Legislature(2011 - 2012)BARNES 124
04/15/2012 09:00 AM House RULES
| Audio | Topic |
|---|---|
| Start | |
| SB104 | |
| SB74 | |
| SB23 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 104 | TELECONFERENCED | |
| + | SB 25 | TELECONFERENCED | |
| + | SB 74 | TELECONFERENCED | |
| + | SB 23 | TELECONFERENCED | |
SB 23-TAXES & CREDIT:FILM/OIL & GAS/GAS STORAGE
9:16:49 AM
CHAIR JOHNSON announced that the next order of business would be
CS FOR SENATE BILL NO. 23(FIN), "An Act relating to transferable
film production tax credits and film production tax credit
certificates; requiring the legislative audit division to audit
the Alaska film production incentive program; and providing for
an effective date by amending the effective dates of secs. 3 and
4, ch. 63, SLA 2008."
The committee took a brief at-ease.
9:17:45 AM
REPRESENTATIVE OLSON moved to adopt HCS CSSB 23, Version 27-
LS0252\UU, Bullock, 4/14/12, as the working document.
CHAIR JOHNSON objected for purposes of discussion.
9:18:03 AM
REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature,
explained that Version UU is about policy and SB 23 is about
incenting the issues that are important to Alaskans and good for
the state. These incentives, which are found in SB 23, HB 289,
SB 153, HB 276, and SB 145 have been thoroughly vetted in both
bodies by many committees. Furthermore, votes on both the
House and the Senate floors have been overwhelmingly in favor of
these incentives. Senate Bill 23, he opined, will encourage
commerce via credits for the film industry, new oil and gas
exploration in unexplored regions, and the commercialization of
natural gas to Alaskans and quite possibly by Alaskans.
Although SB 23 won't answer all the issues the legislature set
out to solve this year, it will move Alaska forward by
encouraging industry, development, and hope to communities
experiencing the strain of Alaska's energy drain. The
aforementioned will open the way for new resources, exploration
that will benefit the bottom line of the state as well as the
people of Alaska. In closing, Representative Thompson expressed
hope that next year the same could be done for the legacy
fields.
9:19:45 AM
JANE PIERSON, Staff, Representative Steve Thompson, Alaska State
Legislature, informed the committee that Version UU is a
compilation of SB 23, as it left the House Finance Committee; HB
289, as it passed the House; and HB 276, as it left the Senate.
She noted that there is a fiscal note from Lennie Dees,
Department of Revenue, and an explanation from Roger Marks
regarding what the Senate did. She related that the Senate
added a new section, AS 43.55.162, entitled "Adjustment to
production tax value for increasing oil and gas production."
This section incentivizes certain qualifying new production by
reducing the production tax value for production from a lease or
property north of the 68th degree latitude that as of January 1,
2008, wasn't within a unit or in commercial production by 30
percent of the gross value at the point of production for the
first 10 consecutive years after the start of sustained
production. The adjusted production tax value is the amount
upon which the base tax rate and progressivity tax index is
applied to determine the producer's production tax liability.
The legislation also makes the appropriate changes to AS
43.55.011(e)(1) and (g) to reflect the change in production tax
calculations for the reduction in production tax value. Ms.
Pierson then related that Mr. Marks described the new addition
by the Senate as follows: "This proposal uses the same tax
rates for [Alaska's Clear and Equitable Share] ACES with the
gross value reduced by 30 percent for new fields for the first
10 years. Thus, the nominal tax rate is the same as for ACES."
She then highlighted that there is also a change in Version UU
such that the new production allowance will apply everywhere
outside of Cook Inlet. Therefore, Middle Earth would fall under
this new tax rate after its own provision expires.
9:22:26 AM
MS. PIERSON, in response to Chair Johnson, clarified that the
legislation passed the Senate with the north of the 68th
latitude language. The legislation was changed [within Version
UU] such that it referred to outside of Cook Inlet, and thus
Middle Earth would also apply.
9:22:56 AM
JERRY LAVINE, Owner/Operator, Connections Film & Video, informed
the committee that he testified against SB 23 in the House
Finance Subcommittee. He related that his main concern was for
Alaska businesses and competition. While he favors the generous
support for Alaska hire that the bill provides - trading a $1
tax credit for a $1 of Alaska resident hire - Representative
Costello and the subcommittee should be praised for looking out
for the best interests of Alaska residents. Mr. LaVine
explained that during his previous testimony he referred to the
term pass-through in which a producer may use a local Alaska
vendor to pass-through expenses that are actually made out-of-
state to non-Alaskan businesses. Examples of out-of-state
expenses include cameras, lights, and autos for catering,
portable makeup, et cetera. Further examples include the
shipping expenses to and from the state as well as the travel
expenses for out-of-state residents. The pass-through loophole
wasn't closed and makes it difficult for Alaska businesses to
compete against non-Alaska business. He informed the committee
that Washington State closed its pass-through loophole to the
extent that they used language specifying that even Washington
vendors may not rent or purchase supplies outside the state for
the purposes of qualifying for the incentive or tax nexus. Mr.
