Legislature(2001 - 2002)

02/22/2001 05:10 PM EDT

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 36 - ENTERPRISE ZONES                                                                                                      
CHAIR McGUIRE announced that the  committee would hear HOUSE BILL                                                               
NO. 36, "An Act relating to enterprise zones."                                                                                  
Number 0081                                                                                                                     
NATHANIEL  (NATE)  MOHATT,  Staff to  Representative  Joe  Hayes,                                                               
Alaska  State   Legislature,  presented   HB  36  on   behalf  of                                                               
Representative  Hayes, sponsor,  who was  out of  town.   He read                                                               
from the sponsor statement and elaborated, as follows:                                                                          
     The  idea of  enterprise  zones  originated in  England                                                                    
     under Margaret  Thatcher and was brought  to the United                                                                    
     States by the Reagan  Administration in the early '80s.                                                                    
     The  basic   idea  is  to  stimulate   the  economy  of                                                                    
     depressed areas by  offering incentives; traditionally,                                                                    
     tax   incentives  have   been  the   primary  incentive                                                                    
     Enterprise  zones have  gained bipartisan  support from                                                                    
     lawmakers across the country  for the last two decades.                                                                    
     Thirty-eight   states  have   passed  enterprise   zone                                                                    
     legislation,  and in  1994  the Clinton  Administration                                                                    
     reshaped  the  enterprise  zone  idea  into  a  federal                                                                    
     program  that  they named  Empowerment  Zone/Enterprise                                                                    
     Communities [EZ/EC].                                                                                                       
     The purpose of  HB 36 is to  help reinvigorate Alaska's                                                                    
     depressed  urban   and  rural  areas.     By  providing                                                                    
     incentives, businesses  will be more likely  to develop                                                                    
     in a  depressed area.   This will in turn  provide more                                                                    
     jobs to  the community, increase the  average household                                                                    
     income, and,  therefore, also  the standard  of living.                                                                    
     Enterprise zones work and  have been yielding promising                                                                    
     results for the last two decades.                                                                                          
     Traditionally,   enterprise   zones  have   relied   on                                                                    
     reductions  in  state  taxes  or   fees.    In  Alaska,                                                                    
     however, we  don't have much  of a state  tax structure                                                                    
     to  talk  about.    Therefore, in  order  to  make  the                                                                    
     concept fit to Alaska, House  Bill 36 is based on local                                                                    
     control and local option.                                                                                                  
     The designation  of an enterprise zone  would authorize                                                                    
     localities  to offer  the  incentive  or incentives  of                                                                    
     choice from  a short list  of options: ...  a reduction                                                                    
     in the  municipality's permit or user  fees; credits or                                                                    
     even  exemption  from   [the]  municipality's  property                                                                    
     taxes; flexibility  in regulation  of the area;  or ...                                                                    
     lease or  sale of  the municipality's real  property to                                                                    
     private persons.                                                                                                           
     On top  of the  incentives program,  House Bill  36 ...                                                                    
     will  also facilitate  access  to  federal grant  money                                                                    
     available through the [EZ/EC] program  ....  One of the                                                                    
     requirements  for becoming  a federal  empowerment zone                                                                    
     is that  you put  together what  they call  a strategic                                                                    
     plan;   two of the  pieces of the strategic  plan would                                                                    
     be  more easily  filled if  we had  a state  enterprise                                                                    
     zone program  in place. ...  The first of these  is ...                                                                    
     proving  that  ... the  affected  community  is a  full                                                                    
     partner in the process.                                                                                                    
     Basically,  if  we  have  a  region  designated  as  an                                                                    
     enterprise  zone, that  is  conclusive  proof that  the                                                                    
     community  and  the  local state  are  already  a  full                                                                    
     partner,  are  already  working on  producing  economic                                                                    
     development in the area.                                                                                                   
Number 0401                                                                                                                     
     Also, the  plan must  identify the  amount and  type of                                                                    
     state and  local resources available to  the community.                                                                    
     Having  talked  with  people from  the  NCSL  [National                                                                    
     Conference on  State Legislatures] and ...  with [U.S.]                                                                    
     Senator Stevens' office, I've  been informed that these                                                                    
     local  resources that  must be  made  available do  not                                                                    
     need  to  be  monetary,  and that  an  enterprise  zone                                                                    
     program  ... could  be considered  a resource  that the                                                                    
     state made available.                                                                                                      
     The designation  of a community  as a  state enterprise                                                                    
     zone    would   provide    conclusive   evidence    and                                                                    
     demonstration  of   the  state's  ...   and  locality's                                                                    
