Legislature(2013 - 2014)HOUSE FINANCE 519
03/12/2014 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB266 || HB267 | |
| HB306 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 266 | TELECONFERENCED | |
| += | HB 267 | TELECONFERENCED | |
| += | HB 306 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 306
"An Act relating to tax credits and administration of
tax credit programs; requiring the Department of
Revenue to report indirect expenditures; relating to
the duties of state agencies; requiring the
legislative finance division to analyze certain
indirect expenditures; relating to lapse dates for
appropriations for capital projects; repealing certain
statutes authorizing indirect expenditures; and
providing for an effective date."
9:29:48 AM
Vice-Chair Neuman MOVED to ADOPT the proposed committee
substitute for HB 306, Work Draft 28-LS1396\R (Nauman,
3/11/14).
Co-Chair Stoltze OBJECTED for discussion.
DANIEL GEORGE, STAFF, REPRESENTATIVE BILL STOLTZE, briefly
discussed the changes in the committee substitute (CS). He
stated that on the first line of the title the words, "tax
credits" were removed and changed to "the review." He
turned to page 1, line 5 through page 2, line 1, each of
the tax credits were delineated instead of stating specific
statutes that authorized direct expenditures. He reported
that Section 1 was a new section that contained conforming
language pertaining to the repealing the insurance tax
education credit.
Co-Chair Stoltze clarified that "repealing" was referring
to a sunset process, which was repealed and then removed.
Mr. George noted that Section 2 and the following sections
were renumbered. He pointed to Section 4, page 3, and
reported that the indirect expenditure report had been
changed from every year to every two years. Former Sections
7 and 8 had been removed and were related to minerals
exploration tax credits and conforming language. He
referenced the new Section 8, page 5, line 14 and read:
Sec.43.05.095.Indirect expenditure report. (a)The
commissioner shall not later than July 1 before the
first regular session of each legislature…
Mr. George stated that "July 1" previously read, "November
1." He read Section 8, item (7):
(7) the estimated annual effect on revenue of the
indirect expenditure for the previous five fiscal
years, excluding the fiscal year immediately preceding
the date the report is due;
Mr. George noted that the later part of the provision
beginning with the word, "excluding" was added. Subsection
(b) under Section 8, item 9 was added and read:
(b)For purposes of (a) of this section, federal tax
credits adopted under AS43.20.021 shall be reported in
the aggregate.
Mr. George continued that under Section 8, item (d) the
following language was removed, "In this section, indirect
expenditure" means a credit, exemption, deduction,
deferral, discount, exclusion, or other differential
allowance designed to encourage an activity or benefit the
public or a taxpayer and…" and changed to:
(d) "In this section, indirect expenditure" means an
express provision of state law that results in
foregone revenue for the state by providing…
Mr. George indicated that the previous Section 10 was
removed from the bill. The language conformed to the
minerals exploration tax credit. The section was replaced
with the new Section 8, subsection (d) items 1 through 5.
REPRESENTATIVE STEVE THOMPSON, SPONSOR, believed that the
bill was misunderstood. The bill allowed the legislature to
review indirect expenditures created by tax credits. A
report would be submitted to the legislature in order to
determine whether the tax credits were in compliance with
legislative intent, and would examine the costs and
benefits to the state, job creation, and the effects on
industry. He thought that it was the responsibility of the
legislature to evaluate tax credits. The bill provided the
legislature a two year review period. During that time
various tax credits could be renewed for six more years
until another review cycle would begin. The tax credits
would not be automatically eliminated in 2015. A review
process will begin over the following two years and
suitable tax credits will be renewed. He pointed out that a
business evaluated its expenditures to determine their
merit and so must the state. He felt that the legislative
review of the tax credits was fiscally responsible.
Co-Chair Stoltze interjected that anyone benefitting from
tax credits would naturally have concerns over HB 306 but
he felt that the legislature had a "duty" to review all
expenditures. He hoped that the University of Alaska (UA)
would have taken a "more constructive role" by engaging in
a dialog with legislators over its concerns with HB 306
instead of campaigning to "kill the bill." He indicated
that tax credits were a "diversion of general funds." He
appreciated the sponsor's time invested in the bill. He
thought that two years offered ample time for evaluation of
sunset extensions.
Co-Chair Austerman asked for a couple of clarifications. He
did not understand the removal of the mineral tax credit.
