Legislature(2013 - 2014)HOUSE FINANCE 519
03/28/2013 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB23 | |
| HB4 | |
| HB112 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 23 | TELECONFERENCED | |
| += | HB 112 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 4 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
March 28, 2013
1:53 p.m.
1:53:08 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:53 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Les Gara
Representative Lindsey Holmes
Representative Scott Kawasaki, Alternate
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
Representative David Guttenberg
Representative Alan Austerman, Co-Chair
Representative Bryce Edgmon
ALSO PRESENT
Rex Shattuck, Staff, Representative Mark Neuman; Michael
Foster, Chair, Board of Directors, Knik Arm Bridge and Toll
Authority; Paul Grossi, Lobbyist, Iron Workers of Alaska;
Tom Brice, Alaska District Council of Laborers, Anchorage;
Lois Epstein, Self, Anchorage; Joe Michel, Staff,
Representative Bill Stoltze; Representative Mike Hawker,
Sponsor; Rena Delbridge, Staff, Representative Mike Hawker;
Patricia Hull, Alaska Film Group, Juneau; Randy Daly, Film
Industry Participant, Kenai; D.K. Johnston, Alaska
Filmmakers, Anchorage; Ron Holmstrom, Screen Actors Guild
and American Federation of Television and Radio Artists,
Anchorage; Representative Shelley Hughes.
PRESENT VIA TELECONFERENCE
Larry DeVilbiss, Mayor, Mat-Su Borough; Dan Sullivan,
Mayor, City of Anchorage; Verne Rupright, Mayor, City of
Wasilla; Susanne DiPietro, Self, Anchorage; Aves Thompson,
Executive Director, Alaska Trucking Association, Anchorage;
Bob French, Self, Anchorage; James Kenworthy, Self,
Anchorage; Darcy Solomon, Member, Mat-Su Borough Assembly;
Mike Delvin, CEO, Evergreen Films, Anchorage; Cody Lawhorn,
SprocketHeads LLC, Anchorage; Deborah Schildt, President,
The Alaska Film Group, Anchorage; Diana Fejes, Tax
Consultant, Anchorage; Pius Savage, OMAYACON Pictures,
Anchorage; Gary Zimmerman, General Manager, Alaska Rental
Car Inc., Anchorage; Merna Jenson for Kelly Bender, Lazy
Otter Charters, Whittier/Anchorage; Robin Kornfield, Vice
President, Corporations and Marketing, NANA Regional
Corporation, Anchorage; Steve Rychetnik, Cinematographer,
SprocketHeads LLC, Anchorage; Maya Salganek, Director,
University of Alaska Fairbanks Film Program, Fairbanks;
Charlie Hewitt, Mirror Studios, Anchorage.
SUMMARY
HB 4 IN-STATE GASLINE DEVELOPMENT CORP
HB 4 was HEARD and HELD in committee for further
consideration.
HB 23 KNIK ARM BRIDGE AND TOLL AUTHORITY
HB 23 was HEARD and HELD in committee for further
consideration.
HB 112 REPEAL FILM PRODUCTION TAX CREDIT
HB 112 was HEARD and HELD in committee for
further consideration.
HOUSE BILL NO. 23
"An Act relating to bonds of the Knik Arm Bridge and
Toll Authority; relating to reserve funds of the
authority; relating to taxes and assessments on a
person that is a party to an agreement with the
authority; and establishing the Knik Arm Crossing
fund."
1:54:28 PM
REPRESENTATIVE MARK NEUMAN, SPONSOR, communicated that HB
23 primarily worked on the Knik Arm Bridge and Toll
Authority (KABATA) and the effort to build a bridge across
Cook Inlet. The bill would allow a public-private
partnership to move forward.
Co-Chair Stoltze clarified that the bridge would cross Knik
Arm.
Vice-Chair Neuman confirmed that the bridge would cross
Knik Arm. He detailed that the bill would allow KABATA to
form a partnership with a private investor. The legislation
would also increase the authority of pass-through federal
bonds from $500 million to $600 million. He relayed that
his staff would provide a sectional analysis.
Co-Chair Stoltze noted that an extensive committee
conversation on HB 23 would occur at a subsequent meeting.
Vice-Chair Neuman discussed that the goal was to reduce
costs in safety corridors. He spoke to the danger of the
current highway systems and to the importance of reducing
traffic. He shared that the Mat-Su Borough had provided
information on future expansions into Point MacKenzie; the
information showed a prospective town-site plan in
anticipation of the bridge. The area was located north of
the 14 square mile industrial port where a potential
pipeline could run. He expounded that a rail spur would be
located in the area and modules for Prudhoe Bay were built
there as well. He pointed to new information from the
Department of Revenue (DOR) related to moral obligations.
He looked at the last page of a DOR letter and observed
that the commissioner had tremendous confidence in KABATA's
revenue projections and financial analysis. He discussed
earlier testimony by Representative Mike Hawker related to
the benefits of moving a project forward with private
sector help. He stated that the public-private partnership
was a new model being used across the United States to
provide increased funds for transportation projects; users
also paid for the projects.
1:58:57 PM
Vice-Chair Neuman emphasized the importance of the
legislation to his community and further west into the Mat-
Su region. He relayed that one of the goals was to turn
state resources into jobs for Alaskans.
Co-Chair Stoltze noted that a slideshow would not be
presented during the meeting.
REX SHATTUCK, STAFF, REPRESENTATIVE MARK NEUMAN, provided a
sectional analysis:
Section 1 repeals and reenacts AS 19.75.211(a).
Authorizes the authority to borrow money and issue
refund bonds on which the principal and interest are
paid out of and secured by (1) the gross revenue
derived from fees, rents, tolls, rates, charges, and
other revenue; (2) revenue received by a private
person or enterprise that has entered into a public-
private partnership agreement with the authority; or
(3) any revenue or money appropriated to the authority
for that purpose, except a state tax or license.
Section 2 raises the limit on the amount of aggregated
bonds the authority may issue to $600,000,000.
Section 3 adds a new subsection to AS 19.75.211 that
requires the authority to submit to the state bond
committee a description of the bond issue before
issuing bonds. The bonds may not be issued unless the
state bond committee finds that the revenue can
reasonably be expected to be adequate for payment of
principle and interest on the bonds.
Section 4 amends AS 19.75.221(h) to specify what must
be deposited in the reserve fund, which includes
revenue derived by the authority from fees, rents,
tolls, rates, charges, or other revenue appropriated
for that purpose; and other revenue available to the
authority.
Section 5 adds new subsections to AS 19.75.221.
Subsection (i) specifies the specific purposes for
which the money in the reserve fund can be used.
Subsection (j) allows the authority to transfer income
or interest earned by the reserve fund to other funds
or accounts of the authority as long as the transfer
does not reduce the reserve fund to less than the
reserve fund requirement. Subsection (k) specifies how
to value securities the fund is invested in to compute
the amount of the reserve fund. Subsection (1)
requires the chair of the board to notify the governor
annually of the amount required to restore the reserve
fund to the reserve fund requirement. Subsection (m)
defines "reserve fund requirement."
Section 6 amends AS 19.75.261 to exempt any real and
personal property, assets, income, or other interests
held by a private person or enterprise under a public-
private partnership from all ad valorem taxes on real
or personal property and special tax assessments of
the state or a political subdivision of the state.
Section 7 adds a new section, AS 19.75.345, that
establishes the Knik Arm Crossing fund.
Representative Gara asked whether there was a cap on the
reserve fund.
2:03:38 PM
Vice-Chair Neuman replied that the fund would be capped at
$150 million. He detailed that the governor's proposed
transportation plan included $10 million for the current
year and $35 million for the next four years.
Representative Gara asked whether the fund could go beyond
$150 million. He asked for the location in the bill.
Vice-Chair Neuman replied that it was not expected to reach
$150 million. He did not know whether there was a cap. He
noted that the KABATA board chair was available for
technical questions.
Co-Chair Stoltze noted there was not an effort to exceed
the $10 million appropriation [for the current year].
Vice-Chair Neuman agreed. He added that if the bill moved
forward, but the governor did not sign the contract, the
money would be returned to the general fund.
Representative Gara surmised that there was no cap [on the
reserve fund], but that people would be careful about the
amount. He pointed to past testimony by some stating that
the project could be short by $1.5 billion due to a lack in
toll revenue; he understood that KABATA disagreed with the
statement. He asked whether the state would be responsible
for making up the difference if tolls were not adequate to
cover the cost of bridge operation and construction in the
long-term.
