04/22/2024 09:00 AM House FINANCE

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."                                                                                                                     
                                                                                                                                
9:23:52 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JUSTIN RUFFRIDGE, SPONSOR, relayed that the                                                                      
bill would repeal the sunset on the education tax credits.                                                                      
He   explained  that   under  the   tax   credit  program,                                                                      
organizations could give funds to  educational institutions                                                                     
and  receive  a tax  credit.  The  program  had been  well                                                                      
utilized since the late  1980s. He supported repealing the                                                                      
sunset to continue the successful program.                                                                                      
                                                                                                                                
BUD  SEXTON, STAFF,  REPRESENTATIVE JUSTIN  RUFFRIDGE, was                                                                      
available for questions.                                                                                                        
                                                                                                                                
Co-Chair  Johnson  commented that  she  liked  sunsets  in                                                                      
general. She  thought there  was likely  a reason  to have                                                                      
sunsets in order to  bring eyes on the issue periodically.                                                                      
She wanted to  get a sense of  why the sponsor thought the                                                                      
status was different or what had changed from the original                                                                      
intent.                                                                                                                         
                                                                                                                                
Representative Ruffridge saw there was  a need for sunsets                                                                      
in periodic language for  a new bill.  He pointed out that                                                                      
the  program had  been in  place for  almost 40  years. He                                                                      
believed there  was  a lack  of  stability that  came with                                                                      
bringing something forward for sunset extension and having                                                                      
it change. He noted that every time the program had been up                                                                     
for sunset there had  been alterations of the structure of                                                                      
the program, which he thought could lead to confusion.  He                                                                      
supported  the bill  for  the  purposes  of  stability and                                                                      
mentioned subsequent slight changes to the program which he                                                                     
thought added to instability.                                                                                                   
                                                                                                                                
9:28:40 AM                                                                                                                    
                                                                                                                                
Representative Galvin highlighted  a list in  the members                                                                       
packets with frequently asked questions (copy on file). She                                                                     
referenced a  recent legal ruling [related  to funding for                                                                      
correspondence programs]  that seemed  to take  out pretty                                                                      
significant pieces  of  statute related  to  correspondence                                                                     
funding. She stated the tax credit program listed nonprofit                                                                     
agencies.  She  knew  there  could  be  private  nonprofit                                                                      
programs that were religious, and  thought the last ruling                                                                      
was related to anything related to  religious institutions.                                                                     
She asked for clarification.                                                                                                    
                                                                                                                                
Representative Ruffridge replied that the  ruling made the                                                                      
previous week had nothing to do with the program. He wanted                                                                     
to be  careful not to conflate a  situation that was ruled                                                                      
unconstitutional because it took some big steps forward to                                                                      
say  that public  money could be  used  in some  cases for                                                                      
private or religious instruction. He mentioned the statute                                                                      
that was  ultimately ruled  against, which he  thought had                                                                      
some  incongruencies. The  ruling  had  to  do with  state                                                                      
dollars that were  appropriated. He stated that if  any of                                                                      
the members  donated funding  to their church,  they would                                                                      
apply for a tax credit. He emphasized that a tax credit was                                                                     
not the same as a legislative body appropriating funds for                                                                      
a  specific purpose and  then being  granted a  credit. He                                                                      
thought the U.S. and state tax codes showed the difference.                                                                     
He reiterated  the issue was  very separate. He emphasized                                                                      
that the  topic at hand  was a donation  made with private                                                                      
dollars.                                                                                                                        
                                                                                                                                
Co-Chair Edgmon clarified that the  money went through the                                                                      
normal appropriation process.  He asked  about a technical                                                                      
training school.                                                                                                                
                                                                                                                                
Representative Ruffridge replied, "No." He explained there                                                                      
would be a reduction in revenue to the state in the dollar                                                                      
amounts that the  state was allowing an entity  to not pay                                                                      
tax for.                                                                                                                        
                                                                                                                                
