                    
     penalties  for  certain  sport  fishing,  hunting,  and                                                                    
     trapping license  violations; relating  to restrictions                                                                    
     on  the   issuance  of  sport  fishing,   hunting,  and                                                                    
     trapping  licenses;  creating violations  and  amending                                                                    
     fines  and  restitution  for   certain  fish  and  game                                                                    
     offenses;  creating   an  exemption  from   payment  of                                                                    
     restitution for  certain unlawful  takings of  big game                                                                    
     animals;  relating  to commercial  fishing  violations;                                                                    
     allowing lost  federal matching funds from  the Pittman                                                                    
     -   Robertson,  Dingell   -  Johnson/Wallop   -  Breaux                                                                    
     programs  to be  included in  an order  of restitution;                                                                    
     adding   a  definition   of   'electronic  form';   and                                                                    
     providing for an effective date."                                                                                          
2:07:22 PM                                                                                                                    
Co-Chair  Foster relayed  that  the committee  heard HB  129                                                                    
earlier in the  day. There had been a  discussion on Section                                                                    
3(h). The  committee had worked  with the Department  of Law                                                                    
and  Legislative   Legal  Services  to  have   an  amendment                                                                    
Representative  Wilson  asked  if  someone  from  the  Civil                                                                    
Division was online.                                                                                                            
2:08:17 PM                                                                                                                    
SUSAN  COX, WORKERS'  COMPENSATION ATTORNEY,  OFFICE OF  THE                                                                    
ATTORNEY  GENERAL, DEPARTMENT  OF LAW  (via teleconference),                                                                    
introduced herself.                                                                                                             
Representative Wilson  had a question regarding  a liability                                                                    
issue in  HB 129. The  example given in the  earlier meeting                                                                    
was her being pulled over in  her boat by a trooper, handing                                                                    
over her phone  that contained her fishing  license, and the                                                                    
trooper  dropping  the  phone   into  the  water.  The  bill                                                                    
indicated  the  trooper  would have  no  liability  for  the                                                                    
phone. She  asked if the  committee was reading  the section                                                                    
correctly  referring to  the bill  on page  2, line  25. She                                                                    
asked if the language provided immunity.                                                                                        
Ms.  Cox  responded that  the  language  in the  bill  would                                                                    
provide immunity from any liability  regarding damage to the                                                                    
devise which would include dropping it in the water.                                                                            
Representative   Wilson  thought   there   should  be   some                                                                    
responsibility on  the part of  the trooper. If  someone had                                                                    
their  fishing  license  and  hadn't  broken  the  law,  she                                                                    
wondered if there was a way to take care of the issue.                                                                          
Ms.  Cox responded  that the  way the  bill was  written, it                                                                    
provided  immunity  precluding  any  lawsuit.  The  language                                                                    
could  be  changed  to  eliminate  the  immunity  leaving  a                                                                    
possibility  open. She  understood  there  was an  amendment                                                                    
that had been drafted to  prove an exception to the immunity                                                                    
for intentional misconduct on the part of a peace officer.                                                                      
Representative  Wilson would  wait  to  further address  the                                                                    
issue until the amendments were brought up.                                                                                     
Representative  Grenn  MOVED  to   ADOPT  Amendment  1,  30-                                                                    
GH1687\J.1 (Bullard, 4/2/18) (copy on file):                                                                                    
     Page 2, line 27, through page 3, line 5:                                                                                   
          Delete all material.                                                                                                  
     Renumber the following bill sections accordingly.                                                                          
Representative Wilson OBJECTED for discussion.                                                                                  
Representative  Grenn explained  that the  amendment deleted                                                                    
material  that was  added by  the House  Judiciary Committee                                                                    
regarding the verification of low  income licensees - people                                                                    
who  were looking  to  get the  low-income  price for  their                                                                    
sport  fishing license  or  hunting  license. Initially,  he                                                                    
thought  the  amendment was  a  good  addition. However,  in                                                                    
talking  with the  Department of  Fish and  Game (DFG),  the                                                                    
department  would  need  to  hire  short-term  non-permanent                                                                    
staff  to cover  the  peak season  from  June to  September.                                                                    
Since  the  department  had already  purchased  their  paper                                                                    
license stock,  they would have  to buy and print  new stock                                                                    
costing the state an  additional $31,000. Additionally, they                                                                    
would have  to enhance their  computer system in  the amount                                                                    
of $8,000.  He referred  to the  fiscal note  with component                                                                    
number  479.   He  thought   Ms.  Petraborg   could  provide                                                                    
verification. Fraud had not been  a problem in the past when                                                                    
using  these   types  of  licenses.  In   talking  with  the                                                                    
department,  he reported  they were  not entirely  sure that                                                                    
external  vendors  like  Walmart  or  Sportsman's  Warehouse                                                                    
would  be able  to  sell low-income  licenses  due to  their                                                                    
inability to  verify income levels. He  thought the addition                                                                    
in the  House Judiciary Committee grew  government too large                                                                    
and increased  the fiscal note  for the bill. He  opined the                                                                    
state could do better without it.                                                                                               
Representative  Kawasaki referred  to  page 2,  line 27.  He                                                                    
wondered about  the deletion  of material.  He asked  if the                                                                    
current   costs   for   resident  hunting,   trapping,   and                                                                    
sportfishing  licenses  were deleted.  Representative  Grenn                                                                    
responded that it ended on page 3, line 5.                                                                                      
2:13:30 PM                                                                                                                    
Representative  Kawasaki relayed  that starting  on page  2,                                                                    
line  28  it  showed  the resident  hunting,  trapping,  and                                                                    
fishing sport  license fee  at $75.  Following the  fee, the                                                                    
bill talked about  how a person could  obtain a lower-income                                                                    
license on page  2, line 29. It also outlined  that proof of                                                                    
eligibility was required. He suggested  that by deleting the                                                                    
section,   it  would   also   delete  residential   hunting,                                                                    
trapping,  and sport  fishing licenses  and  the ability  to                                                                    
have a lower-income fee.                                                                                                        
Representative Pruitt  commented that the language  that was                                                                    
contained  was already  part of  statute. He  indicated that                                                                    
only  the  highlighted  portions  on page  2  reflected  the                                                                    
changes made in the  House Judiciary Committee. He suggested                                                                    
that by deleting  it, the committee would  be deleting those                                                                    
changes.  The committee  would not  be deleting  the statute                                                                    
that currently  existed. He  pointed to  Section 4  where it                                                                    
stated  that  AS 16.05.034(a)(6)  was  amended  to read.  It                                                                    
meant  that the  current statute  was "X"  and it  was being                                                                    
amended with  the black  line. Representative  Grenn thought                                                                    
it reverted back to current statute.                                                                                            
Representative  Wilson was  unsure how  to get  a low-income                                                                    
license. She wondered  if someone had to apply  in person to                                                                    
DFG. Representative Grenn deferred to Ms. Petraborg.                                                                            
2:15:12 PM                                                                                                                    
CAROL   PETRABORG,    DIRECTOR,   ADMINISTRATIVE   SERVICES,                                                                    
DEPARTMENT OF FISH AND  GAME (via teleconference), responded                                                                    
that currently,  the low-income licenses could  be purchased                                                                    
at any  DFG vendor. There  was an  affidavit on the  back of                                                                    
the license  where the licensee  signed verifying  that they                                                                    
met  the  low-income requirements.  If  the  changes in  the                                                                    
amendment were adopted, then the  vendors would no longer be                                                                    
able to issue licenses. It would  move all of the traffic to                                                                    
DFG  where the  department  would have  to  verify the  low-                                                                    
income  limits  just  like  the   department  did  with  the                                                                    
permanent identification  cards. It could deter  people from                                                                    
purchasing  a  license. It  would  certainly  slow down  the                                                                    
process, and there would be associated costs.                                                                                   
Representative Wilson asked about  signing an affidavit. Ms.                                                                    
Petraborg responded  that the  department did  not typically                                                                    
verify  the information.  However,  they could  be asked  to                                                                    
present  the  documentation  by  a  trooper  in  the  field.                                                                    
Historically, the  department had not seen  gross negligence                                                                    
in the  issuance of such licenses.  There were approximately                                                                    
18,000 licenses sold each year.                                                                                                 
Representative Wilson asked if a  person would have to carry                                                                    
proof  of  income with  them  while  fishing. Ms.  Petraborg                                                                    
replied that the troopers might  ask such questions. She was                                                                    
unclear about  a timeframe when  the information  would have                                                                    
to be presented.  She did not believe the  person would have                                                                    
to have low-income verification on their person.                                                                                
Representative Wilson  asked someone from DFG  to review the                                                                    
process.  She  was  fairly certain  troopers  would  not  be                                                                    
asking income  questions in the  field. She did not  have to                                                                    
have an explanation in the current meeting.                                                                                     
Vice-Chair Gara  wondered about the  meaning of  "Delete all                                                                    
material." He  thought that all  that would be  deleted were                                                                    
the changes.  He asked Representative Grenn  to triple check                                                                    
the issue before the bill was heard on the floor.                                                                               
Representative Wilson WITHDREW her OBJECTION.                                                                                   
There being NO OBJECTION, Amendment 1 was ADOPTED.                                                                              
Representative Gara MOVED to ADOPT Amendment 2, 30-                                                                             
GH1687\J.3 (Bullard, 4/4/18) (copy on file):                                                                                    
     Page 2, line 21:                                                                                                           
          Delete "30"                                                                                                           
          Insert "90"                                                                                                           
Representative Wilson OBJECTED for discussion.                                                                                  
Vice-Chair Gara MOVED to AMEND Amendment 2.                                                                                     
Representative Wilson OBJECTED.                                                                                                 
Vice-Chair Gara spoke to his amendment to Amendment 2.                                                                          
     Page 2, line 20:                                                                                                           
          Delete "in"                                                                                                           
          Insert "to"                                                                                                           
2:20:31 PM                                                                                                                    
AT EASE                                                                                                                         
2:20:48 PM                                                                                                                    
Vice-Chair Gara  noticed when reviewing  the bill,  in order                                                                    
to not  be convicted, a  person would have to  present proof                                                                    
in the  office. A person  might live in a  community without                                                                    
an  office.  He  was  hoping   the  person  could  send  the                                                                    
information to an  office. The purpose of  the amendment was                                                                    
to also be  able to send the proof to  an office rather than                                                                    
having to get on an airplane to travel to an office.                                                                            
Representative  Wilson asked  if  the  committee could  hear                                                                    
from the department.                                                                                                            
Co-Chair Foster asked if Ms. Petraborg was available.                                                                           
2:22:15 PM                                                                                                                    
COLONEL STEVE  HALL, WILDLIFE TROOPER, DEPARTMENT  OF PUBLIC                                                                    
SAFETY (via  teleconference), reported that the  change from                                                                    
"in"  to "to"  on line  20 would  satisfy Vice-Chair  Gara's                                                                    
intent. It was essentially what happened presently.                                                                             
Representative  Wilson asked  if  someone would  be able  to                                                                    
send  the information  to  any  office to  show  proof of  a                                                                    
license  on   the  date  that   they  did  not   have  their                                                                    
verification with them.                                                                                                         
Colonel Hall responded that it  would allow them to send the                                                                    
information to an office of  the arresting agency such as an                                                                    
