Legislature(1995 - 1996)
04/11/1995 08:07 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE April 11, 1995 8:07 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative Scott Ogan, Vice-Chair Representative Joe Green Representative Brian Porter Representative Caren Robinson Representative Ed Willis MEMBERS ABSENT Representative Ivan Ivan COMMITTEE CALENDAR SB 92: "An Act requiring that, in addition to its operating budget, all activities of the Alaska Housing Finance Corporation are subject to the Executive Budget Act." PASSED OUT OF COMMITTEE *HB 241: "An Act relating to the use of a candidate's campaign account." HEARD AND HELD HB 232: "An Act establishing an economic development tax credit; and providing for an effective date." PASSED OUT OF COMMITTEE (* First public hearing) WITNESS REGISTER JOHN BITNEY, Legislative Assistant to Representative Terry Martin Alaska State Legislature State Capitol Building, Room 502 Juneau, AK 99801-1182 Telephone: (907) 465-3783 POSITION STATEMENT: Testified on SB 92 DAN FAUSKE, Corporate Executive Officer Alaska Housing Finance Corporation P. O. Box 101020 Anchorage, AK 99502 Telephone: (907) 564-9326 POSITION STATEMENT: Testified on SB 92 REPRESENTATIVE CON BUNDE Alaska State Legislature State Capitol Building, Room 108 Juneau, AK 99801 Telephone: (907) 465-4843 POSITION STATEMENT: Sponsor Statement for HB 241 BROOKE MILES, Juneau Branch Administrator Alaska Public Offices Commission 240 Main Street, Room 201 Juneau, AK 99801 Telephone: (907) 465-4864 POSITION STATEMENT: Testified on HB 241 PREVIOUS ACTION BILL: SB 92 SHORT TITLE: AHFC SUBJECT TO EXEC. BUDGET ACT SPONSOR(S): RULES BY REQUEST OF LEGISLATIVE BUDGET AND AUDIT JRN-DATE JRN-PG ACTION 02/21/95 349 (S) READ THE FIRST TIME - REFERRAL(S) 02/21/95 349 (S) STA, FIN 02/28/95 (S) STA AT 03:30 PM BELTZ ROOM 211 02/28/95 (S) MINUTE(STA) 03/01/95 436 (S) STA RPT 4DP 03/01/95 436 (S) ZERO FISCAL NOTE (REV #1) 03/15/95 617 (S) FIN RPT 6DP 1NR 03/15/95 617 (S) PREVIOUS ZERO FN (REV #1) 03/15/95 (S) FIN AT 09:00 AM SENATE FINANCE 532 03/15/95 (S) MINUTE(FIN) 03/16/95 (S) RLS AT 12:00 PM FAHRENKAMP RM 203 03/16/95 (S) MINUTE(RLS) 03/17/95 664 (S) RULES TO CALENDAR 3/17/95 03/17/95 666 (S) READ THE SECOND TIME 03/17/95 666 (S) ADVANCED TO THIRD READING UNAN CONSENT 03/17/95 666 (S) READ THE THIRD TIME SB 92 03/17/95 666 (S) PASSED Y18 N- E2 03/17/95 679 (S) TRANSMITTED TO (H) 03/20/95 802 (H) READ THE FIRST TIME - REFERRAL(S) 03/20/95 802 (H) STATE AFFAIRS, FINANCE 03/30/95 (H) STA AT 08:00 AM CAPITOL 102 03/30/95 (H) MINUTE(STA) 04/04/95 (H) STA AT 08:00 AM CAPITOL 102 04/04/95 (H) MINUTE(STA) 04/04/95 (H) MINUTE(STA) 04/06/95 (H) STA AT 08:00 AM CAPITOL 102 04/11/95 (H) STA AT 08:00 AM CAPITOL 102 BILL: HB 241 SHORT TITLE: NO PERSONAL USE OF CAMPAIGN ACCOUNT SPONSOR(S): REPRESENTATIVE(S) BUNDE,Rokeberg JRN-DATE JRN-PG ACTION 03/08/95 642 (H) READ THE FIRST TIME - REFERRAL(S) 03/08/95 642 (H) STATE AFFAIRS, FINANCE 03/10/95 713 (H) COSPONSOR(S): ROKEBERG 04/06/95 (H) STA AT 08:00 AM CAPITOL 102 04/11/95 (H) STA AT 08:00 AM CAPITOL 102 BILL: HB 232 SHORT TITLE: ECONOMIC DEVELOPMENT TAX CREDIT SPONSOR(S): REPRESENTATIVE(S) KOTT JRN-DATE JRN-PG ACTION 03/06/95 590 (H) READ THE FIRST TIME - REFERRAL(S) 03/06/95 590 (H) ECD, STA, L&C, FINANCE 03/21/95 (H) ECD AT 09:00 AM CAPITOL 17 03/21/95 (H) MINUTE(ECD) 03/22/95 850 (H) ECD RPT CS(ECD) 6DP 03/22/95 850 (H) DP: KELLY,MOSES,MACLEAN,KOHRING 03/22/95 850 (H) DP: SANDERS, ROKEBERG 03/22/95 850 (H) INDETERMINATE FISCAL NOTE (REV) 03/22/95 850 (H) FISCAL NOTE (DCED) 04/04/95 (H) STA AT 08:00 AM CAPITOL 102 04/04/95 (H) MINUTE(STA) 04/06/95 (H) STA AT 08:00 AM CAPITOL 102 04/11/95 (H) STA AT 08:00 AM CAPITOL 102 ACTION NARRATIVE TAPE 95-46, SIDE A Number 000 CHAIR JEANNETTE JAMES brought the meeting to order at 8:05 a.m. and announced that the Anchorage LIO was on teleconference, listening. She asked who the person was who would be testifying on SB 92. SB 92 - AHFC SUBJECT TO EXEC. BUDGET ACT Number 019 JOHN BITNEY, Legislative Assistant to Representative Terry Martin, introduced himself as the staff to the Chairman of the Legislative Budget and Audit Committee. As he stated, at their last LBAC meeting a testifier from the Department of Revenue raised some concerns about SB 91. They had some proposed language to submit to the House State Affairs Committee that would address their concerns about exemptions, procedures and financing, and mechanisms that would allow them to take advantage of bonding opportunities in the market, for one. CHAIR JAMES said this bill had a blank committee substitute (CS), and asked if everyone had a copy of it. Number 059 REPRESENTATIVE SCOTT OGAN asked if Mr. Bitney could give an analysis of the CS, and the changes. MR. BITNEY explained that the language of the CS was prepared by the Administration, or a representative of the Governor's office. He said he was not involved in drafting the language, so he encouraged the committee to let the drafters speak on that; they could explain it better. Number 070 CHAIR JAMES noted that she had requested the work draft. The changes to the work draft on page 2, came from the Administration. This was to give an exemption to normal business routines. MR. BITNEY said there are exemptions that begin on line 5, page 2. They defined what is on the outside of the procedures of the Executive Budget Act for the corporation. Line 7 signifies the things the representative from the Department of Revenue had pointed out that would allow them to take advantage of various bonding opportunities in the bond market. The corporation's borrowing of money is exempted from the review procedures of the Executive Budget Act. Line 11 asks basically that the loan programs available for long programs, where no subsidy is provided, be on the outside. Section C is exempted from multi-family projects, where they take advantage of various tax credit opportunities, or arbitrage earnings. Arbitrage earnings