MICHAEL FOSTER, CHAIR, BOARD OF DIRECTORS, KNIK ARM BRIDGE
AND TOLL AUTHORITY, replied in the affirmative. He added
that the funding would be subject to appropriation.
Representative Gara noted that the bill did not contain
language specifying that the state could owe the money. He
wondered if the moral obligation was related to how the
bonds worked.
Mr. Foster answered that the public-private partnership
financial plan model specified that KABATA was responsible
for making the availability payments. He explained that the
reserve fund would cover payments to the private developer
in the initial years when a shortfall in revenue would
occur. He expounded that the financial market was reliant
on the "subject to appropriation" language, specifying that
the state would secure any payments that KABATA could not
make.
2:06:53 PM
LARRY DEVILBISS, MAYOR, MAT-SU BOROUGH (via
teleconference), testified in strong support of the
legislation. He stated that every mayor in the Mat-Su
Borough supported the project. He discussed that the
community was in the process of laying out two town-sites
that would be located at the northern end of the project;
the location included new high school and middle school
projects. He stated that without the infrastructure from
KABATA the community was paying a price in blood. He
stressed that current transportation infrastructure needed
to be taken in a different direction because the fastest
growing areas were on the west side of the region. He was
shocked to see that the fatal injury rate per 100,000 miles
was 22.48 on the Knik Goose Bay Road compared to 17.3 on
the Parks Highway, 13.1 on the Turnagain Arm Highway, and
13.2 on the Seward Highway. He emphasized that the
infrastructure was needed for residents' safety. He
reminded the committee that the importance of the issue
went much further than the borough; the Alaska Municipal
League Conference of Mayors had voted in support of the
project the prior year.
Co-Chair Stoltze commented on the tragic [highway]
statistics from the Mat-Su Valley.
2:11:46 PM
DAN SULLIVAN, MAYOR, CITY OF ANCHORAGE (via
teleconference), spoke in support of the legislation. He
stated that the project would create over 1,000 jobs during
its construction phase. He discussed that people were
stranded when Glenn Highway closures occurred; the bridge
would provide an important alternate route. He communicated
that the Port of Anchorage was the primary state port,
which generated significant truck traffic through the
downtown area; the bridge would divert the traffic away
from downtown. He believed the reduction in truck traffic
would improve the quality of life in the city. He stated
that over 98 percent of Anchorage's developable land had
been developed; he believed the bridge would provide access
to new undeveloped land for commercial and residential use
in Mat-Su. He opined that a bridge with access to
developable land was a great economic development concept
in light of population growth in Mat-Su. He communicated
that with population growth in Anchorage and Mat-Su, the
Glenn and Parks Highways would be expanded; the projects
would cost billions of dollars. He believed accommodating
an alternate route that would provide toll revenue and
would not require highway expansions was a "win-win."
Representative Gara referred to Department of
Transportation and Public Facilities testimony that the
highway expansions would take place with or without the
bridge. Mr. Sullivan replied that a near-term expansion in
conjunction with the bridge may preclude another expansion
later on.
2:15:35 PM
VERNE RUPRIGHT, MAYOR, CITY OF WASILLA (via
teleconference), vocalized strong support for the
legislation. He spoke to population growth in the Mat-Su
region. He stated that the project would provide a second
route to and from Anchorage and would provide a shorter
trucking route from the Anchorage port to Fairbanks. He
mentioned the potential for heavier cargo and freight from
Point MacKenzie. He remarked that if the project had been
done over 30 years earlier it would have been significantly
less expensive. He opined that population growth in Alaska
would not let up. He believed that the expansion of the
Parks Highway corridor in tandem with the bridge would be
helpful. He stressed that wider and faster multilane
highways were not the answer as discovered in the Lower 48.
He stated that a bridge would save truckers time and would
open a better connectivity at a lower rate. He was unsure
how the financing would all work, but he believed the
project was needed for the state's economic health and
growth. He emphasized that the project would be a strategic
piece of infrastructure on an American national defense
level. The bill would tie Port of Anchorage and Mat-Su into
the Fairbanks area. He shared that the project would have
been stalled for an undetermined period if Wasilla had not
brought actions against the Anchorage Metropolitan Area
Transportation System (AMATS) in 2009.
Co-Chair Stoltze thanked Mr. Rupright for standing his
ground.
2:19:12 PM
SUSANNE DIPIETRO, SELF, ANCHORAGE (via teleconference),
spoke in opposition to the legislation. She suggested that
the bill was not about building the bridge, given that the
legislature had previously passed enabling legislation for
KABATA; the bill related to the financing mechanism for the
project. She believed Sections 4 and 5 of the bill took an
unprecedented and needless approach that would obligate the
state to cover unlimited shortfalls in the project
expenses. She detailed that the bill would create a reserve
fund to be funded by legislative appropriation and KABATA
would use the money to pay its debts and obligations to a
private partner. She referenced language in Section 5(l)
detailing that KABATA would tell the governor and
legislature the amount needed in the reserve fund on an
annual basis to cover debts. She noted that the language
may seem innocuous; however, it provided a pledge to
ratings agencies that the legislature would be responsible
for covering any debt due to insufficient revenues. The
markets would understand that the debts would be backed by
the state.
Ms. Dipietro acknowledged that the legislation did not
require the legislature to appropriate money annually;
however, a failure by the state to honor the moral
obligation would be treated as a default. Subsequently,
markets would downgrade the state's credit rating. She
cited a DOR letter to former Senator Joe Thomas warning
about the hazard (dated March 30, 2011, copy on file). She
believed passing the bill would set the state up for a
"Hobson's choice"; the legislature could refuse to
appropriate funds, which would result in damage to the
state's credit rating or it could continue to spend money
that the state may not be able to afford. She emphasized
that using a moral obligation reserve fund to cover
operating expenses had never been allowed in Alaska and
should not be allowed for the [KABATA] project. She
expounded that the project would greatly expand the
existing financial risk the state would be exposed to by
the project. She stressed that passing the bill could
create financial exposure that could cause rating agencies
to negatively respond when reviewing the state's credit
rating for future bonds. She pointed to existing statute
that currently allowed KABATA to create a reserve fund
without committing the legislature to continuous
appropriations for the life of the project. She urged the
committee to delete Sections 4, 5, and 7 of the
legislation.
2:23:39 PM
Representative Kawasaki noted that the letter mentioned by
Ms. DiPietro did not appear to be included in members'
packets. Ms. DiPietro believed the information had been
provided to committee members, but could follow up with the
letter.
Co-Chair Stoltze noted that the [DOR] letter would be
provided to the committee.
2:24:19 PM
AVES THOMPSON, EXECUTIVE DIRECTOR, ALASKA TRUCKING
ASSOCIATION, ANCHORAGE (via teleconference), testified in
support of the legislation on behalf of the association.
The organization believed the bridge would provide a needed
link to the Mat-Su area, that it would establish an
efficient freight corridor to Interior and northern Alaska,
and would offer a new route to the Port of Anchorage, which
would alleviate truck traffic in downtown Anchorage.
Additionally, the association hoped that the project would
provide congestion relief on the Glenn and Parks Highways.
Co-Chair Stoltze asked Mr. Thompson if he liked both SB 23
and HB 23. Mr. Thompson replied in the affirmative.
2:26:26 PM
PAUL GROSSI, LOBBYIST, IRON WORKERS OF ALASKA, spoke in
support of the legislation. The organization believed the
bill would provide jobs for Alaskans and would establish a
corridor towards development that would increase future
jobs. Additionally, the organization believed the project
was vital for [highway] safety. He told an anecdotal story
related to the highway; the organization's manager had been
stuck on the highway as a result of a closure due to a
police chase for over 8 hours. He urged the committee's
support for the bill.
Co-Chair Stoltze recalled the specific highway closure.
2:29:00 PM
TOM BRICE, ALASKA DISTRICT COUNCIL OF LABORERS, ANCHORAGE,
testified in support of the legislation on behalf of the
council. He cited safety concerns, the need for additional
access, and the opportunity for further economic
development as reasons for the council's support.
Representative Gara asked for verification that safety
concerns on Knik Goose Bay Road and other areas could be
alleviated by widening roads. Mr. Brice replied that
laborers generally appreciated expanding access throughout
Alaska including Lynn Canal Highway and Knik Arm.
Co-Chair Stoltze remarked that a right-of-way acquisition
related to the Palmer Wasilla Highway corridor had been
estimated to cost over $150 million.
