Legislature(1997 - 1998)

05/06/1997 04:08 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HB 169 - WELFARE TO WORK TAX CREDITS                                        
 Number 0963                                                                   
 CHAIRMAN BUNDE announced the next item on the agenda was HB 169,              
 "An Act relating to welfare to work tax credits under the Alaska              
 Net Income Tax Act; and providing for an effective date."                     
 Number 0967                                                                   
 JIM NORDLUND, Director, Division of Public Assistance, Department             
 of Health and Social Services, stated that his division has a large           
 responsibility to do in finding work opportunities for 4,000                  
 individuals in the upcoming year.  The division sees HB 169 as one            
 of several tools which can be used to give employers the incentive            
 to hire welfare recipients.  This piece of legislation has had                
 input from the Department of Revenue (DOR), Department of Law (DOL)           
 and the Department of Administration.                                         
 MR. NORDLUND explained that HB 169 targets welfare recipients and             
 disadvantaged workers which include disabled persons receiving                
 vocational rehabilitation, veterans receiving public assistance and           
 ex-felons who are in low income families.  The bill would assist              
 recipients in finding work opportunities.  The Anchorage Chamber of           
 Commerce, the Alaska Chamber of Commerce, large and small employers           
 have been approached about this type of legislation and those                 
 groups were all supportive of a tax credit.  They see HB 169 as a             
 measure which would provide some incentive for them to hire                   
 Number 1069                                                                   
 MR. NORDLUND commented that HB 169 piggybacks on the federal tax              
 credit bill.  This will assist employers with the administrative              
 burden of applying for the credit.  It is a relatively simple                 
 procedure to extend the credit that they would be getting on their            
 federal income tax and apply it to their state income tax.  He said           
 HB 169 will have some state treasury costs, but it will yield                 
 greater benefits in terms of getting welfare recipients employed              
 and off public assistance.                                                    
 Number 1118                                                                   
 JOSEPH FRIEDMAN, Director, Trade Dollar Exchange, testified next              
 via teleconference from Anchorage.  He was in support of HB 169 as            
 it is an excellent opportunity to provide corporations with a tax             
 credit and an incentive to participate in welfare to work issues.             
 He said the Trade Dollar Exchange is a private industry initiative            
 to involve small businesses in welfare to work programs.  The Trade           
 Dollar Exchange uses a system of bartering under the Tax Equity and           
 Fiscal Responsibility Act of 1982.  This act essentially says that            
 if a business trades or barters, the income on their tax returns is           
 tax deductible when spent on business expenses.  Coupled with the             
 federal work opportunities tax credit, this would provide a                   
 tremendous opportunity for the exchange to encourage businesses to            
 be involved in hiring people going from welfare to work.  He stated           
 that there is a large number of workers who do not have the skills            
 to compete at the current level of participation in the job market.           
 He proposed an amendment which would provide a disregard for the              
 Trade Dollar Exchange currency as it affects the earned income                
 status for people receiving a cash benefit through the department.            
 Number 1258                                                                   
 ANGELA SALERNO, Executive Director, National Association of Social            
 Workers of Alaska (NASW), said that she was formerly employed as a            
 job developer.  She worked in the private sector for a company that           
 contracted for Job Training Partnership Act dollars (JTPA) and, as            
 a result, has some experience in the use of tax incentives as a way           
 to assist candidates seeking work.  This will help people get off             
 welfare and into a work situation.  The company used the Targeted             
 Job Tax Credit, the federal tax credit.  As a job developer it was            
 advantageous for her to walk into an employer's office and state              
 that not only is the candidate well-trained, but here is a tangible           
 financial incentive.  This incentive often shifted the balance for            
 the employers because the candidate did not always appear to be the           
 best candidate.  She felt this would be the case for many of the              
 people who need to placed into work situation.  These people may              
 have less experience, a checkered job history or something else.              
 This incentive might be the needed impetus for that employer to               
 hire this employee.                                                           
 MS. SALERNO explained that the employee would need to be on the job           
 for a full six months before the employer received this incentive.            
 This type of incentive will work.  It is one of the few things that           
 the state is doing to actually help welfare recipients find work.             
 Number 1361                                                                   
 REPRESENTATIVE VEZEY asked if the state was subsidizing the cost of           
 having an employee.  He stated that this is not a substitute for              
 creating jobs.  Employers are not going to manufacture jobs in                
 order to get 15 percent of what they spend.                                   
 Number 1396                                                                   
 MS. SALERNO agreed and said HB 169 doesn't address this issue at              
 all.  This bill is going at the problem from a different angle. A             
 financial incentive is another way to shift the balance to someone            
 who may have a deficit in their ability find work.                            
 Number 1433                                                                   
 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division,           
 Department of Revenue, stated that the bigger spectrum was taken              
 into consideration when developing the welfare to work tax credit.            