office of the Alaska Wildlife State Troopers.                                                                                   
Representative Wilson had hoped  the answer would be, "yes."                                                                    
Colonel  Hall  responded that  it  was  essentially a  "yes"                                                                    
answer,  however, the  difference  between the  DFG and  the                                                                    
Alaska  Wildlife  Troopers  had   to  do  with  transfer  of                                                                    
information. The  transfer of information  would have  to go                                                                    
to an  office of the arresting  agency based on the  rest of                                                                    
the sentence.                                                                                                                   
Representative Wilson  WITHDREW her OBJECTION  to Conceptual                                                                    
Amendment 1 to Amendment 2.                                                                                                     
There  being NO  OBJECTION,  it was  so ordered.  Conceptual                                                                    
Amendment 1 to Amendment 2 was ADOPTED.                                                                                         
Vice-Chair Gara presented closing  comments for Amendment 2.                                                                    
He suggested  that 90 days  was a reasonable amount  of time                                                                    
to present information.                                                                                                         
Representative Wilson WITHDREW her OBJECTION.                                                                                   
There  being  NO  OBJECTION,  Amendment  2  as  amended  was                                                                    
Representative Pruitt  MOVED to  ADOPT Amendment 3  (copy on                                                                    
     Page 2, line 26:                                                                                                           
          Delete "any"                                                                                                          
          Following "devise":                                                                                                   
               Insert, "except that a piece officer may be                                                                      
          liable for civil damages that are the result of                                                                       
          the peace officer's intentional misconduct"                                                                           
Representative Kawasaki OBJECTED for discussion.                                                                                
Representative  Pruitt explained  that  the amendment  would                                                                    
not  provide complete  and total  immunity in  a case  where                                                                    
there was misconduct.  He asked the colonel  whether a peace                                                                    
officer  would take  physical hold  of an  electronic devise                                                                    
displaying  a  person's license.  He  asked  the colonel  to                                                                    
distinguish between the point of  viewing a license versus a                                                                    
point of search. He provided a hypothetical scenario.                                                                           
Colonel  Hall replied  that a  sequence of  events could  be                                                                    
that  an individual  holds  up their  device  to show  their                                                                    
license to a trooper keeping it  in their hands. It might be                                                                    
that an  individual handed the  device to a trooper  to view                                                                    
the screen.  Depending on the  size, the picture  might have                                                                    
to  be expanded.  The circumstance  could  occur either  way                                                                    
where it was  in the trooper's hand or the  owner's hand. He                                                                    
deferred to the Department of Law.                                                                                              
2:28:22 PM                                                                                                                    
AARON  PETERSON, ATTORNEY  IV,  CRIMINAL  OFFICE OF  SPECIAL                                                                    
PROSECUTION,   DEPARTMENT  OF   LAW  (via   teleconference),                                                                    
replied  that in  a  scenario where  a  trooper was  holding                                                                    
someone's devise to  view a license and a  text came through                                                                    
saying that  a person  took way over  limit and  the trooper                                                                    
happened to  know that  person was  down river,  the trooper                                                                    
could use  the text  as information to  initiate proceedings                                                                    
against the  person that  sent the  text. It  was akin  to a                                                                    
plain view search.  It would be different if  a trooper were                                                                    
to  go  into the  text  messages  without authorization.  If                                                                    
someone was worried  that their friends were  going to start                                                                    
texting, they could  put the phone in airplane  mode or take                                                                    
whatever remedial measures that might be necessary.                                                                             
Representative Pruitt asked whether  it was typical practice                                                                    
for an office to take a  device into their hands or to allow                                                                    
the owner to hold the device for them.                                                                                          
Mr.  Peterson   responded  that  it  depended   on  how  DFG                                                                    
developed the  electronic license.  Currently, there  was no                                                                    
electronic license, therefore, there  was nothing to give to                                                                    
a trooper. He could not  speak from past experience what had                                                                    
happened.  A picture  of  a license  was  not technically  a                                                                    
legal license. He reported there  had been several proposals                                                                    
talked about in the bill and  in committee. One of the ideas                                                                    
was to have  a QR code that popped on  a person's phone that                                                                    
then  the  troopers   or  just  a  picture   of  a  license.                                                                    
Everything in between the two  ideas have been discussed. It                                                                    
would  really  depend  on  what was  developed  such  as  an                                                                    
application. He spoke about limited  or no bandwidth being a                                                                    
Representative  Pruitt surmised  that not  enough was  known                                                                    
yet.  He thought  the  amendment did  not  do everything  he                                                                    
needed but was  better than what was currently  in the bill.                                                                    
At  least  if there  was  some  intentional misconduct,  the                                                                    
owner of  the device  would have some  sort of  recourse. He                                                                    
asked members to support his amendment.                                                                                         
2:32:38 PM                                                                                                                    
Representative Kawasaki WITHDREW his OBJECTION.                                                                                 
There being  NO OBJECTION,  it was  so ordered.  Amendment 3                                                                    
was ADOPTED.                                                                                                                    
Vice-Chair Gara  reviewed the  fiscal notes  for HB  129. He                                                                    
began  with  an  indeterminate fiscal  note,  OMB  Component                                                                    
3134,  from  the  Department of  Administration  (DOA).  The                                                                    
appropriation  was   Shared  Services  of  Alaska   and  the                                                                    
allocation  was accounting.  There  was a  slight change  in                                                                    
fines and restitution. The  Department of Administration had                                                                    
a  roll  in  receiving  the   fines.  The  fiscal  note  was                                                                    
indeterminate because people had  never really kept track of                                                                    
small amounts of money in the past.                                                                                             
Representative  Wilson understood  that no  one kept  track,                                                                    
but she  relayed that the  indeterminate portion was  in the                                                                    
operating expenditure  rather than the fund  source. She did                                                                    
not believe the bill changed  such that the department would                                                                    
be  adding any  positions or  needing any  extra money.  She                                                                    
could understand  if the indeterminate  portion was  part of                                                                    
revenue without any extra revenue.                                                                                              
Vice-Chair  Gara responded  that  Representative Wilson  was                                                                    
correct.  The  explanation  had  to  do  with  a  change  in                                                                    
revenue. However,  the fiscal note  had to do with  a change                                                                    
in costs.  He agreed it was  correct to ask why,  because it                                                                    
was  not explained  in the  fiscal note.  He wanted  to hear                                                                    
from DOA.                                                                                                                       
2:35:03 PM                                                                                                                    
SYLVAN    ROBB,   DEPUTY    COMMISSIONER,   DEPARTMENT    OF                                                                    
ADMINISTRATION,   explained  that   the   fiscal  note   was                                                                    
indeterminate because  the role that Shared  Services played                                                                    
in the  bill was that when  fines and fees were  assessed by                                                                    
the  court  and  not  collected, they  were  transferred  to                                                                    
Shared  Services of  Alaska, which  did debt  collection for                                                                    
the State  of Alaska. Currently,  all of the fines  and fees                                                                    
came over  in the  aggregate. The  department did  not track                                                                    
which ones came  from DFG or other  departments where people                                                                    
might accrue a  debt to the State of  Alaska. The department                                                                    
had  no  way  of  knowing  what  percentage  was  from  DFG,                                                                    
therefore, she  did not know  what the increase might  be as                                                                    
the result of the bill.                                                                                                         
Representative  Wilson asked  if it  was possible  DOA would                                                                    
have to hire  additional positions in 2020.  She wondered if                                                                    
the department  saw any of  the revenue. Ms.  Robb responded                                                                    
that  debt to  the State  of Alaska  that was  collected was                                                                    
returned to  the general fund. The  funds did not go  to the                                                                    
division or to the department that  was owed. In the case of                                                                    
the fiscal  note, the fines  and fees assessed by  the court                                                                    
system did not go to DFG.                                                                                                       
Representative Wilson wondered  if DOA would have  to make a                                                                    
budget  request for  additional  people in  the future.  Ms.                                                                    
Robb responded that they currently  used a vendor to collect                                                                    
debts. They operated on a fee  basis. If they needed to hire                                                                    
additional positions to collect  the additional debts, there                                                                    
would  be no  costs to  the state.  They took  a portion  of                                                                    
whatever debt was collected.                                                                                                    
Representative Wilson  suggested that if a  vendor was being                                                                    
used, then  the number  would not  be indeterminate.  If the                                                                    
vendor was basing it on fees  there would not be any cost to                                                                    
DOA. She  thought that  was what Ms.  Robb had  just stated.                                                                    
Ms.  Robb replied  that DOA  did  not know  what the  impact                                                                    
would be since she did not  know the impact of the bill. Her                                                                    
understanding  was  that the  idea  behind  the increase  in                                                                    
fines was to  deter people from breaking  DFG's rules. There                                                                    
were several unknowns in terms of what the impact might be.                                                                     
Representative  Wilson  wondered  how   a  vendor  would  be                                                                    
impacted if the state was  utilizing a vendor and the vendor                                                                    
was charging a fee. She would do more research.                                                                                 
Vice-Chair Gara indicated that if  the bill passed, no money                                                                    
would be  put into the  budget, whether the fiscal  note was                                                                    
indeterminate  or  zero.  He thought  the  fiscal  note  was                                                                    
okay.it sounded like  there would be no  change in operating                                                                    
costs  for DOA.  However, there  might  be a  change in  the                                                                    
revenue received. He  suggested Ms. Robb took a  look at the                                                                    
fiscal  note  when the  bill  moved  along. He  thought  the                                                                    
indeterminate  portion  needed to  be  in  the revenue  part                                                                    
rather than the operating part.                                                                                                 
Ms.  Robb replied  that  the department  would  be happy  to                                                                    
reexamine the fiscal note.                                                                                                      
Vice-Chair  Gara moved  to fiscal  note, OMB  Component 479,                                                                    
from  DFG.  The  appropriation  was  for  Statewide  Support                                                                    
Services   and  the   allocation   was  for   administrative                                                                    
services. He thought the fiscal  note might be amended based                                                                    
on the  amendment from  Representative Grenn.  It had  to do                                                                    
with the  administration of the low-income  license fees. He                                                                    
thought there might  be a new fiscal note  that followed the                                                                    
Vice-Chair Gara reviewed fiscal  note 4, OMB Component 2746,                                                                    
a  zero fiscal  note from  the Department  of Public  Safety                                                                    
(DPS). The  appropriation was for the  Alaska State Troopers                                                                    
and the allocation was for the Alaska Wildlife Troopers.                                                                        
Vice-Chair  Gara   reviewed  the   last  fiscal   note,  OMB                                                                    
component  2175,   from  DPS.  The  appropriation   was  for                                                                    
Statewide Support  Services, and the allocation  was for the                                                                    
Commissioner's Office. The note had a zero fiscal impact.                                                                       
2:40:04 PM                                                                                                                    
Representative Tilton referred  to page 6 of  the bill which                                                                    
indicated an  inflation proofing measure every  5 years. She                                                                    
did not  see this  noted in  any of the  fiscal notes.  In a                                                                    
previous bill the  finance committee heard there  was a cost                                                                    
for inflation proofing  in a fiscal note. She did  not see a                                                                    
cost  for  inflation  proofing  in  the  current  bill.  She                                                                    
wondered if the cost was being absorbed.                                                                                        
Vice-Chair  Gara  asked if  Ms.  Petraborg  could look  into                                                                    
Representative  Tilton's point  of  whether  fines could  be                                                                    
changed over  time. He wondered  whether there needed  to be                                                                    
any statement in the DGF  fiscal note about revenue in later                                                                    
