Legislature(2003 - 2004)

05/05/2003 01:35 PM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
    SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                  
                          May 5, 2003                                                                                           
                           1:35 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Thomas Wagoner, Chair                                                                                                   
Senator Robin Taylor, Vice Chair                                                                                                
Senator Gary Stevens                                                                                                            
Senator Georgianna Lincoln                                                                                                      
Senator Kim Elton                                                                                                               
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
CS FOR HOUSE BILL NO. 194(L&C)                                                                                                  
"An Act creating a tax credit under the Alaska Net Income Tax                                                                   
Act for contributions to regional development organizations; and                                                                
providing for an effective date."                                                                                               
     MOVED SCS CSHB 194 (CRA) OUT OF COMMITTEE                                                                                  
PREVIOUS ACTION                                                                                                               
No previous action to record.                                                                                                   
WITNESS REGISTER                                                                                                              
Representative Tom Anderson                                                                                                     
Alaska State Capitol, Room 432                                                                                                  
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Sponsor HB 194                                                                                            
Larry Crawford                                                                                                                  
President, Anchorage Economic Development Corporation                                                                           
No address provided                                                                                                             
POSITION STATEMENT: Testified on HB 194                                                                                       
Tim Rogers                                                                                                                      
Municipality of Anchorage                                                                                                       
4501 South Bragaw                                                                                                               
Anchorage, Alaska 99508                                                                                                         
POSITION STATEMENT: Testified on HB 194                                                                                       
Jim Carter                                                                                                                      
Economic Development Director                                                                                                   
14896 Kenai Spur Hwy                                                                                                            
Kenai, AK 99611                                                                                                                 
POSITION STATEMENT: Testified on HB 194                                                                                       
Loren Gerhard                                                                                                                   
Policy Director for the Southeast Conference                                                                                    
P.O. Box 21989                                                                                                                  
Juneau, AK 99802                                                                                                                
POSITION STATEMENT: Testified on HB 194                                                                                       
Mary Jackson                                                                                                                    
Alaska State Capitol, Room 427                                                                                                  
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Answered questions on HB 194                                                                              
ACTION NARRATIVE                                                                                                              
TAPE 03-13, SIDE A                                                                                                            
CHAIR  THOMAS WAGONER  called the  Senate Community  and Regional                                                             
Affairs Standing Committee meeting to  order at 1:35 p.m. Present                                                               
were Senators Gary  Stevens, Kim Elton and  Chair Thomas Wagoner.                                                               
Senators   Robin   Taylor    and   Georgianna   Lincoln   arrived                                                               
           HB 194-REGIONAL DEVELOPMENT ORG TAX CREDIT                                                                       
REPRESENTATIVE TOM ANDERSON, bill sponsor, paraphrased from the                                                                 
sponsor statement:                                                                                                              
     HB 194 creates  a tax credit for  contributions made by                                                                    
     businesses    to     Alaskan    regional    development                                                                    
     organizations. This  legislation limits the  tax credit                                                                    
     to the  first $10,000  contributed by  a business  to a                                                                    
     regional  development  organization.   The  tax  credit                                                                    
     allowed  under  HB  194,  when  combined  with  credits                                                                    
     allowed under  various other  tax credit  provisions in                                                                    
     statute,  may  not  exceed the  previously  established                                                                    
     limit  of  $150,000. This  tax  credit  will sunset  in                                                                    
     The   definition  used   in   HB   194  for   "regional                                                                    
     development organizations"  is from  statutory language                                                                    
     used   to  define   an   Alaska  Regional   Development                                                                    
     Organization (ARDOR). The  Labor and Commerce Committee                                                                    
     Substitute  clarifies   these  organizations   must  be                                                                    
     designated by the Department  of Community and Economic                                                                    
     Development as  ARDORs. There  are currently  13 ARDORs                                                                    
     throughout the  state covering all  of Alaska  except a                                                                    
