02/22/2012 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB301 | |
| HB252 | |
| HB300 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 301 | TELECONFERENCED | |
| *+ | HB 252 | TELECONFERENCED | |
| *+ | HB 300 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 22, 2012
3:20 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Craig Johnson, Vice Chair
Representative Mike Chenault
Representative Dan Saddler
Representative Steve Thompson
Representative Lindsey Holmes
Representative Bob Miller
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 301
"An Act amending the termination date of certain statutes
relating to the use, operation, and regulation of boats, a
uniform state waterway marking system, and civil liability for
boat owners; providing for an effective date by amending the
effective date of secs. 3, 5, 7, 9, 11, 14, 16, 18, 20, 23, 26,
and 27, ch. 28, SLA 2000, as amended; and providing for an
effective date."
- MOVED HB 301 OUT OF COMMITTEE
HOUSE BILL NO. 252
"An Act exempting certain small businesses from the corporate
income tax; and providing for an effective date."
- MOVED CSHB 252(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 300
"An Act relating to geographic cost-of-living salary adjustments
for justices of the supreme court and judges of the superior and
district courts; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 301
SHORT TITLE: SUNSET OF BOATING REGULATION
SPONSOR(s): REPRESENTATIVE(s) AUSTERMAN
01/27/12 (H) READ THE FIRST TIME - REFERRALS
01/27/12 (H) L&C
02/22/12 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 252
SHORT TITLE: INCOME TAX EXEMPTION
SPONSOR(s): REPRESENTATIVE(s) COSTELLO
01/17/12 (H) PREFILE RELEASED 1/6/12
01/17/12 (H) READ THE FIRST TIME - REFERRALS
01/17/12 (H) L&C, FIN
02/22/12 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 300
SHORT TITLE: GEOGRAPHIC COLA FOR JUSTICES AND JUDGES
SPONSOR(s): RULES BY REQUEST
01/27/12 (H) READ THE FIRST TIME - REFERRALS
01/27/12 (H) L&C, FIN
02/22/12 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
REPRESENTATIVE ALAN AUSTERMAN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented a brief synopsis of HB 301 as
prime sponsor.
ASTRID LIEVANO, Staff, Representative Alan Austerman
Alaska State Legislature
POSITION STATEMENT: Presented HB 301 on behalf of the prime
sponsor.
REPRESENTATIVE MIA COSTELLO
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 301.
JEFF JOHNSON, Boating Law Administrator
Office of Boating Safety
Division of Parks & Outdoor Recreation
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 301.
BEN ELLIS, Director
Division of Parks and Outdoor Recreation
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion HB 301.
CHRIS OSOWSKI, Member
Alaska Boating Safety Advisory Council
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion HB 301.
REPRESENTATIVE MIA COSTELLO
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as prime sponsor during the
discussion of HB 252.
JOSH WALTON, Staff
Representative Mia Costello
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 252.
TYLER ARNOLD, Founder
Tyler Systems; Chief Executive Officer
SimplySocial, Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion HB 252.
JOHNATHAN BITTNER, Director
Business and Economic Development
Anchorage Economic Development Corporation (AEDC)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 252.
ALLAN R. JOHNSTON, Chief Encouragement Officer
Team Network, Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 252.
DOUG WOOLIVER, Deputy Administrative Director
Administrative Staff
Office of the Administrative Director
Alaska Court System
POSITION STATEMENT: Presented HB 300 on behalf of the Alaska
Court System.
ACTION NARRATIVE
3:20:51 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:20 p.m. Representatives Miller,
Saddler, Thompson, and Olson were present at the call to order.
Representatives Holmes, Chenault, and Johnson arrived as the
meeting was in progress.
HB 301-SUNSET OF BOATING REGULATION
3:21:16 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 301, "An Act amending the termination date of
certain statutes relating to the use, operation, and regulation
of boats, a uniform state waterway marking system, and civil
liability for boat owners; providing for an effective date by
amending the effective date of secs. 3, 5, 7, 9, 11, 14, 16, 18,
20, 23, 26, and 27, ch. 28, SLA 2000, as amended; and providing
for an effective date."