years. Ms.  Petraborg responded that they  were all criminal                                                                    
in nature.  Therefore, none  of the funds  would go  to DFG.                                                                    
Rather, the funds would go into the general fund.                                                                               
Vice-Chair Gara  asked Representative Tilton to  restate her                                                                    
question. Representative  Tilton relayed  that on page  6 of                                                                    
the bill it  stated that beginning on July 2023  and every 5                                                                    
years  thereafter, the  department recalculated  and updated                                                                    
by  regulation the  restitution amounts  provided. Inflation                                                                    
proofing occurred  every 5 years.  In a previous  bill heard                                                                    
by the  committee, there was  a cost to  inflation proofing.                                                                    
She wondered  if such a  cost would  be shown on  the fiscal                                                                    
Mr. Peterson responded that he  did not have any information                                                                    
about the fiscal note or about  what it would cost to adjust                                                                    
for inflation.  It was  his understanding  that there  was a                                                                    
method established  in SB 91  [Legislation passed in  2016 -                                                                    
Short Title: OMNIBUS CRIM LAW  & PROCEDURE; CORRECTIONS] for                                                                    
crimes that involved a financial  threshold. He presumed the                                                                    
same sort of method would be utilized.                                                                                          
2:42:39 PM                                                                                                                    
AT EASE                                                                                                                         
2:43:07 PM                                                                                                                    
Co-Chair Foster  directed his staff to  contact the creators                                                                    
of the fiscal notes to see if an adjustment could be made.                                                                      
Representative Wilson  did not want  it added to  the fiscal                                                                    
note. However,  she suggested that  his staff might  want to                                                                    
talk to  the Department  of Labor and  Workforce Development                                                                    
(DLWD). What  she had seen in  some of the fiscal  notes was                                                                    
that the  department had already  had done some of  the work                                                                    
regarding inflation.  It was a mathematical  computation and                                                                    
would not  take extra money.  She did not want  to encourage                                                                    
another fiscal note.                                                                                                            
Co-Chair  Seaton  MOVED to  report  CSHB  129 (FIN)  out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.                                                                                                      
There being NO OBJECTION, it was so ordered.                                                                                    
CSHB  129  (FIN)  was  REPORTED out  of  committee  with  an                                                                    
"amend"  recommendation and  with one  new zero  fiscal note                                                                    
from DFG;  one new indeterminate  fiscal note from  the DOA;                                                                    
and one previously published zero fiscal note: FN4 (DPS).                                                                       
2:45:22 PM                                                                                                                    
AT EASE                                                                                                                         
2:45:26 PM                                                                                                                    
HOUSE BILL NO. 233                                                                                                            
     "An  Act  relating  to   the  insurance  tax  education                                                                    
     credit,  the income  tax education  credit, the  oil or                                                                    
     gas  producer   education  credit,  the   property  tax                                                                    
     education   credit,  the   mining  business   education                                                                    
     credit,  the fisheries  business education  credit, and                                                                    
     the  fisheries resource  landing tax  education credit;                                                                    
     providing  for  an  effective  date  by  repealing  the                                                                    
     effective dates of  secs. 3, 5, 7, 10, 14,  16, 18, 21,                                                                    
     23, 25,  28, 30, 32,  35, 37, 39,  42, 44, 46,  49, 51,                                                                    
     53, and  55, ch. 92,  SLA 2010,  sec. 14, ch.  7, FSSLA                                                                    
     2011, secs.  15, 17, 19,  21, 23,  and 25, ch.  74, SLA                                                                    
     2012, sec. 49, ch. 14, SLA  2014, secs. 37, 40, 43, and                                                                    
     46, ch. 15, SLA 2014, and  secs. 26 and 31, ch. 61, SLA                                                                    
     2014; providing  for an effective date  by amending the                                                                    
     effective  date of  secs. 1,  2,  and 21,  ch. 61,  SLA                                                                    
     2014; and providing for an effective date."                                                                                
Co-Chair Foster  relayed that the  committee had  last heard                                                                    
HB 233 on  March 27, 2018. At the hearing  the committee had                                                                    
an  introduction of  the bill  and closed  public testimony.                                                                    
The  committee had  2  amendments for  the  bill. He  called                                                                    
Representative  Tuck and  his aide,  Kendra Kloster,  to the                                                                    
table. He provided  the opportunity for the  bill sponsor to                                                                    
make comments.                                                                                                                  
2:46:01 PM                                                                                                                    
REPRESENTATIVE CHRIS  TUCK, SPONSOR, introduced  himself. He                                                                    
explained that originally, when  he was looking at extending                                                                    
education  tax  credits, he  was  aware  there were  several                                                                    
statutes  involved.  He  had  thought  about  ways  to  make                                                                    
improvements  and to  make things  cleaner when  considering                                                                    
introducing the  legislation. He  continued that  because of                                                                    
the time  restrictions and the expiration  date approaching,                                                                    
he decided  to make it  a clean  bill only extending  it. He                                                                    
might try to work on other items at a future date.                                                                              
Co-Chair  Seaton MOVED  to ADOPT  Amendment 1  30-LS0152\O.1                                                                    
(Nauman, 3/28/18) (copy on file).                                                                                               
Representative Wilson OBJECTED for discussion.                                                                                  
Co-Chair Seaton  thought the amendment  brought up  an issue                                                                    
that  needed  to  be  discussed   in  detail.  There  was  a                                                                    
situation  where  after the  first  $100,000  the state  was                                                                    
giving a 100 percent tax  credit for the following $200,000.                                                                    
It was  essentially allowing someone  that wanted  to donate                                                                    
not to donate  at all. It would direct the  taxes they would                                                                    
pay to the  state to one of the approved  groups by doing it                                                                    
without any additional money coming  from an organization or                                                                    
tax payer.  The amendment was  structured at the  50 percent                                                                    
tax  credit and  would stay  the same  across the  entire $5                                                                    
million range.  He was  aware that  a significant  amount of                                                                    
discussion  would be  necessary.  He thought  the topic  was                                                                    
very important,  especially because  of the  state's current                                                                    
fiscal  situation. He  wanted to  encourage contribution  to                                                                    
educational  institutions. The  question  was  how much  the                                                                    
state wanted to  put into the tax payer's  hands without any                                                                    
additional  skin  in the  game.  He  thought the  issue  was                                                                    
definitely  something to  look at  and discuss.  He did  not                                                                    
think it was currently the  appropriate time. He thought the                                                                    
issue should be dealt with in a separate bill.                                                                                  
Co-Chair Seaton WITHDREW Amendment 1.                                                                                           
Co-Chair  Seaton MOVED  to ADOPT  Amendment 2  30-LS0152\O.5                                                                    
(Nauman, 3/29/18) (copy on file).                                                                                               
Representative Wilson OBJECTED for discussion.                                                                                  
Co-Chair Seaton  moved Conceptual  Amendment 1  to Amendment                                                                    
     In line 2 of the amendment insert the words "as they"                                                                      
     after "delete" and before "appear"                                                                                         
Representative Wilson OBJECTED for discussion.                                                                                  
Co-Chair  Seaton  explained   that  when  Legislative  Legal                                                                    
Services drafted  the amendment, they  did not take  out all                                                                    
of the words that needed to be removed.                                                                                         
Representative Wilson WITHDREW her OBJECTION.                                                                                   
There  being NO  OBJECTION,  it was  so ordered.  Conceptual                                                                    
Amendment 1 to Amendment 2 was ADOPTED.                                                                                         
Co-Chair  Seaton explained  Amendment 2.  The amendment  was                                                                    
eliminating one  of the criteria  for a tax credit  for cash                                                                    
contributions; an annual  intercollegiate sports tournament.                                                                    
The  item occurs  in several  places with  several different                                                                    
taxes.  The  words being  deleted  would  be "or  an  annual                                                                    
intercollegiate sports tournament."                                                                                             
Representative Kawasaki  commented on the way  the amendment                                                                    
read. He was  wondering if the word "by"  should be replaced                                                                    
with "of" [Line 19 of the amendment].                                                                                           
2:52:11 PM                                                                                                                    
AT EASE                                                                                                                         
2:53:25 PM                                                                                                                    
Co-Chair Foster invited Mr. Spanos to comment.                                                                                  
2:53:39 PM                                                                                                                    
BRANDON   S.   SPANOS,   DEPUTY  DIRECTOR,   TAX   DIVISION,                                                                    
DEPARTMENT  OF   REVENUE,  responded   that  the   "by"  was                                                                    
referring  back  to  subsection   (a)  where  it  read  "for                                                                    
contributions  accepted." It  would be  "by the  non-profit,                                                                    
public or  private, Alaska  two-year or  four-year college."                                                                    
It was  not referring  back to the  facility, but  the funds                                                                    
that were received by the organization.                                                                                         
Representative Grenn assumed that  the item was in reference                                                                    
to the  Great Alaska  Shootout which  no longer  existed. He                                                                    
asked  if there  were  other  annual intercollegiate  sports                                                                    
tournaments that had received  funds through this particular                                                                    
tax credit.  Mr. Spanos responded  that he was not  aware of                                                                    
any. Representative  Grenn relayed  that he was  looking for                                                                    
any unintended consequences of the removal.                                                                                     
Representative Pruitt  asked about  other sports  that might                                                                    
potentially  put   on  a  tournament.  With   adopting  this                                                                    
amendment there  would no longer  be the ability  for people                                                                    
to  utilize  the  tax  credit  to  support  other  potential                                                                    
tournaments. He noted  a number of sports that  might have a                                                                    
tournament  in the  future. Mr.  Spanos indicated,  based on                                                                    
the plain language, that was how he would interpret it.                                                                         
Representative Pruitt  suggested that if Alaska  was to host                                                                    
a regional  final, donors would  not be able to  utilize the                                                                    
education tax credit. Mr. Spanos  replied that a corporation                                                                    
would no longer be able to receive a tax credit.                                                                                
Representative  Pruitt  did  not  see harm  in  leaving  the                                                                    
credit available. He  did not believe getting rid  of it was                                                                    
Co-Chair Seaton clarified that the  tax credit was meant for                                                                    
an  annual event  rather than  a onetime  credit. He  argued                                                                    
that the tax  credit should be concentrated  on pre-K, K-12,                                                                    
and University education. It was not a sports credit.                                                                           
2:57:48 PM                                                                                                                    
Representative  Pruitt  MOVED   Conceptual  Amendment  2  to                                                                    
Amendment 2.                                                                                                                    
     Delete only the word "annual"                                                                                              
Representative Kawasaki OBJECTED.                                                                                               
Representative  Pruitt   explained  his  amendment   to  the                                                                    
amendment.  He   believed  that   sports  were  a   part  of                                                                    
education.  He   suggested  that  the   National  Collegiate                                                                    
Athletic  Association  (NCAA)   consistently  promoted  that                                                                    
their  athletes did  very well  in  school and  moved on  to                                                                    
become  very successful.  He spoke  of Olympic  athletes and                                                                    
the discipline  they learned  and applied  in many  areas of                                                                    
their  lives. He  felt that  sports were  important, and  it                                                                    
would  be an  opportunity  for people  to  support an  event                                                                    
where they showcased student athletes.                                                                                          
Vice-Chair Gara  spoke to his  objection. He  suggested that                                                                    
with this tax  credit the legislature did not  get to direct                                                                    
where  the funds  went. The  state gave  up $6.8  million in                                                                    
revenue per  year. He  understood the  benefits but  did not                                                                    
believe they had  been sorted out. For example,  if a person                                                                    
donated to  any collegiate  sports event at  the university,                                                                    
they  could  donate through  the  non-profit  which was  tax                                                                    
deductible  at  the  federal level  already.  A  person  was                                                                    
likely  receiving  a 25  percent  tax  deduction, which  was                                                                    
