Legislature(2011 - 2012)BELTZ 105 (TSBldg)

02/17/2011 01:30 PM LABOR & COMMERCE

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                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                       February 17, 2011                                                                                        
                           1:31 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Dennis Egan, Chair                                                                                                      
Senator Joe Paskvan, Vice Chair                                                                                                 
Senator Linda Menard                                                                                                            
Senator Bettye Davis                                                                                                            
Senator Cathy Giessel                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 23                                                                                                              
"An Act relating to transferable film production tax credits;                                                                   
and providing for an effective date by amending the effective                                                                   
dates of secs. 3 and 4, ch. 63, SLA 2008."                                                                                      
     - HEARD AND HELD                                                                                                           
SENATE BILL NO. 64                                                                                                              
"An Act relating to a tax credit for corporate income taxes paid                                                                
for qualified research and development expenditures; and                                                                        
providing for an effective date."                                                                                               
     - HEARD AND HELD                                                                                                           
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB  23                                                                                                                  
SHORT TITLE: FILM PRODUCTION TAX CREDIT                                                                                         
SPONSOR(s): SENATOR(s) ELLIS                                                                                                    
01/19/11       (S)       PREFILE RELEASED 1/7/11                                                                                
01/19/11       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/19/11       (S)       L&C, FIN                                                                                               
02/17/11       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
BILL: SB  64                                                                                                                  
SHORT TITLE: RESEARCH AND DEVELOPMENT TAX CREDIT                                                                                
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
01/24/11       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/24/11       (S)       L&C, FIN                                                                                               
02/17/11       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
WITNESS REGISTER                                                                                                              
SENATOR JOHNNY ELLIS                                                                                                            
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Sponsor of SB 23.                                                                                         
CURTIS THAYER, Deputy Commissioner                                                                                              
Department of Commerce, Community and Economic Development                                                                      
Juneau, AK                                                                                                                      
POSITION STATEMENT: Introduced Ms. Ayers and said she would                                                                   
present an overview of the Alaska Film Office relative to SB 23.                                                                
WANETTA AYERS, Director                                                                                                         
Division of Economic Development, Department of Commerce,                                                                       
Community and Economic Development (DCCED)                                                                                      
Juneau, AK                                                                                                                      
POSITION STATEMENT: Presented an overview of the Alaska Film                                                                  
Office relative to SB 23.                                                                                                       
ROBIN CORNFIELD, Vice President                                                                                                 
Communications and Marketing                                                                                                    
Nana Development Corporation                                                                                                    
Nana Regional Corporation                                                                                                       
POSITION STATEMENT: Supported SB 23.                                                                                          
DEBORAH SCHILDT                                                                                                                 
Alaska Crew Training                                                                                                            
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Supported SB 23.                                                                                          
BRYCE HABEGAR                                                                                                                   
Alaska Crew Training                                                                                                            
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Supported SB 23.                                                                                          
WOODRUFF LAPUTKA, representing himself                                                                                          
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Supported SB 23 as a film maker and                                                                       
graduating UAA student.                                                                                                         
D.K. JOHNSTON, representing himself                                                                                             
POSITION STATEMENT: Supported SB 23 as an independent Alaskan                                                                 
ALLEN ERICKSON                                                                                                                  
White Fox Studios                                                                                                               
POSITION STATEMENT: Supported SB 23.                                                                                          
LARRY GOLDEN                                                                                                                    
Aurora Films                                                                                                                    
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Supported SB 23.                                                                                          
JAMES MCLEAN, representing himself                                                                                              
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Supported SB 23 as an independent screen                                                                  
CURTIS THAYER, Deputy Commissioner                                                                                              
Department of Commerce, Community and Economic Development                                                                      
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Supported SB 64.                                                                                          
WANETTA AYERS, Director                                                                                                         
Division of Economic Development, Department of Commerce,                                                                       
Community and Economic Development (DCCED)                                                                                      
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Supported SB 64.                                                                                          
JOHANNA BALES, Deputy Director                                                                                                  
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Supported SB 64.                                                                                          
ACTION NARRATIVE                                                                                                              
1:31:17 PM                                                                                                                    
CHAIR DENNIS EGAN called the Senate Labor and Commerce Standing                                                               
Committee meeting to order at 1:31 p.m. Present at the call to                                                                  
order were Senators Giessel, Paskvan, and Egan.                                                                                 
               SB  23-FILM PRODUCTION TAX CREDIT                                                                            
1:33:16 PM                                                                                                                    
CHAIR EGAN announced SB 23 to be up for consideration.                                                                          
SENATOR  JOHNNY ELLIS,  sponsor  of  SB 23,  said  the goals  are                                                               
pretty  simple: they  want  to continue  the  amazing growth  and                                                               
success of  Alaska's burgeoning film and  TV production industry.                                                               
Many people thought it was "pie  in the sky" and wouldn't happen,                                                               
but "things are coming along very nicely."                                                                                      