     commitment to the revitalization of the community.                                                                         
     The  goal of  House Bill  36 is  to encourage  business                                                                    
     development  and economic  growth  while providing  new                                                                    
     options to  Alaskan communities to improve  the quality                                                                    
     of  life.   House Bill  36 would  be good  for economic                                                                    
     development in Alaska, and I ask for your support.                                                                         
Number 0572                                                                                                                     
REPRESENTATIVE GREEN said he could  understand that this would be                                                               
a godsend for a large community in  the Lower 48.  He asked where                                                               
this  would  apply   in  Alaska,  however,  and   what  would  be                                                               
considered a depressed area.                                                                                                    
MR.  MOHATT   answered  that  it  would   benefit  primarily  any                                                               
municipality incorporated  into a  borough or  similar structure,                                                               
but  a   number  of  rural  municipalities   and  boroughs  could                                                               
potentially benefit.   He  reported that he  had been  in contact                                                               
with the following  to determine interest:   John Walsh, lobbyist                                                               
for the  Bristol Bay Borough;  people in the Ketchikan  area; and                                                               
NANA  Corporation,  which  was  perhaps  going  to  provide  some                                                               
proposed changes [to HB 36].                                                                                                    
Number 0709                                                                                                                     
MR. MOHATT explained that a  locality or municipality would apply                                                               
to the state, asking to be  part of this program because of being                                                               
a depressed community.  The  Department of Community and Economic                                                               
Development (DCED)  would prioritize the applications  and make a                                                               
list, which the governor would review  in order to pick four each                                                               
year.   There  is no  different  process for  urban versus  rural                                                               
Number 0838                                                                                                                     
REPRESENTATIVE GREEN restated  that he can certainly see  it in a                                                               
large city.  He requested further clarification.                                                                                
MR.  MOHATT reiterated  that he  doesn't know  that there  is any                                                               
difference  between the  way that  a  rural or  urban area  would                                                               
apply for  the program.   Mr. Mohatt said  he suspects that  if a                                                               
couple  of villages  are geographically  close,  within the  same                                                               
census tract, both  could be within the same  enterprise zone, to                                                               
his understanding of the bill.                                                                                                  
Number 0945                                                                                                                     
REPRESENTATIVE MASEK  referred to the sponsor  statement and said                                                               
she is  a big supporter  of economic development.   She expressed                                                               
concern, however, about  the tax credit and property  taxes.  She                                                               
asked who  would pay  for police and  fire service,  for example.                                                               
Would that  fall to  other property  owners in  the borough  or a                                                               
MR.  MOHATT emphasized  the  local option  and  local control  in                                                               
terms of who  pays for such services.   The idea is  not to erode                                                               
any tax  base within a  community, he said,  but to bring  in new                                                               
businesses through incentives.   If it were felt  that offering a                                                               
property  tax   break,  exemption,  or  credit   would  hurt  the                                                               
infrastructure and cause an inability  to pay for fire and police                                                               
protection, [a community] could  choose to use another incentive,                                                               
such as the  sale of the municipality's real  property to private                                                               
persons or flexible regulations relating to the zoning process.                                                                 
REPRESENTATIVE MASEK  asked, in  essence, who  would pick  up the                                                               
tab in  depressed areas where  development was attempted  but had                                                               
MR.  MOHATT  answered that  if  no  business decided  to  develop                                                               
within  an enterprise  zone, there  would not  be a  property tax                                                               
credit.   If  there were  no businesses  developing there,  there                                                               
wouldn't be any loss of property taxes.                                                                                         
Number 1150                                                                                                                     
MR. MOHATT,  in response to  a question by  Representative Masek,                                                               
clarified that  the strategic  plan is  for the  federal program;                                                               
the  state program  proposed  in  HB 36  would  not require  one.                                                               
Currently, two  empowerment zones in Alaska  are designated under                                                               
the  federal program:   Metlakatla  and a  section of  Anchorage,                                                               
"Mountain  View/Fairview."     Both  had  gone   through  a  long                                                               
application  process,  the  biggest  part of  which  was  putting                                                               
together the strategic plan.                                                                                                    
MR. MOHATT  pointed out that  the state program would  provide an                                                               
easy way to fulfill some requirements  of the strategic plan.  He                                                               
also suggested that streamlining  the process of putting together                                                               
a strategic  plan would be  greatly helped  if the state  were to                                                               
apply  for  more empowerment  zones  under  the federal  program,                                                               
which has  a lot  of money,  available in  block grants,  to give                                                               
businesses to develop in the empowerment zones.                                                                                 