Representative Thompson clarified that the tax credit was
not a mineral tax credit but was an exploration tax credit.
He felt that exploration had the potential to produce
revenue and jobs for the state. He deferred to staff for
further detail.
BRODIE ANDERSON, STAFF, REPRESENTATIVE STEVE THOMPSON,
shared that discussions about the mineral exploration tax
credits contained in Title 38, were centered on the fact
that oil and gas or mining corporations made exploration
and long-term investment decisions seven to ten years in
advance, and based those decisions on the availability
exploration credits. The consensus was that expiring oil
and gas or mineral exploration credits could stifle
exploration incentives and fail to attract new exploration
to the state. He felt that it was important to exclude both
oil and gas and mineral exploration credits.
Co-Chair Austerman understood the intention and contended
that other exclusions could be made for other resources as
well. He thought that other renewable resource industries,
such as fishing made long-term investment decisions but
were not excluded. He argued that the renewable and
nonrenewable resource industries were comparable but that
only the nonrenewable industry was excluded. He pointed to
the fiscal notes for the bill which totaled $20 million in
tax credits for renewable industry as opposed to $300
million to $500 million in tax credits for nonrenewable
extraction that were exempted. He wondered why one industry
was treated differently than another.
Co-Chair Austerman questioned whether expiring all of the
tax credits identified in the bill at the same time
compounded the workload.
9:42:11 AM
Representative Thompson answered that extensive discussions
took place with the Department of Revenue (DOR) regarding
the amount of work required to generate the tax credit
reports. He related that some of the sunset dates had been
changed to accommodate the department's other workloads
throughout the year. The date changes facilitated the
department's use of existing staff to generate the reports.
Mr. Anderson stated that widespread discussions were
undertaken with the department and the Legislative Finance
Division (LFD) about the time commitment needed to compile
the reports and turn the information over to the
legislature. The sponsor had worked to find a balance
between DOR and LFD's workloads and other deadlines. He
elaborated that the sponsor extended the date the first
report was due from November 1 to July 1. The November date
coincided with year-end report deadlines for DOR and budget
duties for LFD. The legislative report deadline was moved
to July 1 for DOR, which granted LFD time during a slower
work period to review the reports for the legislature.
Co-Chair Austerman asked whether the reporting to the
legislature was through DOR or LFD.
Representative Thompson responded that DOR would compile
the reports and send them to LFD who would review the
information and report to the legislature.
Mr. Anderson added that LFD would receive the report from
DOR on July 1 and would present its report to legislative
leadership and the legislature on the first day of session.
Representative Holmes was concerned by the Section 10
sunset provisions that only applied to certain subsets of
tax credits. Future reports were required every two years
but were not attached to sunset provisions. She felt that
the tax credits were treated differently depending on which
year they were audited. She felt that all tax credits
needed to be treated equally; either they should all sunset
or just be subject to analysis and a report.
Mr. Anderson responded that the difficulty with drafting
the bill was that it was not possible to "tie the hands" of
future legislatures. He communicated that the only
mechanism to prompt future legislatures to act was the
inclusion of sunsets. The sponsor determined that it was
not possible to mandate future audits without having
additional information about the tax credits. Sufficient
information was tracked by DOR about the credits slated for
sunset and review listed in the bill. Insufficient
information was available about other tax credits based in
other departments to require that the legislature sunset
and review them by a certain date. Future legislatures
could repeal and review and have the option to extend other
tax credits. The sponsor was not "comfortable" identifying
additional tax credits and including them in the
legislation this year.
Representative Holmes needed more time to consider the
issue. She felt that the sunset dates empowered the concept
of the bill and not requiring sunset dates for all tax
credits was inconsistent. She was "struggling with the
concept."
Representative Munoz shared similar concerns. She noted
that the education tax credit had a sunset date of 2021 but
was scheduled for an earlier repeal given the timeframe of
the legislation. She asked for an explanation of the
removal of Section 12 from the CS.
Mr. Anderson replied that the previous Section 12 became
the new Section 10. The tax credits that were eliminated
from Section 12 pertained to the mineral exploration
credits contained in the following statutes: AS 27.30.010
through AS 27.30.0 99 and AS 43.20.44
Co-Chair Stoltze asked for an explanation of the 6-year
review cycle.
