Legislature(2023 - 2024)ADAMS 519
03/20/2024 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Adjourn | |
| Start | |
| HB144 | |
| SB22 | |
| Overview: Budget Update |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 144 | TELECONFERENCED | |
| += | SB 22 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 268 | TELECONFERENCED | |
| += | HB 270 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 144
"An Act relating to education tax credits; and
providing for an effective date by repealing the
effective date of secs. 1, 2, and 21, ch. 61, SLA
2014."
1:45:03 PM
REPRESENTATIVE JUSTIN RUFFRIDGE, SPONSOR, introduced the
PowerPoint presentation "HB 144 Education Tax Credit" dated
March 20, 2024 (copy on file). He relayed that the bill was
relatively simple and was designed to continue the
education tax credit that currently existed in the state.
The credit allowed businesses to donate dollars to
organizations that were educational in nature and deduct a
certain percentage of the donation from the business'
corporate taxes. The program had been successful throughout
the years and was due to sunset in the near future. The
bill proposed that the program should exist in perpetuity
and should no longer be eligible for a sunset. He turned
the presentation over to his staff.
BUD SEXTON, STAFF, REPRESENTATIVE JUSTIN RUFFRIDGE, began
the presentation on slide 2 and offered some background on
the Education Tax Credit Program. The program first began
in 1987 when the Education Tax Credit Program was
established. He reiterated that the goal was to encourage
private businesses to make charitable contributions to
schools. The program had evolved over the years and the
groups and entities that were eligible to contribute had
changed, as well as the education institutions that were
able to receive the donations. The sunset provisions had
been consistently extended since 1987.
Mr. Sexton continued to slide 3 and read through the
background of the program. The credit was for qualifying
contributions to accredited nonprofit two-year or four-year
colleges in the state. The credit could be used for a
variety of purposes, such as facilities, direct
instruction, and research and educational support purposes.
He clarified that technical training schools, vocational
education courses, and similar programs and facilities were
also eligible. He noted that Alaska Native cultural and
heritage programs were also a recipient of the tax credit
dollars and equipment.
Mr. Sexton advanced to slide 4 and reviewed some of the
recent education tax credit legislation. In 2014, HB 278
expanded the list of eligible recipients for donations and
and in 2018, HB 223 created the allowance for cash or
equipment contributions. He added that HB 223 also
established the current sunset expiration date of December
31, 2024.
Mr. Sexton continued to slide 5 which listed the taxes that
could be offset by the credits. The program was a wide
ranging opportunity, significantly impacted many
industries, and encouraged industries and businesses to
make donations to Alaska's institutions.
Mr. Sexton moved to slide 6, which included a chart of the
contributions and credits from 2011 through 2023. In 2023,
$2.7 million was the total amount of credits claimed, which
was about 50 percent of the total amount of contributions.
The institutions that received the most contribution
dollars were the University of Alaska (UA) and Alaska
Pacific University (APU), followed by secondary and
vocational schools. He explained that secondary schools
offered courses by an Alaska school district for
kindergarten through twelfth grade and could include
technical courses and college prep courses. Vocational
schools offered technical education training and some
apprenticeship programs. The entities that fell into the
"other" category were considered nonprofits and provided
different services. There had been a significant amount of
donations made over the years.
1:50:05 PM
Mr. Sexton continued to slide 7 which displayed the lowered
tax credits from 2018 through 2021 brought about by HB 223.
He directed attention to the middle column of the chart,
which showed the tax credits in the $100,000 to $300,000
range. There had been a reduction in recent years due to
the lowering of the cap. In 2018, the tax credit cap was $5
million but changed to $1 million in 2019. He continued to
slide 8 and reiterated that HB 144 would remove the sunset
date for the tax credit program, which had existed since
1987. He thought that the bill would present a good
opportunity for corporations and other entities to make
long-term financial plans. The bill would maintain the tax
deductions at the 50 percent level. He concluded the
presentation.
Co-Chair Foster asked how long the recent sunsets had been.
Representative Ruffridge responded that the sunset
timeframes had varied quite significantly over the years.