REPRESENTATIVE  MASEK  commented that  it  is  still federal  tax                                                               
dollars, however, "taxes that we pay."                                                                                          
Number 1294                                                                                                                     
REPRESENTATIVE JAMES asked how long  Metlakatla and Mountain View                                                               
have been in this program, and what has happened.                                                                               
MR.  MOHATT  responded  that  Metlakatla was  one  of  the  first                                                               
enterprise communities  designated in  the U.S.   In  the ensuing                                                               
six  years,  to his  understanding,  there  has been  significant                                                               
economic  development, including  improved  job opportunities  on                                                               
the reservation.                                                                                                                
CHAIR  McGUIRE  reported  that  she had  met  with  those  folks.                                                               
Through  this  empowerment  zone,  they had  secured  grants  and                                                               
attracted  funding.   Their main  project, a  hard-rock facility,                                                               
should be completed by next year.                                                                                               
MR. MOHATT explained  that Mountain View is  still relatively new                                                               
as  an enterprise  zone,  having  been around  for  two or  three                                                               
years.  The  trend with the federal program is  that in the first                                                               
five years, not too many benefits  have been noticed.  He said he                                                               
doesn't know  what has  happened in the  Mountain View  area over                                                               
the last two years.                                                                                                             
Number 1433                                                                                                                     
CHAIR McGUIRE  asked Mr. Mohatt  if he could contact  some people                                                               
in the Mountain  View area who might have  a better understanding                                                               
about that program's success and/or  failure.  She also suggested                                                               
that it would be helpful to hear from Metlakatla.                                                                               
MR. MOHATT  agreed to do  that, noting  that he had  been talking                                                               
with the mayor's office in Anchorage already.                                                                                   
CHAIR McGUIRE suggested that a  list of questions be presented to                                                               
Representative Hayes  and his  staff, who  could return  and fill                                                               
the committee in.                                                                                                               
Number 1505                                                                                                                     
REPRESENTATIVE  CRAWFORD  asked whether  the  purpose  is to  get                                                               
federal or  state dollars.   He  suggested there  probably aren't                                                               
many  local "breaks"  in  Dillingham or  Ketchikan;  if so,  that                                                               
would  have been  done  already.   He  also  asked  what kind  of                                                               
geographic area "one census tract" is.                                                                                          
MR.  MOHATT deferred  to  DCED personnel  to  answer the  "census                                                               
tract" question.                                                                                                                
Number 1583                                                                                                                     
PAT  POLAND,   Director,  Division  of  Community   and  Business                                                               
Development,  Department of  Community  and Economic  Development                                                               
(DCED), said  he had limited  experience with census  tracts, but                                                               
they  would vary  depending upon  the locality.   Anchorage,  for                                                               
example,  has a  number  of  census tracts.    More typically,  a                                                               
census tract in  rural areas will consist of a  community, in and                                                               
of itself.                                                                                                                      
MR. POLAND  remarked that census  tracts are  "conglomerated into                                                               
another  division  that  the  census  uses  in  assembling  their                                                               
numbers."   He  said he  isn't certain  whether the  term "tract"                                                               
applies to a  really small locality or to the  larger ones, which                                                               
tend to  correlate with  municipal boundaries.   In  other words,                                                               
all of  the tracts in  the Anchorage  areas would fit  within the                                                               
Municipality of Anchorage.   In rural areas, there  may be larger                                                               
census groupings.   In  response to  a comment  by Representative                                                               
Rokeberg, he further  clarified that it is different  from a grid                                                               
on a map; it will often follow a river, for example.                                                                            
Number 1733                                                                                                                     
MR. MOHATT emphasized  that the main goal of the  bill is not the                                                               
federal money, although it would be  a great bonus.  Instead, the                                                               
goal is  to step up  to the plate, as  a state, and  do something                                                               
for economic development.  This  concept has been around for more                                                               
than 20  years, and none of  the 38 states with  enterprise zones                                                               
has repealed  the law.   The bill  is intended to  find a  way to                                                               
bring  this  concept  for economic  development,  which  has  had                                                               
astounding results across the country, to Alaska.                                                                               
MR. MOHATT,  in response to  a question by  Representative Dyson,                                                               
characterized  this as  a  "marketing ploy"  as  well, because  a                                                               
state  program can  not  only  allow these  incentives  to be  in                                                               
place, but also lets the businesses know that this is available.                                                                
Number 1920                                                                                                                     
REPRESENTATIVE DYSON inquired about the fiscal note.                                                                            