2:31:31 PM
BOB FRENCH, SELF, ANCHORAGE (via teleconference), spoke in
opposition to the legislation. He stated that it was
important to keep in mind that the bill related to KABATA's
current financial plan that would require a moral
obligation of the state. He stated that the lack of a low
interest federal TIFIA [Transportation Infrastructure
Finance and Innovation Act] loan would result in higher
financing costs. He stated that the key missing piece of
information was how the factors and the accuracy of
KABATA's toll revenue predictions would result in some
unknown cost to the state. He remarked that a legislative
audit intended to provide guidance on the issue had not
been released to the public. He referred to a DOR letter
addressed to Senator Joe Thomas stating that the
authorization used in the legislation should be further
defined to eliminate the ability of a private party to
securitize the monetary obligations of KABATA. He noted
that DOR had come out with a Request for Proposal (RFP) in
January that was supposed to:
...review, verify, and confirm recommended financing
structures for the state's participation in the Knik
Arm crossing. The selected consultant will be
providing assistance to the state in comparative
financial analysis of certain aspects of the project's
financing proposals. It will advise on the impact of
the state finances by participating in the project and
advise on the most advantageous terms for the state's
participation.
Mr. French stated that unfortunately there had been a
protest of the bid award, which meant that the finance
committee would not receive the information unless the RFP
was reissued. He recommended waiting to hear the
legislation until KABATA had submitted a current financial
plan and independent, expert reviews were available.
2:34:37 PM
Representative Gara asked why the current financial plan
was different than the prior plan. Mr. French responded
that the current plan relied on $500 million in TIFIA
financing, which represented roughly half of the project
financing. He continued that when KABATA had been denied
the federal funding the prior year, the authority had been
told that if any federal money was provided that it would
be no more than 33 percent of the project's costs. He
furthered that as a result, at least $200 million in
funding would be missing. He stated that any other
financing option for the $200 million would result in
higher costs. He communicated that KABATA had testified in
prior meetings that the reserve fund could exceed the $150
million by $100 million or more due to the higher financing
costs. He believed the cost could be approximately $2.6
billion more.
2:36:15 PM
LOIS EPSTEIN, SELF, ANCHORAGE, testified in opposition to
the legislation. She stated that the proposed Knik Arm
bridge was not ready for construction and was not a
financially sound investment using the so-called innovative
financing mechanism. She relayed that it was not reasonable
to assume that the bridge would improve safety on
Southcentral roads; there were many ways to improve road
safety and building an additional road was not one of the
strongest solutions. She stated that the bridge's financial
plan showed KABATA receiving a $500 million low-cost
federal loan; however, it had not been approved for the
loan during its five prior attempts. She communicated that
the proposed toll was among the highest in the country;
therefore, many drivers would likely take the free Glenn
Highway alternative. She furthered that KABATA's toll
revenue forecasts were based on its consultant's projection
of Mat-Su population growth, which was far greater than
projections from other sources including DOR and the UAA
Institute of Social and Economic Research.
Ms. Epstein continued that its bridge revenue projections
were inconsistent with all other experts including AMATS.
She noted that KABATA's consultant put most future growth
in the western region of the borough, not in the
Wasilla/Palmer areas where most experts believed the most
growth would occur. She was disappointed that the state's
plan to conduct an independent audit of bridge toll revenue
was recently canceled. She relayed that any needed Glenn
Highway expansion could be toll-funded including levying
tolls only at peak times in order to spread out traffic;
electronic tolling could be used, which would prevent the
need for drivers to slow down.
Ms. Epstein pointed to a project cost of $2.6 billion and
noted there were substantial costs to the state that had
been unaccounted for by KABATA. She urged committee members
to spend time analyzing the project to ascertain how much
the project would cost the state on an annual basis. She
stressed that inaccurate traffic projections had resulted
in an annual subsidy of more than $2 million for the
Whittier tunnel, which was a much smaller toll project;
traffic had peaked in 2007. She emphasized that a subsidy
could reach $4 million per month. She accentuated that the
bridge was not a wise fiscally conservative investment and
that it would harm the state's transportation
infrastructure as a whole by syphoning away money that
would otherwise be spent on maintenance and upgrades to
existing roads and bridges.
2:39:52 PM
JAMES KENWORTHY, SELF, ANCHORAGE (via teleconference),
testified in opposition to the bill. He addressed the
state's liability in the project and pointed to Section 5
of the bill. He relayed that the state would have a moral
obligation and KABATA would annually certify how much
working capital it needed the legislature to appropriate to
the reserve fund; the state's credit rating would be
adversely impacted if the legislature did not appropriate
the money. He expected that the contingent liability would
cut the state's credit rating if the bill passed and a
contract was signed in the fall. He recommended obtaining a
DOR opinion in writing related to the effect of the
provision on the state's credit rating. He suggested
looking to other reserve fund legislation that included
language specifying that it did not include an obligation
of the state. He emphasized that HB 23 included the most
open-ended blank check of all reserve funds considered by
the state.
Mr. Kenworthy addressed the size of the cost related to the
project. He referenced a memorandum he had provided to
committee members (dated March 27, 2013, copy on file) that
documented a minimum cost of $2.6 billion. He stressed that
Wilbur Smith (the traffic consultant used by KABATA) had a
record on all of its national projects of overestimating
toll revenue by 118 percent; two projects in South Carolina
and California had gone bankrupt and others were having
their finances restructured. He believed the $600 million
extra to finance the bridge through a private party made no
sense; KABATA's August 2012 financial sheet showed that the
private partner would put in $72 million in equity and
would take out $737 million in cash flow. He stated that
the difference between the State of Alaska (which could
borrow long at less than 4 percent) and KABATA's estimate
(that they would finance at a 12 percent annual payment)
was $600 million sent outside the state.
Mr. Kenworthy continued that KABATA had 17,000 fewer jobs
than the Mat-Su Borough's current forecast. He relayed that
KABATA's forecasts assumed over 4 people per household,
while the actual number had been between 2.6 and 2.8. He
stated that KABATA's projection of 36,000 bridge trips per
day in 2035 was a result of inflated numbers including
larger families and more people. He noted that KABATA's
number was twice the amount projected by CH2MHill. He
concluded that the tolls would be off by a factor of 2. He
believed the legislature should wait to review the audit;
KABATA had a copy and comments were due on April 4, 2013.
Mr. Kenworthy spoke to how the project's liability compared
to other projects under consideration including a dam, the
pipeline, and other. He cautioned that the credit rating
hit would raise the price of other projects before the
upcoming year. He estimated that deficits were
approximately $55 million per year until 2035 and would
increase to $90 million per year due to substantial balloon
payments included in the availability payment. He stressed
that the deficits were more than the state was providing to
AMATS in Anchorage or to Mat-Su; therefore, the bridge
deficits would be more than the state aid. He wondered how
the issue would be sorted out. He wondered if the cost
would be put on the state debt service for allocation to
pay $3,500 over a 35-year period. He stressed the
importance of obtaining financial plan if the state was
considering financial guarantee. He relayed that the August
2012 plan contained four lanes of revenue and only two
lanes of cost. He believed the Legislative Finance Division
should review the information or the legislature should
wait for the release of a recent audit. He emphasized the
need for a financial plan that did not factor in TIFIA as a
loan source and that only included traffic from four lanes
of revenue when the cost of a four lane bridge was
included. He stated that showing four lanes of traffic on a
two lane bridge equated to an extra $1.9 billion.
Mr. Kenworthy concluded that the plan should be for a 9,200
foot bridge; estimates in 2007 had been conducted for an
8,200 foot bridge. He discussed a settlement with the
Municipality of Anchorage that would add costs to the east
approach road. He relayed that KABATA had not followed its
geotechnical consultant's advice to conduct more drilling
on the east side of the inlet; there was clay in the area
and it was not known how deep the pilings would need to be.
2:46:16 PM
Representative Gara was concerned about the potential state
liability related to toll revenue and the cost of
construction and operation. He wondered if Mr. Kenworthy
had an estimate and asked about his qualifications.
Mr. Kenworthy replied that KABATA's estimate for toll
revenue was $4.2 billion over 35 years. He pointed to his
memo and relayed that the figures had been volatile since
2007; the projection had been as high as $6 billion; it was
$4.8 billion in 2011. He stated that all other estimates
were half of the estimate. The second issue related to the
four lane/two lane financial calculations. He explained
that it was necessary to get the balance sheets to a
minimum bond-cover ratio of approximately 1.3 (i.e. $1.20
to $1.40 of revenue to cover $1.00 of cost); KABATA's
traffic studies showed over 22,000 trips per day. He stated
the number was much higher than capacity on a restricted
highway by 2026; there were four lanes of traffic with only
two lanes paid for through 2051.