He  explained that  SB 23  offers  to extend  the successful  tax                                                               
credits, a signal that the tax  incentives are here to stay for a                                                               
significant  period of  time. So,  investments can  be made  that                                                               
will take  this industry  to the  next level  - in  particular, a                                                               
sound stage  and some  other facilities.   He  said folks  in the                                                               
business community  have the  resources and  are willing  to make                                                               
those investments, but they need to  know that the tax credits on                                                               
the production side will be available long term.                                                                                
SB 23  would extend  the tax  credits for 10  years in  two $100-                                                               
million, five-year  increments -  not unlike  the state  does for                                                               
other  industries when  they want  to incentivize  private sector                                                               
1:34:23 PM                                                                                                                    
SENATOR DAVIS joined the committee.                                                                                             
SENATOR ELLIS said it has been  hard to find a brand new industry                                                               
for  the  state and  this  film  program  is successful  so  far.                                                               
Extending the  incentives would continue  bringing new  money and                                                               
investments into  the Alaskan economy  and put Alaskans  to work.                                                               
He  said they  have already  seen the  benefits of  recent multi-                                                               
million  dollar  productions  where  hundreds  of  Alaskans  were                                                               
working  as cast  and crew  in  jobs as  varied as  electricians,                                                               
carpenters,  truck   drivers,  caterers,  security   guards,  and                                                               
plumbers. This industry isn't just glamorous; it's real down-to-                                                                
earth small business and job opportunities for Alaskans.                                                                        
SENATOR ELLIS added that businesses  across the state, both urban                                                               
and rural, have been able to  hire some people and do work during                                                               
the off  season. For instance, commercial  fishermen that usually                                                               
sit around  in the winter  time were  able to work  on "Everybody                                                               
Loves Whales."  The original legislation  was passed in  2008 and                                                               
everyone  tells him  that is  why things  have gone  to the  next                                                               
level. Since its inception in  2008, 15 productions have received                                                               
tax  credits for  a total  of 910  days and  had a  total "Alaska                                                               
spend"  of $15  million. As  of  January 2011,  an additional  28                                                               
productions are prequalified for the  incentives. If all of these                                                               
productions are completed, there  will be an estimated additional                                                               
Alaska  spend  of  almost  $84 million.  This  brings  the  total                                                               
projected boost  to the  Alaskan economy  of nearly  $100 million                                                               
since 2008. Several people have asked  why this should be done if                                                               
Alaska  doesn't  already  have   a  trained  workforce,  but  his                                                               
response  is get  the industry  going and  get Alaskans  on those                                                               
1:39:08 PM                                                                                                                    
CURTIS  THAYER,  Deputy  Commissioner,  Department  of  Commerce,                                                               
Community and Economic Development  (DCCED), introduced Ms. Ayers                                                               
and  said  she would  present  an  overview  of the  Alaska  Film                                                               
WANETTA  AYERS,  Director,   Division  of  Economic  Development,                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
(DCCED), said the  statutory authority of the  Alaska Film Office                                                               
outlines  five responsibilities:  to cooperate  with the  private                                                               
sector  to  promote Alaska  as  a  film destination,  to  provide                                                               
production  assistance,  to  certify film  production  internship                                                               
programs,  and to  cooperate and  co-administer  the Alaska  Film                                                               
Production  Incentive  Program  with the  Department  of  Revenue                                                               
With  regard  to  private  sector   collaboration,  a  number  of                                                               
different tactics  are being pursued.  The first is  the website,                                                               
film.alaska.gov, which  provides a  variety of  information about                                                               
the program and  filming in Alaska. She said they  have worked to                                                               
engage a  variety of industry organizations,  trade associations,                                                               
and allied  groups to help  them find out what  the opportunities                                                               
in  the  Alaskan film  industry  are.  Outreach to  the  business                                                               
community  and others  that  benefit from  the  film industry  is                                                               
being done so  that they are aware of what  the opportunities are                                                               
- and the phone rings every day about this program.                                                                             
1:42:14 PM                                                                                                                    
MS. AYERS said  with regard to promoting Alaska,  the Film Office                                                               
is  engaged  in  print  advertising in  a  variety  of  different                                                               
industry magazines  and directories to  make sure the  message is                                                               
out there.  They attend  a variety of  different trade  shows and                                                               
other events  to promote Alaska  as a  film location and  talk to                                                               
producers -  and there is  a great  deal of interest.  She showed                                                               
them a program brochure outlining  the incentive program and some                                                               
of the recent activity that is happening in Alaska.                                                                             
1:43:42 PM                                                                                                                    
She said no industry springs  forward fully formed. Now they have                                                               
this  initial interest  in this  new industry  and various  state                                                               
agencies are  looking at  what their role  can be;  this includes                                                               
the  Department of  Labor, the  University, other  private sector                                                               
efforts for  on-the-job training,  and other outreach  efforts to                                                               
just help develop the workforce that  will meet the needs of this                                                               
She said the  Film Production Incentive Program has  a process of                                                               
prequalification; that  is, going through the  production process                                                               
and submitting  the final application;  having that  approved and                                                               
then  advancing it  to the  DOR and  receiving a  tax certificate                                                               
which  in  turn  gets  sold  to  someone  with  a  corporate  tax                                                               
She said two  productions were in the queue  as this presentation                                                               
was  being  developed.  One  of   them  may  have  been  approved                                                               
recently, but  overall they have approved  44 pre-qualifications.                                                               
Over the life  of the program (the last three  years) 14 approved                                                               
tax credit applications have been  advanced. The total production                                                               
value for  the prequalified applications is  about $34.5 million;                                                               
those  tax  credit  applications  that  have  been  received  and                                                               
approved, about $4.8  million. And those numbers  are changing as                                                               
the next two productions are approved.                                                                                          