are purchases of securities on one market for immediate resale on another market in order to profit from a price discrepancy. REPRESENTATIVE OGAN asked if the sponsor agreed with the amendments. MR. BITNEY answered that the sponsor was there at the pleasure of the Labor and Audit Committee. The concerns brought up there were the concerns that the committee brought up at the last hearing. CHAIR JAMES said for the record, that Representative Caren Robinson arrived at 8:10 a.m. REPRESENTATIVE JOE GREEN said that he moved they adopt the unmarked House CS for SB 92 as the working copy. There being no objections, the unnumbered CS was adopted. Number 160 DAN FAUSKE, Chief Executive Officer, Alaska Housing Finance Corporation, testified in support of SB 92. He said it represented a workable solution for them. The bill considers issues, such as subsidized mortgage programs, that raised such concern. It does not tie their hands in reference to entering the capital market, to continue the bond portfolio in the loan programs. He saw the language as healthy, and said it was a situation that the AHFC could live with. It also met requirements and needs that the legislature stated. REPRESENTATIVE GREEN said when they last met they discussed item "C," which was the $10 million, and his recollection was that Mr. Fauske did not have any problem with that either. MR. FAUSKE concurred that it was not something they couldn't live with. He said the original statement applied to bonded indebtedness. In a bond portfolio $10 million would be rather restrictive. The new language is fine. Number 180 CHAIR JAMES recalled that a resolution was drafted for a title change, but it was not in her folder. Her committee aide questioned if a title change was necessary, and the consensus of the committee was that it was necessary. She asked her aide to check that out. REPRESENTATIVE CAREN ROBINSON wondered if AHFC would prefer that things stay as they are. She asked if operations would be better if things remained as they were, or if this legislation would help their operation. She said Juneau builders were unhappy with this bill originally. MR. FAUSKE said his personal assessment was that the legislation would help to enhance relations with the legislature. It would make his job easier, so he viewed it as a win-win situation. It puts everyone in a situation where healthier dialogue can happen, so that will be good. REPRESENTATIVE ROBINSON brought up that the local Juneau Home Builders Association did not like this bill originally, and wondered if Mr. Fauske would think they would be happy with the changes. MR. FAUSKE said he thought they should like the changes. He felt this legislation allowed a great deal of flexibility. When they get into projects of over $10 million, which are few, so they do not come before them very often. There is a long lead time to give them adequate time to get before their constituency and the legislature for dialogue. It changes the operation style somewhat, but not enough to impede the organization's ability to carry out its missions. Mr. Fauske said it would be all inclusive in the sense that many of the programs fall under the capital budget as representative of the Family Home Loan Program. He thought it would increase the oversight, and also, it would not lead to situations as in the past, such as the 5 percent on the subsidies. It removes the subsidized loan programs. That program created confusion and concern. It strengthens the legislature's oversight activity, or review of projects, so the changes are good. Big bond issues are reviewed and those are not impaired by this. CHAIR JAMES said she would like to move the bill out of committee and asked for a motion. Number 252 REPRESENTATIVE JOE GREEN moved that they pass the House CS for SB 92 as amended out of committee, with individual recommendations and attached fiscal note. He was referring to the CS they adopted as the working draft. Hearing no objections, the motion passed. REPRESENTATIVE PORTER moved to pass HCR unnumbered, 9-LS1029/A, dated 4/3/95. There being no objections, the motion passed. CHAIR JAMES said that the resolution for the title change would also be passed out. HB 241 - NO PERSONAL USE OF CAMPAIGN ACCOUNT Number 275 REPRESENTATIVE CON BUNDE, sponsor of HB 241, provided his sponsor statement to the committee. He said his least favorite part of public service is having to raise money for campaigning. Another concern he had was how people have reacted to fund raising. Many will gladly support their candidates, yet they resent the idea that, at some point, the surplus funds could be taken as personal income. Citizens who contribute to campaigns or to nonprofit organizations usually want to know where their money is expended. So, HB 241 will increase the accountability of candidates funds, and this will facilitate and increase the publics trust. REPRESENTATIVE BUNDE explained that this bill provides new choices for the disposal of surplus campaign funds after a candidate elects not to run for office again. These choices are not currently available to them. Contributions given to candidates, whether before, during or after campaigns, are given by people who want that candidates representation; also, they wish to participate in representative government. Campaign funds are raised annually from the same supporters, and it can result in a surplus of funds that can be used in future campaigns, or taken as personal income if the candidate elects not to run again. HB 241 provides for surplus funds to be given to charities, repaid to contributors, contributed to other candidates, political parties or groups supporting ballot propositions, or given to the general fund. It cannot be taken as personal income. This legislation would change what has been formerly allowed in regard to surplus funds. The use of campaign funds as personal income or as office allowance funds will not be an available choice for the