He thought that the last sunset was for six years.
1:52:07 PM
Representative Tomaszewski asked whether the cap was per
business or overall.
Representative Ruffridge responded that the cap was per
business.
Representative Ortiz thought the bill made sense. He asked
if the bill would eliminate the sunset clause if it were to
pass. He wondered if there was there any reason to maintain
a sunset date and if there had been previous attempts to
eliminate the sunset clause.
Representative Ruffridge replied that he was not aware of
any previous attempts to remove the sunset entirely. He
understood that sunsets were used to discuss a piece of
legislation that was slightly uncertain or ambiguous. He
noted that the tax credit had been around for over 30 years
and had been utilized well. He thought it did not make
sense to maintain the sunset on a piece of legislation that
has been around for such a long period of time. The only
reason to keep the sunset was to continue to bring the
legislation back in front of the body to ensure that it did
not need any updates. He argued that a sunset was the wrong
mechanism to produce change in legislation.
Mr. Sexton added he was also not aware of other attempts,
but he could follow up with the information.
Representative Ortiz noted that the state had a higher
influx of revenue in 2016 and 2017 and the tax credit
system was more active. The activity had decreased due to a
higher cap and other factors. He asked if the reason for
the decrease in activity was the change in the cap or if
there were other factors.
Representative Ortiz commented that there were a multitude
of factors that contributed to the decreased activity,
including the decreased cap. He noted that businesses or
contributors were encouraged to maximize contributions in a
previous version of this program while the tax credit
capacity was now equal across the board. The previous
iteration of the program in 2018 allowed for 100 percent of
a donation to be offset by a tax credit. He thought there
was an incentive to contribute higher amounts of money due
to the tax offset capabilities. He thought that the world
had also significantly changed due to the COVID-19 pandemic
and many businesses had become more cautious with money.
1:57:19 PM
Representative Galvin referred to slide 6 and asked for
clarification that the total contributions and credits were
$5,422,473 for 2023. She asked if the money would have
otherwise gone into the Department of Revenue (DOR) and
become unrestricted general funds (UGF).
Representative Ruffridge replied that the figure
represented the total contributions that were made on
behalf of the businesses. The first column on slide 6
included the dollar amount that would have been received by
DOR.
Representative Galvin understood that the total amount that
would have gone to DOR was about $2.7 million for 2023. She
noted that the number was higher prior to the pandemic. She
understood that the tax credit was important to the
university system. She was grateful for the opportunity for
the private industry to contribute to worthy causes. She
thought it was important to be aware that the bill would
require that the state surrender some of its revenue. She
also asked that there be awareness of the way in which
education was funded. She noted that the list of possible
organizations that were eligible to receive the
contributions included private nonprofit elementary schools
or secondary schools. She asked if Representative Ruffridge
could provide some examples of the eligible schools that
had received funds.
Representative Ruffridge answered that he did not have any
examples readily available, but he knew that the list of
schools that had received funds was lengthy. He noted that
the director of DOR was available online for questions.
Mr. Sexton responded that there were some confidentiality
issues at play, but the director might be able to provide
an example of some schools that would fall into one of the
eligible categories.
2:00:23 PM
BRANDON SPANOS, ACTING DIRECTOR, TAX DIVISION, DEPARTMENT
OF REVENUE (via teleconference) understood that
Representative Galvin was asking for some examples of
entities within the secondary, vocational, and other
category that were recipients of contributions. He
explained that there were restrictions on providing
specific examples when the department could not aggregate
information. The department was able to provide information
for the contributions to UA and APU because there were
multiple taxpayers that were making the contributions. If
there were not at least three taxpayers contributing to one
entity, the confidentiality statutes in AS 43.05.230
prevented the department from providing the information
which was why the entities were grouped together in one
category.
Mr. Spanos explained that statute stated that both public
and private non-profit elementary or secondary schools in
the state could be considered non-profit regional training
centers that were recognized by the Alaska Department of
Labor and Workforce Development (DLWD). He thought that the
information was likely published by DLWD. There were also
apprenticeship programs that were eligible for the credit.