Co-Chair Edgmon asked if the proceeds went directly to the                                                                      
beneficiary.                                                                                                                    
                                                                                                                                
Representative Ruffridge explained that if a person owned a                                                                     
company, and the company donated directly to an institution                                                                     
of  the persons   choice, the  person would  apply  to the                                                                      
Department of Revenue (DOR) to receive a tax credit.                                                                            
                                                                                                                                
9:34:50 AM                                                                                                                    
                                                                                                                                
Representative Galvin received some emails from individuals                                                                     
who were  concerned, and she appreciated the  explanations.                                                                     
She  considered  corporations  that  paid   taxes  to  DOR                                                                      
including mining license tax, fisheries,  oil and gas, and                                                                      
maybe  one or  two others.  She understood  that companies                                                                      
could chose instead to  make a partial donation. She noted                                                                      
there were  limits on  the donation  and she  believed the                                                                      
House  had  passed legislation  raising  the limit  to  $3                                                                      
million. She  stated that corporations  could submit proof                                                                      
they had donated to any number of organizations to receive                                                                      
a  lower  tax  bill. She  asked  for  verification it  was                                                                      
considered a tax credit.                                                                                                        
                                                                                                                                
Representative Ruffridge replied affirmatively.                                                                                 
                                                                                                                                
Representative Galvin stated  that her constituents wanted                                                                      
to understand  that it meant  less revenue to  the general                                                                      
fund, but  it also meant  that organizations were directly                                                                      
supported through private entities.                                                                                             
                                                                                                                                
Representative Ruffridge responded affirmatively.                                                                               
                                                                                                                                
Representative Josephson stated that he did not believe the                                                                     
question  was  so  simple.  Generally speaking,  when  the                                                                      
audience was  over 18,  the courts  had less  anxiety. For                                                                      
example, the Alaska Bible College was more acceptable than                                                                      
Lumen Christi [Catholic High  School] in Anchorage. He did                                                                      
not know of any problem with lifting the sunset, but he did                                                                     
not believe the legal question was so clear.                                                                                    
                                                                                                                                
9:38:06 AM                                                                                                                    
                                                                                                                                
Co-Chair  Edgmon  thought  the  line  of  questioning  and                                                                      
commentary was good. He asked Representative Ruffridge for                                                                      
closing remarks.                                                                                                                
                                                                                                                                
Representative Ruffridge  appreciated  the  opportunity to                                                                      
present the bill. He  was happy to talk  about some of the                                                                      
questions offline. He stated that the program had been well                                                                     
supported and had existed for  many years without any such                                                                      
challenges. He believed continuing the  program was in the                                                                      
best interest of the state and education programs supported                                                                     
by the  program including the University  of Alaska, which                                                                      
received a large benefit from the program.                                                                                      
                                                                                                                                
Representative Hannan asked if there  was a companion bill                                                                      
in the Senate.                                                                                                                  
                                                                                                                                
Representative Ruffridge  replied affirmatively.  He noted                                                                      
that it was proof of  the point he had made earlier in the                                                                      
meeting. He explained that the  Senate had made changes to                                                                      
some of the dollar amounts and he found it more significant                                                                     
than a simple sunset repeal.                                                                                                    
                                                                                                                                
Mr. Sexton  added that the  Senate version was not  a true                                                                      
companion  bill.  He  detailed  that  the  Senate  version                                                                      
extended the sunset and HB 144 was a  repeal. Additionally,                                                                     
the Senate version increased the amount of deduction levels                                                                     
and the cap.  The current bill kept the  levels as is. The                                                                      
current amounts were established in 2018  under HB 223 and                                                                      
lowered the deduction amount to the current level of about                                                                      
50 percent with a $1  million cap. In light of the state's                                                                      
fiscal situation, HB 144 proposed keeping the levels as is                                                                      
to make sure the impact was reasonable and balanced.                                                                            
                                                                                                                                