Representative Gara asked for an estimate of the state's
moral obligation. Mr. Kenworthy estimated the figure to be
$2.6 billion, which he had provided in a paper titled "The
Real Cost of the Knik Arm Bridge." He pointed to $2.1
billion in KABATA's projected toll revenue that he did not
believe would come to fruition. He reiterated an issue
related to the projection for a four lane bridge. He
addressed the lack of a TIFIA loan that had been included
in KABATA's financial plan. He stated that TIFIA loans were
currently 3.2 percent; however, private market revenue
bonds were approximately 7 percent. He believed the bottom
line did not relate to the traffic or the TIFIA loan, but
to the fact that the bill would provide a complete state
guarantee to pay whatever KABATA communicates is necessary
to fund the availability payments under a 35-year contract.
He emphasized that the cost of the contract with the
consortium was not known; the current estimate was $2.7
billion and previous estimates on KABATA's balance sheets
had been up to $4 billion. He added that the state would
suffer a credit downgrade if it did not make up the
difference to the availability payments.
2:51:11 PM
DARCY SOLOMON, MEMBER, MAT-SU BOROUGH ASSEMBLY (via
teleconference), spoke in support of the legislation. He
believed that testimony against the bill contained
fallacies. He had been one of the original KABATA members.
He discussed vision that had been responsible for
developing infrastructure in the United States and in
Alaska. He recalled the vision to create a 360-degree
intermodal transportation corridor that would bring the
economies of Anchorage and Mat-Su together; the plan had
begun with Port MacKenzie. He stated that there was a
three-legged stool including the port, the rail spur to the
Interior, and the Knik Arm Bridge. He believed that numbers
presented by opposition did not take into consideration the
value of what the vision brought to Alaskan residents. He
emphasized that the people of Alaska overwhelmingly favored
the bridge. He discussed that former Senator Ted Stevens
had stated that the bridge could be built if Port MacKenzie
was constructed. He addressed transporting natural
resources from the Interior and bringing the workforce over
from Anchorage. He pointed to a 1,500 bed prison in the
area that was one-third full and employed 400 individuals.
He stressed that it was necessary to focus on the benefit
that the vision would bring and not the cost. He did not
believe prior testifiers had been in support of other
infrastructure projects including the rail spur. He opined
that the bridge would be explosive and worthy for Mat-Su,
Anchorage, and the North Star Borough. He emphasized that
the project would benefit the state. He stressed that the
project was one of the Mat-Su Borough's top priorities. He
believed the project would move the economy forward
exponentially.
2:56:36 PM
Co-Chair Stoltze CLOSED public testimony.
Representative Gara noted he had a question related to the
moral obligation. Co-Chair Stoltze communicated his
preference to have the discussion when there was more time.
Vice-Chair Neuman stated that none of the testifiers in
opposition to the bill were experts in traffic analysis. He
read from a DOR letter written by Commissioner Butcher
dated March 30, 2011 (copy on file):
Finally, you asked about by confidence in the revenue
projections and financial analysis provided by KABATA
in its March 1 TIFIA letter of interest. KABATA has
retained CITI, one of the largest and most successful
financial services firms in the world, especially as
it relates to government financing of infrastructure
projects, to develop its financial models. KABATA
retained Wilbur Smith, a firm that has advised on many
successful projects to do its traffic and toll models.
I am confident that the revenue projections and
financial analysis are objective and done to the
highest of professional standards. This is the type of
work that will be accepted and relied upon by the
institutional investors that may be interested in
financing this project.
Vice-Chair Neuman expressed emotion over misstatements that
he believed had been made. He discussed current financial
restraints and the search for ways to supplement and
diversify revenue. He stressed that the bridge development
would provide over $1 billion in private industry
investment and 1,500 jobs for the state. He remarked that
the state was close to $1 billion in deficit and pointed to
the increased number of people on food stamps. He stressed
that the number would continue to increase. He believed it
was important to do everything the state could to partner
with private industry to create jobs. He mentioned safety
issues.
Co-Chair Stoltze noted that the date on the DOR letter from
Commissioner Butcher should be changed from March 30, 2010
to March 30, 2011.
3:01:09 PM
Vice-Chair Neuman noted that the bill moved the project
forward to a final design and contractual agreements that
would be reviewed by the Departments of Revenue,
Transportation, and Law. He stated that road projects were
not typically brought back before the legislature for
approval; he believed that doing so would be time
consuming. He noted that the bill allowed the chief
executive under the Department of Law to ensure that the
state's interests were protected.
Co-Chair Stoltze stated that the bill would be revisited in
the near future.
HB 23 was HEARD and HELD in committee for further
consideration.
3:02:41 PM
AT EASE
3:22:06 PM
RECONVENED
HOUSE BILL NO. 4
"An Act relating to the Alaska Gasline Development
Corporation; making the Alaska Gasline Development
Corporation, a subsidiary of the Alaska Housing
Finance Corporation, an independent public corporation
of the state; establishing and relating to the in-
state natural gas pipeline fund; making certain
information provided to or by the Alaska Gasline
Development Corporation exempt from inspection as a
public record; relating to the Joint In-State Gasline
Development Team; relating to the Alaska Housing
Finance Corporation; relating to judicial review of a
right-of-way lease or an action or decision related to
the development or construction of an oil or gas
pipeline on state land; relating to the lease of a
right-of-way for a gas pipeline transportation
corridor, including a corridor for a natural gas
pipeline that is a contract carrier; relating to the
cost of natural resources, permits, and leases
provided to the Alaska Gasline Development
Corporation; relating to procurement by the Alaska
Gasline Development Corporation; relating to the
review by the Regulatory Commission of Alaska of
natural gas transportation contracts; relating to the
regulation by the Regulatory Commission of Alaska of
an in-state natural gas pipeline project developed by
the Alaska Gasline Development Corporation; relating
to the regulation by the Regulatory Commission of
Alaska of an in-state natural gas pipeline that
provides transportation by contract carriage; relating
to the Alaska Natural Gas Development Authority;
relating to the procurement of certain services by the
Alaska Natural Gas Development Authority; exempting
property of a project developed by the Alaska Gasline
Development Corporation from property taxes before the
commencement of commercial operations; and providing
for an effective date."
3:22:43 PM
Representative Costello MOVED to ADOPT the proposed
Committee Substitute for HB 4, Work Draft 28-LS0021\R,
(Bullock, 3/27/13).
Co-Chair Stoltze OBJECTED for discussion.
JOE MICHEL, STAFF, REPRESENTATIVE BILL STOLTZE, addressed
the changes in the CS. He turned to page 4, line 21.
Vice-Chair Neuman asked for a copy of the changes.
Mr. Michel agreed. He began on page 4, line 21 and relayed
that the CS changed the governing body from 5 members to 5
public members and 2 department commissioners designated by
the governor. Line 24 had been changed from "members" to
"public members." Board terms had been changed from 7 years
to 5 years (line 30). Additionally, board members would
serve at the pleasure of the governor instead of being
removed for cause.
3:25:24 PM
Mr. Michel relayed that because the board had been
increased to 7 members language had been increased from a
vote of 3 members up to 4 members who were required to
approve the sale and issuance of bonds (page 5, line 27).
Language on page 6, lines 25 and 26 had been changed from
"the corporation shall retain an attorney" to "the
corporation shall retain legal counsel"; the change had
been made to allow the corporation to hire a law firm or
more than one attorney. Additionally, the term "suit" had
been changed to "litigation" on line 26. He turned to page
9, line 26 where the term "shall" had been changed to "may"
in the sentence: "...the corporation may finance,
construct, or operate the natural gas pipeline as
necessary." He pointed to the concern that the term "shall"
was overly prescriptive and would not give the Alaska
Gasline Development Corporation (AGDC) a choice in
development decisions (e.g. to determine whether a
community even wanted a pipeline).
Mr. Michel moved to page 10, lines 4 and 5. The words
"fees, rental rates, and other charges" had been inserted
for clarity per a Department of Law (DOL) recommendation.
