SB 23-FILM PRODUCTION TAX CREDIT/AUDITS  4:18:38 PM CHAIR OLSON announced that the final order of business would be the CS FOR SENATE BILL NO. 23(FIN), "An Act relating to transferable film production tax credits and film production tax credit certificates; requiring the legislative audit division to audit the Alaska film production incentive program; and providing for an effective date by amending the effective dates of secs. 3 and 4, ch. 63, SLA 2008." 4:19:26 PM KONRAD JACKSON, Staff, Representative Kurt Olson, Alaska State Legislature, introduced himself. 4:19:33 PM REPRESENTATIVE JOHNSON moved to adopt the proposed committee substitute (CS), labeled 27-LS0252\G, Bullock, 4/10/11, as the working document. CHAIR OLSON objected for the purpose of discussion. [Version G was before the committee.] 4:20:06 PM MR. JACKSON, on behalf of the House Labor and Commerce Standing Committee, chaired by Representative Kurt Olson, reviewed the changes contained in Version G. He referred to page 2, lines 26-30. This change would require the Division of Legislative Audit to conduct audits of the Alaska Film Production Incentive Program at the beginning of the legislative sessions in 2013, 2017, and 2021 at the request of the Division of Legislative Audit. This provision would allow an audit to the initial program prior to the proposed sunset of this program. MR. JACKSON referred to page 3, line 9, which would add the language "in the title" to allow credits to be used by other taxpayers, including those paying fisheries taxes or insurance taxes. 4:21:15 PM MR. JACKSON referred page 3, lines 20-21, of Version G which would change the amount of the aggregate amount of the program. This increases the total amount of film production tax credits that may be authorized from $100 million to $200 million. Initially the program staggered the total amount of $200 million but this would make the entire $200 million available to avoid the possibility of a gap in the program. MR. JACKSON referred to page 4, lines 14-16 of proposed Section 8, which would require the Alaska Film Office to include the amount of qualified expenditures and not qualified expenditures that were paid to Alaska businesses and to Alaska residents as wages in its annual report to the legislature. Currently, the report would contain qualified expenditures only. 4:22:41 PM MR. JACKSON referred to page 5 lines 11-12 of proposed Section 11. This change would require the state to evaluate the effect of the program on the production on natural resources of the state. He read the specific language, "state policy on the utilization and development of the natural resources of the state." He explained the concern that the state would potentially allow film production tax credits to a film denouncing state's aerial wolf hunting policy or timber harvest in the Tongass National Forest. MR. JACKSON referred to page 6 to proposed Section 18, which would require film production companies to be licensed in order to do business in the state. 4:23:44 PM MR. JACKSON referred to page 7, line 26-28 of Section 19, which would add a new section to the bill at the request of the department. This change would increase the limit for legal proceedings from one year to six years for wrongfully issued tax credits. He referred to the statute of limitations in Alaska Statute (AS) Title 09. MR. JACKSON referred to page 8, line 1, to proposed Section 19, which would clarify the definition of rural area to mean a rural area located in Alaska since concern was expressed that rural could be interpreted as rural Arkansas. He pointed out that the legal drafter did not think this would be the case, but the specific language was added for clarity. MR. JACKSON commented that the committee will continue to work on additional amendments to the bill. 4:25:08 PM REPRESENTATIVE SADDLER referred to proposed Section 4 of Version G and asked for clarification on which taxes applied. MR. JACKSON answered that any taxes paid under AS 43 would be eligible for the film production tax credits. Currently, the film production tax credits offset corporate income tax liability. This change would allow it to apply to other taxes, such as insurance taxes and fishery taxes. 4:25:53 PM CHAIR OLSON added one reason for this change is that the film production tax credits would not be of any value to a company unless corporate taxpayer is able to use the tax credits. REPRESENTATIVE SADDLER asked whether a taxpayer could use tax credits all in one section. MR. JACKSON deferred to the department. 4:26:35 PM THOMAS R. DALY, Owner, HiSpeed Gear, Member, Alaska Film Group, referred to Alaska's economy as a three-legged stool consisting of government, energy, and all other activity. He reported that as an Alaskan business owner, his company suffered a significant loss of income three years ago when the state chose to not allow Alaskan-owned companies in the business equipment industry to bid on state contracts. This may have ended badly but the company was able to replace a portion of its income by providing services to the Alaska Film Industry. The production of Everybody Loves Whales (ELW), which was completely shot in Alaska, benefited from the Film Production Incentive Program. This program also provided him with an opportunity to work. This film had an estimated direct and indirect economic impact of $16.5 million in the Anchorage, Barrow, and Seward communities. Over the past two years, ELW benefited 35 Alaska communities. The economic benefits surfaced in a number of ways, from 1,000 casting roles, 100 crew positions behind the cameras, 28 drivers, and 7,900 man hours. Staff provided security services, catering, equipment rentals, and 12,100 nights of hotel rooms. He remarked that it would take a hotel renting a one hotel room for 7 nights a week over the next 33 years to match the significant impact provided by ELW. The direct benefits also extended to multiple sectors of Alaska's economy. His business has subsequently decided to invest in the further training and development of talent and technical positions in order to work on other films. He is working to retrain the technical operatives to use digital versions of a loader and to provide the data dense hard drive requirements needed to conduct modern filming with qualified professionals. 4:29:17 PM MR. DALY related that he is aware of other businesses who would like to invest in bigger items such as 10-ton grip trucks at a cost of $250,000; generator trailers at a cost of $100,000, and lights at $20,000-$45,000 each. He pointed out that film equipment is specialized and expensive. An entry level sound stage can range from $10-$20 million to build. He stated that Alaska's businesses need assurances that the state is a competitive environment for filming. He offered his belief that the current film production incentive program is competitive but will end. He related that British Columbia produces 200 films and its program does not have a sunset clause. He emphasized that businesses need companies to make long term investments in order for the industry to grow in Alaska to provide the stability and attract new dollars. He recapped the reasons he is firmly in favor of SB 23, including that it will help keep the state competitive in the film production industry, assist in the growth of a more diversified economy, and will endorse private investment. He urged the committee to support a minimum 10-year renewal as provided by SB 23. 4:30:42 PM REPRESENTATIVE CHENAULT asked whether he has same passion about the oil industry. MR. DALY remarked that the oil industry put him through high school and any college years he acquired. 4:31:25 PM WES SCHACHT, Owner, Omnitour Alaska, stated that he has been around the film industry for approximately 30 years. He said he fully supports SB 23. 4:31:57 PM MICHAL NEECE, Owner, Alaska Film Works, stated that his company trains people vocationally and academically. He has worked in the film industry for almost 30 years. He suggested the state work in the same vein as British Columbia and Halifax, Nova Scotia has done to develop their film industries. He agreed with Mr. Daly. He said he supports SB 23 and would like to see the bill passed. 4:33:08 PM GREG KERN, Owner, A K Grip and Lighting, stated that he has a small mom/pop business that provides lights, generators, and grip trucks to the film industry. He said he supports SB 23 which will allow him to obtain the long-term financing to grow his business. He would like to hire more employees. He said he worked on the ELW project. However, he observed lots of equipment come and go when the project was finished. He characterized this activity as carpetbagger activity. He related that he is struggling to make it in Alaska and needs a chance to "sink my teeth into this stuff" and get the financing to allow him to compete with Lower 48 firms. He commented that these firms are large corporations that are well funded. These companies are accustomed to setting up shop in other states and send money home to California or New York. He stressed that he and other small vendors are trying to preempt this. He asked for the opportunity to build an industry from the ground up. [SB 23 was held over.]