1:46:21 PM                                                                                                                    
MS.  AYERS said  the  Film Office  has  1.5 full-time  equivalent                                                               
positions. Dave  Worrell is their  development specialist  and he                                                               
manages the  office; Erin Gora  is the  administrative assistant.                                                               
Deputy  Commissioner   Thayer  and   Special  Assistant   to  the                                                               
Commissioner  Roberta  Graham,  Communications  Coordinator  Mark                                                               
Kelsey, and herself have committed a  great deal of time over the                                                               
last year to this program.                                                                                                      
1:46:58 PM                                                                                                                    
MS.  AYERS said  the original  fiscal note  anticipated operating                                                               
costs  of $275,000/year,  but for  this  fiscal year  they had  a                                                               
$283,000 budget.  The additional support costs  are undetermined,                                                               
and the program has unallocated  overhead costs of about $28,000,                                                               
for a total of $310,000.                                                                                                        
1:47:57 PM                                                                                                                    
ROBIN  CORNFIELD, Vice  President, Communications  and Marketing,                                                               
Nana  Development Corporation,  Nana  Regional Corporation,  said                                                               
she supported  SB 23. It  helps create a  new industry -  that of                                                               
making  movies -  in Alaska  that is  a renewable  resource. They                                                               
support expanding the  film tax credit incentive as  it will lead                                                               
to  further  economic expansion  and  private  sector jobs.  Nana                                                               
Development  Corporation's investment  in Alaska's  film industry                                                               
is a  natural. They  are an Alaskan  company focused  on creating                                                               
training opportunities  and jobs  for their shareholders  most of                                                               
whom live  in Alaska. They  also have the expertise  necessary to                                                               
support the industry.                                                                                                           
She said  that Nana is  investing in building  the infrastructure                                                               
for a film industry in Alaska,  and this expanded tax credit is a                                                               
key  to   its  success.  Last  September,   they  partnered  with                                                               
Evergreen  Films that  has invested  $10-million in  a studio  in                                                               
Anchorage specializing in  3-D films for a  general audience, and                                                               
they  are  currently filming  an  animated  dinosaur movie  there                                                               
using real Alaska as a backdrop.                                                                                                
She said that in order to  support this industry Nana is creating                                                               
a new company  that will provide one-stop  shopping for companies                                                               
making movies in  Alaska. Nana already has the  expertise in many                                                               
fields that are necessary for  the film industry from catering to                                                               
security,   transportation    logistics,   construction,   mobile                                                               
surveying and lodging.                                                                                                          
1:51:08 PM                                                                                                                    
She  said  WHPacific  uses  light  detection  and  ranging  radar                                                               
technology, called  LIDAR [Light Detection And  Ranging], for the                                                               
purpose of  surveying roads, but  Evergreen Films found  it could                                                               
be  used  in developing  the  animated  dinosaur movie.  It  does                                                               
surveying faster  than the traditional  method. She  brought this                                                               
up  because it  was a  surprise  to find  out that  one of  their                                                               
companies  had technology  that  another one  of their  companies                                                               
could take advantage  of. So, WH Pacific, a Nana  company, is now                                                               
involved  in marketing  its new-found  film services  business to                                                               
other studios  and production companies.  This is one  example of                                                               
the unknown benefits of Alaskans working with the film industry.                                                                
MS. CORNFIELD said  Nana spent a long time  studying the industry                                                               
before choosing  to invest in  it. They discovered  that domestic                                                               
consumer spending  for filmed entertainment  has grown  year over                                                               
year  over the  past decade  including 2008  and 2009  which were                                                               
recession  years,  and  that during  those  years  spending  also                                                               
increased. They  also analyzed  how the  industry might  grow and                                                               
found  that  the  US  accounts  for  6  percent  of  the  world's                                                               
population and  approximately 50 percent of  the consumer dollars                                                               
spent  on  filmed   entertainment  worldwide.  But  international                                                               
markets are becoming more important  and are expected to continue                                                               
to outpace domestic growth in the near future.                                                                                  
Vancouver  is one  example  of  the impact  a  tax incentive  and                                                               
investment  in the  film industry  can have,  she said.  Starting                                                               
with  a little  TV show  in 1994  called "X-Files,"  it has  seen                                                               
movie production values grow from  $400 million to more than $1.2                                                               
billion,  and the  industry has  helped create  more than  20,000                                                               
MS.  CORNFIELD  said because  they  believe  so strongly  in  the                                                               
future  of  Alaska's  film industry,  Nana  Evergreen  and  other                                                               
private sector partners have  begun investigating the possibility                                                               
for developing a  sound stage in Anchorage. This,  along with the                                                               
tax credit, they  feel, will encourage more producers  to come to                                                               
1:54:13 PM                                                                                                                    
MS.  CORNFIELD showed  a slide  of  a five-year  period from  the                                                               
beginning  of  creating   a  film  until  it   is  released.  The                                                               
production takes about  three years and then  filming begins. So,                                                               
lengthening the  timeline for projects  to qualify from 24  to 36                                                               
months  (included  in the  legislation)  will  help attract  more                                                               
producers  to use  Alaska as  a location.  Expanding the  dollars                                                               
allowable  under the  tax credit  from  $100 million  to $200  is                                                               
important  as well,  as it  will allow  the industry  to grow  in                                                               
Alaska as the infrastructure grows.                                                                                             
She said Nana's mission is to  improve the quality of life of its                                                               
people. It has  a simple overall strategy to  invest in companies                                                               
with  potential for  growth and  to look  for opportunities  that                                                               
will provide  training and  jobs for  shareholders. She  said the                                                               
foundation  for  this  growing film  industry  started  with  the                                                               
original  Alaska  film  production  incentive  program,  but  the                                                               
future  success of  the industry  is based  upon movie  producers                                                               
choosing Alaska over several other  states and countries in which                                                               
to shoot their  films. "Everybody Loves Whales"  and the economic                                                               