He relayed that DOR included in its annual report the
secondary schools that offered courses operated by the
Alaska School District (ASD) and offered the general
technical and college preparatory courses for kindergarten
through twelfth grade. He noted that vocational schools
offered technical educational training and certain
apprenticeship programs and the other category included
nonprofit organizations that were receiving contributions.
Representative Galvin understood that the eligible
recipients could be both public and private, nonprofits,
elementary, or secondary schools in the state. She relayed
that she generally supported the concept behind the bill.
She noted that the wide range of eligible recipients stood
out to her because the state had yet to fulfill its
responsibility to maintain its public school system. She
was not sure how to fix the problem, but it was a concern
considering the challenges faced by legislators.
2:04:18 PM
Representative Josephson shared that his understanding was
that the Alaska Bible College (ABC) on the Kenai Peninsula
qualified for tax credits. He was familiar with
constitutional law and relayed that the courts were more
receptive to a receipt of a benefit involving a secondary
or college institution. He thought it was a similar
situation as holding a prayer on the legislative floor
while prayer was not permitted in a public school. He asked
if he was correct in his understanding that if ABC received
tax credits, a hypothetical rabbinical school in the state
could receive tax credits also.
Mr. Spanos responded that he would have to follow up with
the information and thought ABC existed in a gray area. He
would need to do more research into the constitutional law
surrounding religious organizations. He thought that if ABC
was eligible, other religious entities would also be
eligible.
Representative Josephson understood that Mr. Spanos could
not speak in depth on the topic, but noted that it had been
a significant story in the media recently. He liked the
bill, but wondered how it would interact with HB 89 which
proposed a child care tax credit. He understood that the
bills together would increase the cost from $1 million to
$3 million.
Representative Ruffridge asked Representative Josephson for
clarification on what he meant by the bill increasing from
$1 million to $3 million.
Representative Josephson replied that the fiscal note for
HB 144 stated that an affluent corporation could receive up
to $1 million in tax credits, but HB 89 would increase the
credit cap to $3 million. He did not think it would change
HB 144 and noted that future legislators could increase or
decrease the cap, but he wanted to know Representative
Ruffridge's thoughts on the possibility.
Representative Ruffridge responded that the cap could be
changed at any time. He thought that the possibility of HB
89 passing into law and adjusting the cap was irrelevant to
HB 144. He reiterated that HB 144 was focused on ceasing
the sunset on important and enduring programs. He referred
to Representative Galvin's earlier comments and remarked
that the amount of credits and contributions being made
under the program were small in comparison to the need. A
large portion of the credits were allocated to UA and the
university supported the program. He thought the issues
were separate.
2:10:11 PM
Representative Hannan referred to the constitutional
prohibition on public dollars going to private religious
schools. She understood that DOR was not able to share
details about the other category of eligible fund
recipients, which was concerning. She was uncertain if
there was a legal memo detailing whether any of the fund
recipients in the other category were in violation. She did
not know how to pursue the information if DOR could not
provide the committee with details on the recipients in the
other category. Private religious elementary schools should
not be receiving tax dollars and the prohibition was
explicit and clear in the constitution. She wanted to
ensure that the ambiguity was addressed before the bill was
moved. She understood that the issue was separate from the
sunset issue that the bill would establish.
Representative Ruffridge thought that Representative Hannan
answered her own question by stating that the bill was
dealing with the sunset authority. He directed attention to
a document in the committee packet [titled Department of
Revenue - Alaska's Education Tax Credit Program] (copy on
file). He relayed that page three of the document discussed
the responsibility to obtain and retain proper
documentation to verify that contributions were given to a
qualifying organization. By statute, there were qualifying
expenditures that were maintained for the Education Tax
Credit Program, which had to be applied for and verified by
the department. He thought the director could speak to the
process in more detail. He emphasized that expenditures had
to be proven to be proven in order to qualify for the tax
credit. There was a decision made by the Alaska Court
System to allow certain monies, particularly public monies,
to go to private religious institutions if the institution
had a separate program that was not religious in nature.