     section  of the  Interior and  a portion  of the  Lower                                                                    
     The ARDOR program  is based on the  notion that locally                                                                    
     driven initiatives, in partnership  with the State, can                                                                    
     most  effectively  stimulate economic  development  and                                                                    
     produce healthy,  sustainable local economies.  The tax                                                                    
     credit established by HB  194 will encourage businesses                                                                    
     to  contribute  to  the   ARDORs  and  assist  regional                                                                    
     development     organizations'      solicitation     of                                                                    
     contributions  by  having a  tax  credit  as a  further                                                                    
SENATOR ROBIN TAYLOR asked why  the Legislature should give a tax                                                               
credit thus  diminishing revenue  to the  state in  this instance                                                               
while voting to increase and add new taxes in other areas.                                                                      
REPRESENTATIVE ANDERSON  advised there  is no fiscal  impact with                                                               
this bill. Of course that's  debatable if a corporation opted not                                                               
to give  to one of the  exempted entities and instead  gave to an                                                               
ARDOR. Whether this  would affect corporate taxes  from the state                                                               
level is debatable but Mark Graber  with the Tax Division said it                                                               
would not.                                                                                                                      
This would encourage development  in local communities from large                                                               
corporations  that have  budgeted  money for  giving every  year.                                                               
Currently  they get  tax credits  for certain  contributions, but                                                               
can't get any for contributing to local ARDORs.                                                                                 
SENATOR GARY  STEVENS asked for  examples of how this  plan would                                                               
REPRESENTATIVE ANDERSON outlined the  role the Anchorage Economic                                                               
Development Corporation  played to  expand the airport,  to bring                                                               
Federal Express to  town, and to contribute  to Providence Alaska                                                               
Medical Center.  All the  ARDORs don't work  in exactly  the same                                                               
way,  but  they  allow  taxpayers   the  opportunity  to  support                                                               
economic development.                                                                                                           
SENATOR  GARY  STEVENS  asked  if the  corporations  gave  for  a                                                               
specific project  or made a  general contribution that  the ARDOR                                                               
allocated as they see fit.                                                                                                      
REPRESENTATIVE    ANDERSON   suggested    one   of    the   ARDOR                                                               
representatives could  better answer that question.  He thought a                                                               
contribution could  be earmarked  but it  probably couldn't  be a                                                               
definitive contribution.                                                                                                        
There were no further questions for Representative Anderson.                                                                    
LARRY CRAWFORD,  President of the Anchorage  Economic Development                                                               
Corporation, pointed  out this  provided a  tool to  all regional                                                               
development  corporations  around the  state.  It  should have  a                                                               
positive  impact in  terms of  economic  development and  provide                                                               
more incentive  for the  private sector to  work with  ARDORS and                                                               
that sector creates wealth.                                                                                                     
Given the  current economic situation, it's  important to develop                                                               
as many  creative tools as possible  for use at the  local level.                                                               
HB 194 is an effective tool for that purpose.                                                                                   
SENATOR ELTON stated  his concern that this may  make it possible                                                               
for a business to give $10,000  to an ARDOR and earmark the money                                                               
for a project  that would specifically enhance  that business. In                                                               
effect that  business would  receive a  tax credit  to contribute                                                               
money  to  benefit  their  company.  He  suggested  it  might  be                                                               
advisable to prohibit earmarked contributions.                                                                                  
MR. CRAWFORD  advised he  could only respond  with regard  to how                                                               
AEDC does business.  In that case, all contributions  are made in                                                               
the form  of a membership  and the board of  directors determines                                                               
the overall direction for how monies are spent.                                                                                 
SENATOR ELTON  asked if it  was correct  that amending HB  194 to                                                               
prohibit the earmarking of funds  would make no difference in the                                                               
way AEDC operates.                                                                                                              
MR. CRAWFORD said that was correct.                                                                                             
SENATOR  TAYLOR remarked  the university  should  be examined  as                                                               
well because of  the controversy that arose over  the question of                                                               
how  much private  corporations  could deduct  from their  Alaska                                                               
corporate taxes  to make endowment  gifts to the  university. The                                                               
committee should  know whether any  of those endowments  are from                                                               
businesses that are then benefited  directly or indirectly by the                                                               
subject they  have chosen to  contribute to. For example,  did an                                                               
engineering  firm that  builds bridges  contribute  money to  the                                                               