He pointed to page 11, lines 17 and 19 and explained that
the bill maintained language that Department of Natural
Resources shall grant a right-of-way lease if AGDC agreed
to the contract carrier covenants in AS 38.35.121 and added
common carrier covenants in AS 38.35.120. He detailed that
AGDC wanted the flexibility to elect or provide service as
a common or contract carrier for future pipelines. The word
"containing" had been inserted in the sentence: "The
portions of records containing information..."(Page 12,
line 5). The statute on page 12, line 6 had been changed
from AS 40.25.110 to AS 45.25 to exempt the corporation
from the Public Records Act (the previous language had
exempted the corporation from a portion of the act). The
language "if disclosed, could cause commercial or
competitive harm" were inserted on page 12, line 19. The
words "except for information that is confidential under
another provision of state law or under a federal law or
regulation" were inserted on page 12, lines 21 and 22. He
noted that minor conforming changes to AS 40.25 had been
removed.
3:30:23 PM
Mr. Michel communicated that the language "upon request
under AS 40.25" had been inserted on page 12, line 27.
Representative Gara asked for clarification on the page
number being discussed.
Mr. Michel replied that he was addressing page 12. He
reiterated that the language "upon request under AS 40.25"
had been inserted on page 12, line 27. The words "another
provision of state law, a federal law or regulation" were
inserted following language "disclosure of the information
will violate" on page 13, lines 1 and 2. The language "the
corporation shall determine fund management and may
contract with the Department of Revenue for fund
management" was inserted on page 13, lines 6 and 7; the
language provided AGDC the option for DOR or another entity
to manage the funds. The language "for the cost of managing
the fund" was inserted on page 13, lines 11 and 12; the
addition provided that the fund management cost would come
out of the fund.
3:32:14 PM
Mr. Michel turned to page 15, lines 13 and 14, which placed
AGDC under the Executive Budget Act related to its
operating budget and the corporation's subsidiaries. He
detailed that the organization's ability to bond and other
similar items were not subject to the act. A section from
the prior bill under Article 2 had been removed related to
federal taxation of interest on bonds per a DOR
recommendation. The department believed the state should
not provide investors with reason to think the state may
step in and repay the debt in the event that debt was
declared taxable; especially in light of current federal
discussions related to eliminating municipal tax
exemptions. He relayed that the word "private", which had
fallen in between the words "the" and "sale" had been
removed. He expounded that DOL had recommended that AGDC
should have the ability to retain an independent financial
advisor with any bond sale.
Mr. Michel moved to page 20 and explained that the bill did
not include the term "moral obligation," but the moral
obligation was derived by the formation of a capital
reserve fund. He read new language on lines 7 through 13:
The corporation may not establish a capital reserve
fund as described in this section except as expressly
authorized by law. The enactment of this section does
not express that authorization. Upon enactment of a
law expressly authorizing the establishment of a
capital reserve fund described in this section and for
the purpose of securing one or more issues of its
obligations, the corporation may establish one or more
special funds, called "capital reserve funds," and
shall pay into those capital reserve funds.
Mr. Michel expounded that the language provided that a
capital reserve fund would not be created until AGDC asked
for permission from the legislature. A drafting error had
been corrected on page 21, line 27 where the word "of" was
removed from the language "under of this chapter" to read
"under this chapter." On page 24, line 22 the language "a
comparison of the corporation's performance with the goals
of the corporation," was removed following the word
"auditor."
3:36:51 PM
Representative Munoz asked for the change on page 24. Mr.
Michel replied that language had been removed from lines 21
and 22. He noted that a copy of all the changes would be
provided to committee members.
Mr. Michel moved to page 38 related to the Regulatory
Commission of Alaska (RCA). The language on lines 8 through
11 had previously stated that the RCA could investigate
disputes related to a pipeline's open season; the language
had been changed to read:
...to resolve the dispute, the commission may order an
expansion of an in-state natural gas pipeline or order
an open season under the terms provided for an
expansion or open season in this chapter or AS
38.35.121(a)(4) and (c).
Mr. Michel addressed page 39, lines 5 and 6 that read
"order an expansion of an in-state natural gas pipeline or
order an open season under the terms provided for an
expansion or open season in this chapter." Language had
been inserted on lines 7 through 17 per a DOL
recommendation, which allowed the RCA to extend timelines
up to 90 days with consent of all parties for one-time only
for good cause and written order; the provision did not
apply to a precedent agreement filed before the issuance of
a certificate, consideration of an application for a
contract carriage certificate or an initial recourse
tariff. He moved to page 41, line 20 where the words "but
not before an initial recourse tariff is approved" had been
inserted. He elaborated that the language made the intent
explicit that a pipeline would need an RCA approved initial
recourse tariff prior to entering into a presubscription
agreement with shippers.
3:39:55 PM
Mr. Michel moved to page 42, line 6 where the words "do not
include" had been inserted per a DOL recommendation. On
lines 11 and 12 the words "and of uncommitted firm
transportation capacity" had been inserted. The word
"service" was inserted to read "firm transportation service
agreement" on page 43, line 5. The word "approved" was
inserted on page 43, lines 8 and 9 in front of the words
"recourse tariff." Additionally, the word "approved" had
been inserted in front of the words "precedent agreement"
on line 14.
Co-Chair Stoltze remarked on how the amendment process
would be addressed.
3:42:39 PM
Mr. Michel turned to page 44, lines 20 and 21 where the
language "that the proposed service is not required by
public convenience and necessity" was added. He elaborated
that the language clarified that an applicant other than
AGDC was fit, willing, and able and that the service was in
the public convenience and necessity.
Representative Gara asked Mr. Michel to repeat the change.
Mr. Michel repeated the change to page 44, lines 20 and 21.
He directed attention to page 46 lines 15 and 22 where the
number "90" had replaced the number "30" to read "at least
90 days." The words "depreciable life" replaced the words
"economic life" on page 47, line 1. Section (c) had been
inserted on page 47, lines 5 through 14.
Co-Chair Stoltze asked for clarification on the change to
page 47, line 1. He believed the change should be from
"depreciation life" to "depreciable life." Mr. Michel
affirmed.
Representative Gara asked if everything in Section (c) had
been added on page 47. Mr. Michel responded in the
affirmative.
Mr. Michel pointed to page 47 line 17 where the language
"or violates a provision of this chapter" had been added.
On page 47, line 19 the language had been changed from a
30-day notice period to read "90-day notice period, and the
period of suspension."
Co-Chair Stoltze noted that the issue would be thoroughly
discussed by the committee.
Mr. Michel continued on page 47, lines 24 and 25 where the
clarifying language "after construction or an expansion of
the pipeline, and at any time that a carrier files for a
revised recourse rate" had been added. Language had been
inserted on page 48, lines 5 through 7 reading "except that
the depreciable life may be adjusted in accordance with the
time period between the approval of the recourse tariff and
the approval of the revised recourse tariff." He moved to
page 54, lines 13 and 19. He explained that originally the
bill defined a pipeline as a line that transports natural
gas; the language "or will transport natural gas" had been
added. He pointed to page 54, line 21, which stated that
the definition of natural gas pipeline had the meaning
given under AS 31.25.390. He elaborated that previously the
definition of a natural gas pipeline had been moved from AS
38.34 to AS 31.25.390 to conform to other portions of the
bill. The language "including a presubscription agreement"
had been added on page 54, lines 22 and 23.
3:48:56 PM
Co-Chair Stoltze noted that the changes were thorough
because of the important nature of the bill. He WITHDREW
his OBJECTION to the CS. There being NO further OBJECTION,
the workdraft was ADOPTED. He asked the bill sponsor to
provide comment on any concerns related to the CS.
REPRESENTATIVE MIKE HAWKER, SPONSOR, voiced agreement with
most of the changes. He believed there were several areas
that would have counterproductive consequences and may be
detrimental to the progress of a pipeline. He asked his
staff to highlight the concerns.
RENA DELBRIDGE, STAFF, REPRESENTATIVE MIKE HAWKER, spoke to
inadvertent consequences the CS would have for AGDC related
to confidentiality language and within the RCA framework
that could delay timelines and the project significantly.
She stressed that a 6-month delay of the project cost an
additional $100 million in inflation. She believed
continued discussions on the items with DOL could lead to
some resolutions with the committee.
Co-Chair Stoltze believed there were a couple of policy and
technical issues that would require compromise.
Representative Hawker surmised that the issues primarily
related to unintended consequences rather than policy
differentials. He did not believe there were irreconcilable
differences.
3:53:45 PM
Co-Chair Stoltze pointed to the complexity of the issue.
Representative Hawker communicated willingness to work with
the committee.