disposal of surplus funds. He added that he doubted anyone in the room has surplus campaign funds, but it has been known to happen. REPRESENTATIVE GREEN brought out, first, that this may not hold for candidates who ran unopposed in the last election. Representative Green added that it could be a campaign strategy. He pointed to Item four, where it said the interest must be left in the account, which, in most cases, is reportable as taxable income. He asked if Representative Bunde was saying to leave the money in, but pay the tax on the interest. REPRESENTATIVE BUNDE said if a candidate chose to end his campaign there is no provision against repaying loans to your campaign. As for the interest he did not think it was reportable for tax purposes. As long as the money remained in the account and was not used as personal income the candidate did not have to pay tax on it. CHAIR JAMES said that somebody has to pay. A social security number is on the account, and whomever the social security number belongs to is responsible to pay taxes on the interest. REPRESENTATIVE BUNDE thought that as long as the accrued interest is left in the campaign account, and it is used exclusively for campaign activity, it is not taxable. REPRESENTATIVE PORTER agreed. If portions of the total are withdrawn for personal use it would then be taxable. He believed the interest is treated as a campaign contribution. REPRESENTATIVE BUNDE pointed out that this legislation does not change the existing law; candidates are required to leave the interest in the account now. CHAIR JAMES stated that the interest on that account will be reported to the candidate on a 1099 tax form. REPRESENTATIVE GREEN concurred, and stated that the interest on the account, wherever they have the funds, is reported as income. CHAIR JAMES asserted that they would have to report the amount of interest with an explanation of why it is not taxable. REPRESENTATIVE PORTER agreed that was true; however, he would have to check it out. His recollection was that interest is treated as a campaign contribution and is not taxable. Number 385 REPRESENTATIVE BUNDE told the Chair he just had his taxes done, and he was told by the CPA who does the taxes, that they wanted to know what the funds are. It is reported as income kept in a campaign account, but there is no tax liability to the candidate. He stressed that HB 241 does not change the existing regulation on tax laws. Number 397 REPRESENTATIVE PORTER had a question about the language on the first page of the bill where it says that the candidate can give the surplus funds to charity. He recommended they define charity. It would eliminate candidates from naming family members and friends as charity cases. REPRESENTATIVE BUNDE agreed he had a good point. CHAIR JAMES mentioned a 501C3 definition of qualifying charity. REPRESENTATIVE PORTER asked about last section of the bill, beginning at the end of line 22. It says: The Campaign shall report the disposal of any item worth at least $1000 at the time of acquisition. Representative Porter also asked to whom this item must be reported. Number 420 REPRESENTATIVE BUNDE said it was referring to a purchase costing more than $1000, then disposing of it later. It was brought out that the reports before them were referring to APOC. He added that building public confidence and filling loop holes to reduce opportunities to pocket money when reselling of high ticket items after going out of office, is what they are talking about. REPRESENTATIVE ROBINSON wondered if there had been a major problem with candidates pocketing money. She was not fighting this bill, but she wanted to stress that not everyone could afford to take six months off work to campaign for office. Some people are less privileged and do not have political money to finance them. She urged the committee to be careful about what they are saying, and to be sure they really wanted such tight restrictions for candidates leaving office. She would not like to see candidates taking political money illegally, but she thought it should be up to the people contributing their money. Some people need more help than others during an election. Number 477 REPRESENTATIVE BUNDE said they seemed to be talking about two different kinds of people. Nothing in this legislation would prevent a new person running from paying for lunches and so forth. This bill aimed at a different kind of person, namely persons who have achieved power and influence. Contributors often do not feel they have the flexibility to contribute or not. If they do not there might be retribution. Even if there is not, the concern is there. He pointed out that ongoing campaign expenses are not addressed. Also, when someone decides not to run for office again, there is a question about how to dispose of that money, such as a surplus of $60 or $70 thousand. Contributors normally do not intend for their contributions to be used as income. Number 524 REPRESENTATIVE ROBINSON spoke of herself when she was a new candidate, and at the end of the campaign she had a surplus of $2 thousand. She lost the campaign and was struggling to find a job. As she understood it, she could not use that surplus of $2 thousand to live on until she found work. REPRESENTATIVE BUNDE stated that she was correct in her assumption that she could not use the money. REPRESENTATIVE ROBINSON did not have a problem with saying a candidate whos been in office for five, ten or twelve years, with a surplus of $60 thousand, cannot take all of that as personal income. It could go back to a political party of their choice, a particular charity of their choice, or back to the contributors. Her concerns were the first time people who are just getting started. Running for office is an incredible strain on the family, even for families with two incomes. Number 550 REPRESENTATIVE BUNDE concurred. He realized that campaigning is a strain and he understood Representative Robinsons concern. To