The dollars could only be used to pay for non-religious
educational programs. He thought there was a potential for
ABC to receive tax credit dollars because it offered
vocational and technical education in addition to religious
education. He agreed that there was ambiguity in the
program and thought it was the responsibility of DOR to
monitor ambiguous elements. The donors were responsible for
providing documentation that proved that the expenditures
were meeting both constitutional and statutory guidelines.
Mr. Spanos added that he was not sure which institutions
were in the other category off the top of his head. He
thought the question that should be posed to determine
eligibility was whether any religious organizations,
nonprofits, or private religious organizations had already
received an approved contribution. Taxpayers needed to work
with independent tax advisors and determine whether the
credit would apply. After making a contribution, taxpayers
could claim the credit on tax returns and DOR could audit
the credit.
2:14:07 PM
Mr. Spanos continued that as written, the statute appeared
to allow a broad range of organizations to receive
contributions. However, there had been a ruling on whether
the dollars were allowed in certain organizations, which
could be verified as part of the department's auditing
process. He emphasized that if funding would directly
benefit a religious or other private educational
institution, the tax credit would not apply. The department
provided an opinion to all superintendents written by a
former acting commissioner that he could also provide to
the committee.
Representative Hannan shared that her concern was not about
the superintendents of the 54 public school districts in
the state, but about the private schools. She wanted to
make sure that there were no loopholes that would allow
public revenues to be distributed to private nonprofit
religious elementary school programs because the schools
could claim that only certain programs were being funded by
public dollars. She was uncertain how in-depth an audit
would be. She did not want to create a pass-through that
would allow for violation of the state's constitutional
mandate that the public revenue go to public schools.
Representative Galvin understood that Mr. Spanos stated
that funds would not be used for the direct benefit of any
religious or other private educational institutions. She
thought that if a school was a private nonprofit, it was a
private educational institution. She did not want the bill
to have unintended consequences because it included other
private educational institutions in the group of eligible
entities. She suggested that clarity should be added to the
bill.
2:19:10 PM
Representative Stapp objected to the discussion. He shared
that he was born in 1987 and the extension had been
reauthorized every year since the year he was born. He
encouraged committee members to take up the issue in a
court case if members thought there was a constitutional
problem or legal problem with the way the state had been
administering the program. He argued that the bill was
simple and he found it irritating that the committee was
debating constitutional law considering there was no one on
the committee that was a constitutional lawyer.
Representative Josephson remarked that he had taught
constitutional law and he was aware of the evolving nature
of the law. For example, there was a pertinent case called
Lemon v. Kurtzman which was written by Warren Berger in the
1970s. He pondered that it was reasonable to be curious,
which included curiosity as to whether the bill should be
amended. He presumed that the bill would do well and would
pass the committee easily. He thought it was allowable to
ask questions.
Representative Ruffridge reiterated that the bill was
relatively simple and would move the program forward. He
suggested that there were other topics that might be more
worthy of the committee's time in the future. He encouraged
members to ask questions offline if more arose. He thought
that the bill should be moved forward.
2:21:54 PM
CHADHUTCHISON, DIRECTOR OF STATE RELATIONS, UNIVERSITY OF
ALASKA, relayed that UA strongly supported HB 144.
Throughout the years, there had been many strong
partnerships that the university had been able to forge
because of the program. Many of the donations that UA
received went directly to the workforce, research, or for
academic purposes. In particular, many students benefited
from the resources allocated to technical education. For
example, the diesel class at UA Southeast was able to
dissect the engines of four semi-trucks, including one with
a broken transmission. There was a lot of funding and
equipment that could be given to the university to help
educate students and build the technical workforce. He
listed some of the partners the university had worked with
over the years: the Glacier Fish Company, American Seafoods
Company, Hecla Mining Company, Fairbanks Gold Mining Inc.,
Conoco Phillips, Alaska Airlines, Holland America Princess,
Ravn Alaska, Aurora Animal Hospital, Bristol Bay Native
Corporation, and Northrim Bank.