impact of filming  in Alaska is a good success  that can be built                                                               
upon. Alaska resident wages were  more than $4 million; goods and                                                               
services  purchases were  above  $7.5 million.  Alaskans were  in                                                               
front of and behind the camera,  12,000 hotel rooms were used and                                                               
more than 8,000 days of rental cars were purchased.                                                                             
1:58:03 PM                                                                                                                    
DEBORAH  SCHILDT,   Alaska  Crew  Training,  and   Bryce  Habegar                                                               
introduced themselves.  Ms. Schildt  said they both  supported SB                                                               
23. She  said she is  a co-founder and program  administrator for                                                               
an educational  501(c)3 called "Alaska  Crew Training,  Inc." She                                                               
said  their  training program  would  not  exist except  for  the                                                               
success of Alaska's film incentive bill.                                                                                        
MS. SCHILDT said her background is  film school in Canada, then a                                                               
move to  Los Angeles where  she started  in the film  business on                                                               
features like  "Goonies" and  "My Girl."  After 20  features, 200                                                               
commercials and 28 years later,  she calls Alaska home. This past                                                               
year she was  one of two Alaskan casting  directors on "Everybody                                                               
Loves Whales."                                                                                                                  
In 2009 with  passage of Alaska's film incentive bill  they saw a                                                               
need for  training a larger  workforce. AFG wasn't  interested at                                                               
that time, so Alaska Crew  Training was formed. Now, according to                                                               
a recent  article in the Anchorage  Daily News one would  have to                                                               
watch TV 24 hours  a day for two weeks straight  to see every new                                                               
episode  of  Alaska-based  reality programming  since  "Deadliest                                                               
Catch"  first launched  in 2005.  No other  state has  more cable                                                               
shows  per  capita than  Alaska.  "We've  entered our  next  gold                                                               
rush," she said. "It's Alaskan-based  stories shot here and shown                                                               
around the world."                                                                                                              
2:01:16 PM                                                                                                                    
She said an  executive producer on "Everybody  Loves Whales" gave                                                               
her this list when asked what the industry was lacking:                                                                         
-a film  office fully  engaged with a  website that  really works                                                               
for producers                                                                                                                   
-a sound stage, more equipment                                                                                                  
-more infrastructure                                                                                                            
-and a larger trained workforce                                                                                                 
A  trained workforce  needs  a basic  understanding  of how  film                                                               
production works and on-the-job  training opportunities. She said                                                               
49 out of  63 speaking roles in "Whales" were  cast with Alaskans                                                               
who  earned a  combined  income of  over  $160,000; two  Alaskans                                                               
landed lead  roles and  earned over $20,000  in seven  weeks, two                                                               
others over  $16,000. They came  from communities  across Alaska,                                                               
not just the big towns.                                                                                                         
When "Act  1" formed in 2009  they looked at other  film training                                                               
programs to  help them come  up with  a basic program  that could                                                               
grow with the  industry. It was foolish to  train workers without                                                               
projects,  so they  held  off offering  classes  until they  knew                                                               
there were jobs  coming into the state. In  2010 their Production                                                               
Bootcamp 101 was  launched. To date six Bootcamps  have been held                                                               
and nearly 100 people have  gone through them. The Bootcamps will                                                               
be  continued  in  2011  and  they  hope  to  branch  out  beyond                                                               
Anchorage with  on-line offerings and  start Level 1 and  Level 2                                                               
courses with  instructors from the  American Film  Institute. She                                                               
related how local people successfully  started training and found                                                               
careers by working  on "Whales." She related how  many people are                                                               
taking classes and working on productions like "Ghost Vision."                                                                  
MS. SCHILDT  said many Alaskans  have migrated outside  of Alaska                                                               
for  schooling, for  jobs and  careers in  the business,  but she                                                               
thought the incentives might give them  a chance to come home and                                                               
find work  in the industry  here. Their vision is  to continually                                                               
increase their class  offerings - starting with  entry level jobs                                                               
because  Alaska  has  a  limited  pool  of  seasoned  experienced                                                               
workers. Their  Level 1 and Level  2 classes are best  suited for                                                               
individuals  who already  have some  on-the-job training  and are                                                               
looking  to increase  their skill  sets. They  are headed  toward                                                               
deepening Alaska's  crew base to  accommodate two  large features                                                               
at the  same time by building  up to 500 graduates  over the next                                                               
three  years. She  said while  they have  been recognized  by the                                                               
Alaska Film Office as a  training resource for crew, all Alaskans                                                               
can continue to work together on building a workforce.                                                                          
2:06:52 PM                                                                                                                    
WOODRUFF  LAPUTKA,  film maker  and  graduating  student from  UA                                                               
Anchorage,  said he  supported SB  23. He  described some  of the                                                               
opportunity  it has  brought about.  He  was a  journalism/public                                                               
communications  major  and  found  he  liked  working  with  film                                                               
making. When he found that  there weren't enough programs capable                                                               
of  supporting   his  interest  in   filming,  he   attended  the                                                               
University of Sterling in Scotland  for one year working with BBC                                                               
and Channel 4 professionals to  gain that experience. He returned                                                               
to Anchorage and is now finishing  his BA in journalism, but with                                                               
a vast added interest in the future of Alaska's film industry.                                                                  
2:10:13 PM                                                                                                                    
He said  this state  has a  rich culture  in pioneering,  and the                                                               
interesting  thing about  the film  industry up  here is  that it                                                               
acts just the  same as anything else. You have  pioneers who take                                                               
those "pie  in the sky ideas"  and make them reality.  In Alaska,                                                               
in  particular, the  infrastructure is  so new  that anybody  can                                                               
contribute and  become a pioneer.  As a graduating student  and a                                                               
young  man, Mr.  Laputka said,  he wants  to make  his career  in                                                               
Alaska.  The opportunities  are now  here. Plenty  of productions                                                               