Mr. Anderson answered that every two years DOR would
produce a report for all departments, which would go to
LFD; LFD would then do its own review. LFD would only be
responsible to review the departments included in the
current cycle. He explained that after a departments
initial review subsequent reviews were set up a on a six-
year cycle. The six year cycle of review was based on the
fact that fiscal notes were based on a five year cycle of
appropriation projections. He added that the sunset date in
Section 10 of the CS pertained to the specific credits
listed. He reiterated that the legislation could not
mandate future sunset dates beyond 2016. Future
legislatures could choose to extend sunset dates in the
legislation.
9:54:25 AM
Representative Holmes expressed confusion about the concept
of binding future legislatures. She deduced that future
sunset dates could not be designated in the legislation.
The first cycle of sunsets and reviews need to be
completed.
Mr. Anderson answered in the affirmative. He indicated that
after 2016 a future legislature would need to extend the
sunsets and review cycle for another six years.
Representative Holmes surmised that all tax credits could
be set to sunset in 2016 under the legislation as a
compromise position to her issue with the bill that not all
tax credits were being treated equally.
Vice-Chair Neuman pointed to Sections 4 and 5 on page 4 of
the CS. The legislation required that the reviewer include
an explanation of the methodology and assumptions used in
preparing the report to the legislature. He wondered why
the legislature was not creating the assumptions and
methodology it wanted LFD to use.
Representative Thompson pointed to Section 8 and believed
the legislation identified exactly what information the
legislature wanted. Section 8 addressed the information
required in the indirect expenditure report. He read the
following:
(1) the name of the indirect expenditure;
(2) a brief description of the indirect expenditure;
(3) the statutory authority for the indirect
expenditure;
(4) the date the statute authorizing the indirect
expenditure is to be repealed, if applicable;
(5) the intent of the legislature in enacting the
statute authorizing the indirect expenditure;
(6) the public purpose served by the indirect
expenditure;
(7) the estimated annual effect on revenue of the
indirect expenditure for the previous five fiscal
years, excluding the fiscal year immediately
preceding the date the report is due;
(8) the estimated cost to administer the indirect
expenditure, if applicable;
(9) the number of beneficiaries of the indirect
expenditure.
Vice-Chair Neuman restated that the bill asked for the
assumptions and methodologies used to generate the report.
He preferred to see a methodology defined in the
legislation. He felt that the methodology used to review
the tax credits was related to legislative intent. He
wondered whether the tax credits would be repealed before
the legislature could complete an adequate review.
Representative Thompson replied that the bill provided for
a two year review period before the tax credits would be
repealed. The legislation required the legislature to
examine the report before the tax credit expired to ensure
that a tax credit was deemed "worthy" to continue.
Mr. Anderson referred to a prior conversation he had with
David Teal, Director of the Legislative Finance Division,
about the methodology and assumptions that would be
employed. He planned to include an explanation of the
mechanisms at the end of the report.
Co-Chair Stoltze relayed that the reason for today's
meeting was to determine the committee's issues with the
bill.
Vice-Chair Neuman reiterated his concerns. He wanted a
clearly defined methodology included in the bill. He wished
to know how legislative intent would be reviewed.
Representative Thompson believed LFD would need to work
with the legislators to develop an accurate methodology
based on the required information listed in the legislation
but he felt that the analysts were the experts on
developing methodology based on the information required.
Co-Chair Stoltze believed that the committee could
potentially work out a more clarified method.
10:02:58 AM
Representative Gara was concerned about the 32 statutes
that would be repealed. He agreed with the part of the
legislation that required examination of the tax credits to
determine their merit. He cited Section 10 and deduced that
the CS repealed 32 separate tax credits. He noted that the
list included an insurance tax, various fisheries tax
credits, municipal grants, and the film tax credit. The
credits would be repealed in 2016.
Representative Gara spoke to the two-year sunset review
timeline that he did not believe would work. He believed
that too many "road blocks" existed in the legislative
process where the tax credit extensions would get stalled.
He believed that the legislation was getting rid of the
credits prior to an analysis being done. He thought that
some of the credits "should disappear", but an analysis of
the 32 tax credits listed was not performed. He stated that
substantial tax credits and municipal rebates were not easy
sunset dates to extend through the legislative process. He
deemed that, if 20 tax credits were determined to have
merit they would not get passed in one legislative session.