Co-Chair Stoltze relayed that representatives from the
administration, the sponsor, and AGDC would be available to
vocalize an agreement on the issue.
Vice-Chair Neuman wondered what would happen if an open
season was unsuccessful.
Ms. Delbridge replied that there was no explicit provision
that defined what would occur if an open season was
unsuccessful. She elaborated that AGDC had no authority to
move forward without a successful open season because
commitments from shippers were needed to fund a project.
She explained that AGDC would continue to retain assets if
an open season was unsuccessful; however, a disposition of
assets may not be appropriate at the time given that the
corporation was designed to survive the initial pipeline
and to consider other pipelines.
3:56:35 PM
Representative Holmes believed the state would have rights
to the assets because of its ownership of AGDC. She asked
for verification that the state could choose to take the
assets back at any time.
Ms. Delbridge answered that she would obtain legal advice
from AGDC's legal counsel and DOL related to the assets.
She confirmed that the legislature would have the ability
to terminate the corporation at any time.
Representative Holmes believed that any funds that were not
subject to a moral obligation could be reappropriated by
the legislature if it chose to do so.
Representative Hawker replied in the affirmative. He
elaborated that the legislature always had dominion over
the corporation; however, the state had an obligation to
live up to any contractual agreements. He detailed if an
open season was unsuccessful there would be no contracts or
further obligation; however, the bill was crafted to create
tools that were not limited by scope and potential benefit
to the state in the building of one pipeline. He expounded
that AGDC was allowed to look at projects that would
provide gas to other regions of the state.
3:58:57 PM
Representative Gara asked when it would be appropriate to
ask questions about the bill that were unrelated to the CS.
Co-Chair Stoltze responded that there would be an
opportunity to discuss the bill at a later time.
Representative Gara asked when the bill would be heard
again. Co-Chair Stoltze replied that the bill would be
heard the following day. He remarked that he was working to
balance the Speaker's desire for the bill to move forward,
while providing the appropriate due diligence and process
in committee.
Representative Hawker offered to speak with any committee
members to help clarify any questions.
Co-Chair Stoltze noted the importance of due diligence.
Representative Gara noted that Co-Chair Austerman and
Representative Edgmon were absent. He wondered when
amendments should be ready. He opined that the following
Monday would be easier. Co-Chair Stoltze hoped to have
amendments by the following afternoon. He noted that
Representative Thompson would be gone the following day as
well. He believed the issue would be heard on Monday.
Representative Thompson remarked that he had made
arrangements to be available the following day.
Representative Hawker appreciated the committee's time.
HB 4 was HEARD and HELD in committee for further
consideration.
4:03:57 PM
AT EASE
4:12:46 PM
RECONVENED
HOUSE BILL NO. 112
"An Act repealing the film production tax credit;
providing for an effective date by repealing the
effective dates of secs. 31 - 33, ch. 51, SLA 2012;
and providing for an effective date."
4:14:22 PM
MIKE DELVIN, CEO, EVERGREEN FILMS, ANCHORAGE (via
teleconference), spoke in opposition to the bill. He
communicated that the bill would cause the company to cease
its projects in Alaska. He spoke to his background; the
company was currently in production of its first major
feature film titled Walking with Dinosaurs 3D, which would
be distributed later in the year by 20th Century Fox. He
detailed that the film had been shot in Alaska and New
Zealand. He emphasized that the company had made
substantial capital investments in the state including in
the construction of a $6 million facility in Anchorage for
the housing of post-production and screening operations and
a high-tech advanced stage; the investment did not qualify
for the tax credit, but represented investment the company
was making in Alaska. He communicated that the global
market was competitive for producers who had to find
locations that could provide a good economic environment
and a talented labor pool. He stressed that the existing
tax credits were necessary for Alaska to compete globally
and for the company to do business in the state. He spoke
from his perspective as an Alaska resident and relayed his
preference for doing business locally.
4:17:24 PM
PATRICIA HULL, ALASKA FILM GROUP, JUNEAU, spoke in
opposition to the legislation. She spoke to the purpose of
the group. She relayed that films took many years to plan
and culminated in weeks or months of activity. She
communicated that while a shoot may be brief, it
represented a boon to communities where filming took place,
infusing millions of dollars. She pointed to letters from
small businesses throughout the state that had benefited
from major films; one letter was written by a "mom and pop"
snow removal company that had expanded to a year-round
business after earning money from renting equipment to the
film industry. She stated that the 27th legislature's
decision to extend the credits by 10 years was visionary.
She stressed that the credits allowed the industry to begin
planning projects in Alaska.
Ms. Hull stressed that the rumor that the credits would be
discontinued had caused a chilling effect. She stated that
films that should be coming to the state were not; there
was a film about the Nome serum run that would be filmed in
Canada. She believed the legislative audit brought forward
an accurate assessment of the strengths and weaknesses of
the tax incentives. She accentuated that the program had
returned $2.00 for every $1.00 that was paid out. She
stated that improvements to the program were scheduled to
go into effect on July 1, 2013 including incentives to hire
more Alaskans and a sliding scale application process fee.
Another change included a content review; she believed that
some Alaskans had been offended by the way they were
portrayed in a reality television show and had taken aim at
the industry as a whole. She stated that the content review
would ensure that Alaska was portrayed in a positive light.
She emphasized that the state was a unique and beautiful
location to make films. She pointed to other beautiful
locations and the aggressive courting of the film industry
by other governments. She stated that Alaska's 44 percent
tax credit was the most competitive. She emphasized that
the legislation would sabotage years of constructive effort
and would divert the potential for hundreds of millions of
dollars away from the state. She noted that unlike some
forms of economic development activity, it was not
necessary to clean up after the film industry. She
encouraged the committee to retain the legislature's 10-
year commitment to the film incentive program.
4:22:37 PM
Representative Wilson noted that some of her constituents
had been upset about the way they had been portrayed in a
show. She pointed out that there had been a negative impact
for some individuals related to their jobs and increased
regulation as a result. Ms. Hull understood the issue
existed. She observed that the reality television show
genre was notorious for portraying people in a negative
light.
Co-Chair Stoltze relayed that his motivation for the
legislation was financial.
Ms. Hull stressed the importance of portraying the state in
a positive way.
Representative Wilson noted that her constituents were
miners and were working to make a living.
Representative Munoz asked whether Ms. Hull believed the
reality television portion should be retained under the
incentive program. Ms. Hull replied that she was not an
expert related to the specific issue. She added that her
comments related to the reality television industry did not
reflect the opinion of the Alaska Film Group. She stated
that it was difficult to control content in the specific
type of programming.
4:25:11 PM
CODY LAWHORN, SPROCKETHEADS LLC, ANCHORAGE (via
teleconference), spoke to his education in film production.
He stated that Alaska's image had changed subsequent to
2010. He pointed to the television show The Deadliest Catch
and to Alaska's great potential for the film industry. He
discussed the Drew Barrymore film Big Miracle that had been
filmed in Alaska. He had returned to Alaska from school in
2011 to work as an unpaid production assistant on a Nicolas
Cage film The Frozen Ground; he had received college
credits and many valuable hours learning about the job. The
position had led to other opportunities in the industry. He
had just received his degree in film production in
Portland. He discussed his desire to move home to make
films and to help grow the industry in Alaska. He had come
home to stay and had brought projects with him. He urged
the committee to not pass the legislation. He asked the
legislature to maintain the film bill extension.
4:29:24 PM
RANDY DALY, FILM INDUSTRY PARTICIPANT, KENAI, testified in
opposition to the bill. He spoke to his role as the former
president of the Kenai Peninsula Borough of Economic
Development district and in the film industry. He addressed
his support of business development, economic
diversification, and a year-round stable economy in Alaska.
He highlighted various examples of private funding
responsible for building film studios in Anchorage. He
emphasized that industry had invested millions of dollars
into business development and production facilities. He
stated that film and film production was a new industry
that was diversifying Alaska's economy statewide; it was
capable of producing well-paying, year-round jobs. He noted
that energy and government revenue were in decline in the
state. He stressed that it was the responsibility of
citizens to explore new opportunities to provide a better
future. He opined that film should be part of the future.
He detailed that over the past few years the state had
worked with private industry on legislation that would
allow the industry to move forward; credits to the industry
would only be maximized when business was conducted with
Alaskans and Alaskan owned businesses. He noted that the
legislation also included a cap to limit financial
exposure, a review process after five years, and the
oversight of third-party certified public accountants. He
stressed that it was time for the state to keep its word.