3:21:56 PM
REPRESENTATIVE ALAN AUSTERMAN, Alaska State Legislature, stated
that he served in the legislature when the initial boating
safety bill sponsored by former Representative Bill Hudson
passed the legislature. He offered his belief that this program
has saved lives.
3:22:58 PM
ASTRID LIEVANO, Staff, Representative Alan Austerman, stated
that the purpose of HB 301 is to repeal the sunset dates of the
Statewide Borating Safety and Education Program, which will
terminate on July 1, 2013. She explained that funding is
provided by the U.S. Coast Guard. In 2000, the state became
eligible for funding with passage of the Alaska Boating Safety
Act. When the program was established the 21st Legislature
cautiously added two sunset dates. The first repealed the act
in the event that the state did not receive the anticipated
federal funds; and the second sunsetted the program by date.
Since then, the legislature has voted three times to extend the
program thereby recognizing its merits. The program has been in
effect for 12 years, during which time recreational boaters have
become better educated and safer and recreational fatalities are
in a downward trend.
MS. LIEVANO explained that fatalities have dropped by 22.1
percent and at least 22 Alaskan children have survived water
emergency thanks, in part, to a Kids Don't Float program, which
dispenses life jacket loaners. The U.S. Coast Guard life jacket
wear rate studies also show increases in life jacket use. The
Alaska Boating Safety Program is funded entirely by fees on
users, with a portion of funding derived from the Sportfish
Restoration and Boating Trust Fund, and the balance is derived
from State of Alaska boat registration receipts.
3:25:00 PM
MS. LIEVANO reported the federal funding grant for FY 2012 was
$913,385 and the state funding through the Division of Motor
Vehicles (DMV) has consistently been $200,000. She offered her
belief that Alaska's investment for boating safety is small when
compared to the lives saved in Alaska.
3:25:32 PM
REPRESENTATIVE MIA COSTELLO, Alaska State Legislature, asked
whether this is the program that provides life jackets at Sand
Lake.
MS. LIEVANO answered yes.
CHAIR OLSON reported life jackets are also used on the Kenai
River and he has heard they have a positive impact.
3:26:26 PM
REPRESENTATIVE JOHNSON said he supports this bill 100 percent
and noted the program is very worthwhile.
3:26:50 PM
REPRESENTATIVE CHENAULT indicated the costs in 2005 were
$478,000, but in 2006 the costs increased to $787,000, and now
the program costs are $1,400,000. He questioned the increase in
program costs.
MS. LIEVANO asked for clarification on whether he was referring
to the overall costs or why the federal funds have increased.
REPRESENTATIVE CHENAULT related that it appears the costs have
stayed constant through the DMV, but the federal funding has
nearly doubled since 2005.
MS. LIEVANO agreed the U.S. Coast Guard's funding for boating
safety funding has increased.
3:28:18 PM
REPRESENTATIVE SADDLER said he hoped Jeff Johnson would be
staying on as the DNR officer for the program. He stated he has
had an opportunity to work with him and Mr. Johnson brings a
wealth of institutional knowledge and energy to the program. He
commented that he hopes the boating safety program will continue
and Mr. Johnson also continues as staff for this program. He
asked for clarification on any new functions or areas would be
performed with the expansion of the program.
REPRESENTATIVE AUSTERMAN acknowledged that the program has
expanded and he was unsure what is planned; however the
Department of Natural Resources could respond.
3:30:08 PM
JEFF JOHNSON, Boating Law Administrator, Office of Boating
Safety, Division of Parks & Outdoor Recreation, Department of
Natural Resources (DNR), in response to a question, stated that
this program's emphasis is on changing behavior and providing
education in the schools.
REPRESENTATIVE SADDLER asked whether this agency cooperates with
other agencies.