He supported requiring a report or an analysis on each of
the credits that would be repealed. He did not support the
provisions of Sections 10 or 11 that repealed the tax
credits. He was supportive of an examination of the tax
credits to determine if the tax credits were costing the
state too much money and were worth the expenditure. He
found a "wholesale vote" on repealing 32 statutes that were
not discussed troublesome.
Representative Thompson replied that the purpose of the in
-depth analysis was to determine the merit of the tax
credit. He emphasized that the two-year sunset would ensure
that the legislature would "do its job" and review the tax
credit analysis. He stressed that without the inclusion of
the sunset dates the analysis would be "just another
report" that was sidelined.
Co-Chair Stoltze emphasized that tax credits were diverted
from general fund revenues.
Representative Gara commented that testimony should be
heard from interested parties related to each of the tax
credits included in the CS to determine whether they should
be included in the sunset provision. He remained doubtful
that the tax credits could be re-enacted in a two year
period of time.
Mr. Anderson answered that there were only seven tax
credits contained in Section 10 of the bill that were sun
setting. He revealed that one tax credit reached into
multiple tax components.
Representative Edgmon appreciated the underlying intent of
the bill but realized the potential "sweeping impacts" if
the legislation was adopted. He asked about unincorporated
communities and lapsing grants under Section 6. He outlined
his understanding of the issue. He noted that the
communities were notified by the Department of Commerce,
Community and Economic Development (DCCED) seven months
before the grants lapsed and core requirements needed to be
verified before an extension was granted. He wondered
whether there was a specific reason for including Section 6
in the bill since a process was established. He asked
whether adoption of Section 6 would require establishment
of new procedures and regulations related to grants for
unincorporated communities.
Representative Thompson replied that currently grants to
incorporated communities were sunset in five years.
Unincorporated communities did not have sunset dates set in
statute. The department was treating unincorporated
communities' grants the same as incorporated communities'
grants.
Mr. Anderson expounded that he had spoken with Mr. Scott
Ruby, Director, Division of Community and Regional Affairs.
He relayed that AS 37.05.318 prohibited DCCED from enacting
regulations regarding the administration of unincorporated
community grants and named recipients appropriated under AS
37.05.315 through AS 37.05.317. Regulation changes by DCCED
were prohibited unless under statutory authorization. He
restated that the department dealt with the unincorporated
community grants and unnamed recipients the same as for
municipalities in order to establish the best practices for
management of public funds. The legislation actually
granted the department the statutory authority to manage
the unincorporated communities' and unnamed recipient
grants in the same manner as they currently were.
Representative Edgmon wanted to ensure that in order to
standardize the grant process the smaller communities were
not disenfranchised along the way.
Representative Costello wondered how many other states had
similar programs for reviewing indirect expenditures.
Mr. Anderson did not have the details but could provide it.
He offered that he worked with the National Conference of
State Legislatures (NCSL) and the Pew Research Center with
crafting the bill and knew of twelve other states that were
working on the same issue.
10:15:48 AM
Representative Costello appreciated the transparency
established in the legislation. She wondered what values
were weighed in the decision related to including sunset
provisions in the bill.
Mr. Anderson believed that the primary factor that drove
the decision was the amount of lost revenue over a five
year period with the tax credits examined in the
legislative research report [Indirect Expenditures
Provisions in Alaska Law (copy on file)]. Approximately
$120 million over a five-year time period was lost revenue.
Factors such as, sunset dates that "extended far beyond the
amount of money available" or the scope of a tax credit
that reached into eight major tax components without
knowing the benefits to the state contributed to the
decision to put a sunset mechanism as an incentive to
review the tax credits.
Representative Costello informed the committee that she did
not have a problem with the transparency section. She asked
whether the impacts of impending sunset dates were
examined.
Mr. Anderson replied that the sunsets were not examined
beyond testimony or lobbying efforts speaking to the
impact.
Representative Costello asked whether the inclusion of some
tax credits sun setting and excluding others was in
recognition of the impact the sunset date could have on a
tax credit.
Representative Thompson stated that the impacts were not
taken into consideration. He deduced that if the
legislature gets to work in 2015 many of the fears of the
impacts could be allayed because the report would be done
and the legislature could begin renewing the sunsets.