similar to a  credit of their federal  taxes. Certainly, the                                                                    
university could go to Exxon  or GCI and request a donation.                                                                    
He was unsure if a state tax  credit on top of a federal tax                                                                    
credit made  much of a  difference. He agreed  with Co-Chair                                                                    
Seaton that the  bill got amended when the state  had a huge                                                                    
amount  of money.  Currently,  the state  had  a deficit  of                                                                    
roughly $2.5 billion. He would  rather rely on a federal tax                                                                    
bonus  that a  donor received  by being  able to  deduct the                                                                    
costs from their  federal taxes. He noted  the importance of                                                                    
ranking things. He was not willing to forego state revenue.                                                                     
Representative  Guttenberg  objected  to the  amendment.  He                                                                    
thought  there were  many bragging  rights that  accompanied                                                                    
sponsorship. Corporations  and individuals  participated for                                                                    
a  variety of  reasons. He  thought the  cream of  having an                                                                    
additional tax deduction was beyond the pale.                                                                                   
3:02:55 PM                                                                                                                    
Representative Thompson  asked for Representative  Pruitt to                                                                    
repeat the  conceptual amendment. Co-Chair  Foster responded                                                                    
that the amendment to the  amendment removed the annual part                                                                    
of the language.                                                                                                                
Representative   Pruitt   explained  that   the   conceptual                                                                    
amendment would  leave the  language "or  an intercollegiate                                                                    
sports tournament"  in the various  places in the  bill. The                                                                    
only  portion  being  removed was  the  word,  "annual."  He                                                                    
thought the  first two  lines would have  to be  removed. It                                                                    
would allow  for donations to  a collegiate  tournament like                                                                    
the Great Alaska Shootout.                                                                                                      
Representative  Thompson  thought  that  even  if  the  word                                                                    
"annual" was left  in, the bill was still  being altered, He                                                                    
spoke of several intercollegiate  tournaments. He thought it                                                                    
would  be beneficial  to the  state if  there could  be more                                                                    
intercollegiate  tournaments  and  suggested  the  amendment                                                                    
might  clarify things.  Representative  Pruitt's intent  was                                                                    
that  even  something that  was  held  annually but  not  in                                                                    
Alaska would be able to participate in the tax credit.                                                                          
Co-Chair Seaton indicated that  the amendment was broadening                                                                    
the tax deductions  and making it so that  more general fund                                                                    
revenue  could  be  diverted  from  being  received  in  the                                                                    
general  fund. The  donor could  receive a  100 percent  tax                                                                    
credit with donations between $100,000  - $300,000. It would                                                                    
be diverting money that otherwise  would go into the general                                                                    
fund.  He  did  not  believe  the  state  was  in  a  fiscal                                                                    
situation  to  be broadening  tax  credits.  He opposed  the                                                                    
conceptual amendment.  It not  only gutted  the restrictions                                                                    
but expanded where tax credits applied.                                                                                         
Representative  Wilson suggested  that  by  taking the  word                                                                    
"annual"  out, it  would mean  that the  committee would  be                                                                    
deleting  "or  an  intercollegiate sports  tournament".  The                                                                    
word annual would  be left in the bill. She  did not believe                                                                    
that was the intent of the maker of the amendment.                                                                              
3:07:36 PM                                                                                                                    
Representative  Pruitt  explained  that  in  the  conceptual                                                                    
amendment  the   brackets  were   placed  around   the  word                                                                    
"annual",  rather  than where  they  were  currently in  the                                                                    
amendment.   Representative   Wilson  commented   that   the                                                                    
amendment made more sense.                                                                                                      
Representative  Kawasaki   cautioned  that   the  conceptual                                                                    
amendment would  broaden the tax  credit. He was  unaware of                                                                    
the fiscal impact but thought it  could be high. He would be                                                                    
opposing it.                                                                                                                    
Representative Kawasaki MAINTAINED his OBJECTION.                                                                               
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Pruitt, Thompson, Tilton, Grenn                                                                                       
OPPOSED:  Wilson,   Gara,   Guttenberg,   Kawasaki,   Ortiz,                                                                    
Foster, Seaton                                                                                                                  
The MOTION  to adopt Conceptual  Amendment 2 to  Amendment 2                                                                    
FAILED (4/7).                                                                                                                   
Representative Pruitt did  not have a problem  with an event                                                                    
such as  the Great Alaska Shootout  or the Top of  the World                                                                    
Classic tournament returning. He did  not see a problem with                                                                    
leaving the  language in  the bill. He  thought it  would be                                                                    
great to  have the credit  available. He continued  to speak                                                                    
in favor of leaving the language in statute.                                                                                    
3:11:17 PM                                                                                                                    
Representative  Thompson  commented  that the  Great  Alaska                                                                    
Shootout and  the Top  of the  World Classic  tournament had                                                                    
millions  of dollars'  worth of  impact  on communities.  He                                                                    
thought   the  option   should   remain   open  for   future                                                                    
Vice-Chair  Gara was  a big  supporter of  the Great  Alaska                                                                    
Shootout  and  the Top  of  the  World Classic  tournaments.                                                                    
Businesses could  still be approached with  the incentive of                                                                    
a  25  percent tax  deduction  off  their federal  corporate                                                                    
taxes if  they contributed.  He posed the  questions whether                                                                    
the tax  credit really  did anything  and whether  the state                                                                    
could afford it.  He wondered about where the  issue fell on                                                                    
everyone's  priority  list. He  did  not  believe it  was  a                                                                    
priority.  He  appreciated  the   efforts  of  the  American                                                                    
Legion.   They  had   been  working   diligently  to   bring                                                                    
tournaments back.                                                                                                               
Representative Wilson WITHDREW her OBJECTION.                                                                                   
Representative Pruitt OBJECTED.                                                                                                 
Representative Pruitt  reiterated that there was  no harm in                                                                    
leaving the language in place. He  thought it was a means of                                                                    
encouragement and  celebration. He  did not think  the state                                                                    
was   losing   anything,   as  there   were   currently   no                                                                    
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Wilson,   Gara,   Guttenberg,  Kawasaki,   Seaton,                                                                    
OPPOSED: Pruitt, Thompson, Tilton, Grenn, Ortiz                                                                                 
The MOTION to adopt Amendment 2 as amended PASSED (6/5).                                                                        
Vice-Chair Gara reported that the  fiscal note continued the                                                                    
estimated  cost in  lost  revenue for  the  tax credits.  He                                                                    
relayed that for half of  FY 19, by continuing, lost revenue                                                                    
would be  $3.42 million. In  the out years it  was estimated                                                                    
to continue  at its current  level, $6.84 million  per year,                                                                    
of tax credits the state did not receive in revenue.                                                                            
Co-Chair Foster  asked if the  bill sponsor had  any closing                                                                    
comments. Representative  Tuck remarked that there  had been                                                                    
a good dialog and thanked the committee.                                                                                        
Co-Chair  Seaton  MOVED to  report  CSHB  233 (FIN)  out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
Representative Wilson OBJECTED for discussion.                                                                                  
Representative  Wilson  asked  whether   there  would  be  a                                                                    
forthcoming  fiscal note  or a  previously published  fiscal                                                                    
note.  Co-Chair Seaton  responded that  it was  a previously                                                                    
published fiscal note.                                                                                                          
Representative Wilson WITHDREW her OBJECTION.                                                                                   
There being NO OBJECTION, it was so ordered.                                                                                    
CSHB 233 (FIN)  was REPORTED out of committee  with four "do                                                                    
pass"    recommendations,    three    "no    recommendation"                                                                    
recommendations, and four  "amend" recommendations, and with                                                                    
one previously published fiscal impact note: FN1 (REV).                                                                         
3:16:58 PM                                                                                                                    
AT EASE                                                                                                                         
3:18:24 PM                                                                                                                    
HOUSE BILL NO. 399                                                                                                            
     "An Act  disallowing a federal  tax credit as  a credit                                                                    
     against  the  corporate  net income  tax;  repealing  a                                                                    
     provision allowing  the exclusion of  certain royalties                                                                    
     accrued  or  received  from  foreign  corporations  for                                                                    
     purposes  of the  corporate net  income tax;  repealing                                                                    
     the  reduced rate  for the  alternative tax  on capital                                                                    
     gains  for corporations;  repealing  an exemption  from                                                                    
     filing a return under the  corporate net income tax for                                                                    
     a corporation  engaged in a  contract under  the Alaska                                                                    
     Stranded  Gas Development  Act;  and  providing for  an                                                                    
     effective date."                                                                                                           
3:18:43 PM                                                                                                                    
Co-Chair Foster invited his staff  to the table to begin his                                                                    
BRODIE   ANDERSON,   STAFF,  REPRESENTATIVE   NEAL   FOSTER,                                                                    
explained that  the opening  remarks would  be similar  to a                                                                    
piece of legislation that was  heard in House Finance in the                                                                    
previous week. Mr. Anderson read from a prepared statement:                                                                     
     HB  399 is  a result  of work  done over  the last  few                                                                    
     years  with  various  legislators to  address  foregone                                                                    
     revenue and  to provide the  state with the  ability to                                                                    
     potentially capture new revenue.                                                                                           
     Starting  in  2014,  the legislation  was  passed  that                                                                    
     required  both  the  Department of  Revenue  (DOR)  and                                                                    
     Legislative  Finance to  create  a  report on  indirect                                                                    
     expenditures  in the  amount  of  foregone revenue  not                                                                    
     captured by  the state. The first  indirect expenditure                                                                    
     report  was  submitted  in 2015.  In  that  report,  it                                                                    
     identified a  list of indirect expenditures  within DOR                                                                    
     that should be terminated.                                                                                                 
     Last  year  during  the FY  18  budget  process,  House                                                                    
     Finance  Subcommittee  for  the Department  of  Revenue                                                                    
     reviewed  those indirect  expenditures and  recommended                                                                    
     the  House  Finance  Committee offer  legislation  that                                                                    
     eliminates these indirect expenditures.                                                                                    
     HB 399 repeals certain  credits and exemptions from the                                                                    
     recommendations   offered   both    in   the   indirect                                                                    
     expenditure   and   the  subcommittee.   The   indirect                                                                    
     expenditures repealed  in HB 399 were  selected for the                                                                    
     following  reasons: The  indirect expenditures  did not                                                                    
     meet legislative intent, had  limited benefit or wasn't                                                                    
     used,  or the  purpose of  conformity has  change since                                                                    
     the credit, or exemptions were created.                                                                                    
     House  Finance Committee,  House Bill  399 repeals  the                                                                    
     following indirect expenditures:                                                                                           
         Federal Tax Credits - Currently tax payers can                                                                      
          claim 18  percent of  all federal  credits against                                                                    
          their  corporate income  tax  regardless of  where                                                                    
          the  credits   were  earned.  The   Department  of                                                                    
          Revenue provided  an example  of a  housing credit                                                                    
          that would  be eligible to  be earned in  New York                                                                    
          to be  claimed against Alaska's tax  liability for                                                                    
          that corporation here.                                                                                                
         Foreign Royalty Exclusions - Currently, tax                                                                         
          payers  can  hold  80  percent  of  their  foreign                                                                    
          royalty  payments  against   their  corporate  tax                                                                    
         Reduced Rate for Capital Gains - Under Alaska                                                                       
          statutes,  Alaska  corporate  tax  payers  have  a                                                                    