MR. JOHNSON answered that many other programs were in effect at
the time their program was developed, including U.S. Coast
Guard, and the Kids Don't Float Program. The Office of Boating
Safety's focus has been on changing behavior, in particular,
adult male behavior. Their other focus has been to educate
future boaters through the school programs. He pointed out one
challenge for injury prevention is to reach rural Alaskans. He
said that the division saw opportunities to help and the goal is
to maximize funds through cooperation and take the term
"partnership" seriously.
REPRESENTATIVE SADDLER asked if this program is unique to
Alaska.
MR. JOHNSON answered no, that 56 states and territories have
state boating programs in effect. In 1987, Alaska was the only
state without a program, even though its fatality rate has been
more than 20 times the national average. He pointed out one
benefit of coming into the scene late that Alaska has been able
to benefit from other programs. He said is proud of the
effectiveness of the small number of programs in Alaska and that
Alaska is making progress.
3:33:49 PM
REPRESENTATIVE CHENAULT wondered whether the program will
continue to receive federal funding or if the funding will be
reduced.
MR. JOHNSON answered that the funding for the program comes from
the Sport Fish Restoration and Boating Trust Fund, which is part
of the Highway Trust Fund, but it is a user-pay user-benefit
system. Thus much of the revenue is derived from fuel taxes
attributable to recreational power boats and excise taxes on
sport fishing equipment. It was designed as a user-pay user-
benefit system, which is widely supported by boating
organizations around the country. He acknowledged that he could
not predict what the Congress will do in terms of any budget
cuts; however, he did offer his belief that this program has a
lot of support. He said it is a direct benefit to users paying
into it and is perceived that way nationally. Additionally, the
program is a very small program as compared to many other
programs. He related his understanding that the program has a
proven track record. He offered his belief the way to survive
budget cuts is to prove the job being done is a good job. He
also said he thinks staff is doing a good job.
3:35:33 PM
BEN ELLIS, Director, Division of Parks and Outdoor Recreation,
Department of Natural Resources (DNR), agreed that funding is a
concern; however, he anticipates the federal transportation
funding bill will go through and the program will be safe for
the present time.
3:36:20 PM
REPRESENTATIVE CHENAULT agreed the program is a good program.
He pointed out that although the military also does a good job,
it has undergone funding issues. Additionally, even the
educational system is subject to budget cuts. He offered his
support the Boating Safety Program, but he cautioned that the
federal government is making cuts.
3:37:47 PM
CHRIS OSOWSKI, Member, Alaska Boating Safety Advisory Council,
stated that the council meets twice a year with DNR to evaluate
the success of the programs. He said he is familiar with
Alaska's waterways since he has lived in Alaska since 1970 and
his family has a homestead that can only be accessed by the
river system. He viewed this program as one designed to help
develop safe habits to ensure people survive. He has
participated as a volunteer and has observed how this program
works. He characterized this program as a good program and it
would be worthwhile to focus on meeting the program's goals and
not have to worry about funding.
3:39:23 PM
CHAIR OLSON asked whether any funding is being used to drown-
proof infants. He recalled that very young infants can be
taught to develop a reflex action, such that they can roll over
in the water and keep their head out so they can breathe. He
related that he has had personal experience with a family member
who fell off a sailboat and survived due to the specific drown-
proof training.
MR. OSOWSKI related his understanding that discussions have
focused on floatation devices, but have not proceeded with this
type of training. The program's training has been limited to
instilling the value of wearing floatation devices and dangers
of cold water. He offered to bring this idea back to the group.
REPRESENTATIVE JOHNSON welcomed his constituent. He
characterized him as a "good guy."
3:41:28 PM
REPRESENTATIVE SADDLER raised the issue of funding the program
in the event federal funding was diminished. He asked if the
Alaska's boating registration fees are the same or higher than
in other states.
MR. OSOWSKI offered his belief that they were in line with other
state's fees.
REPRESENTATIVE SADDLER questioned the amount of fees raised from
boat registration fees.