open the door, however, to personal income, and to those people who are accustomed to a life style that is several hundred thousand a year, might say they should be allowed to take extra $60 thousand just as the less privileged person would about taking $2 thousand. REPRESENTATIVE ROBINSON wondered what would stop anyone from pocketing surplus funds. She did not believe this bill would stop them. REPRESENTATIVE BUNDE said this legislation will not stop this, yet if candidates continue to raise funds and have surplus funds it will go into the political process somewhere and not into their pocket. He thought they might become less ambitious, perhaps, about fund raisers. Number 610 REPRESENTATIVE OGAN said he was supportive of this bill. He said he knew some long time legislators who retired with significant amounts of money in their campaign accounts. He is interested to see the next APOC report. He said they would spend what they had last year, then what they raised this year kept building up for retirement. This is a good bill, since it will end that activity. REPRESENTATIVE PORTER said, for the record, if the bill passed it would capture existing campaign accounts. It would not start with campaign contributions after the effective date. Number 661 CHAIR JAMES said she is one who has worked on reduced government. What we do in this country is make laws to fit the few and inhibit the many. We do it consistently. She said we also have the attitude that candidates and legislators are cleaning up. People complain about the per diem and say legislators should not take it. Some people probably do not need the higher per diem rate, while others do. The solution they think is to put everyone at the same level, and in the process they could squeeze people out from the bottom. She had concerns about that. She would like to see how big of an infraction it is, and if it inhibits the political process or makes it dirtier. Chair James reflected on what Representative Robinson said, and she would visualize a political process opened to everyone, whether or not they are financially able. A campaign takes its toll, whether the candidate wins or loses, and her belief was that after a person has been in the process for a while, and they have accumulated a war chest, that it should be treated differently. CHAIR JAMES noted on the 1994 APOC report that only one was very large. However, she said she could see a person with a family being down and out by the end of the campaign. She did not feel comfortable with that, and could not take a position one way or another on the bill. She said she was happy to move the bill out, but she had concern about it. It is the same old practice of getting to a few and then inhibiting the many. REPRESENTATIVE OGAN shared Chair James concerns. He ran one of the most frugal campaigns, maybe in history. He spent a total of $5 thousand to get elected. He is not a rich man; he is a working man with a small business. If he had not won, he would probably still be working to catch up. So, he was wondering if setting some limits would be workable. There are long-time political types that run year after year; they hold fund raisers and take in huge donations and build up a retirement account. Representative Ogan wondered if they should consider some kind of amendment to set a dollar amount. It could allow people on the lower end who run for office the ability to recover some expenses for time out of work. Number 633 REPRESENTATIVE BUNDE spoke about the necessity for restrictions. He knew of people who bought tires and other things that he might not consider a normal campaign expense, but this would defray the impact the actual campaign makes. As for reimbursements, it is a more difficult situation. To get to that we need the Federally Financed Campaign where everyone gets the same amount, and it comes through taxes. Most people will not be impacted by this legislation. Some people might even be negatively impacted. The goal is to re-establish public confidence in the process, and to change the perception some have that we are all getting rich here. CHAIR JAMES wished to add that although she has been here only three years, she could personally say that you give up a lot to be in this position. It is hard to say if a balance in a campaign account is not worth it for what you give up. She is cautious about this, because she doesnt want anyone to be hurt. Number 678 REPRESENTATIVE PORTER said he recently got a sheet with transfers to legislative office account. He asked if this bill would preclude that. REPRESENTATIVE BUNDE answered Yes. The reason is that legislative office accounts can be personal income. There are two ways they can take their office account money: take it and verify it with receipts, or take it in a lump and pay taxes on it. That way it is personal income. TAPE 95-46, SIDE B Number 000 REPRESENTATIVE BUNDE said that only when you stop running are you required to define the money in a campaign account as personal income. REPRESENTATIVE ROBINSON did not see that they had a definition for personal income. During the campaign she used a very small percentage of her office for her business. So, she took a percentage of that and used the money from the campaign to pay for it. The office, at that time, was 100 percent campaign. She wondered if that would be perceived as personal. REPRESENTATIVE BUNDE said that it would not. This would apply when a candidate stopped running. Number 042 REPRESENTATIVE ROBINSON still thought they should define personal income. Also, pertaining to what Representative Porter had said, she was trying to spend as little as possible of her $6 thousand and it is disappearing very quickly. She is only responding to constituents who write, who want information on different bills. REPRESENTATIVE PORTER thought they decided that charities should be defined, and he asked the sponsor to consider adding a definition of personal income that