HOUSE BILL NO. 269 "An Act relating to credits against certain taxes for contributions to certain public educational radio and television networks and stations and to endowments for public educational radio and television networks; and providing for an effective date." TOM WRIGHT, STAFF, REPRESENTATIVE IVAN testified in support of HB 269. He observed that the legislation provides a tax credit for contributions made to instate public radio and television stations and networks. The tax credit ceiling was raised from $100 thousand dollars to $450.0 thousand dollars. The credit is allowed on 50 percent of the first $100.0 thousand dollars in contributions and 100 percent of the next $400.0 thousand dollars. The new limits would also apply to the university system and library and museum acquisitions. The tax credit would be applied against a taxpayer's liability under insurance premiums, corporation income, oil and gas production, oil and gas property, mining licenses and fisheries business taxes. He explained that a credit claimed under one of the tax types may not be claimed under another tax type. Members were provided with a proposed committee substitute for HB 269, Work Draft #9-LS0937\K, dated 4/3/95 (copy on file). Mr. Wright explained that the work draft incorporates technical changes requested by the Department of Revenue. Representative Mulder MOVED to adopt Work Draft #9-LS0937\K, dated 4/3/95. There being NO OBJECTION, it was so ordered. Mr. Wright reviewed changes incorporated by CSHB 269 (FIN) as outlined in the sectional analysis prepared by Representative Ivan (copy on file). Representative Mulder observed that the fiscal note shows a loss of revenue to the state of $35 million dollars. Mr. Wright emphasized that revenue is currently being lost 2 through contributions to the University of Alaska and libraries. Representative Brown asked if the total potential loss of state revenues have been calculated. BOB BARTHOLOMEW, DEPURTY DIRECTOR, DIVISION OF INCOME AND EXCISE AUDIT. DEPARTMENT OF REVENUE replied that the fiscal note was calculated by assuming that tax payers who participated in the program in FY 95 would take the maximum credit allowed in FY 96. He stated that there is no way to estimate the maximum loss revenue through deductions by corporations that are not participating. Representative Navarre expressed concern with the level of deduction allowed under the legislation. He emphasized that tax credits allow appropriations without the legislative process. Mr. Bartholomew observed that not all corporations have made contributions. He did not know if all the corporations that gave did so at the maximum level. Representative Navarre expressed support for the philosophy of HB 268. He expressed reservations in regards to the level of contribution that would be diverted from the general fund by the tax credit. In response to a question by Representative Brown, Mr. Wright acknowledged that the sponsor considered setting up two different contribution deductions. He stressed that the sponsor did not want the public broadcasting credit to be in competition with the credit for the University of Alaska and libraries and museums. Representative Brown expressed reservations in regards to the constitutionality of the tax credit. She noted that there is a prohibition against appropriating public money to private institutions. She indicated support for public broadcasting. In response to a question by Representative Mulder, Mr. Bartholomew stated that the state lost $944.0 thousand dollars through the tax credit in FY 95. Representative Mulder suggested that the credit would be a "back door" appropriation. He emphasized the difficult decisions the Committee has had to make in regards to cutting the operating budget. Representative Navarre pointed out that there is no match requirement for the tax credit. 3 EDWARD RASMUSON, EXECUTIVE DIRECTOR, NATIONAL BANK OF ALASKA spoke in support of HB 268. He noted that the educational tax credit was passed approximately 5 years ago. He observed that the university system, public and private, have used them extensively. He maintained that the Alaska Pacific University and Sheldon Jackson College would not be operating without the tax credit. He stated that about a third of the contributions go to the University of Alaska, a third to the Alaska Pacific University and a third to Shelton Jackson College. He stressed that it is difficult to quantify how much the State will loose as a result of the tax credit. Mr. Rasmuson urged members to consider the benefit to the state of Alaska. He stressed that contributions will remain in the state. He did not think that the state would loose $3.5 million dollars as estimated by the fiscal note. ROBERT GOTTSTEIN, CHAIR, ALASKA PUBLIC BROADCASTING ENDOWMENT TRUST maintained that more people will be educated in the state as a result of the credit. He observed that the goal of the Trust is to wean public broadcasting from state support. He stressed that the Trust will be more creditable if funding is provided through the tax credit. He emphasized that the money will help the Trust to leverage funding in order to build an endowment for the future. Mr. Gottstein stressed that Alaska will remain a public schooling state. He maintained that the public will benefit from a better educated society. He asserted that something needs to be done to ensure that essential radio and television service exists in all parts of Alaska in the future. Representative Navarre commended the efforts of Mr. Rasmuson and Mr. Gottstein. He noted the competition for general fund dollars, including K - 12 education funding. He observed that the state of Alaska spends more in the university system per student than in