MR. JOHNSON answered $570,000 is derived from boat registration
receipts. He said the fee for boat registrations is one
developed by the U.S. Coast Guard. He explained that the
Congressional budget office requires federal agencies must
charge no more than the cost of the boat registration. The
figure represents the cost to register boats in 1998 and so the
same fee is still in place. He was unsure, but thought that
Alaska's boating registration fees are likely among the lowest
in the nation.
MR. ELLIS stated that this bill relates to the sunset of the
state requirement; however, he agreed that the state must
consider developing a safety net in the event that the federal
funding is cut so this important program can continue. He
mentioned that swimming doesn't always help people survive due
to the cold water in Alaska.
3:44:13 PM
REPRESENTATIVE SADDLER recalled the figure of $578,000 and asked
whether this is what Alaska receives or generates in fees.
MR. JOHNSON answered that the DMV collects $578,000 annually
from boating registration fees. He related that the program
receives a portion of the fees collected and the DMV uses a
portion to cover its administrative costs.
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 301.
3:45:08 PM
REPRESENTATIVE JOHNSON moved to report HB 301 out of committee
with individual recommendations and the accompanying fiscal
note. There being no objection, HB 301 was reported from the
House Labor and Commerce Standing Committee.
3:45:44 PM
The committee took an at-ease from 3:45 p.m. to 3:48 p.m.
HB 252-INCOME TAX EXEMPTION
3:48:41 PM
CHAIR OLSON announced that the next order of business would be
HOUSE BILL NO. 252, "An Act exempting certain small businesses
from the corporate income tax; and providing for an effective
date."
3:48:51 PM
REPRESENTATIVE MIA COSTELLO, Alaska State Legislature, explained
that HB 252 would exempt certain "qualified small businesses"
with aggregate assets of $50 million or less from the state's
corporate income tax. The industries that would qualify
dovetail with the federal C Corporations identified in section
1202 of the Internal Revenue Code (IRC). These corporations are
defined as ones using 80 percent or more of their assets in the
active conduct of their businesses. The types of companies the
bill is designed to encourage include intellectual property,
software industry, and innovation. The reason the state is
trying to attract the C Corporations is because they have the
ability to attract unlimited investors. The federal legislation
allows for investors to be exempt from capital gains tax if they
keep the funds in the company for at least five years. Alaska
has found that many companies avoid filing as a C Corporation to
avoid the fifth highest corporate tax in the country, or 9.4
percent rate on $90,000 in earnings. Instead, these
corporations have been filing as S Corporations, which has
limited investors. This bill aims to attract industries to
Alaska that are not currently here and to attract the investment
that comes with those startups.
3:51:25 PM
REPRESENTATIVE JOHNSON made a motion to adopt Amendment 1
labeled 27-LS1085\M.2, Nauman, 2/17/12, which read, as follows:
Page 1, lines 10 - 11:
Delete "that is actively engaged in a qualified
trade or business"
Insert "and that meets the active business
requirement in 26 U.S.C. 1202(e) as that subsection
read on January 1, 2012"
Page 1, line 14:
Delete "AS 46.20.012"
Insert "AS 43.20.012"
Page 2, lines 5 - 15:
Delete all material.
Renumber the following paragraph accordingly.
Page 2, following line 18:
Insert a new paragraph to read:
"(1) "Alaska corporation" means a
corporation that has been incorporated in the state or
is authorized to do business in the state;"
Page 2, lines 19 - 20:
Delete "(1) "aggregate gross assets," "parent-
subsidiary controlled group," "qualified small
business," and "qualified trade or business""
Insert "(2) "parent-subsidiary controlled group"
and "qualified small business""
Page 2, line 21:
Delete ";"
Insert "."
Page 2, lines 22 - 27:
Delete all material and insert:
"* Sec. 3. AS 43.20.012 is repealed and reenacted
to read:
Sec. 43.20.012. Limitation on application of
chapter; credits. The tax imposed by this chapter does
not apply to individuals or to fiduciaries. However,
an individual may file a return under this chapter to
receive a tax credit under AS 43.20.013.