would perhaps exclude money spent for legitimate campaign or legislative activities. REPRESENTATIVE BUNDE asked if they could defer to APOC. Number 071 BROOKE MILES, Juneau Branch Administrator, Alaska Public Offices Commission, said the Commission had the opportunity to review HB 241, and thanked the Chair for the opportunity to participate. The Commission had recommendations concerning the original draft, having worked with the sponsors staff, and they came forward with the CS that is in the packets. One idea the commission had that the sponsor did not embrace was to permit transfers to an office account, but to require reporting expenditures from the transfers on their Campaign Disclosure Report. Currently, a candidate only reports the transfer on their expenditure schedule to an office account. There is no follow up reporting on how the funds were expended. That would tighten up that issue if the committee would prefer that recommendation be put back in. Ms. Miles said the commission supports this legislation. Nationwide, in all of the states and at the federal level, there have been reform acts regarding the personal use of campaign funds. This legislation simply prohibits taking surplus funds as personal income when a candidate is no longer going to be an active candidate. REPRESENTATIVE PORTER asked if his impression was correct, that a candidate could take funds as personal income. Number 134 MS. MILES answered that the campaign disclosure law would not prohibit making expenditures from the campaign account, which may be construed as personal use. Each expenditure must be listed with an explanation on the campaign disclosure, however. Candidates must list expenditures by date, check number and payee. This bill would not prohibit a single mother from paying rent or buying groceries, for instance during the course of her campaign, though she would be required to disclose this on her report (i.e., Foodland, for groceries). REPRESENTATIVE PORTER asked if Ms. Miles knew what other states provide in this area of law. MS. MILES said she was not familiar with what each state provides in this area. She directed Representative Porter to the sponsors staff, saying they could probably supply him with summaries. Number 146 REPRESENTATIVE OGAN asked if Ms. Miles was aware of anyone who retired and where there were major withdrawals from campaign accounts used as personal income. MS. MILES answered, Yes. Candidates have retired with over $100 thousand in their campaign accounts, which they took as personal income. Number 175 REPRESENTATIVE ROBINSON asked about the report Ms. Miles gave them, which Ms. Miles said was a jumbled list, and it listed the balances in campaign accounts of 60 unidentified legislators. She also reiterated her suggestion that they add a definition of personal income. MS. MILES said in statute there are existing definitions of personal income that could be incorporated. REPRESENTATIVE ROBINSON wondered if the Commission discussed the person who loses a campaign and has to use some of the finances while running to live, then had a $2 thousand surplus at the end of the campaign and needed to use that to get going again. She wondered if it was discussed or if it was more on the large left- over amounts after a person has been around for a long time. MS. MILES said this was not discussed. Many issues were discussed in past times, including the personal use of campaign funds, which is much more complex and controversial. Usually, there is not a significant surplus left in a campaign account. CHAIR JAMES asked what the committee wished to do with the bill. REPRESENTATIVE PORTER wanted to ask a question of the sponsor before making any decision. He said it appears, even though it must be reported, that there is unlimited opportunity for conversion while a person is an active candidate or active legislator. It is only that you cannot convert it if you quit. He asked what the rationale for making that distinction is. REPRESENTATIVE BUNDE said there is plenty of sunlight on campaign funds while a person is actively campaigning; the active candidate is personally responsible. When a person is no longer running the public has no more influence on them. CHAIR JAMES said, with her background in accounting, that she understands how people get around things. Her impression was that when a person is an active legislator they can take money out, and it is reportable. There is nothing stopping a person from transferring that money, but, of course, they tell the world they are doing it. If they decide not to run again and they have a large surplus of funds, say $100 thousand, they cannot take it. She wondered what would stop a person from splitting the amount, and putting some in their own savings account somewhere and leaving the rest in the campaign account. Number 272 REPRESENTATIVE PORTER thought he understood the intent of the bill, but he questioned the operative line, page 1, line 6, where it says, A candidate may not take money from the surplus balance of the candidates campaign account as personal income. He asked where the bill says this only means after he or she decides never to run again. CHAIR JAMES said the candidates report a surplus every month if they do an APOC report. REPRESENTATIVE BUNDE explained that any expenses a candidate feels they can justify to APOC, and to the public, they can reasonably pay for out of the campaign account. They cannot just take the money and put it in their pocket. REPRESENTATIVE PORTER did not see how their description of paying rent could not be personal income. MS. MILES said this issue would be different if this law goes into effect. It would be different as to making expenditures from your campaign account, which could be construed as personal use, or taking a lump sum as personal income. Taking a lump sum as personal income would be prohibited. She said writing amounts that could be construed as personal use would not