came through  in the  fall and  even more  are coming  through in                                                               
2011. A vast amount of material is being developed here.                                                                        
MR. LAPUTKA  said as  a film  maker, he looks  for being  able to                                                               
work  in  an  area that  can  pay  his  bills  but also  that  is                                                               
conducive to  what he requires. One  thing that will keep  him in                                                               
Alaska is  extending the  film tax incentives  and, for  one main                                                               
reason:   it   will   better  enhance   the   opportunities   for                                                               
establishment of  a functioning  infrastructure so that  they can                                                               
express not only their art but also their business.                                                                             
He said  the various components  of the infrastructure  are being                                                               
pieced  together so  that it  will function  well. It  is working                                                               
similarly to the way it happened in Vancouver 20 years ago.                                                                     
The University  of Alaska Anchorage (UAA)  doesn't currently have                                                               
a  film program,  but there  is  a proposal  to have  one at  the                                                               
University of Alaska Fairbanks (UAF).  He related that he created                                                               
his  own program  and had  it signed  off by  his professors  and                                                               
department heads.  When it came  down to  the brass tacks  and he                                                               
sought  that experience  he had  to go  elsewhere. That  does not                                                               
mean  that  Alaska doesn't  have  the  ability to  satisfactorily                                                               
supply the  kind of experience  and education needed in  order to                                                               
establish a film program. It  only means that it hasn't developed                                                               
the focus to  create a program like that. Now  the focus is here,                                                               
because   the  tax   incentive   is  here.   Now   is  when   the                                                               
infrastructure is building.                                                                                                     
2:13:38 PM                                                                                                                    
Foreign interest  and foreign investment  is going to be  the big                                                               
bolster in  what will decide  how the  growth and future  of this                                                               
film industry will  go. In order for that to  occur, more time is                                                               
needed to  insure that they have  an interest in coming  here and                                                               
the  tax incentive.  As a  young film  maker who  originally came                                                               
from  Florida,  Mr.  Laputka  said  he  has  a  big  interest  in                                                               
continuing his career here in Alaska.                                                                                           
2:15:24 PM                                                                                                                    
D.K. JOHNSTON, independent filmmaker in  Alaska, said he has been                                                               
an  Alaskan resident  since  1997. He  moved  up originally  from                                                               
south Texas, but  he has gained a real big  foothold in the state                                                               
as a film  maker. He attended middle school  here, graduated from                                                               
Service  High  School  and  obtained  his  Bachelor's  degree  in                                                               
journalism/public communication  at UAA in 2006.  Later he wanted                                                               
to pursue his  passion of film making and had  to leave the state                                                               
where he  obtained his MFA degree  in film for the  New York Film                                                               
Academy out  of Los  Angeles. He  got to  see how  the "Hollywood                                                               
system" works, and he said that  "they love us up here." They are                                                               
intrigued by the  kind of landscapes Alaska has to  offer and the                                                               
talent it has to bring to their personal projects.                                                                              
He said  many in the  Anchorage LIO can  testify to the  pros and                                                               
cons  of getting  a film  production  program at  UAF. The  staff                                                               
there  has  been organizing  to  implement  an education  program                                                               
which  would open  doors  for  many Alaskans  to  train and  work                                                               
professionally in  the film production industry.  If this program                                                               
is  successfully  added into  the  state's  education system,  it                                                               
could  help increase  the number  of trained  production crew  to                                                               
compensate  for various  productions looking  to shoot  here, and                                                               
future film makers would be capable  of taking on larger roles in                                                               
production that  could potentially  increase local  production of                                                               
motion  pictures.   Right  now  the  majority   of  educated  and                                                               
experienced production  crew in the state  receive their training                                                               
elsewhere and  those who have  returned are now doing  their best                                                               
to train others interested in making film production a career.                                                                  
MR. JOHNSTON said  he came back to Anchorage to  take part in the                                                               
film industry because  as people have said today,  Hollywood is a                                                               
stepping  stone  for  many productions.  The  major  studios  are                                                               
looking to  shoot their films  in states like Alaska  which offer                                                               
very  nice  tax  incentives.  In  order  to  remain  competitive,                                                               
however,   with   other   states   and   countries   establishing                                                               
professional  crew  base  and  a   film  degree  program  in  the                                                               
University  of  Alaska   is  an  important  step   in  the  right                                                               
direction. He hoped  extension of the film  tax incentive program                                                               
would  encourage branches  of  the  UA system  as  well as  local                                                               
school  districts  to  increase   their  education  in  film  and                                                               
television  production. He  summarized: "The  more education  our                                                               
state  can provide  in these  fields the  more likely  we are  to                                                               
encourage  other Alaskan  students to  consider continuing  their                                                               
education  and  training  here  at   home  as  opposed  to  going                                                               
2:18:55 PM                                                                                                                    
ALLEN  ERICKSON, White  Fox Studios,  said he  would let  another                                                               
producer, Larry Golden, take his time to testify.                                                                               
LARRY GOLDEN,  Aurora Films,  said he had  been making  films and                                                               
television in  Alaska for  37 years  and has  witnessed a  lot of                                                               
productions going  on by  both his colleagues  here in  the state                                                               
and some  from outside. He said  his work has been  nominated for                                                               
two  national Emmy  awards  and it  has appeared  on  PBS in  the                                                               
national  prime time  schedule  several times;  he  has won  many                                                               
national film  festivals and was  the executive producer  for the                                                               
most  successful locally  financed feature  film, "Spirit  of the                                                               
MR.  GOLDEN said  he supported  the goal  of bringing  production                                                               
companies  into  the  state.  Every dollar  they  spend  here  is                                                               
another  dollar  that  goes  into  Alaskans'  pockets  and  those                                                               
dollars circulate.  But he  wanted to  see something  more happen                                                               
through this program,  which is for legislators  to use incentive                                                               
programs  to further  incentivize  or enable  local ownership  of                                                               