          reduced  rate  of  4.5 percent  on  their  capital                                                                    
          gains  profits.  With  this repeal  capital  gains                                                                    
          would be treated like all  other profits. In 1986,                                                                    
          the federal  government removed  their recognition                                                                    
          of a reduced rate for  capital gains and then more                                                                    
          recently,  through  the Trump  Administration  tax                                                                    
          reform,  they  went  ahead   and  cleaned  up  the                                                                    
          language  repealing  the  complete  capital  gains                                                                    
          section within the federal URC.                                                                                       
         Credit associated with the Stranded Gas Act -                                                                       
          This  credit  was   never  utilized  to  encourage                                                                    
          development under the Stranded Gas Act.                                                                               
     The  combined   total  of  potential  new   revenue  is                                                                    
     estimated to  be $6.9 million  according to  the fiscal                                                                    
     note in front of the committee.                                                                                            
3:23:43 PM                                                                                                                    
Mr. Anderson read the sectional analysis:                                                                                       
     Section 1                                                                                                                  
     Statute: AS 43.20.021 (a)                                                                                                  
     Change: Amends current section                                                                                             
     Purpose  or Effect:  Conforming  language, removes  the                                                                    
     list  of  federal  credits as  eligible  items  against                                                                    
     Alaska corporate income tax liability.                                                                                     
     Indirect Expenditure Item: Federal Credits                                                                                 
     Section 2                                                                                                                  
     Statute: AS 43.20.145 (c)                                                                                                  
     Change: Amends current section                                                                                             
     Purpose or Effect:  Conforming language for "Affiliated                                                                    
     Groups", removing  the reference  to the  subsection on                                                                    
     foreign royalty  payments as eligible  Alaska corporate                                                                    
     income tax liability.                                                                                                      
     Indirect Expenditure Item: Foreign Royalty Exemption                                                                       
     Section 3                                                                                                                  
     Statute: AS 43.20.145 (d)                                                                                                  
     Change: Amends current section                                                                                             
     Purpose or Effect:  Conforming language for "Affiliated                                                                    
     Groups",  removing  the   reference  to  subsection  on                                                                    
     foreign royalty  payments as eligible  Alaska corporate                                                                    
     Income tax liability.                                                                                                      
     Indirect Expenditure Item: Foreign Royalty Exemption                                                                       
     Section 4                                                                                                                  
     Statute: Repealer Section                                                                                                  
     Change: Repeals statutes                                                                                                   
     Purpose or Effect:                                                                                                         
     AS 43.20.021 (c)                                                                                                           
    Repeals the reduced rate for capital gains income.                                                                          
     Indirect Expenditure Item: Capital Gains                                                                                   
     AS 43.20.21 (d)                                                                                                            
     Repeals the  eligibility of federal credits  for Alaska                                                                    
     corporate income tax liability.                                                                                            
     Indirect Expenditure Item: Federal Credits                                                                                 
     AS 43.20.036 (a) -                                                                                                         
     Repeals the  eligibility of federal foreign  tax credit                                                                    
     for Alaska corporate income tax liability.                                                                                 
     Indirect Expenditure Item: Federal Credits                                                                                 
     AS. 43.20.036 (b)                                                                                                          
     Repeals  the eligibility  of federal  investment credit                                                                    
     for Alaska corporate income tax liability.                                                                                 
     Indirect Expenditure Item: Federal Credits                                                                                 
     AS 43.20.042                                                                                                               
     Repeals the  eligibility of federal  special industrial                                                                    
     incentive  investment   credit  for   Alaska  corporate                                                                    
     income tax liability.                                                                                                      
     Indirect Expenditure Item: Stranded Gas Act Exclusion                                                                      
     AS 43.20.144 (g)                                                                                                           
     Repeals   the  exemption   for  Alaska   Corporate  tax                                                                    
     for entities participating in  contracts related to the                                                                    
     Stranded Gas Act.                                                                                                          
     Indirect Expenditure Item: Foreign Royalty Exclusion                                                                       
     AS 43.20.145 (b)(3)                                                                                                        
     Repeals the foreign royalty exclusion.                                                                                     
     Indirect Expenditure Item: Stranded Gas Act Exclusion                                                                      
     AS 43.20.145 (g)                                                                                                           
     Repeals the Stranded Gas Act exclusion.                                                                                    
     Indirect Expenditure Item:                                                                                                 
     Section 5                                                                                                                  
     Statute: Uncodified Law                                                                                                    
     Purpose or Effect: Applicability  Sections 1, 2, 3, and                                                                    
     portions  of Section  4 as  stated are  subject to  the                                                                    
     effective date.                                                                                                            
     Section 6                                                                                                                  
     Statute: Uncodified Law                                                                                                    
     Change: Adds new section                                                                                                   
     Purpose or Effect: Transition: Regulations                                                                                 
     Effective Date is January 1, 2019                                                                                          
Co-Chair  Foster  invited  Mr.   Spanos  to  the  table  for                                                                    
Representative  Wilson  asked  if the  Capital  gains  being                                                                    
discussed had to do with Alaskan projects.                                                                                      
BRANDON   S.   SPANOS,   DEPUTY  DIRECTOR,   TAX   DIVISION,                                                                    
DEPARTMENT  OF REVENUE,  clarified  that  the capital  gains                                                                    
rate  would apply  to  any capital  gain  under the  federal                                                                    
code.  He  added  that  when  the  language  was  originally                                                                    
drafted there was a capital  gains rate in the federal code.                                                                    
The  federal tax  reform  of  2017 removed  it.  It was  the                                                                    
Department of  Revenue's position  was that  the bill  was a                                                                    
clean-up  bill. Because  the capital  gains  rate no  longer                                                                    
existed at  the federal level,  it no longer existed  at the                                                                    
state level. The  state statute pointed to  the statute that                                                                    
was  now gone.  It  was  for any  long-term  capital gain  a                                                                    
corporation had.                                                                                                                
Representative Kawasaki asked  if it was possible  to get an                                                                    
idea  of how  many  tax payers  there were  in  each of  the                                                                    
different  groups. He  suspected the  division would  not be                                                                    
able  to release  names because  of  confidential tax  payer                                                                    
information. Mr.  Anderson responded in the  affirmative. He                                                                    
referred the committee to a  letter in the back up materials                                                                    
from the  DOR. He relayed that  for the reduced tax  rate on                                                                    
capital  gains  in  2015,  the   state  had  195  recipients                                                                    
equaling   about   $3.3   million   of   impacted   revenue.                                                                    
Representative   Kawasaki  found   the   handout  with   the                                                                    
3:27:14 PM                                                                                                                    
Co-Chair Foster OPENED public testimony.                                                                                        
KARA   MORIARTY,  PRESIDENT,   CEO,  ALASKA   OIL  AND   GAS                                                                    
ASSOCIATION (AOGA), read from a prepared statement:                                                                             
     Co-Chair Foster, Co-Chair Seaton, Members of the                                                                           
     For the record, my name is Kara Moriarty and I'm the                                                                       
     President/CEO of the Alaska Oil and Gas Association,                                                                       
     commonly known as "AOGA." AOGA  is a professional trade                                                                    
     association for  the oil and  gas industry and  I thank                                                                    
     you for the  opportunity to discuss the  reasons of our                                                                    
     opposition to  House Bill  399. Although  I am  here on                                                                    
     behalf of  a diverse  group of companies,  my testimony                                                                    
     today represents  the thoughts  and sentiments  of each                                                                    
     member, which was approved by unanimous consent.                                                                           
     As  I  mentioned,  I  did   email  the  committee  more                                                                    
     detailed comments  for the record, but  in the interest                                                                    
     of  time  I  wanted   to  summarize  our  position  and                                                                    
     concerns with this bill.                                                                                                   
     This  bill  makes several  changes  to  how tax  payers                                                                    
     compute Alaska  corporate income tax. One  of the major                                                                    
     changes  is   in  Section  1  which   is  categorically                                                                    
     repealing a  long list of  federal tax credits  to keep                                                                    
     them  from being  used and  determining Alaska  tax. In                                                                    
     the larger document  I included the full  list of these                                                                    
     credits in the written testimony.                                                                                          
     A number of these federal  tax credits do seem unlikely                                                                    
     ever to be used by  a company doing business in Alaska.                                                                    
     They could stop being  adopted by reference for purpose                                                                    
     of  Alaska's  income  tax  without  impacting  any  tax                                                                    
     payers.   Yet,  except   for  the   historically  based                                                                    
     credits, like  those for Hurricanes Katrina,  Rita, and                                                                    
     Wilma, which  were very time specific  because they all                                                                    
     occurred  in  2005, why  should  and  why would  Alaska                                                                    
     preemptively  disallow  credits for  activities  simply                                                                    
     because those  activities don't occur here  yet (almost                                                                    
     similar  to the  conversation  you were  having on  the                                                                    
     previous bill  about sporting tournaments). So  why not                                                                    
     leave  the  door  open  to  credits  for  bringing  new                                                                    
     activities to Alaska.  If there proves to  be a problem                                                                    
     with the  federal credit for Alaskan  purposes, then it                                                                    
     could be dealt with at the specific time.                                                                                  
     It  seems  far  more  appropriate  and  prudent  to  my                                                                    
     members  to  consider  the   merits  of  these  credits                                                                    
     individually since  a good  number of  them do  seem to                                                                    
     reflect  sound  tax  policy for  Alaska's  purposes.  A                                                                    
     couple of examples:  Why would you want  to exclude the                                                                    
     credit under Internal Revenue  Code, Section 45(a), for                                                                    
     employing  Alaska Natives  to be  disallowed. We  think                                                                    
     it's good policy for the  state to encourage the hiring                                                                    
     of  Alaska Natives?  Similarly, why  should the  credit                                                                    
     under   Internal  Revenue   Code,  Section   45(p),  be                                                                    
     disallowed for  Alaskan employers who make  up the wage                                                                    
     difference  for employees  on active  duty in  military                                                                    
     service?  Certainly, I  used to  be very  involved with                                                                    
     the employer support of the  Guard and Reserve. We know                                                                    
     we have  a lot  of people  in Alaska  who serve  in the                                                                    
     National  Guard   and  similar  services.   Why  should                                                                    
     Alaskan small employers  providing health insurance for                                                                    
     their employees  not get a  tax credit for  those costs                                                                    
     under Internal Revenue Code,  Section 45(r). Again, the                                                                    
     majority of businesses in Alaska are small.                                                                                
     Coming  to our  own industry,  why should  the enhanced                                                                    
     oil recovery, or the EOR  credit under Internal Revenue                                                                    
     Code,  Section 43(a)  be disallowed  for our  corporate                                                                    
     income tax  under Alaska Statute 43.20.  Surely getting                                                                    
     more oil out of Alaska's  aging fields is a good thing.                                                                    
     It's essential  for our future,  for the  industry, and                                                                    
     both for the state.                                                                                                        
     Specifically, on  the EOR credit, it  is different than                                                                    
     most of the credits in  our current tax system and it's                                                                    
     different  in two  important ways.  First, the  credits                                                                    