K - 12. He suggested that the Committee meet in executive session in order to more accurately ascertain the potential drain to the general fund that the tax credit represents. Mr. Gottstein emphasized that the legislation attempts to create a mechanism to provide incentives for greater contributions. He stated that the mission is to attract outside, non-state investment to the recipients of the credit. He accentuated that they are seriously interested in raising outside capital contributions that will result in more education in Alaska and provide a better assurance that essential radio and television service will take place. Mr. Rasmuson observed that more money was paid by outside 4 sources to Shelton Jackson than the college received from inside Alaska. He added that there was as much money paid from outside sources to the Alaska Pacific University as came from inside the state. He emphasized his desire to see a better educated work force. Representative Mulder emphasized the need to balance what works with what is affordable to the state. He suggested that the credit amounts to an appropriation from the state. He reiterated the need to reduce spending. He asked how the credit ceiling was decided. Mr Rasmuson stated that the ceiling level was arbitrary. Mr. Gottstein emphasized that if the cap is not raised that public broadcasting will be in competition with the funds that are currently being raised. He stressed that it is not the intent to take money away from universities which are already receiving funds from the credit. He stated that public radio and television is an educational enterprise. He maintained that it is appropriate to include them in the statute. He indicated that a lower ceiling on the credit would be acceptable. He urged the Committee to adopt a level high enough not to impact current contributions. He emphasized the need to ensure that public broadcasting remains in the state of Alaska. Mr. Rasmuson pointed out that most corporations in Alaska are subchapter (s) corporations and do not pay state taxes. He gave a brief history of the institutions that have taken advantage of the tax credit. Representative Kelly suggested that public broadcasting be deleted and the current credit ceiling raised. Mr. Rasmuson replied that he would not support such an amendment. He emphasized that public broadcasting and postsecondary education are both educational items. He stated that public broadcasting should not be sacrificed for education. He emphasized that they should be treated together. Mr. Gottstein speculated that more than 50 percent of the benefit will go to higher education. Representative Martin suggested that the state's general fund contribution to the University was reduced in response to increased contributions in the form of tax credits. He thought there would be no net gain in terms of University funding. He observed that the University is a responsibility of the state. He expressed concern that other non-profit organizations would want to be added to the credit. Mr. Rasmuson did not think that corporations would give to 5 other organizations. (Tape Change, HFC 95-83, Side 2) Representative Parnell queried the long term plan for phasing out state funding. Mr. Gottstein replied that the plan is to create a mechanism to provide a substantial trust that will throw off income in lieu of federal and state funding. He observed that the state contributes $7.2 million dollars to public radio, television and RATNet. He noted that they are asking for less in FY 96 than was appropriated in FY 95. He acknowledged that the state contribution must be reduced. He stated that the goal is to raise $100.0 million dollars for the endowment. He emphasized that it would be easier to raise money if there was some money in the bank. He stressed that incentives to attract private capital must be developed. He reiterated that the contribution amount could be reduced. Mr. Rasmuson emphasized that there are not many corporations that pay taxes in the state of Alaska. In response to a question by Representative Mulder, Mr. Gottstein stated that a five year sunset would be reasonable. He did not support a sunset in regards to the education contribution. Representative Navarre noted that the legislation allows credits to individual stations as well as to the endowment. He expressed concern that the system will suffer as contributions are allocated to individual stations. Mr. Gottstein felt that the majority of contributions would go to the endowment. He stated that most of the contributions to the University are given to endowments. He emphasized that contributions to the endowment will protect the principal investment. Mr. Rasmuson observed that most stations do not have the luxury of setting money aside for an endowment. Representative Navarre expressed concern that the Anchorage television station and other urban radio stations could create competition for the endowment. Mr. Gottstein emphasized that essential service needs to be protected. He stated that contributions to rural Alaska would be to the same end, of ensuring that service is provided. He did not think that urban broadcast centers would receive significant contributions, since substantial commercial competition exists in those areas. 6 Representative Kelly asked if underwriting on public broadcasts will amount to commercials. RICH MCCLEAR, SOUTHEAST ALASKA MEDIA CONSORTIUM replied that Congress set in the Communications Act specific parameters which limit underwriting to things that do not mention price, adjectives that are comparative or superlative, and do not amount to a call to action. He did not think that federal guidelines would be relaxed. HB 269 was HELD in Committee for further discussion.