MR. MOHATT  explained that  it had just  been received  that day.                                                               
In  the  first year,  DCED  will  need  to  dedicate half  of  an                                                               
employee's time  to setting  up the  regulations and  getting the                                                               
program  in  place  and  moving.     Following  that,  the  $16.6                                                               
[thousand] is for  one-quarter of [an employee's  time] to review                                                               
applications and make suggestions.                                                                                              
Number 1976                                                                                                                     
REPRESENTATIVE  ROKEBERG asked  why a  state law  is needed  if a                                                               
[community] such as Metlakatla or  Mountain View can establish an                                                               
enterprise zone.                                                                                                                
MR. MOHATT clarified  that Metlakatla and Mountain  View are part                                                               
of the federal  program, which is limited in the  number of zones                                                               
that can be  established.  To his understanding, there  also is a                                                               
restriction  upon  how many  zones  can  be designated  within  a                                                               
certain  population;  Mr. Mohatt  said  he  would be  willing  to                                                               
review the law  itself regarding that.  In  addition, the federal                                                               
program  requires  a  strategic  plan,  which  involves  a  long,                                                               
difficult process;  this will help  to speed that  process along.                                                               
He added,  "On top of  it, it's not  just relying on  the federal                                                               
government to bring economic development to the state."                                                                         
Number 2064                                                                                                                     
MR. MOHATT,  in response to  a question by  Representative Green,                                                               
referred to  a list in bill  packets of the 38  states [that have                                                               
this program].   He noted  that some states consider  this mainly                                                               
an urban incentive program, whereas  other states directly target                                                               
rural areas.                                                                                                                    
REPRESENTATIVE  GREEN pointed  out  that the  listed states  have                                                               
large  cities, where  he believes  this  plan might  work in  the                                                               
"blighted" portions.  He again  questioned how this might work in                                                               
rural areas.                                                                                                                    
MR. MOHATT agreed  that a predominance of the  states have large,                                                               
urban [populations].   However,  Iowa and  Colorado have  one big                                                               
city  each, with  the  rest of  the state  being  fairly rural  -                                                               
although not  in the way  Alaska is.   He added that  the federal                                                               
program has  targeted both  urban and rural  areas, which  is why                                                               
there are two different names:   empowerment zones are urban-area                                                               
programs, and  enterprise communities  are the rural  version, to                                                               
his understanding.  He mentioned  that the Pine Ridge Reservation                                                               
in South Dakota, an enterprise  community, was the first economic                                                               
development program to  show any results in Pine  Ridge, which he                                                               
called "extremely rural," similar to much of Alaska.                                                                            
Number 2265                                                                                                                     
CHAIR McGUIRE requested that when  the sponsor and his staff come                                                               
back  before the  committee, they  pick  a few  states that  they                                                               
believe to be "success stories"  in areas classified as rural, in                                                               
order to  give members  an idea  of how this  is working  "in the                                                               
Number 2297                                                                                                                     
REPRESENTATIVE JAMES  offered her  personal experience  with this                                                               
kind of issue, where people coming  into a community are given an                                                               
advantage such as  reduced taxes that everyone [else]  pays.  She                                                               
cited an example  in the Lower 48 where a  company was given free                                                               
water for 20 years;  when the 20 years was up  and the city opted                                                               
not to renew the free water,  the company "closed and went away,"                                                               
which was devastating [to the community].                                                                                       
REPRESENTATIVE JAMES  said it seems  that in  order to set  up an                                                               
enterprise  zone, something  must  be given  from the  community;                                                               
however, the  kinds of communities that  [would qualify] wouldn't                                                               
have anything  to give, including cheaper  electricity, water, or                                                               
taxes; they  might not even  have specifically trained  people to                                                               
take the jobs.  She suggested  that if communities had an ability                                                               
to  coax people  to  come in,  they could  do  that without  this                                                               
legislation.  Unless some outside  money or assistance were being                                                               
sought from  the state or  federal government, she failed  to see                                                               
the  real advantage,  Representative James  said.   She requested                                                               
that when  the sponsor comes  before the committee again,  he try                                                               
to convince her that it isn't so.                                                                                               
MR. MOHATT  clarified that  many people with  whom he  has spoken                                                               
have been  excited about the  program because it would  be easier                                                               
to get federal money, which would  be given to businesses to help                                                               
curb  setup costs,  for example.    He added  that some  "granted                                                               
towns"  in rural  Alaska aren't  incorporated into  a borough  or                                                               
municipality,  and may  not  be able  to offer  one  of the  four                                                               