     that have  been most talked about  recently in Alaska's                                                                    
     tax code were primarily  credits against the production                                                                    
     tax. While  HB 399  deals generically with  federal tax                                                                    
     credits  that Alaska  adopted many  years  ago for  the                                                                    
     corporate income tax under AS 43.20.                                                                                       
3:32:13 PM                                                                                                                    
Ms. Moriarty continued reading from a statement:                                                                                
     Second, and more  fundamentally, oil companies' taxable                                                                    
     income is based on their  worldwide net income and part                                                                    
     of that net  income is apportioned to  the Alaskan part                                                                    
     of  the business  on the  basis of  the percentages  of                                                                    
     their  worldwide   production,  worldwide   sales,  and                                                                    
     worldwide  property  at  original   cost  that  are  in                                                                    
     This  means an  oil  company could  actually be  losing                                                                    
     money in its Alaska  business but still have sufficient                                                                    
     profits  elsewhere  to  have   a  positive  net  income                                                                    
     overall of  which a  part would  be apportioned  to the                                                                    
     Alaska business  on the basis of  these percentages and                                                                    
     All of this  brings us to a second  major point overall                                                                    
     with  this bill.  Just  last year  HB  111 created  the                                                                    
     legislature's oil and gad  fiscal system working group,                                                                    
     a bicameral,  bipartisan working  group to  analyze the                                                                    
     state's oil  and gas fiscal  regime. The  working group                                                                    
     to-date, has  only met  twice since  HB 111  was passed                                                                    
     last    session   and    both   meetings    were   more                                                                    
     organizational  in   nature  and  they  have   not  yet                                                                    
     considered   major  policy   issues,  much   less  ever                                                                    
     discussed how  to change the present  fiscal regime. We                                                                    
     would encourage  you to think  about putting  this bill                                                                    
     aside and allowing the legislative  working group to do                                                                    
     its   work  including   considering   changes  to   the                                                                    
     corporate income tax.                                                                                                      
     On  the  remaining sections  of  the  bill there  is  a                                                                    
     serious  constitutional  issue  with  the  language  of                                                                    
     Alaska  Statute  43.20.145 that  HB  399  does not  yet                                                                    
     address,  which   is  the  definition   of  "affiliated                                                                    
     group."  Again, the  written testimony  goes into  much                                                                    
     more detail on  this point. But, if HB 399  is going to                                                                    
     be  amending this  section of  statute AS  43.20.145 we                                                                    
     think that it should replace  the obsolete text in that                                                                    
     paragraph  based  on the  50  ownership  or more  which                                                                    
     dates  back to  1978 and  replace it  with the  unitary                                                                    
     business concept  that the United States  Supreme Court                                                                    
     has extensively developed after  Alaska adopted that 50                                                                    
     percent  ownership  percentage.  We think  if  you  are                                                                    
     going  to be  making changes,  it would  be prudent  to                                                                    
     make  a similar  amendment to  AS 43.20.144(h)(ii)  for                                                                    
     oil companies.                                                                                                             
3:34:50 PM                                                                                                                    
     Section  3 doesn't  necessarily  pertain to  us but  we                                                                    
     just  wanted  to highlight  that  it  would repeal  the                                                                    
     reference  to royalties  from  the  existing phrase  of                                                                    
     dividends  and  royalties  taxable  to  a  corporation.                                                                    
     These royalties,  again, are  not royalties in  the oil                                                                    
     and gas  sense that we're  all very familiar  with, but                                                                    
     our royalties  used for using intellectual  property or                                                                    
     something that  has been  invented and  patented, which                                                                    
     is very commonplace.  Again, it did not  have an impact                                                                    
     to our members but just thought we would highlight it.                                                                     
     Section 4 repeals eight existing  sections. The rest of                                                                    
     the written comments goes into much detail.                                                                                
     I  would   just  close,  Mr.  Chairman   by  saying  we                                                                    
     currently oppose  the bill  for those  various reasons.                                                                    
     It  is  more  complex  than  it  seems  because  it  is                                                                    
     repealing several  sections of federal tax  code or our                                                                    
     ability to  use credits from  the federal tax  code. We                                                                    
     would just  encourage to utilize the  working group for                                                                    
     that purpose.                                                                                                              
Representative  Kawasaki mentioned  that  in Ms.  Moriarty's                                                                    
testimony she had mentioned the  Internal Revenue Code (IRC)                                                                    
45(a)  for  employing Alaska  Natives  and  IRC 45(p)  which                                                                    
talked  about  active  duty  military  service  and  another                                                                    
regarding providing insurance. He  asked if corporations did                                                                    
not  currently take  advantage of  the specific  credits she                                                                    
Ms. Moriarty  answered that they believed  corporations were                                                                    
taking advantage of the credits.  Her understanding was that                                                                    
HB 399 would  repeal the ability for corporations  to do so.                                                                    
She reiterated  that the  legislature might  want to  take a                                                                    
pause to  really evaluate  the laundry  list of  tax credits                                                                    
that were  under consideration to  be repealed to  make sure                                                                    
they were understanding the full impact.                                                                                        
Representative Kawasaki  asked if there were  companies that                                                                    
could voluntarily  provide information to confirm  that they                                                                    
took advantage  of the IRC  459(a) for instance, or  the IRC                                                                    
45(p) for active duty military.  Could a company voluntarily                                                                    
provide  the  information.  He   would  like  to  hear  from                                                                    
companies that took advantage of the credit.                                                                                    
Ms.   Moriarty  replied   that  if   a  company   wanted  to                                                                    
voluntarily  disclose  any  portion  of what  they  paid  in                                                                    
federal or  state taxes,  they were entitled  to do  so. She                                                                    
could follow  up with  member organizations  to find  out if                                                                    
there was  anyone wanting to provide  specific examples. She                                                                    
also  suggested   reaching  out   to  other   Alaska  Native                                                                    
corporations and  their subsidiaries, the Alaska  Chamber of                                                                    
Commerce, Resource  Development Council, and  other business                                                                    
organizations. She  reemphasized that the tax  committee was                                                                    
filled  with  brilliant minds  who  loved  to get  into  the                                                                    
details. As  they were getting  into the details  little red                                                                    
flags  went off  prompting  the question  about whether  the                                                                    
sections should be repealed.                                                                                                    
3:38:25 PM                                                                                                                    
Representative  Wilson  asked   about  the  foreign  royalty                                                                    
portion of  the bill. She  wondered about the impact  to the                                                                    
oil industry. Ms. Moriarty deferred to DOR.                                                                                     
Co-Chair Seaton  asked if  she was  saying that  the statute                                                                    
was repealing the federal tax  credit. Companies could still                                                                    
take  advantage  of  those  federal  tax  credits  on  their                                                                    
federal returns. They would just  not be able to deduct them                                                                    
against their state corporate income  tax. He wondered if he                                                                    
was correct.                                                                                                                    
Ms.  Moriarty   answered  in  the  affirmative.   The  state                                                                    
legislature did not  have the ability to  repeal federal tax                                                                    
code. However,  the legislature had the  ability to disallow                                                                    
companies  from using  an apportionment  against the  Alaska                                                                    
Corporate  income tax  (companies  could not  take the  full                                                                    
federal tax  credit anyway). However,  it was an  example of                                                                    
an incentive the state could  offer to make Alaska look more                                                                    
attractive than other states in the nation.                                                                                     
Co-Chair  Foster CLOSED  public testimony.  He provided  the                                                                    
committee  email address  for  additional written  testimony                                                                    
Representative  Wilson  referred  to the  fiscal  note,  OMB                                                                    
2476, by DOR on page 2.  It showed the change in revenue and                                                                    
had it  split out.  She asked about  the federal  credits of                                                                    
$1.8  million and  the reduced  rate on  capital gains.  She                                                                    
wondered  if  they  were no  longer  available  through  the                                                                    
federal government.                                                                                                             
Mr. Spanos responded that the  changes on page 2 for federal                                                                    
credits  of  $1.8  million and  foreign  royalties  of  $1.7                                                                    
million in revenue impact would  only apply if the bill were                                                                    
to pass. The Department of  Revenue had generated the fiscal                                                                    
note prior to discovering that  the reduced rate for capital                                                                    
gains  was   affected  by  the   federal  tax   reform.  The                                                                    
Department  of Law  noted that  the capital  gains rate  was                                                                    
eliminated in  the federal code  and no longer  available to                                                                    
an Alaskan  corporation. He confirmed that  the $3.4 million                                                                    
was gone,  but the  $1.8 million and  $1.7 million  would be                                                                    
revenue added to the general fund if the bill were to pass.                                                                     
Representative  Wilson asked  for clarification  regarding a                                                                    
foreign royalty.                                                                                                                
Mr.  Spanos   replied  that  a  foreign   royalty  was  only                                                                    
available for a water's edge  corporation, a non-oil and gas                                                                    
company.  Oil and  gas companies  filed under  the worldwide                                                                    
apportionment which  included their income  from everywhere.                                                                    
He had  used an  example in a  previous hearing  about total                                                                    
income being  the pie.  For oil and  gas companies  that pie                                                                    
was their  worldwide income. Whereas, for  all other non-oil                                                                    
and gas companies the pie  was called "Water's edge" or "US"                                                                    
3:42:49 PM                                                                                                                    
Representative Wilson  asked if  the federal  credit applied                                                                    
to  all  industries. Mr.  Spanos  replied  that the  federal                                                                    
credit would apply to both oil and gas and non-oil and gas.                                                                     
Mr. Anderson added that Alaska  was currently the only state                                                                    
that  copied all  federal credits.  He  suggested that  many                                                                    
states either piggy-backed on a  federal tax credit or would                                                                    
have language  stipulating that federal tax  credits applied                                                                    
only  to the  expenses  that  occurred in  the  state. If  a                                                                    
corporation used  a federal  tax credit  in the  state, they                                                                    
would potentially be eligible for  the federal tax credit at                                                                    
18 percent. He referred to  IRC 45(a), the Indian Employment                                                                    
credit.   Any  multi-state   corporation  hiring   federally                                                                    
recognized  Indian  employees  would  be  able  to  hold  18                                                                    
percent of  that credit against their  Alaska tax liability.                                                                    
Many states  applied it  to what  was incurred  in-state. He                                                                    
encouraged Mr. Spanos to expand on his comments.                                                                                
Mr. Spanos noted that the  federal credits included what was                                                                    
available on  the federal  tax return  which was  unusual in                                                                    
that  most states  would want  to  incentivize something  in                                                                    
their  own state.  Alaska's statute  would allow  the credit                                                                    
for  an expense  anywhere. He  thought it  was important  to                                                                    
note that if  it was the intent of the  legislature to allow                                                                    
a credit to incentivize something  in Alaska, it would be an                                                                    
Alaska specific credit rather than a federal credit.                                                                            
Representative Wilson  asked if  the bill would  be removing                                                                    
all of it. However, it  was possible to insert language that                                                                    
would  tie   a  federal  credit  to   Alaska.  Mr.  Anderson                                                                    
confirmed she was correct. It  would be a policy decision by                                                                    
the legislature.                                                                                                                
Representative Guttenberg  asked Mr. Spanos to  describe the                                                                    
foreign   royalties  credit   being  repealed.   Mr.  Spanos                                                                    
explained that  what was  being repealed  was for  a water's                                                                    