He urged the state to act accountable and to allow the
industry to conduct its work. He stated that vacillation on
the issue sent the message that Alaska was not a stable
place to do business. He urged the committee to not pass
the legislation.
4:32:22 PM
D.K. JOHNSTON, ALASKA FILMMAKERS, ANCHORAGE, spoke against
the legislation. He provided his personal background in the
film and education fields. He had received many questions
about why the legislature would entertain cutting down a
program that had been working vigorously to establish
itself over the past five years. He stated that the program
had helped to create jobs, diversify the state's economy,
promote new forms of education for Alaska's youth, and to
bring together talented artists to tell Alaska's stories.
He opined that a repeal of the film tax credit was a step
in the wrong direction; whereas, the continuation of the
program was a step towards new development. He shared that
millions of dollars had been invested in the new industry
and that turning Alaska's back on the industry would be a
mistake. He pointed to multiple documents in members'
packets expressing opposition to the bill (copy on file).
4:35:16 PM
RON HOLMSTROM, SCREEN ACTORS GUILD AND AMERICAN FEDERATION
OF TELEVISION AND RADIO ARTISTS, ANCHORAGE, testified in
opposition to the bill. He shared that he had worked the
film industry since 1975 on both sides of the camera. He
spoke to the federation's excitement that its Alaska
membership had more than tripled since the incentive
program's creation. He communicated that in the past year
12 feature films had qualified for the program; however,
following the introduction of the legislation, there had
been no applications. Additionally, the federation had not
had any Alaskans join its rank of professional performers.
He observed that Alaska had become less attractive to major
production companies; however, he believed there was time
to experiment with the program, which could be incredibly
fruitful for Alaskan workers and local businesses. He did
not understand why the bill to repeal the program had been
introduced. He was bewildered at the idea of closing down a
young industry that had shown itself to be financially
sound. He was available to discuss the business opportunity
at any time. He stressed the importance of rebuilding the
state's reputation as a film community and of moving
forward with the film industry.
Co-Chair Stoltze remarked that government policy did have
deleterious effects on the economy.
Representative Gara expressed support for the program. He
asked whether a travel credit could work if the larger
program was discontinued. Mr. Holmstrom replied the issue
came down to arithmetic. He had dealt with motion picture
budgets his entire adult life; the issue related to how
much it would cost to get everything to the location for
filming. He stated that there had been a move to improve
the grip, electric, and camera equipment in Alaska, but the
effort was currently not moving forward. He opined that
subsidizing the expenses of moving trailers, dressing
rooms, wardrobe trailers, and other could potentially help;
however, it would be difficult to balance the savings
against the tremendous above-the-line expenses (including
actors, producers, writers, and directors), which made up
at least half of a motion picture budget.
4:40:02 PM
Co-Chair Stoltze commented that the committee would look at
alternatives to the overall elimination of the program.
DEBORAH SCHILDT, PRESIDENT, THE ALASKA FILM GROUP,
ANCHORAGE (via teleconference), spoke against the
legislation. She provided information about the
organization. She stated that 32 films had been shot in the
state since 1924; 24 of the films had been shot the state
subsequent to 2000 and only 7 of the 24 had been entirely
filmed in Alaska. She stressed that all 7 films shot
entirely in Alaska had been made following the
implementation of the film credit program. She emphasized
that incentives were the way the business worked at
present. She stated that HB 112 stifled the industry in the
state. She highlighted that the industry had provided a
positive economic impact on the workforce and businesses in
Alaska. She pointed out that the program included increased
incentive for local hire. There were currently actors,
students, and tradespersons enrolled in training programs
statewide. The organization expected that hundreds of
skilled workers would be added to the state's workforce in
the upcoming year. She wondered where the individuals would
go if the legislation passed. She spoke to the high paying
jobs provided by the industry. She wondered why the
legislature would choose to discourage the industry and
reduce employment opportunities.
Ms. Schildt discussed the program's success and quoted from
the 2012 legislative audit by Northern Economics (page 19):
...the state realizes a positive return on investment
from the AFPTIP. The AFPTIP generates an estimated $2
in Alaskan economic output for every $1 dollar in tax
credits - an economic multiplier of $2.05 per the
consultant's analysis.
Ms. Schildt stressed that the bill failed to take into
account that only $8.4 million out of the $34 million in
issued credits had been redeemed; leaving $27 million in
funds to be utilized by Alaskan corporations. She
highlighted that money spent in Alaska generating the tax
credit amounted to $109 million and that much of the money
continued to circulate in the state. She stated that the
bill was a losing proposition; many producers had pulled
out of production after the bill had been introduced. She
expounded that the state would move backwards with the film
industry if the bill passed, which would lead to the loss
of millions of dollars. She stressed that the film credit
program was new and improved; it was more Alaska-centric,
it offered credits as opposed to subsidies, and offered
proven value to Alaskans statewide. She urged committee
members to vote no on the legislation.
4:46:56 PM
Co-Chair Stoltze made a statement about his influence
related to the legislation.
DIANA FEJES, TAX CONSULTANT, ANCHORAGE (via
teleconference), spoke against the bill. In 2012 she had
been asked by NANA Development Corporation to examine the
economics of the film credit program. She conducted an
analysis using other states as models; projections showed
that over a 10-year period the film industry could become a
$1 billion industry if the state had an experienced
workforce and the infrastructure to support larger films.
She continued that over time almost $4.00 of economic
benefit could be realized for each $1.00 of credit issued.
She stated that indirect spending resulting from an
industry is difficult to predict, but is a widely accepted
concept. She pointed to the 2012 Legislative Budget and
Audit Committee internal audit; the audit had found that
over $2.00 was returned for each $1.00 of credit issued.
She furthered that $50 million of economic benefit had come
directly from the incentive program through February 2012.
She noted that the data was for a period of time prior to
the strengthening of the program, which would provide
additional benefit to the state.
Ms. Fejes stated that total spending during the 4-year
period ending February 2012 was over $58 million, which
included all films produced whether or not the credit was
allowed. She provided an example related to the benefits of
the incentive program; if a film cost $20 million to make
and $10 million of the amount was spent on Alaskan wages
and businesses, the average credit was around 33 percent;
therefore, cash out the door for the credit would be just
over $3 million, but $10 million remained in the economy.
She emphasized that between the multiple economic effects
and the time value of money, the $10 million could have a
significant impact. She relayed that Alaska had one of the
highest corporate tax rates in the U.S. at 9.4 percent. She
stated that buying a credit at a discount of 80 to 85
percent provided industry more incentive to stay and
increase business in the state.
4:50:58 PM
Co-Chair Stoltze turned the gavel over to Representative
Costello.
Ms. Fejes continued to testify against the bill. She
relayed that if the allowable tax credits were to be fully
used over the upcoming 10 years it would cost $200 million;
however, a $200 million credit would generate just under
$600 million in revenue for Alaska's economy. She discussed
industries impacted by the indirect spend of the money in
the state. She observed that the program was not perfect
and that adjustments may be required; however, she
suggested not throwing the baby out with the bath water.
She stated that the program had energized many small
businesses and had helped larger businesses as well. New
productions would keep individuals in the state. She
stressed that starting and stopping a program from year to
year would build distrust. She pointed to other competitive
locations where film companies could take their work. She
asked the legislators to continue the program.
4:53:06 PM
Representative Gara asked what the film production
companies had paid in the state since the credits had taken
effect. Ms. Fejes replied that many companies did not pay
the taxes in state, which was the reason the incentive
credits had originated. She explained that credits were
approved and sold to entities such as banks, cruise ship
companies and others conducting business in the state. The
program helped the businesses to save on their taxes as
credits were purchased at a discount.
Representative Gara remarked that he would follow up for
more detail from the Department of Revenue. He believed
that companies were taxed pro rata for their presence in a
state based on the state's income taxes. Ms. Fejes replied
that the statement was accurate relating to corporations;
however, many of the film companies were constructed as
pass-through entities such as partnerships.
4:54:57 PM
PIUS SAVAGE, OMAYACON PICTURES, ANCHORAGE (via
teleconference), spoke against the legislation. He
discussed his background in the film industry. He shared
that during his work in various locations people had seen
films showing Alaska's beauty; the industry helped small
businesses and tourism throughout the state. He pointed to
current work with producers planning seven films in Alaska
as a result of the film tax incentives. He spoke to one
film that would employ all local actors. He discussed his
work with many famous producers and actors. He was
currently in conversations with investors for a project
with an estimated budget of $10 million. He mentioned
another production that would cost $16 million or more.