9:41:14 AM                                                                                                                    
                                                                                                                                
Representative Hannan asked what the recommended extension                                                                      
was in the sunset audit.                                                                                                        
                                                                                                                                
Mr. Sexton replied that he did not recall specifically. He                                                                      
believed  the  recommendation  was   a  four  or  six-year                                                                      
extension. He  noted there  was a  representative from the                                                                      
University present who could likely answer the question.                                                                        
                                                                                                                                
Representative Hannan asked about the Senate companion and                                                                      
the Legislative Audit  recommendation. She wondered if the                                                                      
recommendation was to remove a sunset or perpetuate one at                                                                      
some length of time.                                                                                                            
                                                                                                                                
Co-Chair Edgmon replied that  it was fair to  say that the                                                                      
audit did not recommend continuing in perpetuity. He shared                                                                     
that an  audit recommendation for  continuing something in                                                                      
perpetuity was  the  exception rather  than  the rule.  He                                                                      
shared Representative Ruffridge's line of thinking in terms                                                                     
of extending the bill. He considered the time, effort, and                                                                      
costs involved. He stated there was an ability to audit the                                                                     
programs and make  subsequent changes without having to go                                                                      
through  the  whole reauthorization  of  a  program, which                                                                      
became a rote exercise.                                                                                                         
                                                                                                                                
9:42:46 AM                                                                                                                    
                                                                                                                                
Representative Hannan was not interested in holding up the                                                                      
bill. She  continued to have  an interest making  sure the                                                                      
legislature  revisited  bills  going  forward;  therefore,                                                                      
completely  suspending  the   sunset  had  her   a  little                                                                      
concerned.  However,  she  was   very  supportive  of  the                                                                      
underlying premise  of the  bill.  She was  satisfied with                                                                      
having raised the questions.                                                                                                    
                                                                                                                                
Co-Chair Edgmon  thanked the  bill  sponsor. He  asked the                                                                      
Department of Commerce, Community and Economic Development                                                                      
(DCCED) to review the fiscal notes.                                                                                             
                                                                                                                                
9:43:58 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:45:37 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Edgmon noted that in the absence of DCCED, Brodie                                                                      
Anderson would review the fiscal note.                                                                                          
                                                                                                                                
BRODIE   ANDERSON,  STAFF,  REPRESENTATIVE   NEAL  FOSTER,                                                                      
reviewed the  DCCED fiscal note OMB  component number 354.                                                                      
The fiscal note showed no significant changes on the first                                                                      
page. He explained that the Division of Insurance submitted                                                                     
the fiscal  note because the  insurance premium tax  was a                                                                      
collectable tax paid by insurance companies. He elaborated                                                                      
that the education tax credits would be eligible to be used                                                                     
against any  sort of  liability a company incurred  in its                                                                      
insurance  premium tax.  He  noted  that  the Division  of                                                                      
Insurance  had  seen  a  sharp  decline in  credits  being                                                                      
claimed. The last paragraph of the  analysis [on page 2 of                                                                      
the  fiscal note]  included a  breakdown about  the amount                                                                      
claimed against education tax credits.                                                                                          
                                                                                                                                
Co-Chair Johnson asked if the fiscal note was zero because                                                                      
DCCED  did not  administer a  grant as  the  payments went                                                                      
directly to institutions.                                                                                                       
                                                                                                                                
Mr. Anderson responded that tax credits were managed by DOR                                                                     
under the Tax  Division and DOR would  provide a review of                                                                      
its fiscal  note. He  explained that fiscal notes  did not                                                                      
always reflect lost revenue, but there could potentially be                                                                     
lost  revenue from  the  tax credit  amount  being claimed                                                                      
against the  liability of  the  insurance premium  tax. He                                                                      
relayed that DCCED  anticipated no loss in  revenue due to                                                                      
the repeal.                                                                                                                     
                                                                                                                                