Mr. Hutchison shared that the funds that were allocated to
the university through the credit program went directly
into a workforce need or for research purposes. For
example, if a donor was concerned about a crab population
and why there had been diminishing returns, a company could
inject directed funds right to the university and it could
conduct the necessary research and provide the company with
a product that would help the entire state. He expressed
gratitude for the $3.3 million in funding the university
had received over the past year. The university wanted the
program to continue, whether that meant a complete sunset
repeal or a multi-year extension. The stability of the
program and continuing the program for a long period of
time was very important to the university.
Co-Chair Foster OPENED public testimony.
2:25:27 PM
KAREN MATTHIAS, EXECUTIVE DIRECTOR, ALASKA METAL MINES,
ANCHORAGE (via teleconference), explained that Alaska Metal
Mines (AMM) was a professional association formed in 1992
to represent the interests of large metal mines and
advanced projects in Alaska. The association's purpose was
to inspire Alaskans to support a growing mining industry
that produced essential minerals while prioritizing safe
operations, community partnerships, and environmental
protection. Since it was established in 1987, the Education
Tax Credit Program had successfully encouraged private
sector investment in education in the state and helped many
Alaskans learn the skills for jobs in mining and other
industries. She shared that Alaska's largest mines had
welcomed the opportunity to partner with the state and
provide funding directly to Alaska's education programs
that supported workforce development, as well as research
that enhanced efficiency and safety in Alaska's mining
industry.
Ms. Matthias relayed that over the last decade, mining
companies in Alaska used the credit to invest in high
school programs in the Northwest Arctic Borough School
District and Angoon High School. Additionally, mining
companies had invested in a variety of UA programs
including engineering, environmental science, geology, and
the Mining and Petroleum Training Services (MAPTS), which
operated in Anchorage, Soldotna, and Juneau. The programs
supported young Alaskans who would be the next generation
of miners. Many of the programs provided educational
opportunities and training that could directly lead to
full-time mining jobs with high pay and excellent benefits
for Alaskans. The investment in education and training was
particularly valuable in the present day as Alaska grappled
with both out-migration and attrition and aging within the
current workforce. The mining industry strongly supported a
sustainable fiscal plan for Alaska that encouraged private
sector investment and economic growth, which included
innovative ideas like the tax credit to encourage private
sector investment in the education system, providing
Alaskans the skills to succeed and opportunities to stay in
Alaska.
Co-Chair Foster CLOSED public testimony.
Co-Chair Foster set an amendment deadline for Tuesday,
March 26, 2024, at 5:00 p.m.
HB 144 was HEARD and HELD in committee for further
consideration.
2:28:46 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 22 Public Testimony Rec'd by 031524.pdf |
HFIN 3/20/2024 1:30:00 PM |
SB 22 |
| HB 144 Sectional Analysis ver A.pdf |
HFIN 3/20/2024 1:30:00 PM |
HB 144 |
| HB 144 Sponsor Statement ver A.pdf |
HFIN 3/20/2024 1:30:00 PM |
HB 144 |
| HB 144- ETC Brochure.pdf |
HFIN 3/20/2024 1:30:00 PM |
HB 144 |
| HB 144 Education Tax Credit Presentation 032024.pptx.pdf |
HFIN 3/20/2024 1:30:00 PM |
HB 144 |
| HB 144- Dept of Revenue Ed Tax credit FAQ.pdf |
HFIN 3/20/2024 1:30:00 PM |
HB 144 |
| HB 144 DOR 2011-2023 Summary Ed Tax Credits.pdf |
HFIN 3/20/2024 1:30:00 PM |
HB 144 |
| HFIN Fiscal Update 3-20-24.pdf |
HFIN 3/20/2024 1:30:00 PM |
HB 268 HB 270 |
| HB 144- Support letter Alaska's-Education-Tax-Credits-SB-120-and-HB-144.pdf |
HFIN 3/20/2024 1:30:00 PM |
HB 144 |
| HB 144 Presentation 3.18.24.pdf |
HFIN 3/20/2024 1:30:00 PM |
HB 144 |