more  media  production  companies.  He  explained  when  a  non-                                                               
resident  production company  comes here,  they spend  money, and                                                               
that  is  good, but  if  an  Alaskan  production company  owns  a                                                               
production,  and  it's a  commercially  successful  TV series  or                                                               
feature film, the profits from  that distribution stay in Alaska,                                                               
and that is vitally important.                                                                                                  
He said  New Mexico has found  a way in its  incentive program to                                                               
score  points for  production companies  coming into  their state                                                               
and to  adjust the tax benefits  in such a way  that non-resident                                                               
companies  that use  local personnel  in key  creative positions,                                                               
such  as directors  and writers,  not just  positions as  crew or                                                               
truck  drivers,  that provides  a  much  greater benefit  to  the                                                               
state. It  helps ensure that  the stories  that are told  and the                                                               
way they  are told  are more realistic  and more  consistent with                                                               
the  real Alaska.  That  can be  enhanced  through the  incentive                                                               
MR. GOLDEN  added that in  1976, he was  the one who  proposed to                                                               
some legislators that the state  legislature create a legislative                                                               
teleconferencing  network. That  idea was  picked up  and he  was                                                               
hired as  staff to  the task  force that  set up  a demonstration                                                               
project of teleconferences.  They held six audio  and three video                                                               
teleconferences. He said  it does his heart good to  see it being                                                               
used for the benefit of people around the state.                                                                                
2:26:06 PM                                                                                                                    
JAMES  MCLEAN,  independent  screen writer,  Anchorage,  said  he                                                               
moved to  Alaska in  1976, and that  he had seen  a lot  of films                                                               
that  were allegedly  set in  Alaska.  And as  an Alaskan  screen                                                               
writer he winces every time he  sees a deputy sheriff in a county                                                               
in Alaska because there is no such thing.                                                                                       
SENATOR MENARD joined the committee.                                                                                            
MR. MCLEAN  said of the six  features he has finished,  four were                                                               
optioned, one is in production,  and another is in preproduction.                                                               
They  are using  Alaskan  crews, actors,  producers, and  Alaskan                                                               
money  for  the  most  part.  One   of  the  reasons  he  can  do                                                               
"Doppelganger  Principal" (a  film  starring Ed  Asner) here,  is                                                               
because of the incentive program.  It wouldn't happen without it,                                                               
because it's  too speculative for  a lot of people.  This program                                                               
is  critical for  films to  be made  in Alaska  about Alaska  and                                                               
about Alaskan people.                                                                                                           
CHAIR EGAN thanked everyone for  their comments and said he would                                                               
hold SB 23 and continue taking testimony next Tuesday.                                                                          
           SB  64-RESEARCH AND DEVELOPMENT TAX CREDIT                                                                       
2:32:07 PM                                                                                                                    
CHAIR EGAN announced SB 64 to be up for consideration.                                                                          
CURTIS  THAYER,  Deputy  Commissioner,  Department  of  Commerce,                                                               
Community  and Economic  Development  (DCCED),  thanked them  for                                                               
hearing  SB  64. It  establishes  a  20  percent tax  credit  for                                                               
qualified research  and development (R&D) conducted  by corporate                                                               
taxpayers  in  Alaska.  In  effect   the  R&D  tax  credit  would                                                               
stimulate  private  sector investment,  entrepreneurial  activity                                                               
and business  expansion in the  state while  bringing opportunity                                                               
and associated  long-term benefits  to the state's  economy. This                                                               
legislation  will  allow  Alaska  corporations to  receive  a  20                                                               
percent tax  credit not  to exceed $10  million per  taxpayer per                                                               
year. The payroll of the employees  must take place in Alaska. To                                                               
qualify   for  R&D   activities  it   must  meet   the  following                                                               
-The purpose is discovering information                                                                                         
-Information technology  in nature,  the application of  which is                                                               
intended to  be useful in  the development  of a new  or improved                                                               
component  of  the  taxpayer; all  the  activities  constitute  a                                                               
process   or   experimentation.   The  experimentation   is   for                                                               
qualifying activity or purpose.                                                                                                 
The bill would  impose a reporting requirement  on the Department                                                               
of Revenue  so the legislature  and the  public are aware  of the                                                               
fiscal impact and the economic benefits  of the R&D credit to the                                                               
MR. THAYER  explained the  way the  credit would  work is  that a                                                               
percentage of qualified R&D expenditures  that exceed the average                                                               
qualified   R&D   expenditures   for  three   years   immediately                                                               
proceeding  that year  for which  the credit  is claimed.  Unused                                                               
credits will be  carried forward for up to seven  years after the                                                               
expenditure for which the credit  is claimed. In order to prevent                                                               
a corporate  taxpayer from claiming  more than one benefit  for a                                                               
single expenditure,  the bill  would also  provide that  a credit                                                               
may  not  be  claimed  for   expenditures  that  the  corporation                                                               
deducted  in  calculating  its  tax liability  or  for  which  it                                                               
claimed a  federal credit  that has  been apportioned  to Alaska.                                                               
Examples of activities  that would qualify for  these credits are                                                               
the  development  of  new  and  improved  product  processes  and                                                               
formulas;  development  of  prototypes for  models;  building  or                                                               
improving  manufacturing  facilities;   developing  or  improving                                                               
software  technologies;   and  development  or   application  for                                                               
patents. Activities  that would  not qualify are  the exploration                                                               
activity  to  assertion of  the  existence,  location, extent  or                                                               
quality of  any ore or  mineral deposit; duplication  of existing                                                               
business components, surveys or  studies such as market research;                                                               
advertising.  Routine data  collection and  research into  social                                                               
sciences, art or humanities would not qualify.                                                                                  
2:36:35 PM                                                                                                                    
WANETTA  AYERS,  Director,   Division  of  Economic  Development,                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
(DCCED),  said she  would amplify  a  couple of  points that  Mr.                                                               
Thayer  raised. She  reiterated  that this  is  modeled after  an                                                               
