Legislature(1995 - 1996)
02/20/1996 01:36 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 20, 1996
1:36 P.M.
TAPE HFC 96-44, Side 1, #000 - end.
TAPE HFC 96-44, Side 2, #000 - end.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:36 p.m.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Kohring
ALSO PRESENT
Representative Alan Austerman; Neil Slotnick, Assistant
Attorney General, Department of Law; Bob Bartholomew,
Assistant Director, Income and Excise Tax Division,
Department of Revenue.
SUMMARY
HB 397 An Act relating to the seafood marketing
assessment; and providing for an effective date.
CSHB 397 (FIN) was reported out of Committee with
"no recommendation" and with two fiscal impact
notes; one by the Department of Revenue; and the
Department of Commerce and Economic Development,
dated 2/2/96.
HB 428 An Act giving notice of and approving a
lease-purchase agreement for construction and
operation of a correctional facility in the Third
Judicial District, and setting conditions and
limitations on the facility's construction and
operation.
HB 428 was assigned to a subcommittee consisting
of Representative Mulder as Chair and
Representatives Kelly and Navarre.
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HB 437 An Act establishing the Judicial Officers
Compensation Commission; relating to the
compensation of supreme court justices, judges of
the court of appeals, judges of the superior
court, and district court judges; and providing
for an effective date.
HB 437 was rescheduled to another time.
Representative Martin provided members with work draft #9-
LS1723\A, dated 2/19/96 (Attachment 1). He requested that
the legislation be introduced by the House Finance
Committee. He noted that the legislation was requested by
the Permanent Fund Board. He observed that the market has
changed over the past 20 years. He explained that the
legislation would allow the Board to maximize the corpus of
the Permanent Fund. He clarified that the Board of Trustees
crafted the legislation. There being NO OBJECTION, #9-
LS1723\A, dated 2/19/96 will be introduced by the House
Finance Committee (This legislation was introduced as HB
525).
HOUSE BILL NO. 428
"An Act giving notice of and approving a lease-purchase
agreement for construction and operation of a
correctional facility in the Third Judicial District,
and setting conditions and limitations on the
facility's construction and operation."
Co-Chair Hanley noted that HB 428 would be assigned to a
subcommittee.
Representative Mulder observed that the Department of
Corrections' budget has grown by over 600 percent. He
stressed that the intent of HB 428 is to come to grips with
the spiraling cost of corrections. He noted that HB 428 was
influenced by hearings held during the interim. He
explained that the legislation allows, but does not mandate,
the Department of Corrections to contract with a private
contractor to construct and operate up to a 1,000 bed
facility. The total cost would be up to $100.0 million
dollars. He observed that private contractors projected
that a 1,000 bed facility could be built for $60.0 to $75.0
million dollars. He maintained that savings derived from
the private sector stem from the fact that the private
sector does not have to contend with all the rules and
inefficiencies of the public system.
Representative Mulder addressed misconceptions. He
clarified that the legislation does not require the
construction of 1,000 beds. The legislation allows the
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commissioner to authorize construction of up to 1,000 beds.
He noted that $100.0 million dollars is the upward limit
that can be spent. He added that the safety record of
privately operated facilities is roughly comparable to state
operated facilities. He asserted that the new prison will
relieve overcrowding. He observed that the State is over
capacity by 100 -250 prisoners per day. He noted that the
State is being fined $300 hundred dollars for each
institution each day that the facility is over capacity. He
maintained that the legislation will allow the new prison to
take pretrial prisoners.
Representative Mulder acknowledged that the new facility
will have associated operating costs. He observed that the
State currently spends $6.0 million dollars in the state of
Arizona to house Alaskan prisoners. He stressed that the
bill will not take jobs away from Alaskans. The bill calls
for a project labor agreement for the construction of the
facility that will maximize Alaskan hire and employment. He
emphasized that Alaskan Native corporations and Alaskan
private businesses have expressed interest in the
legislation. He maintained that HB 428 represents new
economic opportunities for Alaskan businesses. He observed
that corrections is a growth industry. He pointed out that
as long as the State continues to pass get-tough-on-crime
legislation the State will be incarcerating more
individuals. He noted that the State is projected to need
962 new beds by the year 2002.
Representative Mulder noted that the facility will be built
some where in the Third Judicial District. He stated that
the facility will not be built at the location of the Alaska
Village in Anchorage.