edge company (non-oil  and gas company) to be  allowed an 80                                                                    
percent  exclusion of  foreign  royalties.  For example,  if                                                                    
Company A held a patent  and had a foreign affiliate Company                                                                    
B using the patent, Company  B would pay Company A royalties                                                                    
for  the use  of that  patent. Company  A would  be able  to                                                                    
exclude 80 percent of those royalties.                                                                                          
3:47:02 PM                                                                                                                    
Mr. Anderson  used Microsoft as  an example  regarding their                                                                    
cloud  option. The  company  had been  paying  a royalty  to                                                                    
Ireland  to run  the  Cloud. If  Microsoft  had a  corporate                                                                    
income  tax  in Alaska,  they  would  be  able to  apply  80                                                                    
percent  of  the  royalty payment  amount  against  Alaska's                                                                    
corporate tax liability.                                                                                                        
Representative  Pruitt suggested  that  the  state might  be                                                                    
putting itself  at a disadvantage  by repealing  the credit.                                                                    
It might  limit the appeal  to a future large  investor such                                                                    
as Microsoft or Google.                                                                                                         
Mr. Spanos  could not speak  to any specific company  or the                                                                    
representative's  example.  However,   in  general,  if  the                                                                    
intellectual  property  was  foreign owned  and  an  Alaskan                                                                    
business  was   receiving  a   royalty  from   that  foreign                                                                    
business,  it would  be  unusual  for a  state  to allow  an                                                                    
exemption of that income from a foreign payor.                                                                                  
Co-Chair  Foster  indicated  that  amendments  were  due  by                                                                    
5:00 P.M. on Wednesday, April 11, 2018.                                                                                         
HB  399  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair  Foster  announced  that  the  committee  would  be                                                                    
taking a 10-minute break until 4:00 P.M.                                                                                        
3:50:16 PM                                                                                                                    
AT EASE                                                                                                                         
4:01:50 PM                                                                                                                    
SENATE BILL NO. 165                                                                                                           
     "An  Act relating  to the  Alaska comprehensive  health                                                                    
     insurance fund; and providing for an effective date."                                                                      
4:02:03 PM                                                                                                                    
Co-Chair Foster  invited Senator MacKinnon and  her staff to                                                                    
the table.                                                                                                                      
SENATOR  ANNA  MCKINNON,  SPONSOR,  read  the  bill  sponsor                                                                    
     In 2015,  the individual  health care market  in Alaska                                                                    
     was  in  a  precarious   state.  There  were  only  two                                                                    
     insurers   with   current   enrollees   in   individual                                                                    
     healthcare  plans  in  Alaska,  and  each  insurer  was                                                                    
     experiencing significant  losses. Average  premium rate                                                                    
     increases  in 2015  were 38.7  percent for  one insurer                                                                    
     and  39.9  percent  for  the other.  In  2016,  one  of                                                                    
     Alaska's only  two remaining insurers gave  notice that                                                                    
     they would  be withdrawing  from the  Alaska individual                                                                    
     market effective January 2017.                                                                                             
Senator  MacKinnon  noted  that  at  the  time  the  state's                                                                    
insurance  division came  up with  a suggestion  - a  way to                                                                    
address  folks  that  were  driving  up  the  costs  of  the                                                                    
insurance market in Alaska. They  were looking at those high                                                                    
utilizers  and   trying  to  do  something   different.  She                                                                    
continued reading the sponsor statement:                                                                                        
     The  29th  Legislature passed  HB  374  in 2016,  which                                                                    
     created  the Alaska  Reinsurance  Program, and  allowed                                                                    
     the  Division  of  Insurance to  apply  for  a  federal                                                                    
     Section   1332  state   innovation  waiver   under  the                                                                    
     Affordable Care Act (ACA).  That legislation included a                                                                    
     sunset  date  of  June  30, 2018  to  ensure  that  the                                                                    
     diversion of  insurance premium taxes from  the general                                                                    
     fund  was  not  relied  upon  as  a  long-term  funding                                                                    
     mechanism.  In July  2017, the  waiver was  approved by                                                                    
     both the  Department of Health and  Social Services and                                                                    
     the  Department of  Treasury based  on the  application                                                                    
     submitted  by  the   division,  which  requested  pass-                                                                    
    through funding for the Alaska Reinsurance Program.                                                                         
     The  federal award  for this  waiver was  approximately                                                                    
     $322 million over five years.  The award is to be used,                                                                    
     in conjunction with the  Alaska Reinsurance Program, to                                                                    
     continue to stabilize  the individual healthcare market                                                                    
     in Alaska.                                                                                                                 
     This legislation  extends the  sunset provision  on the                                                                    
     Alaska  comprehensive  health  insurance  fund  by  six                                                                    
     years, from  June 30,  2018 to June  30, 2024  to allow                                                                    
     for the continuation of  the Alaska Reinsurance Program                                                                    
     and receipt of the federal funding.                                                                                        
Senator MacKinnon  reported that  the federal money  and the                                                                    
approval  was  contingent on  the  passage  of SB  165.  The                                                                    
federal  funds were  guaranteed  for 5  years. However,  the                                                                    
bill  requested a  6-year extension.  It would  provide time                                                                    
for the  state to true  up all  claims that might  remain in                                                                    
the  system  should  the  state not  have  the  1332  waiver                                                                    
extended and  because the center  for Medicaid  and Medicare                                                                    
Services  had  indicated that  they  might  extend the  1332                                                                    
waiver  for  another  year.   Other  states  were  following                                                                    
Alaska's  lead  in providing  cost  savings  to the  federal                                                                    
government.  The bill  would reroute  or  take the  diverted                                                                    
insurance premium taxes that  were currently being deposited                                                                    
in the Alaska Comprehensive  Health Insurance Fund and place                                                                    
them back  where they were  into the general fund.  It would                                                                    
create $63  million of general  fund revenue in  the current                                                                    
year. She  reminded the  body that  the program  had already                                                                    
brought to  the state,  through the supplemental  process, a                                                                    
return of $205 million from Premera  Blue Cross - one of the                                                                    
insurers  experiencing  significant  losses  in  the  Alaska                                                                    
     The  bill  also  removes  the  requirement  that  funds                                                                    
     collected  under AS  21.09.210  (tax  on insurers),  AS                                                                    
     21.33.055  (unauthorized  insurance  premium  tax),  AS                                                                    
     21.34.180 (surplus lines tax)  and AS 21.66.110 (annual                                                                    
     tax on  title insurance  premiums) are to  be deposited                                                                    
     into  the Alaska  comprehensive  health insurance  fund                                                                    
     within the general fund.                                                                                                   
     Passage of  HB374 by the 29th  Legislature has resulted                                                                    
     in  stabilization of  the individual  insurance market.                                                                    
     The  Section  1332  state  innovation  waiver  provides                                                                    
     funding  for the  Alaska  Reinsurance Program,  through                                                                    
     the  Alaska comprehensive  health  insurance fund.  Now                                                                    
     this legislation  is necessary to ensure  the continued                                                                    
     effectiveness of the Alaska Reinsurance Program, meet                                                                      
     the intent of the waiver, and receive the federal                                                                          
Co-Chair MacKinnon was open to questions.                                                                                       
Representative Guttenberg  asked if the bill  simply kept it                                                                    
extending   with  no   other  changes.   Co-Chair  MacKinnon                                                                    
responded that it also diverted  the insurance premiums from                                                                    
the  insurance fund  to the  general  fund. Co-Chair  Foster                                                                    
indicated that  the director of  the Division  of insurance,                                                                    
Ms. Wing-Heier, was available for questions.                                                                                    
4:07:14 PM                                                                                                                    
Co-Chair Foster OPENED and CLOSED public testimony.                                                                             
Representative   Guttenberg  had   been  at   a  legislative                                                                    
conference   and  had   received   positive  feedback   from                                                                    
legislators of other states about Alaska's program.                                                                             
Co-Chair  Foster asked  Co-Chair Seaton  to read  the fiscal                                                                    
notes into the record.                                                                                                          
Co-Chair  Seaton reviewed  the  first fiscal  note from  DOA                                                                    
which  had an  appropriation  of Centralized  Administrative                                                                    
Services  and an  allocation of  Finance. The  OMB component                                                                    
number  was  59.  The  second   fiscal  note  was  from  the                                                                    
Department of  Commerce, Community and  Economic Development                                                                    
(DCCED).  It   had  an   appropriation  and   allocation  of                                                                    
Insurance  Operations. The  component  number  was 354.  The                                                                    
note  reflected  no  expenditures  and  a  change  in  other                                                                    
revenues  of  $61.537  million   in  FY  19.  Revenues  were                                                                    
expected to increase to $75.859 million in FY 22.                                                                               
Representative Wilson  asked if  there was anything  tied to                                                                    
the money  that would  be going into  the general  fund. She                                                                    
wondered  if  the money  could  be  used  in the  budget  as                                                                    
needed.  Co-Chair  MacKinnon replied  that  it  went to  the                                                                    
general  fund and  could be  allocated  at the  will of  the                                                                    
MS.  LORI  WING-HEIER,   DIRECTOR,  DIVISION  OF  INSURANCE,                                                                    
DEPARTMENT OF COMMERCE,  COMMUNITY AND ECONOMIC DEVELOPMENT,                                                                    
offered thanks  for the waiver.  There had  been significant                                                                    
support  of  the  bill  from both  bodies.  There  had  been                                                                    
significant thought  given to it  because the state  did not                                                                    
want  it to  become a  permanent reinsurance  program unless                                                                    
the waiver could be obtained.  She was happy the waiver went                                                                    
through and  thought it  was showing  the benefits  that had                                                                    
been discussed in 2016.                                                                                                         
Co-Chair  Seaton MOVED  to report  SB 165  out of  Committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
SB  165 was  REPORTED  out  of committee  with  a "do  pass"                                                                    
recommendation  and  with  two previously  published  fiscal                                                                    
notes,  one zero  fiscal  note: FN1  (ADM);  and one  fiscal                                                                    
impact note: FN3 (CED).                                                                                                         
4:11:00 PM                                                                                                                    
AT EASE                                                                                                                         
4:11:46 PM                                                                                                                    
Co-Chair  Foster indicated  the committee  would be  hearing                                                                    
HB 306. It  was the committee's  first hearing on  the bill.                                                                    
He invited DOA's representatives to the table.                                                                                  
HOUSE BILL NO. 306                                                                                                            
     "An  Act relating  to  disbursement  options under  the                                                                    
     Public Employees'  Retirement System of Alaska  and the                                                                    
     Teachers' Retirement System  of Alaska for participants                                                                    
     in the defined contribution  plan; and providing for an                                                                    
     effective date."                                                                                                           
4:12:15 PM                                                                                                                    
Representative  Wilson asked  if there  was a  legal opinion                                                                    
about why there was not an  actuarial on the bill. She could                                                                    
not find one in the back-up documents.                                                                                          
SYLVAN ROBB, DEPUTY  DIRECTOR, DEPARTMENT OF ADMINISTRATION,                                                                    
introduced  herself. She  indicated  Commissioner Ridle  was                                                                    
not available.                                                                                                                  
KATHY   MS.  LEA,   CHIEF  PENSION   OFFICER,  DIVISION   OF                                                                    
RETIREMENT  AND  BENEFITS,   DEPARTMENT  OF  ADMINISTRATION,                                                                    
answered that there was only  a requirement for an actuarial                                                                    
analysis if there was an impact  to the funds. HB 306 had no                                                                    
financial impact to the funds.                                                                                                  
Representative Wilson  remarked that she did  not understand                                                                    
the bill.  Ms. Robb relayed that  currently the disbursement                                                                    
options for PERS Tier IV and  TRS Tier III were contained in                                                                    