existing federal R&D tax credit  that was established in 1981. It                                                               
has  been  reauthorized  14 times  and  is  currently  authorized                                                               
through 2011.  There is a great  deal of sentiment on  a national                                                               
level to  have it reauthorized permanently.  The Internal Revenue                                                               
Code embodies  a four-part  test to  determine what  qualifies as                                                               
research and  development. The activity  has to  be technological                                                               
in nature; there  has to be some level of  uncertainty, there has                                                               
to  be a  process of  experimentation,  and it  has to  be for  a                                                               
permitted  purpose. The  idea  is  that there  is  some level  of                                                               
product   or  process   innovation  that   will  lead   to  newly                                                               
commercialized activity or product.                                                                                             
MS. AYERS  said on the national  level they may be  hearing about                                                               
the  concept of  the "innovation  agenda." Recently  the "America                                                               
Competes  Act"  made  a  number of  changes  about  how  economic                                                               
development  is   addressed  on  the  federal   level.  Some  key                                                               
components  of this  are to  accelerate the  commercialization of                                                               
new  technologies, products,  process  and  services. Within  EDA                                                               
they   have  established   a  new   Office   of  Innovation   and                                                               
Entrepreneurship   that  is   to   foster   innovation  and   the                                                               
commercialization  of new  technologies, products,  processes and                                                               
services  with the  goal of  promoting productivity  and economic                                                               
growth.  She explained  that  President  Obama characterized  our                                                               
nation's goal  is to  "out-build, out-innovate  and out-education                                                               
and  out-hustle the  rest  of  the world"  so  that  we would  be                                                               
economic survivors.                                                                                                             
She said  that 34  other U.S.  states have some  form of  R&D tax                                                               
credit  or incentive.  They don't  want  to necessarily  "compete                                                               
away" R&D activity from them,  but to equalize the playing field.                                                               
For every $5 increment in  R&D expenditures, $1 would be credited                                                               
SENATOR  PASKVAN said  in the  last  bill with  tax credits  they                                                               
dealt with  people from  a specific industry,  and he  didn't see                                                               
anyone in  the R&D  industry asking  for this.  He asked  if they                                                               
were working with anyone in particular.                                                                                         
MS.  AYERS  replied  the  concept  came out  of  the  Council  of                                                               
Economic Advisors  that provides advice to  Commissioner Bell and                                                               
the department. A number of members  have seen the credit work in                                                               
other  states. A  number of  businesses could  benefit, but  they                                                               
could not be here today.                                                                                                        
2:41:04 PM                                                                                                                    
JOHANNA  BALES,  Deputy  Director, Tax  Division,  Department  of                                                               
Revenue  (DOR) said  the governor  is interested  in diversifying                                                               
the state's  economy and  believes this  is a  step in  the right                                                               
direction. Maybe  in a  few years industries  will be  saying how                                                               
great this credit is for them, just like the film incentive.                                                                    
SENATOR PASKVAN said the other bill  had a cap for the incentive,                                                               
but he  saw $10 million per  business here and he  wanted to know                                                               
the thought process behind it.                                                                                                  
MS.  BALES responded  that  the process  is  different. The  Film                                                               
Office certifies those  expenditures ahead of time  and they have                                                               
a general idea of what they are  looking at to create a cap. When                                                               
comparing it  to other types  of credits, it's very  difficult to                                                               
pigeonhole  R&D expenditures  for  an entire  group of  corporate                                                               
income taxpayers. For  instance, they could cap it  and then find                                                               
out after  three months  that they  have run  out of  money; this                                                               
type of credit doesn't lend itself to the pre-approval process.                                                                 
SENATOR PASKVAN  said he  was trying to  get an  understanding of                                                               
what 20  percent is  now and  what it would  be three  years from                                                               
now. As he  understands it now they get to  deduct 100 percent of                                                               
their  expenditures; so  do  they get  an  additional 20  percent                                                               
MS. BALES  answered no; if they  take the credit they  can't also                                                               
take the  expenditure. They  can't get  both. She  explained that                                                               
they  are hoping  to  attract new  corporate  income tax  payers,                                                               
because the  only time they  would get the  credit is if  the R&D                                                               
activity actually increases in the  state. So, if you are someone                                                               
who  is already  conducting R&D  activity  in the  state and  you                                                               
increase it  this year, you will  get a credit for  20 percent of                                                               
that  increase. But  if you  are someone  who has  never operated                                                               
here, your base is going to be zero.  So, any new R&D you do, you                                                               
would get 20 percent of all expenses.                                                                                           
SENATOR   GIESSEL  said   Ms.   Bales   frequently  talks   about                                                               
corporations, and  asked if  this credit would  also apply  to an                                                               
MS. BALES  answered no; just corporations.  Individuals don't pay                                                               
an income tax in Alaska.                                                                                                        
SENATOR  GIESSEL said  she was  thinking  about Alaska  Aerospace                                                               
Corporation that wants to attract  some corporations to Alaska to                                                               
do  some   launches.  If  those   corporations  are   doing  some                                                               
innovative  research, would  they qualify  for this  kind of  tax                                                               
MS. BALES answered they may if they meet the qualifications.                                                                    
2:46:38 PM                                                                                                                    
SENATOR MENARD said it dawned  on her that grandfathering in this                                                               
case is a negative, because if  a company already invested and is                                                               
already going, it won't be given the same credit.                                                                               
MS. BALES  said you could  look at  it that way,  but established                                                               
companies have  been able to  enjoy the federal tax  credit which                                                               
Alaska does apportion  to their corporate income  tax. The intent                                                               
of  this  legislation  is  to   increase  the  activity  that  is                                                               
happening  right now,  if they  can partner  with those  that are                                                               
already here and also bring new industry to Alaska.                                                                             
2:48:02 PM                                                                                                                    
SENATOR  PASKVAN said  he assumed  a company  doing R&D  would be                                                               
deducting the payrolls, rents and  all their costs on its federal                                                               