* Sec. 4. Sections 1 and 2 of this Act take effect
July 1, 2012.
* Sec. 5. Section 3 of this Act takes effect
July 1, 2023."
CHAIR OLSON objected for the purpose of discussion.
3:51:52 PM
REPRESENTATIVE COSTELLO explained that page 1 lines 1-4 of the
Amendment 1 would incorporate subsection (e) of Internal Revenue
Code (IRC) section 1202 that requires at least 80 percent of a
qualifying business' assets must be used in the active conduct
of the business. The next change on page 1, lines 6-8 corrects
a typographical error. She then referred to page 1, lines 10-
11, which would remove the requirement that qualifying
businesses file a report documenting their eligibility for the
exemption.
3:52:14 PM
REPRESENTATIVE HOLMES related her understanding that this change
is being made since the corporation has previously filed the
information with the federal government and this would be
duplicative.
REPRESENTATIVE COSTELLO agreed.
3:52:23 PM
REPRESENTATIVE COSTELLO referred to page 1, lines 15-18, which
removes the requirement that a qualifying business be
headquartered in Alaska to avoid potential violations of the
Equal Protection and Interstate Commerce Clause of the U.S.
Constitution. The bill originally required the business to be
headquartered in Alaska, but that provision was changed to
require the work be conducted in Alaska. The next changes would
delete definitions no longer used in the statute and corrects
the punctuation. Finally, a sunset provision was added to the
bill so the program would sunset July 1, 2023.
3:53:21 PM
CHAIR OLSON removed his objection. There being no father
objection, Amendment 1 was adopted.
3:53:55 PM
JOSH WALTON, Staff, Representative Mia Costello, Alaska State
Legislature, stated that HB 252 would provide state corporate
tax exemptions for qualifying small businesses as the term is
defined in IRC code section 1202. That section is meant to
encourage investment, in particular, venture capital investment
targeted at startup companies involved in research and
development, innovation, intellectual property, and software
development. These are the sorts of companies that represent a
very fast growing sector. He offered that if the state wishes
to diversify its economy, one way is to branch out into sectors
that will grow quickly. Thus this bill would help to diversify
Alaska's economy. Although this bill offers an exemption it is
an exemption that will not last forever. In order to qualify
for an exemption under IRC Section 1202 a company must have less
than $50 million in aggregate gross assets. Additionally, 80
percent or more of its assets must be used in the active conduct
of the business, which he related as a significant hurdle to
overcome. However, special provisions in the tax code allow
research costs, startup costs, and experimentation costs to be
counted toward the 80 percent, which helps these companies
engaged in those activities crest that bar a little easier. He
suggested that in practice Section 1202 has been used most
effectively to encourage investment in companies that tend to be
more innovative or research-based ones.
3:57:16 PM
MR. WALTON pointed out that a number of industries are excluded.
The sponsor has received anecdotal information, such that
venture capitalists seek vehicles in which to invest. Very few
opportunities exist since the high-growth company must be a C
Corporation, which is the only corporate class structure that is
not a pass-through corporation, but one that maintains its own
corporate income tax liability. As the sponsor previously
mentioned, the state has the fifth highest corporate tax rate in
the U.S. He stated that entrepreneurs in Alaska desiring to
start an innovative driven company will look to states such as
Montana since its corporate taxes are much lower. He explained
that the companies tend to be highly mobile, with few
geographical constraints. Thus the state has an opportunity to
attract these businesses to Alaska, except for the high tax
rates.
3:59:09 PM
REPRESENTATIVE SADDLER asked for the types of industries that
are exempt under the IRC Section 1202.
MR. WALTON related that currently there are not many examples of
companies in Alaska, but nationwide the companies tend to be
technology based companies such as bio-tech, information
services, computer networking, software, and a wide variety of
companies seeking to develop new products.
4:00:36 PM
REPRESENTATIVE SADDLER asked whether the types of companies the
state is trying to attract would be companies such as Hewlett
Packard or Apple were startup companies thirty years ago.