be prohibited under this bill. The IRS may see it differently, however. Number 325 CHAIR JAMES said they are defining surplus balance. All the money in a campaign account that the candidate has not used is the surplus balance. Any time a person writes something, and it could be construed as personal income, they are taking it out of the surplus. She believes that is prohibited in this bill, so what this bill would do is make everything on everyones campaign report suspect as personal. In Chair James opinion, ethics violations would skyrocket. REPRESENTATIVE PORTER noted that he did not oppose this legislation; he was just trying to make it work. He thought the first sentence needed changing. Number 352 CHAIR JAMES thought the net was too big. It is not doing what the sponsor intends. MS. MILES said that when the commission considered this bill, they were limiting the scope as to an actual surplus. The first sentence could be amended to say something like: "When a candidate elects not to run for office and is ready to disperse the surplus balance in a campaign account," and it would probably remove the concerns. REPRESENTATIVE BUNDE said they should look at Section 15.13.105. He would not be opposed to adding that language, but he would speak with his staff about it. REPRESENTATIVE ROBINSON commented that they are trying to get at the person who has the $100 thousand, who is no longer going to run and takes the money to live on. They are not trying to get after the other candidates who lose the election and have a small surplus balance and who might need to use it to get their lives back in order. She suggested putting a dollar amount on this also. REPRESENTATIVE PORTER said the only thing that will do is set the level from which someone will be influenced. Some people would be influenced by $1000; others would not. If you set into statute that you can give someone a $1000, you could have a problem. REPRESENTATIVE OGAN had a question for Ms. Miles about a candidate who decided not to run for a few years, then decided to run again. MS. MILES said this would apply to people who are stopping their campaign and closing their campaign account. REPRESENTATIVE BUNDE concurred that they were not focusing on people who might decide to run again later. All they want to do is determine that people dont pocket the money. REPRESENTATIVE ROBINSON said the majority of people who are candidates continue to do that. People who lose are included, because they probably intend to run again. Number 431 REPRESENTATIVE GREEN spoke hypothetically about a candidate who had a good bank account and planned to run again. He built his campaign fund for several years, then he decided to siphon off the money and leave the country. He wondered if this bill would inhibit that type of thing. REPRESENTATIVE BUNDES response was only that you cannot take this money as personal income at any time. The other is a gray area and a candidates personal integrity keeps them out of it. REPRESENTATIVE ROBINSON asked about one change, to add definitions for charity and personal income. She would also like to see that the bill would permit transfers of money from the campaign account to the legislative account to use for public purposes. There is a running count because in the legislative account they keep an ongoing record of everything spent, so it would be public record. Number 481 REPRESENTATIVE PORTER said that was not true. The way it is now, a person can take campaign money and put it into the legislative account and transfer it as personal income; then they do not have to account for it. MS. MILES stated under current law an office holder can transfer money in one of two ways: They can transfer a lump sum to an office account, and that is all the reporting that the public gets on it; or they can write checks on their campaign account that deal directly with expenses arising from legislative offices. The public sees that they used the money for stamps, newsletters, etc., so the Commissions suggestion was if they continue to permit bulk transfers, such as $5000 to an office account, they will also request the disclosure. After speaking with Representative Bunde about what how he wished to deal with the necessary changes, Chair James said they would hold the bill over until the next meeting. Representative Bunde said he would come back with a CS. REPRESENTATIVE PORTER said his concerns about the office account and so forth would be fixed with a definition of personal income that excludes campaign or legislative expenses. One thing that bothered him was defining what some activities are. For instance, if they send out a newsletter, is it a campaign item or is it a legislative item? It probably depends on the timing. He supposed that during an election year it would be a campaign item, and other times it would be a legislative item. He would prefer campaign and legislative were defined the same. REPRESENTATIVE BUNDE agreed. Whatever they do as legislators can be considered as campaigning, and he was not concerned about using campaign expenses to pay for legislative mail-outs, nor did he feel the legislation would preclude that. Whatever they do pertaining to personal income would not countermand IRS regulations. They could use IRS regulations to define personal income. REPRESENTATIVE PORTER said he does that and he pays the tax. He would rather pay the tax and avoid the hassle. The wording about expenditures concerned him. He thought it should be reworked. Number 557 REPRESENTATIVE ROBINSON said would like the charity concept to be broader. She brought up a donation to the Police Department for the teddy bear program. What she was concerned about was the definition of charitable organization. She would like to give money to the school district for student activities, but she wondered if that would fit. REPRESENTATIVE BUNDE brought up that if you give money to an individual, or to a relative, it is not a charity. CHAIR