School of Engineering  to improve bridge design?  Although he has                                                               
no particular  concern with  earmarking contributions,  he though                                                               
the point should be raised.                                                                                                     
MR. CRAWFORD clarified  that funds could be  earmarked to sponsor                                                               
a general-purpose event  but not for an event for  the purpose of                                                               
promoting their project.                                                                                                        
TIM ROGERS, Legislative Program  Coordinator for the Municipality                                                               
of  Anchorage, testified  the municipality  has  been the  public                                                               
side of the public/private partnership  with AEDC for many years.                                                               
They provide  AEDC just under a  half million dollars a  year and                                                               
believe  that ARDOR  is a  critical component  in attracting  new                                                               
economic development to the Anchorage area.                                                                                     
The bill  is crafted to have  minimal fiscal impact to  the state                                                               
other than to  attract new business and therefore  new revenue to                                                               
the state. He  noted Anchorage Mayor George Wuerch  sent a letter                                                               
of support as well.                                                                                                             
JIM  CARTER  from  the Economic  Development  District  of  Kenai                                                               
testified they  have used the  money to support public  events in                                                               
Kenai Peninsula communities nine times in the last two years.                                                                   
LOREN  GERHARD, Policy  Director  for  the Southeast  Conference,                                                               
testified  he understood  this  would  work in  the  same way  as                                                               
contributions  to  scholarship  funds the  University  of  Alaska                                                               
receives   from  corporate   donors.  The   Southeast  Conference                                                               
established a scholarship fund with  the University of Alaska and                                                               
one corporate  donor made a  sizeable contribution to  that fund,                                                               
largely due to the tax credit.                                                                                                  
This would  allow corporations that are  already taking advantage                                                               
of the tax credit opportunity to  redirect some of their funds to                                                               
ARDORs if  they elect  to do  so. It  would be  up the  ARDORs to                                                               
convince  those corporations  that what  they are  asking for  is                                                               
worthy of their support. It  simply allows those corporate donors                                                               
one  more  avenue  to reinvest  in  their  communities.  Economic                                                               
development as a  concept is generally good business  for most of                                                               
these larger corporations.                                                                                                      
With regard to earmarking funds,  he would have no problem either                                                               
way  as  long as  it  allowed  a way  to  access  the tax  exempt                                                               
funding.  With  the  tightening  of the  state  budget,  it's  an                                                               
uncertain time for  ARDORs and they need every  available tool to                                                               
support their budgets.                                                                                                          
SENATOR  ELTON   remarked  it  is   his  opinion   the  Southeast                                                               
Conference, which  works from Ketchikan  and Metlakatla  north to                                                               
Yakutat,  is  one  of  the  best  ARDORs  in  the  state  and  he                                                               
appreciated everything they've done.                                                                                            
With  regard   to  earmarking  funds,   he  asked   what  "direct                                                               
operation" meant on page 3, line 7.                                                                                             
MR.  GERHARD replied  that would  be  similar to  the grant  they                                                               
receive  from the  state.  The reason  they  need every  possible                                                               
source of unencumbered funds is  because they leverage that money                                                               
as a match for grants.                                                                                                          
SENATOR ELTON  asked if  direct operation  would preclude  a cash                                                               
contribution for a specific project.                                                                                            
MR. GERHARD  believed it would.  As Mr. Crawford pointed  out, no                                                               
contributions have been earmarked to date.                                                                                      
SENATOR TAYLOR  asked whether any contributors  were available to                                                               
CHAIR WAGONER  said everyone that  signed up to testify  had done                                                               
SENATOR TAYLOR speculated  the contributions made in  the form of                                                               
a  membership are  written  off in  that tax  year  as a  federal                                                               
deduction  against income  but  with regard  to  the state,  each                                                               
dollar contributed to an ARDOR is  subtracted from net tax due to                                                               
the state.                                                                                                                      
MR. GERHARD acknowledged  that wasn't entirely clear  to him, but                                                               
he thought it worked that way.                                                                                                  
SENATOR  TAYLOR said  he would  be  remiss if  he didn't  mention                                                               
that,  although there  is no  personal income  tax in  the state,                                                               
Alaskan corporate  income taxes are  among the highest.  In light                                                               
of that,  there might  be a  fiscal impact  not reflected  in the                                                               
fiscal note.  There could  be a number  of businesses  that don't                                                               
currently  take advantage  of available  tax  credit options  but                                                               