MR. WALTON answered yes.
4:00:48 PM
MR. WALTON said that it may seem unusual that this issue is a
problem in Alaska since other types of corporate structures such
as the limited liability corporations (LLC) or S corporations,
which are pass-through entities exist. He offered that start up
activity occurs in businesses using those structures; however,
the problem is that severe limitations exist on who can invest.
He explained that the amount of capital that can be raised is
limited. Therefore, if a company seeks to be the next Google or
Apple, they must have the ability to raise a lot of capital very
quickly and to do so require lots of shareholders. He pointed
out that S Corporations are limited to 100 shareholders with one
class of stock and other companies cannot invest in the
corporation. He concluded that a corporation must be a C
Corporation in order for a venture capital firm to invest in the
company. He hesitated to suggest that Alaska is less than a
welcoming place for entrepreneurs, because it is welcoming;
however, Alaska's tax structure is not particularly friendly to
those companies that want to grow quickly and become publically-
traded companies. He characterized this bill as one that would
create a nursery for companies that will eventually outgrow
their exemptions and become taxpayers.
4:02:37 PM
REPRESENTATIVE MILLER asked whether a small company which has
not incorporated could qualify under the bill.
MR. WALTON answered that this exemption relates only to C
Corporations.
REPRESENTATIVE MILLER asked whether a preponderance of work
would be performed in Alaska under the bill.
MR. WALTON answered that a C Corporation's corporate tax
liability depends on the business activities performed in
Alaska. If a corporation carries out all of their activities
and meets the overall criteria for the exemption, then all of
their activities would be exempted. He explained that
originally the bill required companies to be headquartered in
Alaska, but the Department of Law advised that doing so violated
the Interstate Commerce Clause and Equal Protection Clauses of
the U.S. Constitution so those provisions were removed. Thus a
1202 C Corporation headquartered anywhere would be eligible for
activities in Alaska.
4:04:33 PM
CHAIR OLSON recalled that in the past six years the committee
has had bills similar to this with the commonality that Alaska
has been working to be competitive with other states that
currently have advantages over Alaska. He inquired as to
whether he was aware of any other states beyond Montana that
Alaska has competing with who would be affected by this bill.
MR. WALTON did not recall who is on bottom of the list in terms
of income tax. He recalled that this would be the only program
in the country of this type. In response to Chair Olson, he
agreed that Alaska would be considered innovative. Alaska would
move from being the fifth least encouraging environment to being
tied for first place if not outright becoming first place in the
nation.
4:06:29 PM
TYLER ARNOLD, Founder, Tyler Systems; Chief Executive Officer,
SimplySocial, Inc., stated that SimplySocial, Inc. provides
social media services. He explained that he is a 19-year old
entrepreneur born and raised in Anchorage, Alaska. He stated
that he was 16 years old when he started his first information
technology company, Tyler Systems, which won the SBA young
entrepreneur of the year award in 2011. His current startup,
SimplySocial, Inc. brings together a global team all a part of a
1202 C Corporation founded in Alaska. The C Corporation status
allows his company to be more attractive to investors and is
geared towards international business. It allows the company to
be a high growth company. They may be global, but act local.
He suggested that Alaska has one of the highest corporate income
tax rates in the country. This bill, HB 252, would remove the
burden but would strengthen the global competitiveness. He said
he is currently in Romania working with the team until we all
come to Alaska in April to launch our project publically the end
of April. He hoped to show the global co-founders that Alaska
plays to our advantage and is an easy place for startups to call
home. He thanked the committee. In response to a question
about the good reception, he answered that he is using Skype.
4:08:38 PM
REPRESENTATIVE SADDLER asked if he had considered going to
anyplace else in the nation for either of his businesses.
MR. ARNOLD answered no. When they founded their company last
October, the founders understood Alaska could be one of the
first to consider the IRC Section 1202 exemption. He related
that the legislators and venture capitalists in Silicon Valley
were not considering the exemption. He explained that they did
not look at any other states due to the exciting prospects of
this bill. In response to a question, Mr. Arnold advised that
Romania is 11 hours ahead of Alaska's time zone.