Co-Chair Stoltze referred to an NCSL fiscal conference he
had attended in the past. He recalled a discussion with
various government officials about not treating tax credits
as "real money" and which had a "big impression" on him.
Co-Chair Austerman expressed concerns with the bill related
to treating tax credits inequitably. He recalled Mr.
Anderson's earlier discussion concerning up to $120 million
in lost revenue to the state in tax credits. He pointed to
the recent $2 billion tax credit in the nonrenewable
resource extraction industry in Alaska. If all industries
were not treated equitably he would have a problem
supporting the bill. He was in total agreement with the
concept of the legislation. He stressed that the discussion
should be relevant to what is being lost with all tax
credits. He noted that some of the tax credits targeted in
HB 306 currently had sunset dates. He wondered why the
legislation did not mandate review when the existing sunset
dates came up. He supported "tightening up" the review
process, but wondered why the credits with sunset dates had
been lumped in with credits without sunset dates.
10:23:21 AM
Co-Chair Austerman commented on the zero tax rates on Cook
Inlet gas and oil when tax credits were factored in, which
fueled his concern over equity issues between renewable and
nonrenewable industry tax credits.
Representative Thompson replied that he did not want to
delve into oil and gas credits that were "thoroughly
vetted" over the last several years and would hinder
passage of the legislation. He felt that it was a subject
for future legislatures to address. The tax credits in the
bill were included because he felt the process could be
completed by the twenty-ninth legislature.
Co-Chair Austerman questioned how the "cost benefit
structure" of each of the credits would be determined. He
felt the structure was not defined in the bill. He wondered
what criteria DOR and LFD would use.
Representative Thompson replied that the criteria had been
set in the legislation.
Co-Chair Stoltze remarked that Vice-Chair Neuman expressed
the same concerns and would be addressed in a future draft
of the bill.
Co-Chair Austerman requested that LFD be present at the
subsequent bill hearing.
Representative Wilson concurred with Co-Chair Austerman.
She believed that when tax credits were removed from the
bill it was much more difficult to justify the remaining
credits left in. She viewed the bill in two parts; tax
credits with sunset dates and those without sunset dates.
She stated that credits without sunset dates were not
reviewed and that credits with sunset dates should be
reviewed fairly. She agreed that tax credits represented
lost revenue and should be examined.
Representative Guttenberg pointed to Sections 5 and 6 on
pages 4 and 5 related to grants to named recipients and
unincorporated municipalities. He discerned that the
unincorporated municipalities were not granted an
opportunity to apply for a reappropriation or an extension.
He asked for clarification.
Representative Thompson replied that they would be treated
the same as a municipality or borough. He explained that
the purpose of the section was to ensure that named
recipients and unincorporated municipalities had a process
for extension. The reappropriation process would be the
same as the process for a municipality.
Representative Guttenberg understood but did not see
provision in the bill. He requested the statute.
Mr. Anderson informed the committee that the provision was
controlled at the regulation level versus the statutory
level.
Co-Chair Stoltze WITHDREW his OBJECTION to the adoption of
the CS. There being NO further OBJECTION, it was so
ordered.
HB 306 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB306 House Finance Committee Questions.pdf |
HFIN 3/12/2014 8:30:00 AM |
HB 306 |
| HB 306 Section 12 Repealers.pdf |
HFIN 3/12/2014 8:30:00 AM |
HB 306 |
| HB 267 CS FIN O version.pdf |
HFIN 3/12/2014 8:30:00 AM |
HB 267 |
| HB 266 CS FIN Y version.pdf |
HFIN 3/12/2014 8:30:00 AM |
HB 266 |
| HB 266 HB 267 Operating Budget Agency Summaries-3.pdf |
HFIN 3/12/2014 8:30:00 AM |
HB 266 HB 267 |
| HB 306 CS WORKDRAFT 28-LS1396_R.pdf |
HFIN 3/12/2014 8:30:00 AM |
HB 306 |
| HB 306 Version Changes N-R.pdf |
HFIN 3/12/2014 8:30:00 AM |
HB 306 |
| HB 306 NEW FN DCCED 3-11-14.pdf |
HFIN 3/12/2014 8:30:00 AM |
HB 306 |
| HB 266 HB 267 Operating Budget Testimony Additional.pdf |
HFIN 3/12/2014 8:30:00 AM |
HB 266 HB 267 |