LaVine ran some numbers using "The Big Miracle" tax credit
application that was approved by the state. Under Version UU,
he estimated that "The Big Miracle" production would qualify for
a $12.5 million estimated tax credit whereas under the current
legislation they would qualify for $9.6 million. Therefore,
"The Big Miracle" would receive more tax credits under Version
UU. He expressed concern that the pass-through is a round-about
way that allows for the salaries above the line to still qualify
for large sums of money. However, he understood that 65 percent
of Alaskans didn't want to pay for the salaries of above-the-
line directors, actors, and producers. Mr. LaVine requested
that the committee consider tabling SB 23 until next year. He
informed the committee that Legislative Audit hasn't completed
its audit and there is no public study of the program.
9:27:00 AM
MARK BRINSTER, Film Professional, informed the committee that he
has been a film professional in Alaska for over 30 years. He
then testified in opposition to SB 23. While Mr. Brinster said
that he applauds the efforts of the House Finance Subcommittee
on SB 23 to add incentives for local hire, he felt the language
regarding above-line salaries isn't entirely clear and [doesn't
provide] adequate safeguards to prevent Hollywood from taking
advantage. The film industry is fairly well known for "creative
accounting." In fact, one court in California described the
film industry as having "the most unconscionable accounting
practices in the world." Therefore, Alaska needs to be
especially careful when dealing with Hollywood, particularly in
terms of a subsidy program. He opined that the 2008 legislation
was rushed and received inadequate debate, which resulted in
numerous loopholes, pass-throughs, and a disproportionate amount
of subsidies paying for nonresident wages. In 2011, 84 percent
of the wages that were subsidized by the program went to
nonresidents. Mr. Brinster recalled that there is a legislative
audit underway and the program sunsets next year. Therefore, he
opined that the matter should be tabled until the next
legislature when more will be known, which will assure Alaskans
that [the program] doesn't subsidize Hollywood, California, but
rather protects the interests of Alaskans.
9:29:01 AM
LAWRENCE GOLDIN, Aurora Films, began by informing the committee
that he has been producing/making films in Alaska for nearly 40
years. He noted that he has worked on feature films that were
funded by outside production companies as well as feature films
funded from within Alaska. He related that he is probably most
well-known for his historical documentaries, the most recent of
which was "Statehood". With regard to SB 23, he stated that his
main interest is to see that the Alaska film industry benefits
from these subsidies. He then said that much credit is due to
Representative Costello and the subcommittee for inserting a
provision that would allow above-the-line functions for
directors, writers, principle actors, and producers who qualify
as state residents. This legislation would allow up to 50
percent of the salaries of those Alaskans to qualify for tax
incentives, as it's the only way in which Alaskans will reach
the ability to own media productions so that the profits from
the media productions stay in the state. When the
aforementioned occurs, the private sector in Alaska will
increase its capital and be able to better invest in
infrastructure, crew training, and future productions. However,
he expressed concern with the cap on incentives for those same
categories of professionals if they aren't Alaska residents.
The testimony in prior committees has related how that might
dampen out-of-state investments in Alaska. The 5 percent cap,
he opined, is low and could have a detrimental impact in the
long-term. Mr. Goldin explained that although he wants Alaskans
to own media productions and participate as employees as much as
possible, it will take time for that to develop. In the
meantime, the most readily available source of capital for
improving the film industry and obtaining more jobs will be the
nonresident producers. He then expressed concern with the
makeup and functions of the film commission that would be
empowered to evaluate and pass judgment on the worthiness of
projects for the tax incentives. The aspects of SB 23 that have
to do with approving projects based on whether the projects are
perceived as being in the best interest of Alaska can be
problematic. The film commission is composed of four
commissioners of state departments, which are political
appointees who will be very cautious. The interpretation of
best interest, best financial interest of the state is very
nebulous. In fact, he expressed concern that some of the recent
films produced in Alaska might not have passed muster to that
type of judgment. For example, the film "Everybody Loves
Whales" includes some controversial remarks regarding the oil
industry in Alaska. The film "On Frozen Ground", which portrays
the misadventures of an Alaskan, could have been determined not
to be appropriate. He emphasized that people who are
hypersensitive to the content of films could veto any number of
projects. At the very least, Mr. Goldin suggested that other
members be added to the proposed film commission, those with
longer term perspectives or vision such as individuals from the
State Council of the Arts, the Humanities Forum, or staff from
the film department from the University of Alaska Fairbank or
the journalism department from the University of Alaska
Anchorage. He opined that for the artistic process some leeway
is required to allow one to express him/herself and leave it to
audiences to make reasonable and informed judgment about Alaska.