Representative Mulder summarized that HB 428 represents a
win/win situation. He maintained that HB 428 relieves
overcrowding, brings prisoners back to Alaska, saves the
State money, and provides jobs for Alaskans.
Representative Brown stated that she shares many of the
goals expressed by the Subcommittee Chairman. In response
to a question by Representative Brown, Representative Mulder
emphasized that he has no personal tie to the legislation.
He noted that several Native corporations and private
businesses have expressed interest in the legislation. He
could not provide details of plans by the private sector.
He stated that no particular site has been identified. He
observed concerns by the Mayor of Anchorage. He pointed out
that arrests in Anchorage have more than doubled. He
emphasized that the Commissioner has latitude in selecting a
site.
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Representative Brown expressed concern with the overall cost
of the legislation. She questioned if operating costs and
land purchase are included in the total construction and
related costs as contained on page 3, line 9. She
emphasized the need to compare "apples to apples."
Representative Mulder noted that the Subcommittee has not
received a plan by the Administration.
Representative Mulder noted that the Commissioner of the
Department of Corrections recommends the deletion of the
requirement that contract facilities abide by court orders.
The restriction on housing male maximum security prisoners
will be removed at the request of the Commissioner. The
Department felt that this provision was confusing. The
removal of this provision will allow the Commissioner the
full range of options for housing inmates at the facility.
In addition, the facility accreditation provision will be
removed at the request of the Commissioner. He noted that
design cost will be included in the cost of construction.
Operating costs will not be included.
Representative Mulder reiterated his belief that the private
sector can built the facility cheaper than the State. He
observed that the Department of Corrections estimated that a
400 bed facility would cost $104.0 million dollars. Private
contractors have indicated that the facility could be build
for approximately $65.0 million dollars. He observed that
operating costs will be part of the private bid process. If
the Department feels it can operate the facility at a lower
cost the Commissioner does not need to accept the bid. He
observed that it would be prudent to construct the RFP to
state that if none of the bids meet the requirements in
terms of cost savings no bid will be accepted.
In response to a question by Representative Brown,
Representative Mulder reiterated that maximum security male
prisoners are being excluded to allow the Commissioner more
flexibility. He noted that Spring Creek is the State's
primary maximum prison facility.
Representative Navarre pointed out that a prohibition on
housing maximum security prisoners could restrict the
housing of pretrial prisoners. Removal of the language
would allow the housing of pretrial prisoners. He asked if
the facility would displace current facility beds.
Representative Mulder stated that the new facility is not
projected to displace any current state employees. He
observed that the Mayor of Anchorage is considering the
closure of the 6th Avenue facility. He estimated that
employees of the 6th Avenue facility could be absorbed
within the current system.
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Representative Brown asked the estimated operating costs.
She observed that the annual operating cost of the Spring
Creek facility is $14.0 million dollars. She asked how the
operating costs would be provided for in the State's budget.
Representative Mulder emphasized that the State is being
fined for being overcrowded. Representative Brown pointed
out that the fine is returning to the General Fund.
Representative Mulder observed that options for adding beds
include, additional prisoners being sent to Arizona,
construction of additional beds in existing state
facilities, or the construction of a new facility. All
three options have associated costs. He acknowledged that
sending prisoners out-of-state represents the lowest cost.
He emphasized that it is good public policy to employ
Alaskans.
Representative Brown asked the estimated per day operating
cost per prisoner. Representative Mulder noted that private
contractors have given rough estimates of $55 to $69 dollars
a day. He estimated that bids would be less than the
current state average. He noted that public employee groups
can form cooperatives to bid on the contract.
Representative Mulder noted that the legislation allows a
lease purchase option. The facility could also remain in
the ownership of the private entity. He stressed that a
private entity would pay property tax. Representative
Navarre estimated that the private owner would roll property
costs into the contract bid.
Co-Chair Hanley assigned HB 428 to a subcommittee consisting
of Representative Mulder as Chair and Representatives Kelly
and Navarre.
Co-Chair Hanley noted that the legislation does not require
that a facility be built by a private enterprise. The
Commissioner could request capital funds from the
Legislature.
HOUSE BILL NO. 397
"An Act relating to the seafood marketing assessment;
and providing for an effective date."