incentives [in HB 36].   Mr. Mohatt said he would  like to find a                                                               
solution for  that.  He  emphasized the desire  to find a  way to                                                               
make this  work for  all of  rural Alaska,  rather than  just for                                                               
incorporated  boroughs;  he  restated   that  he  is  awaiting  a                                                               
response from NANA Corporation regarding that.                                                                                  
MR.  MOHATT  pointed  out  that there  are  rural  cities  within                                                               
boroughs,   and  that   there   have  been   hardships  in   some                                                               
Southeastern  communities  because  of  the loss  of  the  timber                                                               
industry.   Drawing attention to  the list [of  local incentives]                                                               
at the top  of page 3 of  the bill, he suggested  this could work                                                               
well in communities such as  Ketchikan, which has property taxes,                                                               
permits and fees, and so forth.                                                                                                 
Number 2563                                                                                                                     
REPRESENTATIVE MORGAN  referred to  Section 2,  page 3,  line 27,                                                               
which talks  about "credits on  state income taxes  or exemptions                                                               
from the  taxes".  He  also referred to  Section 4, page  5, line                                                               
10, which contains the phrase "Alaska  income tax".  He asked why                                                               
those references to state income taxes are in the bill.                                                                         
MR.  MOHATT deferred  to  the  drafter, but  noted  that she  was                                                               
temporarily out of town.                                                                                                        
Number 2606                                                                                                                     
TAMARA COOK,  Director, Legislative Legal and  Research Services,                                                               
Legislative Affairs Agency,  came forward.  She  pointed out that                                                               
Section 5, an  amendment to the Alaska Net Income  Tax Act, is an                                                               
important   section  that   hasn't   been   discussed  [in   this                                                               
committee].   She explained  that the Alaska  Net Income  Tax Act                                                               
applies  to businesses.   Although  there is  no personal  income                                                               
tax, it doesn't mean Alaska doesn't have a state income tax.                                                                    
MS. COOK explained  that Section 5 contains one  of the "carrots"                                                               
with  which to  lure businesses.   Noting  that "investments"  is                                                               
defined, she  said if new  businesses come in, they  will qualify                                                               
for a state income tax credit,  as well as special treatment, she                                                               
believes, for  their employees, under  the provision  that begins                                                               
on page 6, line 27.                                                                                                             
Number 2686                                                                                                                     
REPRESENTATIVE  ROKEBERG acknowledged  that Ms.  Cook wasn't  the                                                               
drafter of HB  56.  He then asked whether,  by amending the code,                                                               
[HB 56]  would be  making provisions  for "credits  against trust                                                               
partnerships and limited  liability companies."  He  said he knew                                                               
that corporations paid  taxes, but that he didn't  know that LLPs                                                               
[limited  liability partnerships],  partnerships, and  trust paid                                                               
taxes in the state.                                                                                                             
MS.  COOK replied  that this  section, as  it is  drafted, allows                                                               
credit for  any tax  imposed under that  chapter, the  Alaska net                                                               
income  tax chapter.   Ms.  Cook said  she knew  so little  about                                                               
taxation that  she would  have to  read the  chapter in  order to                                                               
find  out to  whom  it  applies; however,  she  believed that  it                                                               
applied to various business entities.                                                                                           
REPRESENTATIVE  ROKEBERG  restated  his  understanding  that  the                                                               
state doesn't tax partnerships,  LLPs, or LLCs [limited liability                                                               
companies].  He  expressed concern about what the  drafter had in                                                               
mind, "unless they're  anticipating any change in  the tax regime                                                               
in  the future."   He  suggested that  it is  tampering with  the                                                               
corporate income tax.                                                                                                           
Number 2741                                                                                                                     
MS. COOK  responded that on  its face,  it only applies  to taxes                                                               
that would be otherwise collected under [AS] 43.20.                                                                             
REPRESENTATIVE ROKEBERG  replied, "Which is the  corporate income                                                               
MS. COOK agreed,  restating that it is the Alaska  Net Income Tax                                                               
REPRESENTATIVE ROKEBERG  referred to Section 5,  paragraph (d)(2)                                                               
[page 6, beginning at line 8].                                                                                                  
REPRESENTATIVE JAMES asked  whether a net mining  tax is included                                                               
in that.                                                                                                                        
REPRESENTATIVE  ROKEBERG  noted  that  it has  a  list  including                                                               
corporations,  LLCs, partnerships  or  associations, and  trusts.                                                               
He suggested that the drafter would have to be asked about it.                                                                  
MS. COOK specified that the drafter would be back on Monday.                                                                    
Number 2797                                                                                                                     
CHAIR McGUIRE  asked whether there  were further  questions; none                                                               
were offered.   She announced that  HB 36 would be  held over for                                                               
further discussion.                                                                                                             

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