9:36:34 AM
BOB CROCKETT, acknowledged that SB 23 isn't perfect, but it does
allow the film industry to move forward. Therefore, he
encouraged the committee to allow SB 23 to move forward because
it allows a tremendous benefit to Alaskans as it ties above-the-
line to wages that are spent on Alaska wages and Alaska
business.
9:37:10 AM
CHAIR JOHNSON, upon determining no one else wished to testify,
closed public testimony.
9:37:20 AM
The committee took an at-ease from 9:37 a.m. to 9:40 a.m.
9:40:24 AM
REPRESENTATIVE CHENAULT moved Conceptual Amendment 1 that would
delete Section 18.
CHAIR JOHNSON objected for purposes of discussion.
REPRESENTATIVE CHENAULT clarified that Conceptual Amendment 1
would remove Section 18 and any references to it.
9:41:06 AM
MS. PIERSON explained that Conceptual Amendment 1 would remove
the 30 percent gross tax allowance that was put into SB 23 by
the Senate. That allowance applies to above the 68th degree
parallel. Therefore, the [adoption of Conceptual Amendment 1]
would only leave an oil and gas tax advantage for Middle Earth.
In response to Chair Johnson, Ms. Pierson explained that above
the 68th parallel refers to the North Slope.
9:41:51 AM
CHAIR JOHNSON surmised then that [the adoption of Conceptual
Amendment 1] would result in the removal of the North Slope from
the proposed tax exemption.
MS. PIERSON pointed out that the tax allowance can be found in
the proposed AS 43.55.162, Section 18.
CHAIR JOHNSON related his understanding that the [inclusion of
Section 18] was an oversight and was never intended by the
sponsor. He then thanked Representative Chenault and his staff
for catching the mistake.
9:42:21 AM
REPRESENTATIVE TUCK asked if [the adoption of Conceptual
Amendment 1] would remove the North Slope from the proposed tax
exemptions.
MS. PIERSON replied yes.
9:42:36 AM
REPRESENTATIVE GRUENBERG surmised then, "If we didn't have it,
then all Middle Earth would be removed. You just want to remove
the North Slope."
MS. PIERSON replied no, and added that there are two different
issues. This adjustment on the North Slope was directed just to
the North Slope and Middle Earth was addressed as Middle Earth.
9:43:16 AM
CHAIR JOHNSON related his understanding that [the adoption of
Conceptual Amendment 1] will remove the North Slope [from the
proposed tax exemptions].
9:43:25 AM
REPRESENTATIVE TUCK recalled that Ms. Pierson originally
specified that Version UU included HB 289, HB 276 as passed from
the Senate, and Section 18. He asked if that's correct.
MS. PIERSON responded yes, but stated that the inclusion of
Section 18 was a drafting error.
9:44:08 AM
REPRESENTATIVE TUCK recalled that Ms. Pierson did speak on
behalf of Section 18 as if Representative Thompson added the
language.
MS. PIERSON acknowledged that she did speak to Section 18, but
didn't realize that it was actually in the legislation and
should be removed.
CHAIR JOHNSON interjected that any complaints regarding why and
how Section 18 was included should be directed to him as he
introduced [Version UU].
REPRESENTATIVE TUCK clarified that he was trying to determine
whether the inclusion of Section 18 was really a mistake.
CHAIR JOHNSON further interjected that it was clearly a mistake
and again thanked Representative Chenault for catching it.
9:44:59 AM
CHAIR JOHNSON withdrew his objection to Conceptual Amendment 1.
There being no further objection, Conceptual Amendment 1 was
adopted.
9:45:36 AM
REPRESENTATIVE GRUENBERG informed the committee that his
recommendation will be to amend for reasons that he has
discussed with the chair.
CHAIR JOHNSON withdrew his objection to the adoption of Version
UU, as amended.
9:46:02 AM
REPRESENTATIVE OLSON moved to report HCS CSSB 23, Version UU, as
amended, out of committee with individual recommendations and
the accompanying fiscal notes. There being no objection, HCS
CSSB 23(RLS) was reported from the House Rules Standing
Committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 23 Version UU.pdf |
HRLS 4/15/2012 9:00:00 AM |
SB 23 |
| SB 74 Version E.pdf |
HRLS 4/15/2012 9:00:00 AM |
SB 74 |
| SB 104 Version T.pdf |
HRLS 4/15/2012 9:00:00 AM |
SB 104 |
| SB 104 v.T Leg Legal Memo 4.14.12.pdf |
HRLS 4/15/2012 9:00:00 AM |
SB 104 |