JAMES added that you can give donations to an organization, but not directly to a person and consider it as a charitable donation. REPRESENTATIVE OGAN wondered if they should consider giving a minimal amount that a person can use after a campaign to get started again. It might be worth helping the people who are not so privileged but want to run for office, as compensation. REPRESENTATIVE BUNDE sympathized with the goal, but he saw problems. He wondered how many first time people who run and lose will have a positive balance. He said they might encourage some people to win an election just for the money. CHAIR JAMES thought Representative Bunde had plenty of instructions, so she suggested that he return to the next meeting with a new CS. HB 232 - ECONOMIC DEVELOPMENT TAX CREDIT ROD MOURANT, Administrative Assistant to Pete Kott, presented a proposed CS for HB 232. It was titled 9LS0323/0. He said the difference between this version and the other version, which had passed through the Economic Development Committee, was the result of conversations their office had with the Department of Revenue, the Department of Commerce, and the Alaska Industrial Development and Export Authority. Mr. Mourant confirmed that the original concept still pertains to a tax credit for economic development that results in real business expansion; real increase in the states economy; and a real increase in jobs in the state. Those themes remained intact throughout that draft legislation. MR. MOURANT informed the committee what had changed in the new version of the bill. The change was who the authority is who would be responsible for reviewing the proposals for an economic tax credit. Also, there was language in the original HB 232 about creating a new Board. Version O states, instead, that the Alaska Industrial Development and Export Authority had the expertise and ability, and capability, to review proposals of this type for economic development. MR. MOURANT said he spoke with Department of Commerce, and Department of Revenue, and both support the concepts of this legislation. They would work together to decide what would be in regulation and in statute, and also what would be in the actual conduct of the tax credit and how it would be administered. Section 1 of the legislation of Version O defines the program. It also limits the tax credit that could be granted under this program to no more than 10 consecutive tax years. In addition, it could not be used in conjunction with any other tax credit program on the books. So, if a corporation availed themselves with this economic development tax credit they could not use it with another tax program in statute. This legislation calls for an annual review by the Commissioner of Revenue, to assess the companies that receive this tax credit, and to see how well they have done to meet their expectation, and also comparing the effectiveness of the program. The determination of compliance comes about when the entity files their annual corporate tax returns with the state. MR. MOURANT continued to say there are criteria to determine which programs qualify, and it includes that the authority must verify that at least one other state is considering this project. For example, if Tyson Seafood decided to put in a value added processing plant, shore based instead of offshore, they could show that Washington State was considering the same project and that it would cost more for the company to put it in Alaska. That would meet the criteria of an eligible tax credit. This would create a new business, expand a business, and expand employment in the state. It is that kind of value added manufacturing and processing that this bill hopes to motivate in the state. They dont believe there will be a huge growth with people applying. This bill lays out criteria for the number of employees also. It will have to be at least an increase of 25 percent in an existing business. It does not preclude the Mom and Pop operations with only a few employees from being eligible. The proposal has to include the potential effect on the economy, the potential investment, the magnitude of cost differential between here and another that is considering the project. Mr. Mourant explained that the credit is limited to the lesser of 5 percent of the gross wages payable to new employees, or 25 percent of the tax due, and payable by the taxpayer under the state tax codes. They would have 10 years to take that credit, and, again, they could not take it in conjunction with any other program. Their certificate of verification will have to be filed annually with their tax returns, so the program can be monitored. TAPE 95-47, SIDE A Number 000 MR. MOURANT explained that the department would be more comfortable with the bill if it said Membership of the Authority, AIDEA," so it was clear whom they were addressing. Also, for the record, the AIDEA Board is comprised of the Commissioner of Revenue, the Commissioner of Commerce, and a commissioner appointed by the Governor, and two public members. They would be the controlling authority using the staff expertise within AIDEA. Number 017 CHAIR JAMES asked if people must apply for this before they begin development, or after the development is established. MR. MOURANT said the program is designed to encourage development, so the legislation speaks of applying before development begins. One of the criteria for receiving the tax credit is evidence that the development would not be economically sound without a tax credit of this type to help it through the financial struggles of the first five years. CHAIR JAMES inquired about the possibility of acquiring tax relief for the Danish Pork Project they are currently working on. This is a $210 million investment and it involves approximately 1000 employees. The Danish people had asked for some sort of tax relief to get that moving, but whether or not they could get moving without the tax credit, she did not