4:59:10 PM
Co-Chair Stoltze resumed chairing the meeting.
Mr. Savage continued to speak against the bill. He stressed
that the beauty of Alaska attracted the industry. He
mentioned that the introduction of HB 112 was discouraging
investment and causing filmmakers to look to other
locations such as Iceland. He stated that the decision was
up to the legislature.
5:00:32 PM
GARY ZIMMERMAN, GENERAL MANAGER, ALASKA RENTAL CAR INC.,
ANCHORAGE (via teleconference), spoke against the bill. He
communicated that the company benefited from the money
spent by the industry in Alaska. He relayed that film
production funds provided a substantial economic benefit
statewide. He communicated that the rental car service
industry generated over $22 million in taxes and fees
collected from renters and paid to the state and local
government; when business increased, the money going to the
state increased as well. He relayed that productions
featuring Alaska promoted the state more successfully than
advertising campaigns; the increased awareness helped to
further the state's goal of promoting tourism. He continued
that the film industry was just beginning to gain traction
in the state. He asked the committee to allow the incentive
program to benefit the film industry, Alaskan businesses
and workers, and the state. He asked the committee to not
pass the bill.
5:02:53 PM
KELLY BENDER, LAZY OTTER CHARTERS, WHITTIER; opposition
testimony was read for Ms. Bender by Merna Jenson (via
teleconference):
Good afternoon Chairman Stoltze and the House Finance
Committee. I am not in the film industry; we are a
business that has benefitted from the film industry.
We operate a water taxi and sightseeing business in
Whittier; we also have a small café. We hire Alaskans
to work and live in the community where we operate.
The impact the film industry has sometimes been
direct. We helped out with a film shoot onboard our
boat; the show aired this past fall. But sometimes
it's indirect; like when we took out members of the
cast and crew from movies that have been shot here on
a sightseeing cruise. This was about $12,000 to
$15,000 to our company. Often this business has come
during the shoulder season, a time when were slow and
can use the additional income. This may seem like a
drop in the bucket to some, but to us it meant that we
paid our Alaskan employees, it meant we bought goods
and services from our Alaskan suppliers. To us this is
business or some might say stimulating the economy.
This isn't really about [indecipherable]; it's about
Alaskans and Alaska businesses making a go of it. The
state puts a lot of money into industry that has
finite resources. This industry has infinite reach and
trickle-down effect, not to mention what it does for
tourism like the previous speaker said. As a small
business owner I'm asking you to continue to support
the film industry in Alaska, which really means
supporting business and economic diversity in Alaska.
Please do not pass HB 112. Thank you.
Co-Chair Stoltze asked for a copy of the document.
5:05:29 PM
ROBIN KORNFIELD, VICE PRESIDENT, CORPORATIONS AND
MARKETING, NANA REGIONAL CORPORATION, ANCHORAGE (via
teleconference), spoke against the legislation. She pointed
to the value of programs that encouraged the development of
new opportunities for the next generation of Alaskan
business. She relayed that NANA supported the film tax
credit because the existing program had created jobs for
its shareholders and private sector income for an array of
Alaskan businesses. The organization wanted to be a part of
building new economies in the state. She discussed other
developments the organization had been involved in during
the past including the Red Dog Mine. She furthered that
NANA had looked at the film business as it did with any
other business opportunity; the industry required support
services including construction, food service, information
technology, transportation, hospitality, and security.
Additionally, the industry created specialized job
opportunities that were not yet widespread in the state.
She stressed that the entire state could get involved. The
company had been involved in the production of a
documentary about the people of Diomede, Alaska and whales.
She pointed to various national commercials shot in the
state. She relayed that investment in training and
facilities was made at NANA's own risk and was not eligible
for tax credits; however, the credits were needed to bring
the business to Alaska. She spoke to the global competition
for production locations. She urged the committee to reject
the bill.
5:09:10 PM
STEVE RYCHETNIK, CINEMATOGRAPHER, SPROCKETHEADS LLC,
ANCHORAGE (via teleconference), spoke in opposition to the
bill. He discussed the company's work in the developing
film industry. He stated that because of the tax incentive
program he had been hired on multiple projects and had been
able to remain in Alaska. He had been asked to be involved
in several large budget films working to bring productions
to the state. He recalled working on the film Insomnia in
the past that had been filmed in Canada because Alaska had
no incentive program. He emphasized that incentives always
trumped location; he provided an example. The company was
currently working with over 10 feature films that had
invested years of time and money to come to Alaska. He
pointed to the economic benefit provided to Maryland as a
result of the Netflix original show House of Cards. He
spoke to the benefit a dramatic series would provide
Alaska. He stated that movie making was a business; there
were as many conservatives as there were liberals. He
emphasized that a film business in Alaska represented
aggressive economic development. He urged the legislature
to keep its promise of extending the film incentive program
to 2023.
5:13:21 PM
MAYA SALGANEK, DIRECTOR, UNIVERSITY OF ALASKA FAIRBANKS
FILM PROGRAM, FAIRBANKS (via teleconference), testified in
opposition to the bill. She stated that the university's
film program had been established in 2011; record numbers
of students had applied. She stated that the students had
already demonstrated great successes. She relayed that the
bill would eliminate the university program and the
opportunity for the students to move forward in the career
field. She continued that students interested in the field
had been leaving the state, which was one of the reasons
for the implementation of the program. She furthered that
the industry had turned to the university wondering where
trained students were. She elaborated that the program was
for a Bachelor of Arts to create producers, directors, and
other; the program prepared students for work in the film
industry and provided hands-on training. There had been a
60 percent enrollment increase since 2010 in the number of
student credit hours; there were students enrolled from all
over the state. The credit program provided great publicity
for the state. She shared that the program enrollment was
growing approximately 10 percent per year; the university
anticipated the figure would go up if the tax incentives
continued. She spoke to the diverse population of students
in the field. She stated that 50 percent of the students
had been working on professional productions in the past 30
days.
Ms. Salganek continued that the students would go on to be
leaders in the industry in the future. She estimated that
the tax incentive had doubled the amount of work in the
state and was bringing more labor hours per production for
Alaskans. She stated that the incentives were providing
hands-on training opportunities; internships would prepare
students for higher level positions in the future. She
discussed that the training program had been in development
for over a year. Students would be devastated to learn that
there would no longer be long-term career opportunities in
the industry in Alaska. She continued to speak about
benefits of the program. She implored the legislature to
support the students and the film industry.
5:21:19 PM
CHARLIE HEWITT, MIRROR STUDIOS, ANCHORAGE (via
teleconference), spoke in opposition to the bill. He shared
that he was a Republican and owner/operator of Mirror
Studios (a recording and post production facility in
Anchorage). He discussed an additional revenue stream that
was a byproduct of the film incentives. He explained that
when a production was working in-state, many actors were
needed for the post production process on other projects
elsewhere. For example, during the filming of the movies
Big Miracle and The Frozen Ground there had been numerous
individuals using the studio for other film projects. He
emphasized that the dollars were not insignificant and had
not cost the state a dime. He expended significant money to
bring the studio up to par prior to the implementation of
the film incentive program. He had trusted the
legislature's intent when it had voted to approve the
credit program. He asked the committee to drop the bill and
to keep the film credits until 2023.
5:23:54 PM
Co-Chair Stoltze stated that his concerns about the issue
were fiscal. He CLOSED public testimony.
HB 112 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
5:25:42 PM
The meeting was adjourned at 5:25 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 23 2012 Gov TIFIA Letter of Interest (2).pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB 23 Common Myths of Knik Arm Crossing.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB 23 Importance of Legislation for TIFIA Loan.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB 23 KABATA Fact Slides.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB 23 KABATA Summary of Legislation.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB 23 Sponsor Statement.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB 23 Testimony Opposition.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB 23 Memo to House Finance Kenworthy.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB23-KABATA House Finance Presentation (PDF).pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB23 Traffic Safety Corridors.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB23 Pt. MacKenzie Townsite.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| HB23 Answers to Recents Comments.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 |
| CS WORKDRAFT HB 4 FIN R.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 4 |
| HB 23 DOR Letter SB 80 dated 3-30-11.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 23 SB 80 |
| HB4-RCAbackground.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 4 |
| HB 112 Support.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 112 |
| HB 112 Letters-Opposition Pkt 1.pdf |
HFIN 3/28/2013 1:30:00 PM |
HB 112 |