9:49:05 AM                                                                                                                    
                                                                                                                                
Co-Chair Edgmon asked if the  bill sponsor or staff wanted                                                                      
to elaborate.                                                                                                                   
                                                                                                                                
Mr. Sexton  replied that it  was a tax  credit program and                                                                      
there  were not  any payments  going out  to  entities. He                                                                      
explained  that the  donations were  going  to educational                                                                      
institutions and as such, the donation was able to receive                                                                      
a  tax  credit  through  the  program. The  result  was  a                                                                      
reduction in revenue to  the state. For example,  in FY 23                                                                      
total contributions  were just over  $5.4 million  and the                                                                      
credits claimed  (under the current  50 percent threshold)                                                                      
were about  $2.7 million, resulting in loss  of revenue to                                                                      
the state in that amount.                                                                                                       
                                                                                                                                
Representative Galvin appreciated that the bill was simple                                                                      
and only pertained to the sunset cap. She remarked that the                                                                     
Senate version had  a different sunset date.  Additionally,                                                                     
the House  had passed HB  89 pertaining  to childcare. She                                                                      
elaborated that HB 89 also  changed the dollar cap that an                                                                      
entity   could   put   into   educational  and   childcare                                                                      
organizations. She noted that if  the Senate passed HB 89,                                                                      
the  cap  would  change.  She  highlighted  that  if  that                                                                      
occurred, the fiscal notes for  HB 144 would be different.                                                                      
She clarified she  was not suggesting not  passing HB 144.                                                                      
She   was   merely  highlighting   it   could  potentially                                                                      
significantly change the fiscal note.  She stated that the                                                                      
current bill would not result in changes to the fiscal note                                                                     
because it  did not make any  other changes to  the cap on                                                                      
what an entity could use to defer their own tax bill, which                                                                     
would be direct revenue to DOR.                                                                                                 
                                                                                                                                
Mr. Anderson believed Mr.  Williams with DOR was available                                                                      
online to review the second fiscal note.                                                                                        
                                                                                                                                
9:53:22 AM                                                                                                                    
                                                                                                                                
MICHAEL  WILLIAMS, ACTING  DEPUTY DIRECTOR,  TAX DIVISION,                                                                      
DEPARTMENT OF  REVENUE (via  teleconference), reviewed the                                                                      
DOR fiscal  note, OMB component number  2476. He explained                                                                      
that  the education  credit  was a  credit  for qualifying                                                                      
contributions  to   Alaska  universities   and  accredited                                                                      
nonprofit  Alaska  two-year   or  four-year  colleges  for                                                                      
facilities, direct  instruction, research, and educational                                                                      
support   purposes   direct   instruction,  research   and                                                                      
educational  support  purposes;  donations   to  a  school                                                                      
district or a  state-operated technical and training school                                                                   
for vocational education courses, programs and facilities;                                                                      
and  donations  for  Alaska  Native  cultural or  heritage                                                                      
programs  for  public school  staff  and  students, and  a                                                                      
facility in the state that qualifies as a coastal ecosystem                                                                     
learning center under the Coastal American Partnership. He                                                                      
relayed that the credit was available to be claimed against                                                                     
insurance premiums,  tax,  title insurance  premiums, tax,                                                                      
corporate income tax, oil and  gas production tax, oil and                                                                      
gas property  tax, mining license  tax, fisheries business                                                                      
tax, and fishery resource landing  tax. The credit for any                                                                      
one taxpayer  could not exceed $1  million annually across                                                                      
all tax types. The credit was currently scheduled to sunset                                                                     
on  January 1,  2025.  The  bill would  repeal  the sunset                                                                      
provision.                                                                                                                      
                                                                                                                                