Co-Chair Hanley provided members with a spreadsheet
detailing Education Credits claimed in FY 94 and FY 95
prepared by the Department of Revenue on HB 397 (Attachment
2). He noted that an amendment was provided by
Representative Brown to include the Winn Brindle Scholarship
in HB 397 (Attachment 3).
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NEIL SLOTNICK, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW
explained Amendment 1, Attachment 3. He observed that
Amendment 1 corrects an oversight. The amendment would
incorporate the Winn Brindle Scholarship into the Landing
Tax credit.
Co-Chair Hanley noted that Amendment 1 would make the
credits equal. Mr. Slotnick noted that the two taxes have a
compensatory tax doctrine. The legislation would eliminate
arguments by tax payers of discrimination.
Co-Chair Hanley asked when the Winn Brindle Scholarship was
added.
BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT
DIVISION, DEPARTMENT OF REVENUE noted that the Winn Brindle
Scholarship was added to the Fisheries Business Tax in 198.
The credit against the Fisheries Business Tax for the Winn
Brindle Scholarship was $446.0 thousand dollars in FY 95.
He noted that $39 million dollars was collected for the
Fisheries Business Tax. The tax credit is limited to 5
percent of liability.
Co-Chair Hanley summarized that the revenue loss would be
approximately $51.0 thousand dollars for the Education
Credit and $80.0 thousand dollars for the Scholarship Fund.
Representative Navarre asked if the calculation considers
what percentage is available for deduction that the tax
credit has not previously been used against. Mr.
Bartholomew explained that each individual tax payer under
the education credit is going to have a cap of $150.0
thousand dollars that can be taken against any of six taxes.
The Division looked at which tax payers had contributed to
the Education Credit under the corporate tax and the
Fisheries Business Tax. He observed that there is not a lot
of duplication. A new series of taxpayers will be eligible
by adding the Education Credit to the Fish Landing Tax.
Those that have already taken the maximum credit would not
be affected. The first $100.0 thousand dollars is subject
to the 50/50 split. The majority of tax payers who work in
off shore fisheries are not based in Alaska.
(Tape Change, HFC 96-44, Side 2)
In response to a question by Representative Navarre, Mr.
Bartholomew explained that businesses that are organized as
taxable corporations would be subject to the corporate
income tax. Companies not based in Alaska pay corporate
income tax based on an apportionment. A formula based on
the amount of wages, sales and property in Alaska is used to
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allocate income and pay taxes. There are 4,000 corporations
that are registered as S Corporations for tax purposes and
are not subject to state or federal corporate income tax.
Mr. Bartholomew explained that $7.0 million was collected in
FY 95 for the Landing Tax. Seven thousand of this amount
went to the Alaska Seafood Marketing Institute (ASMI). He
observed that HB 397 would align the Fisheries Business Tax
to the Fisheries Resource Landing Tax. Co-Chair Hanley
summarized that after the reduction for the Alaska Seafood
Marketing Institute the 50/50 split would be $3.15 million
dollars each. All the credits come out of the $3.15 million
dollars that goes to the State. If there is a million
dollars worth of credits the State would receive $2.15
million dollars.
Representative Brown noted that the State spends between
$62.0 and $100.0 thousand dollars a year to administer the
program. She suggested that the cost be spread to the
municipalities which are receiving part of the benefit. She
asked what the State would receive in offsetting revenue if
local governments pick up their share of the administrative
costs. Mr. Bartholomew replied that wording could be added
to clarify that the State and local governments would share
the amount less the allocated costs of administrating the
tax program. The State would receive back the local
government share of $100.0 thousand dollars. He noted that
more than 90 percent of the shared taxes relate to fishery
programs.
Representative Brown stated that she would prefer to
eliminate the credit. Co-Chair Hanley summarized that
Representative Brown would like to not adopt the amendment
and eliminate the education credit. Representative Brown
added that the credits would have to be eliminated for the
Fisheries Resource Landing Tax and the Fisheries Business
Tax. Co-Chair Hanley noted that there would be a $596.6
thousand dollar decrease to the institutions that are
receiving the credits and a $596.6 thousand dollar increase
to the State. Mr. Slotnick noted that the Education Credit
and/or the Winn Brindle Scholarship Credit could be retained
as long as they are in or out of both the Fisheries Resource
Landing Tax and the Fisheries Business Tax.
Representative Martin asked if the share amount given to
ASMI could be used to provide their state match.
