CS FOR HOUSE BILL NO. 269(FIN) "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 stations, increasing the amounts that may be claimed as credits against certain state taxes, and precluding claims of the contributions as both credits and deductions against the taxes; amending the manner of computing refunds to local governments of the fisheries business tax and the fishery resource landing tax; establishing credits against the fishery resource landing tax; and terminating the public educational radio and television credits authorized by this Act at the end of five years; and providing for an effective date." Mr. Tom Wright, staff aide to Representative Ivan was invited to join the committee. He explained the new CS and said they would be working from the "J" version. The main change was to lower the contribution rate to 50% of $300,000 and would separate the Public Broadcasting contributions from the University. Another change would be the establishment of a Public Broadcast Trust fund. Contributions go to the trust fund and said the department would explain the mechanics of the fund. An endowment would be set up for broadcast stations around the state. The sunset date would remain 31 December 2001. Senator Frank asked if there was a limit on the overall amount that could be credited and Mr. Wright advised that the overall credit would be $300,000. There would be $150,000 to the University and $150,000 to Public Broadcasting. Senator Frank asked if there was an updated fiscal note to the new CS and Mr. Wright said at this time there was not a new fiscal note but the Department of Revenue could explain the fiscal impact. He said there was an analysis of various tax credit scenarios and under scenario (b) that would be the estimation of what the contribution amount would be and the credit. The contribution amount would be about $2.6 million. Bob Bartholomew, Department of Revenue was invited to join the committee and said in calculating the amount of the credit there had been some changes in the bill that it would be hard to determine what the impact of the contributions would be. The current bill allowed contributions to the trust and previous calculations included a look at the history of donations to Public Broadcasting, which included contributions directly to stations. The amount of $2.6 million of total contributions would assume that the incentive of the tax credit would double the contributions received last year. If that assumption is high that the contributions coming to the trust would double, in redoing the fiscal note a range of between $800,000 and $1.3 million of loss revenue would be used. Senator Frank asked if one would get a credit for a sponsorship they made and Mr. Bartholomew said under this legislation in order to get the credit one would have to give to the trust fund that is set up. The Public Broadcasting Commission would decide how the money would be spent. Senator Sharp referred to Title 43 and said there was a cluster of taxes including oil & gas productions, etc. He wanted to know if oil and gas properties were different from those listed in Title 43. Mr. Bartholomew said the taxes listed under Title 43 were based on net income and therefore expenditures were allowed as a deduction. One could not calculate a deduction and credit at the same time. This would prevent double dip. Senator Sharp referred to page 2, section 2, line 9 about taxpayer cash contribution and said it was only listed under the University portions but not under Public Broadcasting. Mr. Bartholomew referred to page 5, section 5 and Senator Sharp said it did not say cash contributions in (a) above under section 5, but rather taxpayers contributions. Mr. Bartholomew said it was always the intent to keep it at cash and said it could be corrected by adding the word "cash" in front of "contributions". Senator Sharp said it would have to be made in every other sections in order to conform. Mr. Bartholomew concurred. Mr. Wright said it was the sponsor's understanding that it was cash contributions and there was no objection. Senator Sharp asked how many corporations were in a position to take advantage under the five areas of taxation in the State of Alaska. Mr. Bartholomew said there were approximately ten to fifteen corporations that have a tax liability in excess of $500,000. Senator Sharp said he did not agree with taxpayers being able to target where their taxes go without going through the appropriation process and smaller taxpayers not having that opportunity. He felt that education was a better cause. Mr. Bartholomew said the Department of Revenue had been working with the sponsor and the Department of Administration and felt the administration would like to show support for Public Broadcasting and the concept of having a five-year sunset puts a time certain on that support. Senator Frank said he was concerned about tax credits and if a corporation is already doing a sponsorship and getting institutional advertising for it that there should be no credit allowed for a contribution. It seems that it is not the intention because the money would be going to the trust fund, however he would like to see language making a clearer distinction that one could not get free advertising. Mr. Wright said the advertising was limited to the statement that the program was brought through contributions from "x" company. Senator Sharp said a disclaimer should be mandatory informing the public the company was getting a tax credit. Bob Jenkins, Executive Director, APBC and Jon Newstrom, Coordinator Coastalaska were invited to join the committee. Mr. Jenkins said the Public Broadcasting Commission supported the bill. He explained financial restructuring, strategic planning process and the satellite interconnection process. He said under the trust formation individual broadcasting stations were restricted from direct benefits. Donations must go to a central trust fund in order to get tax credit. The principal donation must be held in the trust and only the earnings could be distributed. The stations are licensed as non-commercial educational broadcasters and therefore do not advertise. The money going to a central trust inhibits the on-air acknowledgement of the contribution because it did not go to an individual station. Mr. Newstrom said the only way a sponsorship announcement would come up is that federal law requires the public be informed that a contribution was received. Senator Zharoff asked if money were given to a specific station does the station acknowledge that donation and Mr. Newstrom said that was correct but there was no tax credit given in that case. Mr. Jenkins said the kind of donation that generates the underwriting announcement does not get the tax credit. Senator Phillips moved CS CSHB 269 work draft "J" version and without objection it was adopted. Senator Rieger referred to page 4, lines 22 and 23 and said there was concern that the management of the fund could be invested primarily in interest earning securities or fixed income bonds. Traditionally, those would be lower yielding than stocks. He said he had a proposed amendment that would have an inflation proofing like feature to the trust fund. Alison Elgee, Department of Administration was invited to join the committee. She said the intent behind this trust set up was to allow for a long term investment strategy because it was an endowment trust. It recognizes that part of the growth of the trust corpus itself will accrue through the investment in an equity portfolio where capital gains and losses would be realized. An opportunity has been included for the trustees to inflation-proof the fund, recognizing that may not be sufficient in and of itself each year to keep the principal of the fund up, however, the thought is that the two would work together. The Department of Revenue has indicated that before there is an equity portfolio there must be a fund in excess of $2 million. Initially one would be looking at a fixed income investment portfolio where there would be a need to inflation proof. Senator Rieger asked if the bill as drafted allowed for inflation proofing until equities are gotten into. Ms. Elgee referred to page 4, line 29 as one of the uses of the fund would be effective inflation on the fund's principal. Mr. Bartholomew said the Department of Revenue realizes that this is a trust being set up for Public Broadcasting and it may not need to be set up like other trusts. Therefore, the languages here have not been tailored specifically, but rather similar to other trusts. The only concern was the ability to inflation proof and he felt it was available under the current bill language. Senator Sharp moved a conceptual amendment adding the word "cash" in front of the word "contribution" in sections 5, 7, 9 and 11 and without objection it was adopted. Following further discussion between committee members Senator Rieger moved SCS CSHB 269(FIN) and with the objection of Senator Sharp being duly noted the bill was reported out of committee with individual recommendations and an up-dated zero fiscal note from the Department of Revenue.