like ARDORs.                                                                                                                    
MR. GERHARD agreed that might be  the case, but the effects would                                                               
be  minimal. Generally  they  found it  is  difficult to  attract                                                               
large  corporate donations  because they're  already spoken  for.                                                               
This would allow a corporation  the opportunity to do something a                                                               
bit different and  would make contributions to ARDORs  a bit more                                                               
SENATOR TAYLOR stated  he has always supported  someone getting a                                                               
credit against  taxes or eliminating  taxes. He made a  motion to                                                               
adopt amendment #1 then objected for discussion purposes.                                                                       
MARY JACKSON,  staff to Senator Wagoner,  explained the amendment                                                               
removes  the  sunset  provision found  throughout  the  bill  and                                                               
provides an effective date of July 1, 2003.                                                                                     
CHAIR  WAGONER added  the  Legislature  spends considerable  time                                                               
passing bills because of sunset clauses  and he saw no reason for                                                               
having one in  this bill, particularly in light of  the fact that                                                               
legislators may review bills at any time.                                                                                       
SENATOR  TAYLOR  asked  Representative  Anderson if  he  had  any                                                               
objections to the amendment.                                                                                                    
REPRESENTATIVE ANDERSON replied he did not object.                                                                              
SENATOR TAYLOR withdrew his objection to amendment #1.                                                                          
SENATOR ELTON  asked what other exemptions  they were eliminating                                                               
the sunset from.                                                                                                                
MS. JACKSON  explained this eliminates  the sunset  provisions in                                                               
the bill for just the proposed ARDOR exemption.                                                                                 
SENATOR TAYLOR asked if the  fisheries education credit was still                                                               
in the statutes.                                                                                                                
MS. JACKSON said  that was called the  fisheries resource landing                                                               
tax education credit  and that is in Section 16  of the bill. She                                                               
assured  him  this  legislation  touches  none  of  the  existing                                                               
statute provisions.                                                                                                             
SENATOR TAYLOR pointed  out this was against  corporate taxes and                                                               
that was against fisheries resource landing taxes.                                                                              
SENATOR  LINCOLN  observed  the   amendment  removed  the  sunset                                                               
clause.  She  expressed her  continuing  support  of ARDORs,  but                                                               
preferred  to keep  the 2005  sunset provision  in the  bill. The                                                               
fiscal  impact to  the state  wasn't clear,  as indicated  by the                                                               
fiscal note.                                                                                                                    
CHAIR WAGONER replied  the Department of Revenue would  ask for a                                                               
review if the bill negatively impacted state revenues.                                                                          
SENATOR LINCOLN pointed  out that would depend on who  was in the                                                               
driver's seat.                                                                                                                  
CHAIR WAGONER agreed  then pointed out this  legislation could be                                                               
an  avenue to  support  some  of the  projects  that were  funded                                                               
through the  Science and Technology Foundation  that was recently                                                               
SENATOR  ELTON noted  the chart  from the  Department of  Revenue                                                               
showed the tax  credits for FY00 were about $2.3  million and for                                                               
FY01 they  were about $2.2 million  and for FY02 they  were about                                                               
$3.1  million.  He  couldn't  remember  that  the  Department  of                                                               
Revenue ever  approached him to  discuss current  exemptions, but                                                               
he thought  it made sense to  revisit the issue in  several years                                                               
to review  how much money went  out of the system  because of the                                                               
SENATOR LINCOLN made  a motion to amend to  remove the provisions                                                               
of amendment #1.                                                                                                                
MS.  JACKSON  advised amendment  #1  should  be defeated  if  the                                                               
intention was to repeal the provisions.                                                                                         
CHAIR  WAGONER  called for  a  roll  call  on amendment  #1.  The                                                               
amendment  passed with  Senators Gary  Stevens, Taylor  and Chair                                                               
Wagoner voting yea and Senators Lincoln and Elton voting nay.                                                                   
SENATOR  TAYLOR moved  SCS  CSHB 194  (CRA)  and attached  fiscal                                                               
notes  from  committee  with  individual  recommendations.  There                                                               
being no objection, it was so ordered.                                                                                          
SENATOR ELTON suggested that the  sponsor contact Mr. Graber from                                                               
the Department  of Revenue  to address  this question  before the                                                               
hearing in the Labor and  Commerce Committee. He advised he would                                                               
contact him as well.                                                                                                            
REPRESENTATIVE ANDERSON agreed to do so.                                                                                        
CHAIR  WAGONER  adjourned  the   Senate  Community  and  Regional                                                               
Affairs Committee at 2:20 pm.                                                                                                   

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