DWAYNE PEEPLES, ADMINISTRATIVE OFFICER, ALASKA SEAFOOD
MARKETING INSTITUTE testified that ASMI receives three
sources of revenues, assessments against the processors,
assessments against fishermen and a federal grant matched by
state general funds. He observed that currently the state
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match is currently made with general fund dollars. He
stated that these funds are program receipts and could be
used for the federal match. He added that the ASMI Board of
Directors is presenting a plan to phase out the state match
over the next few years. He requested that ASMI's state
match be held harmless in FY 96. He noted that the price of
salmon is currently low.
Representative Brown asked if the program would be revenue
neutral if both the credits and administrative costs were
taken off the top.
Representative Grussendorf spoke in support of maintaining
the Educational Tax Credit. Co-Chair Hanley observed that
when the credit was allowed against the Fisheries Resource
Landing Tax it was not understood that the Fisheries
Business Tax needed to be treated equally. He stated that
the credits could be continued in both programs with the
administrative costs taken from both portions.
Representative Navarre suggested that unless the State is
able to choose which taxes the credit is applied against a
shifting would occur from what the credit is counted against
toward taxes that are not shared with municipalities. This
would minimize the impact on municipalities.
Representative Navarre suggested the Committee address all
taxes collected in which the administrative costs are not
charged. He observed that municipalities receive a
significant benefit from taxes collected by the State.
Co-Chair Hanley clarified that the corporate net income tax
is a pure state revenue which is not shared. Representative
Navarre observed that companies can take the credit against
any tax they want. He suggested that municipalities would
encourage businesses to take the tax against the corporate
tax.
Representative Navarre suggested that the House Finance
Committee draft a bill to address the whole issue. He noted
that HB 397 corrects an immediate legal problem. He spoke
in support of passage of HB 397.
Representative Austerman urged the Committee to pass HB 397
from Committee. He recommended that all taxes collected by
the State for municipalities be addressed in separate
legislation at another time.
Representative Navarre MOVED to adopt Amendment 1. There
being NO OBJECTION, it was so ordered.
Representative Brown pointed out that a new fiscal note is
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needed to show the negative impact on the General Fund. Co-
Chair Hanley noted that a Department of Revenue fiscal note
should show a negative $130.0 thousand dollar impact on the
General Fund.
Representative Navarre estimated that $130.0 thousand
dollars is overstated. Representative Brown observed that
use of the tax credit has increased. She expressed concern
that the tax credit is unconstitutional because of the
provision against public support for private education. She
asked that the House Finance Committee consider legislation
to require the administrative cost of all shared taxes be
taken from both the state and local share.
Representative Mulder asked for a legal opinion regarding
the constitutionality of the Educational Tax Credit.
Members discussed which taxes should be identified in a
proposed House Finance Committee bill. Representative
Navarre suggested that all shared taxes should have the
administrative cost taken off the top before they are
shared. He suggested that the amount could be graduated
over a period of years.
Mr. Bartholomew clarified that $130.0 thousand dollars is
what it costs to administrate the sharing of the collected
tax. Additional costs are associated with collection and
processing. The total cost of administrating the tax
programs would be more than $130.0 thousand dollars.
Representative Navarre pointed out that some taxes collected
by the state pass 100 percent back to municipalities. He
added that the majority of the increase in tax credits were
in Corporate Net Income and Insurance Premium Tax. He
stressed that the impact of HB 397 would be negligible.
Representative Navarre MOVED to report CSSSHB 397 (FIN) out
of Committee with individual recommendations and with the
accompanying fiscal notes.
Co-Chair Hanley directed Mr. Bartholomew to provide the
Committee with draft legislation which would take the
administrative cost of share programs off the top of the
collected tax before sharing. Representative Brown
recommended that if the amount is significant the Committee
consider a phase-in approach. Mr. Bartholomew observed that
the cost of collection of the Fisheries Business Tax is
several hundred thousand dollars. He stated that the
Division would prepare a spread sheet listing options for
the Committee.
Mr. Bartholomew noted that the Community Development Quota
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(CDQ) is the only other credit allowed. Co-Chair Hanley
asked that a spreadsheet be developed to show CDQ's. He
also asked that the spreadsheet identify which taxes are
shared.
ADJOURNMENT
The meeting adjourned at 2:54 p.m.
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