know. She wondered if they would fit under the criteria. MR. MOURANT answered that they could apply, but he could not answer for the AIDEA board about whether or not it would meet the criteria. He thought it might have potential for meeting the required criteria. Number 053 REPRESENTATIVE PORTER had two questions. In reference to the prohibition against applying this to a program that was already receiving tax credits, he wondered if they meant state tax credits. MR. MOURANT answered, Yes. He said the legislation spells that out. It says: unto this chapter. REPRESENTATIVE PORTER verified that if they were getting federal tax credits it would not affect them. MR. MOURANT said that was correct. REPRESENTATIVE PORTER went to page 4 of the bill. He asked, referring to the criteria for establishing the amount of credit--25 percent of the tax due and payable by the tax payer under this chapter, or 5 percent of the wages--if he could assume that was a years worth of taxes. He noted that it did not say annual taxes, so that should be looked into. MR. MOURANT confirmed that it was a years worth of taxes. It refers to AS 43.20, which is the chapter they are speaking of, on annual state filings. He confirmed that he would make certain of it. Number 081 REPRESENTATIVE GREEN spoke on the restrictions of requiring that at least one other state be considered, and further, that the project would be cheaper to develop in the other state than in Alaska. He wondered, if the company needed a tax credit in order to justify its existence in Alaska, if it would cause such a burden that they wont go to the other state. To say it will cost more here, like the Pork Project, they will need a tax credit, but they probably look at Alaska because it fits into a scheme that makes it more advantageous to work here. He wondered if this bill would work against the Pork Project because of those restrictions. MR. MOURANT reflected back to the criteria at the bottom on page 2. (See Sec.2.) An applicants project satisfies at least one of the following: They verify that at least one other state is being considered for the project, and they determine that the projected costs for the applicants project in this state would exceed the costs of the project in the competing state, and, third, that the tax credit is a major factor. That is one possibility for eligibility of a tax credit. The second possibility is that it increases 25 percent of the number of new employees. Number 135 CHAIR JAMES said there are other options they could meet, so for the Danish Pork Project the restrictions probably were not a concern. She agreed with Representative Green, that this was skimming it pretty slim concerning people looking to put anything here in Alaska who are also looking at another state. They would be looking for the resource or whatever it is that we have. She asked about when the numbers of years of credit are established for the development, so they know when the credit expires. MR. MOURANT said this legislation merely sets a limit of no more than 10 years. In working out the details for a company awarded $10 thousand worth of credit, he did not know what fashion the state would use to set a time limit, but it would have to use it within 10 years. He said it would be hard to predict a year to year businesss needs for credits. Number 161 CHAIR JAMES had an experience to share that was applicable to the subject. She was involved in the city planning department in her area before moving to Alaska. The city had a saw mill, which had been in the area for 20 years. In order to get that saw mill into town they gave them free water. They used large amounts of water. So, for 20 years they grew and became very successful, and after 20 years things changed. There were new people, and new city planners, and people were begrudging about the mill getting free water; so, the city fathers decided they would no longer provide the saw mill with water without charge. Six months later the saw mill closed down and put 500 people out of work. There is a benefit to having some decision making down the road. So, a point Representative James wished to make was that there should be some closure, and boundaries, and something these companies can depend on in the future, so they know what the rules are from the beginning. MR. MOURANT said that the established agreement would hold for the duration of the terms of the agreement, unless the taxpayer violated the agreement, or failed to comply. CHAIR JAMES asked if there were any more questions on this bill. There were no problems, so they could move it out. Number 207 REPRESENTATIVE PORTER moved to adopt CS for HB 232, Version /O, as their working draft, dated 4/6/95. Hearing no objections, the motion passed and CS for HB 232, Version /O, became their working draft. CHAIR JAMES said the CS was before the committee, and they had an amendment. REPRESENTATIVE PORTER moved they adopt the amendment, which they would mark as number 1. It was HB 232 9LS0323/O. There being no objections, the amendment was approved. Number 225 REPRESENTATIVE PORTER moved to pass from committee CS for HB 232 as amended, with individual recommendations and a zero fiscal note. There being no objections, the motion was passed out of committee. REPRESENTATIVE ROBINSON asked if they should add that it is a zero fiscal note with the changes, since they do not have a fiscal note on it yet. CHAIR JAMES wanted to put on the record that a zero fiscal note is anticipated on this bill. It is not attached, but it is anticipated, and should be attached before reaching the next committee. MR. MOURANT said he would provide the Chair copies of the fiscal note when he received it. CHAIR JAMES said the motion before them was to move out HB 232, Version O, as amended, and with a presumed zero fiscal note. There were no objections, so the motion to pass CS for HB 232, Version O, passed. ADJOURNMENT CHAIR JAMES adjourned the meeting at 9:50 a.m.