income  taxes, and  then they  get the  credit component.  So, if                                                               
they  can't take  the deduction  and only  take the  expense, how                                                               
would that work?                                                                                                                
MS. BALES explained that in  the calculation of state tax, Alaska                                                               
starts with  federal taxable  income. They  would be  required to                                                               
add  those expenses  back,  so it  would  increase their  taxable                                                               
income. Then  they would be allowed  to take a 20  percent credit                                                               
but only for those expenses they  added back in. So, all of their                                                               
R&D expenses  would be allowed  to be deducted. Depending  on the                                                               
tax  bracket a  taxpayer is  in and  how they  are operating,  it                                                               
might be more beneficial for them  to take the deductions and the                                                               
federal  credit that  passes through  versus  the Alaska  credit.                                                               
Generally speaking,  credits are more favorable  because they are                                                               
dollar for  dollar. She added that  Alaska has a 9.4  percent top                                                               
corporate income tax  rate versus a 20 percent  tax credit dollar                                                               
per dollar.  To be honest, she  said, this is a  fairly innocuous                                                               
credit,  and they  will see  how it  works before  doing anything                                                               
2:50:20 PM                                                                                                                    
SENATOR  MENARD asked  what  other  states do  not  have a  state                                                               
income tax.                                                                                                                     
MS.  BALES answered  Nevada, Wyoming,  Florida, South  Dakota and                                                               
SENATOR GIESSEL  asked why  the mineral  industry gets  no credit                                                               
for R&D.                                                                                                                        
MS. BALES  explained that  this legislation  basically piggybacks                                                               
the qualifications  under federal law  and that is  stipulated in                                                               
federal law.                                                                                                                    
SENATOR  GIESSEL  asked  how  the credits  would  work  with  the                                                               
petroleum industry and R&D in  processing heavy oil since it's an                                                               
innovative unknown.                                                                                                             
2:53:10 PM                                                                                                                    
MS. BALES  replied if that  activity would qualify  under federal                                                               
law, it would  qualify here as well. She said  they would like to                                                               
present an amendment.                                                                                                           
SENATOR PASKVAN  said he was still  struggling with understanding                                                               
the  recalculation  of  gross  income   under  the  federal  tax,                                                               
calculate an Alaska percentage and  then apply 20 percent of this                                                               
limited number  as a credit,  and asked  if any other  state does                                                               
MS. BALES  replied that  the state does  this with  several other                                                               
programs as  well; for instance,  the education tax  credit where                                                               
one is  also not  allowed to take  the contribution  deduction if                                                               
the credit is taken. So, they  start with the federal tax and add                                                               
back that contribution amount. Then  they are allowed to take the                                                               
education  credit.  There  are  other  modifications  to  federal                                                               
taxable income that  happen, as well, for  differences in federal                                                               
and state income tax.                                                                                                           
SENATOR PASKVAN said  he was still trying to  understand what the                                                               
numbers would be and what they would mean.                                                                                      
MS. BALES  added this is  a corporate  income tax that  is widely                                                               
used in  most other states.  Most corporations are well  aware of                                                               
it, and that is why they have a large tax staff.                                                                                
SENATOR  PASKVAN said  he wanted  to  know if  this promotes  the                                                               
attorney's industry more than the R&D industry.                                                                                 
MS.  BALES explained  that it  is  truly just  a line  item on  a                                                               
return  that  gets  added  back  and  recalculated.  It  is  done                                                               
frequently  and most  taxpayers are  set  up to  deal with  these                                                               
kinds of anomalies.                                                                                                             
MS. BALES  said she had an  amendment that deletes all  of (e) on                                                               
page 2, lines 12-25 and insert new language.                                                                                    
2:57:41 PM                                                                                                                    
SENATOR PASKVAN moved to adopt conceptual Amendment 1.                                                                          
                     CONCEPTUAL AMENDMENT 1                                                                                 
     TO: SB 64                                                                                                                  
     BY: The Department of Revenue                                                                                              
     Page 2, line 12: delete "names" insert "number"                                                                            
     Page   2,  line   16:  after   "credit."  insert   "The                                                                    
     department may  only report  this information  if three                                                                    
     or  more  taxpayers claimed  the  credit  in the  prior                                                                    
     The subsection would then read:                                                                                            
     "(e) Each year, the  department shall report the number                                                                    
     [NAMES]  of taxpayers  who claimed  credits under  this                                                                    
     section in the prior  year, the total cumulative amount                                                                    
     of credits granted to all  taxpayers under this section                                                                    
     for  the  prior  tax  year, and  the  total  cumulative                                                                    
     number  of   employees  conducting  the   research  and                                                                    
     development for  which all taxpayers claim  the credit.                                                                    
     The  department may  only  report  this information  if                                                                    
     three  or  more taxpayers  claimed  the  credit in  the                                                                    
     prior year."                                                                                                               
SENATOR  DAVIS objected  for discussion  purposes. She  asked why                                                               
the amendment is needed.                                                                                                        
MS.  BALES  responded  that the  department  does  not  generally                                                               
disclose  tax  information,  especially when  talking  about  R&D                                                               
which  could   be  proprietary.  Language  would   also  identify                                                               
taxpayers  and the  level of  activity  they are  doing could  be                                                               
disconcerting and actually  make them not want  to participate in                                                               
this   program.    The   new   language   would    protect   that                                                               
CHAIR EGAN said SB 64 would be held for further work.                                                                           
3:00:54 PM                                                                                                                    
There being no further business to come before the committee,                                                                   
Chair Egan adjourned the meeting at 3:01 p.m.                                                                                   

Document Name Date/Time Subjects