Mr. Williams continued to review  the DOR fiscal note. The                                                                      
change  in  revenues  reported in  the  fiscal  note  only                                                                      
included eligible  tax programs  administered by  DOR. The                                                                      
bill's  fiscal impact  was  from  eliminating the  current                                                                      
repeal provisions  beyond 2025. He  noted that  January 1,                                                                      
2025,  was  halfway  into  FY  25; therefore,  it  was  an                                                                      
estimated $1.5 million  fiscal impact. Based on historical                                                                      
credit claims, the outyears showed $3.1 million annually in                                                                     
foregone  revenue   for  contributions  claimed   for  the                                                                      
education  tax  credit.  There  was  no  implementation or                                                                      
administrative cost for DOR  other than absorbing it under                                                                      
current operating expenses. There was no grant process; the                                                                     
contributions went directly from  a private corporation to                                                                      
the eligible programs listed in statute.                                                                                        
                                                                                                                                
Co-Chair  Edgmon  referenced that  the  bill  sponsor  had                                                                      
indicated  that the  bulk  of  the  receipts went  to  the                                                                      
University [of Alaska].  He asked Mr.  Williams to provide                                                                      
further detail on the subject.                                                                                                  
                                                                                                                                
Mr. Williams answered that the calendar year 2023 education                                                                     
credits were $5.4 million and of that $3.4 million went to                                                                      
the University of Alaska system, just under $1 million went                                                                     
to Alaska Pacific  University, about $750,000 went to K-12                                                                      
schools,    school    districts,    vocational   technical                                                                      
institutions, and roughly $300,000  went to other eligible                                                                      
organizations like the Alaska Native Heritage Program. The                                                                      
$5.4 million in contributions translated to $2.7 million in                                                                     
tax credits.                                                                                                                    
                                                                                                                                
9:57:17 AM                                                                                                                    
                                                                                                                                
Representative Josephson  provided  an  example of  seeing                                                                      
large contributions from  Conoco to  the Alaska Performing                                                                      
Arts Center in  Anchorage. He asked if those contributions                                                                      
were associated with a different type of tax credit.                                                                            
                                                                                                                                
Mr.  Williams  replied that  he  was  not  aware that  the                                                                      
donation in Representative Josephson's example was eligible                                                                     
for a credit. He explained that it  was not on the list of                                                                      
eligible contributions under current statute.                                                                                   
                                                                                                                                
Co-Chair Johnson observed that a contribution could be for                                                                      
equipment or  housing [in  addition to other  things]. She                                                                      
asked  if an  entity had  to  take the  contributions. She                                                                      
wondered who evaluated the donations. She used the donation                                                                     
of a white elephant piece of property as an example.                                                                            
                                                                                                                                
Mr. Williams responded that contributions of equipment had                                                                      
to  meet the  same standard  as a  charitable contribution                                                                      
under  the   internal  revenue   code.  He   relayed  that                                                                      
contributions of equipment  or land over  a certain dollar                                                                      
amount required an  official appraisal to substantiate the                                                                      
value of the contribution.                                                                                                      
                                                                                                                                
Co-Chair Johnson asked who did the appraisal.                                                                                   
                                                                                                                                
Mr. Williams answered that there was certain documentation                                                                      
the donor  was required to maintain. He  detailed that if,                                                                      
during its  audit, DOR looked at  a piece  of equipment or                                                                      
land  contributed,  DOR  would  request the  valuation  to                                                                      
substantiate the value of the donation.                                                                                         
                                                                                                                                
9:59:28 AM                                                                                                                    
                                                                                                                                
Co-Chair Edgmon thanked the presenters.                                                                                         
                                                                                                                                
Co-Chair Johnson MOVED  to REPORT HB 144  out of committee                                                                      
with individual recommendations and the accompanying fiscal                                                                     
notes.                                                                                                                          
                                                                                                                                
There  being NO  OBJECTION,  HB 144  was  REPORTED out  of                                                                      
committee with  four "do pass"  recommendations, three "no                                                                      
recommendation"   recommendations,    and    two   "amend"                                                                      
recommendations and with  one new fiscal  impact note from                                                                      
the Department of  Revenue and one new zero  note from the                                                                      
Department of Commerce, Community and Economic Development.