4:09:56 PM
JOHNATHAN BITTNER, Director, Business and Economic Development;
Anchorage Economic Development Corporation (AEDC) expressed
support for HB 252. The company does a lot of local and
national outreach to generate support for Anchorage and Alaska
as a place to do business and to incorporate a business. The
competition is very fierce among other states who are working to
provide incentives to attempt to attract businesses. Anchorage
is a good place to do business, but tools like HB 252 are
crucial in terms of placing Alaska at the forefront. He
reiterated AEDC's support for the bill.
ALLAN R. JOHNSTON, Chief Encouragement Officer, Team Network,
Inc. stated that he has been with Wedbush Securities Inc. for 35
years and regional manager for most of that time. He said that
he is now transitioning into his encore career. He has raised
three children in Alaska. He offered that his focus has been to
assist youth in creating and focusing on jobs in Alaska. He has
been involved in the Alaska Business Plan, which is a
competitive and cooperative effort between the University of
Alaska (UAA), Alaska Pacific University (APU), and University of
Alaska Fairbanks (UAF). The focus has been to break barriers
and work collectively, to help students think globally, and to
heighten their aspirations of what they can accomplish. He
helps them identify problems and be part of the solution in
Alaska instead of using a business model developed outside
Alaska. He has observed the opportunities and quality of living
in Alaska. He has also viewed HB 252 as a vehicle and means to
attract people who love outdoors an opportunity to move their
small companies, children, and families to Alaska - a state that
has a quality of life second to none. This bill has
specifically been geared to use a C Corporation instead of an
LLC or S Corporation.
MR. JOHNSTON offered his belief that HB 252 is also geared for
those seeking national and international markets whose
competitor is not just across the street. This gets back to the
whole idea of raising aspirations of what can happen in Alaska.
He recalled Irv Long, who designed the thermal tubes on the
Trans-Alaska Pipeline System (TAPS). He mentioned that two-
thirds of the wellspring drills in Vermont siphoning and heat
tubes and many of the initial patents were filed by people
including Joe Balash. He also pointed out Ed Clinton, Dowland-
Bach, Inc., with respect to his work on control valves. He
emphasized that Alaska should have been exporting intellectual
property for years. He offered his belief that HB 252 could
help bring national and international interest due to its
quality of life and as a state that is also focused on national
and international opportunities. He shared that he is very
passionate about this and recognizes HB 252 as a tool, noting
several tools are being developed. He hoped Alaska could train
people to use these tools. He said he is so impressed with
Jonathan Bittner's startup for software companies, noting that
32 people representing six startup software companies
characterized the startup process as the most exciting process.
He expressed excitement over what has been happening in in
Alaska in the past year. He offered his belief that HB 252
could help create a phenomenal opportunity for Alaska at little
to no cost or perhaps even a negative cost.
4:16:15 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 252.
REPRESENTATIVE JOHNSON moved to report HB 252, as amended out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 252(L&C) was
reported from the House Labor & Commerce Standing Committee.
HB 300-GEOGRAPHIC COLA FOR JUSTICES AND JUDGES
4:20:13 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 300, "An Act relating to geographic cost-of-
living salary adjustments for justices of the supreme court and
judges of the superior and district courts; and providing for an
effective date."
4:20:37 PM
DOUG WOOLIVER, Deputy Administrative Director, Administrative
Staff, Office of the Administrative Director, Alaska Court
System, stated that this bill was introduced by the House Rules
Committee at the request of the Alaska Supreme Court. This bill
would update the geographic pay differentials that apply to
judges' salaries to bring them in line with the same formulas
that apply to other state employees. Under current law
employees in the executive branch and those in the judicial
branch who are not judges receive a geographic differential
which is applied to their salary based on a formula that
calculates a cost-of-living in various communities where they
live. A geographic differential can vary from 6.3 percent in
Sitka to 36.92 percent in Kotzebue, Barrow, and Nome. He
pointed out two caps on the geographic differential that judges
receive limits any increase to less than five percent of a
geographic differential for a limit on the total of $7,000 on a
Superior Court judge's salary. This does not offset actual
costs of living in most rural communities. He compared the
$7,000 to approximately $30,000 to $35,000 in geographic
differential other state employees may receive. The legislature
has recognized geographic differential as a means to compensate
individuals living in rural Alaska who face staggering costs.