statute. She  reported that the bill  moved the disbursement                                                                    
from  statute  to  regulation. Currently,  any  changes  the                                                                    
department  would like  to make  in order  to modernize  the                                                                    
disbursement  options  or  to   meet  new  Internal  Revenue                                                                    
Service (IRS)  regulations required a statutory  change. The                                                                    
bill would  allow the  division to be  nimbler and  to offer                                                                    
better  services to  state retirees.  She  added that  there                                                                    
were vested  employees in the  two tiers that  were impacted                                                                    
that  were  starting  to  retire.  Moving  the  disbursement                                                                    
options  from statute  to regulation  would  offer the  same                                                                    
flexibility  the state  currently had  for the  SBS and  the                                                                    
deferred compensation  plans. It still  provided significant                                                                    
transparency  for   the  public.   The  discussion   of  new                                                                    
disbursement options would be  covered at ARM Board meetings                                                                    
that  were  done  in  a  public forum  and  again  once  the                                                                    
recommendations were done  by the ARM Board  before going to                                                                    
regulation. There was a public  comment period at regulation                                                                    
as  well.  The ARM  Board  had  unanimous approval  for  the                                                                    
change proposed in the bill.                                                                                                    
Co-Chair Seaton understood  that under Tier III  and Tier IV                                                                    
TRS  they were  separate accounts  that were  accounted for.                                                                    
The  bill  only  had  to  do with  the  disbursement  of  an                                                                    
individual's  money. It  would not  impact the  fund because                                                                    
the money  was held for particular  individuals. He wondered                                                                    
if he  was correct.  Ms. Lea  confirmed Co-Chair  Seaton was                                                                    
correct.  She  elaborated that  she  was  talking about  the                                                                    
disbursement   of   an   employee's   contribution   account                                                                    
comprised   of    their   contributions,    the   employer's                                                                    
contributions  made  during  employment, and  any  gains  or                                                                    
losses on the fund.                                                                                                             
4:16:12 PM                                                                                                                    
Representative Wilson  was trying to figure  out the problem                                                                    
with  disbursement.  Ms.  Lea answered  that  currently  the                                                                    
state offered  a lump sum  disbursement, a  periodic payment                                                                    
of twice per year,  and different annuity options (lifetime,                                                                    
joint survivor,  and various period-certain  annuities). The                                                                    
ARM Board was  considering some newer products  that were on                                                                    
the market  that mimicked a  guaranteed income. One  of them                                                                    
was  called a  qualified longevity  annuity contract,  which                                                                    
allowed  an employee  to postpose  any disbursements  from a                                                                    
portion of  an employee's account  until they reached  80 or                                                                    
82 years of  age. The option was designed to  do two things:                                                                    
It removed  that portion of  an employee's account  from the                                                                    
required minimum  distribution that currently  occurred when                                                                    
an  employee reached  72  years of  age.  It also  protected                                                                    
against  longevity risk.  If  a person  was  running out  of                                                                    
money, they would have a pot of money to draw on later.                                                                         
Ms.  Lea  continued  that  another  disbursement  option,  a                                                                    
guaranteed lifetime withdrawal,  which provided an insurance                                                                    
wrapper  around  the  amount in  an  employee's  account.  A                                                                    
person  would  typically enroll  in  the  option anytime  10                                                                    
years before retirement or up  to retirement. They would not                                                                    
enroll  before  that time.  During  the  time a  person  was                                                                    
enrolled  in  the  program  they   would  pay  an  insurance                                                                    
premium. The  employee's monthly  benefit would be  based on                                                                    
whatever  the highest  balance was  at the  end of  the term                                                                    
(when a person  was past retirement and even  when the state                                                                    
was paying  out benefits). It protected  the individual from                                                                    
the downside  of investments  but allowed  them to  have the                                                                    
Representative Guttenberg  had been  reading more  about his                                                                    
investments.  He  suggested that  there  was  a plethora  of                                                                    
different  payout  options.  He  liked the  idea  of  having                                                                    
additional options.  He thought  that having the  options in                                                                    
statute made it  difficult for the ARM Board  to offer other                                                                    
Representative Pruitt asked  if there was not a  risk to the                                                                    
state.   He   wondered  if   there   were   risks  for   the                                                                    
participants. He  asked about the  disbursement of  funds if                                                                    
an employee died. He asked for clarification.                                                                                   
Ms. Lea responded  that the change was  simple. The division                                                                    
was  not   looking  to  change   any  of  the   options  for                                                                    
disbursement currently available. The  ARM Board was looking                                                                    
at  adding  options  that would  benefit  participants.  The                                                                    
state was  required by  the IRS to  fully disclose  all fees                                                                    
and  conditions  on any  of  the  disbursement products.  In                                                                    
terms  of  his  question regarding  survivors,  the  options                                                                    
under  review were  those that  would provide  full survivor                                                                    
benefits  to  participants  should   they  die  before  they                                                                    
exhausted their funds.                                                                                                          
4:21:58 PM                                                                                                                    
Co-Chair  Foster  OPENED  and CLOSED  public  testimony  for                                                                    
HB 306.                                                                                                                         
Co-Chair Foster asked to review the fiscal notes.                                                                               
Representative  Wilson wanted  to wait  until the  following                                                                    
meeting  before moving  the  bill, as  she  needed a  better                                                                    
understanding of the bill.                                                                                                      
Co-Chair   Foster  wanted   to   make   sure  members   were                                                                    
comfortable with the bill.                                                                                                      
Representative Guttenberg provided  a hypothetical scenario.                                                                    
If his  pension annuity  paid out $1000  per month  until he                                                                    
was 92, but  he lived to be 125, and  he bought the lifetime                                                                    
guarantee which paid him $750  per month, he wondered if the                                                                    
state would  take the other  $250 to purchase  insurance. In                                                                    
other  words, he  would be  losing money  by receiving  less                                                                    
money per month, but in doing  so the state was covering the                                                                    
Ms.  Lea  answered  that  she  would  hesitate  to  claim  a                                                                    
specific  number because  different  products had  different                                                                    
ways of funding a benefit.  The division had eight different                                                                    
products presented  to them. The Treasury  Division was also                                                                    
developing  a  few  custom  products.   Usually,  it  was  a                                                                    
combination of  the insurance premium  paid by  the employee                                                                    
while employed  that guaranteed the payment.  Some companies                                                                    
would also have a reduction to  the paid benefit. Much of it                                                                    
depended on how long an individual had been in the program.                                                                     
Representative Guttenberg  thought the  payout money  had to                                                                    
come from  some place. He  suggested it would come  from the                                                                    
employee's benefit. He wondered if  he was accurate. Ms. Lea                                                                    
responded  that he  was absolutely  correct. She  elaborated                                                                    
that the fees  that were paid through  the insurance premium                                                                    
or reductions  taken from the benefit  amount was particular                                                                    
to the  participant. The participant sustained  the cost and                                                                    
there was no cost to the plan.                                                                                                  
4:25:57 PM                                                                                                                    
Representative Pruitt  suggested that  the deletions  in the                                                                    
bill helped  to simplify the  products. He wondered  why the                                                                    
legislature  chose  to  put  specific  products  in  statute                                                                    
rather than leaving it open.                                                                                                    
Ms.  Lea recalled  that at  the time  there was  no specific                                                                    
reason for  certain products to  be in statute.  In drafting                                                                    
the  bill, the  bill sponsor  used a  combination of  a bill                                                                    
structure   that  came   from   the   National  Council   of                                                                    
Legislators  and   different  provisions  lifted   from  the                                                                    
state's supplemental annuity  plan. The disbursement options                                                                    
that  could   currently  be  seen   in  the  PERS   and  TRS                                                                    
distribution plan  were the ones  that were in the  SBS plan                                                                    
at the time  of the bill's passage. The  difference was that                                                                    
the SBS structure  was codified in statute.  However, it was                                                                    
operated by a plan document.  The division had an easier way                                                                    
to make changes for SBS  or the Alaska Deferred Compensation                                                                    
plan. In order  to add any new options or  provisions to the                                                                    
plan  they  went  through  the   ARM  Board  process  and  a                                                                    
regulation process. The legislature  was notified every time                                                                    
regulations  were promulgated.  The public  was invited  and                                                                    
those  groups that  represented the  public were  invited to                                                                    
the  ARM  Board  meetings.  She  emphasized  that  when  the                                                                    
division made a change to  SBS and deferred compensation the                                                                    
process was much faster. Unfortunately  for the PERS and TRS                                                                    
DCR  plans,  the  disbursement  information  was  placed  in                                                                    
statute requiring a  bill to make changes.  The division was                                                                    
not nimble.                                                                                                                     
4:28:32 PM                                                                                                                    
Co-Chair  Seaton added  that  he had  been  involved in  the                                                                    
process  of changing  from a  defined benefit  to a  defined                                                                    
contribution  system. There  were  several details  everyone                                                                    
wanted to lock  down. The newer products  were not available                                                                    
at the  time. The disbursement  options were ones  the state                                                                    
was  already   using  and  were  incorporated   in  statute.                                                                    
Everyone knew  there was  a full  plan and  how it  would be                                                                    
used.   He  favored   making  the   plan  work   better  for                                                                    
Co-Chair  Foster  suggested that  for  those  who wanted  to                                                                    
offer amendments, they  should submit them to  his office by                                                                    
5:00 PM  on Wednesday,  April 11, 2018.  He would  bring the                                                                    
bill up at the afternoon meeting on the following day.                                                                          
HB  306  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair Foster reviewed the agenda for the following day.                                                                      
4:30:32 PM                                                                                                                    
AT EASE                                                                                                                         
4:31:23 PM                                                                                                                    
Representative Wilson asked if there were documents                                                                             
available for tomorrow's meeting at 5:00 P.M. Co-Chair                                                                          
Foster responded in the affirmative.                                                                                            
4:31:56 PM                                                                                                                    
The meeting was adjourned at 4:31 p.m.                                                                                          

Document Name Date/Time Subjects
HB 233 Northrim AK Education Tax Credits Legislation Letter.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
SB 165 Additional Documents CMS Letter Approving Alaska's State Innovation Waiver 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
SB165 Additional Documents ACHI Fund 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
SB165 Sectional Analysis ver A 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
SB165 Sponsor Statement 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
SB165 Supporting Document - Alaska Commission on Aging 4.3.18.pdf HFIN 4/9/2018 1:30:00 PM
SB 165
01.23.18 Speaker Edgmon Transmittal Letter PERS & TRS.PDF HFIN 4/9/2018 1:30:00 PM
HB 306
HB 306 Sectional Analysis.pdf HFIN 4/9/2018 1:30:00 PM
HB 306
HB 399 Additional Documents - Federal Codes, 26 USC Sections 21 to 54AA.PDF HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents - Indirect Expenditure Report Federal Credits.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents - Indirect Expenditure Report Stranded Gas.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents - Indirect Expenditure Report Foreign Royalty.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents - Indirect Expenditure Report Reduced Rate Capital Gains.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents CIT Sector Report FY 2017 3.26.18.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Additional Documents DOR Letter 3.26.18.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Sponsor Statement 3.26.18.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 Sectional Sectional Analysis ver O 3.26.18.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 233 - Amendment #2.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
HB 233 - Amendment #1.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
HB 129 - Amendment #3.pdf HFIN 4/9/2018 1:30:00 PM
HB 129
HB 399 - AOGA Comments - 4.9.2018.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 399 RDC letter opposing HB 399.pdf HFIN 4/9/2018 1:30:00 PM
HB 399
HB 233 2018 03 29 UAF CFOS ETC HB 233.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
HB233 SB116 PWSSC support.pdf HFIN 4/9/2018 1:30:00 PM
HB 233
SB 116
HB 233 Support Letter Sitnasuak 2018 (005).pdf HFIN 4/9/2018 1:30:00 PM
HB 233
HB 233 Support.pdf HFIN 4/9/2018 1:30:00 PM
HB 233