He emphasized the point of a geographic differential is to
adjust salaries statewide on an equal basis. He referred to a
McDowell study that showed the cost of living was 60 percent
higher in Kotzebue than in Anchorage.
4:23:07 PM
MR. WOOLIVER pointed out that judges in Anchorage receive
substantially more in salaries than judges receive in Kotzebue.
The first geographic differential bill passed the legislature in
1966 and geographic differentials have existed since then. He
characterized this bill as the right thing to do for employees
and for judges. Rural judges should be treated adequately. He
illustrated one problem in rural Alaska has been to attract
sufficient applicants to serve, in particular, in communities
such as Bethel. Currently, a Superior Court judge position is
vacant. The Alaska Judicial Council did not receive enough
names the first time it solicited applicants so it is starting
over to find sufficient, qualified applicants. However, this
issue is not just an issue for Bethel. In 2013, Ben Esch, who
has served as Superior Court judge in Nome for 17 years will
retire. He is the longest serving judge in Nome's history. In
2014, Mike Jeffrey will retire. He has been the longest serving
Superior Court judge in our state's history. He stressed the
importance of finding qualified committed applicants. He
pointed out numerous hurdles exist to attract people to live in
rural Alaska, and one barrier has been a lack of any realistic
geographic differential since rural judges lose out compared to
urban areas. The geographic differential does not apply to
judicial retirement since a judge's retirement is based only on
base salary. This bill is limited to geographic differential.
4:25:53 PM
REPRESENTATIVE SADDLER asked whether it is problem to recruit or
retain judges in rural Alaska.
MR. WOOLIVER explained that it hasn't been a problem to retain
judges but it has been difficult to attract them. He further
explained that the most recent vacancy in Bethel, the Judicial
Council did not receive enough applicants to send two names of
qualified candidates to the governor. He was unsure if this
bill has had an effect in attracting candidates, but the
Judicial Council has received substantially more applicants
during the second solicitation.
4:27:20 PM
REPRESENTATIVE SADDLER understood the chronological cap, but he
asked for the length of time a judge must serve to qualify for a
state retirement.
MR. WOOLIVER offered his belief that it takes five years to
obtain vesting, but judges are fully vested at 15 years, and
Alaska's Constitution does require retirement at age 70.
4:27:48 PM
REPRESENTATIVE SADDLER referred to the committee members' bill
packet with the geographic differential. He questioned why
Anchorage is not listed and asked if it is zero.
MR. WOOLIVER answered yes.
REPRESENTATIVE SADDLER offered his belief that Fairbanks is not
treated well in terms of cost-of-living. He inquired as to
whether the rates are indexed to the inflation rate.
MR. WOOLIVER answered no. He explained that the chart in
members' packets is somewhat complicated. The section shows
Fairbanks at 15.2 percent, which is the non-covered geographic
differential. He offered that is the statutory rate that
applies to members of the executive branch who are not covered
by collective bargaining agreements. That rate hasn't changed
in years, he said. He pointed out that the three percent amount
listed two columns over on the chart represents the most recent
union negotiated contracts that adopted per the 2008 McDowell
study figures.
4:29:18 PM
REPRESENTATIVE MILLER inquired as to how many judges would be
affected by the bill.
MR. WOOLIVER answered that 23 Superior Court judges and 11
District Court judges would be affected for a total of 34
positions.
CHAIR OLSON anticipated a potential amendment to the bill would
be forthcoming.
[HB 300 was held over.]
4:31:07 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:31 p.m.