 There are four or five bills in the legislature this year to try to           
 do what Representative Vezey suggested, creating new jobs.  He                
 mentioned HB 63 and another small business tax credit as attempts             
 to create these new jobs.  Other bills tried to look at the other             
 angle, HB 169 was meant to be one of many tools.                              
 Number 1487                                                                   
 MR. BARTHOLOMEW stated that the potential loss would be $1 million            
 based on trying to put an estimated 880 people to work.  The other            
 component of HB 169 is that the state adopts the federal work                 
 incentive bill.  This bill repeals the federal program in order to            
 adopt a state program.  Under the current tax, if an employee is              
 hired in another state, employers can get tax credits off the                 
 Alaska tax.  Business apportion their credit to their state taxes.            
 This bill, HB 169, takes out that provision and no longer                     
 recognizes the federal credit.  If a business hired someone in                
 Alaska, they would get a federal tax credit as well as a state                
 Number 1557                                                                   
 CHAIRMAN BUNDE asked him to speculate on the net gain, what is the            
 cost to keep 880 people on welfare.                                           
 Number 1563                                                                   
 MR. BARTHOLOMEW answered that Mr. Nordlund's division looked at               
 this in their 1998 budget.  Some of the budget adjustments                    
 reflected trying to take people off the welfare rolls.  The sense             
 from the DOR standpoint is that it would be a net financial gain to           
 the state.                                                                    
 Number 1581                                                                   
 REPRESENTATIVE VEZEY repeated that HB 169 does not provide any new            
 jobs.  The bill provides a tax credit of $1,000 to $1,500 to                  
 provide an incentive to hire someone over someone else who might be           
 better qualified.  He asked if it would force that more competent             
 person onto welfare.                                                          
 Number 1601                                                                   
 MR. BARTHOLOMEW stated that if this was the only bill, then this              
 would be a potential scenario.  There are development bills which             
 project a small amount of job growth in Alaska and HB 169 fits into           
 that projection.  The state has made this an objective and it is a            
 federal government mandate to reduce the welfare roles.  This bill            
 would give someone who is on welfare an advantage.  Whether or not            
 this advantage would be the final crux that beats out someone who             
 hasn't been on welfare is a tough issue to call.  He felt that this           
 bill would help people who are disadvantaged.  There has been a               
 policy decision to move these people off welfare, the time that               
 they can remain on welfare has been shortened.  This bill suggests            
 that the state needs to do something to help those people.  He felt           
 there could be a small possibility that it would harm other people            
 looking for work who are not on welfare.                                      
 Number 1664                                                                   
 CHAIRMAN BUNDE commented that it wouldn't be a welfare affirmative            
 action program.                                                               
 Number 1668                                                                   
 REPRESENTATIVE KEMPLEN mentioned that HB 169 deals with the social            
 issue of moving people off of welfare into the work place.  He                
 referred to a conference last week which dealt with welfare reform.           
 One of the issues raised was turnover in entry level positions in             
 the number of businesses located in the state.  Welfare recipients            
 need to learn basic skills.  The purpose of welfare reform is to              
 give those people who are on welfare those basic skills.                      
 Businesses need to have an incentive to bring those people into the           
 workforce.  Businesses will invest time in teaching these people              
 how to be a good employee.  This bill gives businesses some                   
 incentive to spend a little bit of extra time with these employees.           
 REPRESENTATIVE KEMPLEN asked how the 880 figure was derived.                  
 Number 1782                                                                   
 MR. BARTHOLOMEW said that in discussions with the Department of               
 Health and Social Services and the Department of Labor they did not           
 have a good method of estimating an exact number.  The tax credit             
 only applies to tax paying corporations, a large number of                    
 employers don't pay taxes because of the size of their business.              
 The tax code is only structured to tax a small percentage of                  
 businesses in Alaska.   The DOR looked at how many businesses                 
 claimed the federal credit and what percentage of employees were              
 hired.  The DOR then backed these numbers and made them applicable            
 to Alaska.  Economic models were developed with an estimated range            
 of 500 to 1,000 people who could be hired as a result of this                 
 incentive.  No one had a comfort level of what this exact number              
 should be.  The 880 figure is a rough estimate.                               
 Number 1856                                                                   
 MR. BARTHOLOMEW explained that for wages, the credit is up to                 
 $1,000  with a $500 incentive if training is provided.  The total             
 tax incentive is $1,500.  The DOR looked at what the federal credit           
 provided and a discussion was held on how much of an incentive                
 should the state be willing to provide to bring people into work.             
 This involved a decision about what amount of treasury money the              
 state would be willing to lose for someone who might obtain a job             
 anyway.  It also involved the idea that if you provide too big of             
 an incentive, the balance is inappropriately tipped.  The financial           
 incentive started out smaller and as discussions were held the                
 amount increased.  The average firm on the federal credit was                 
 getting a $378 credit.  The state will be providing a much bigger             
 incentive than the federal program.                                           
 Number 1920                                                                   
 REPRESENTATIVE KEMPLEN mentioned that one of the comments at the              
 conference was that businesses felt the $1,500 wasn't enough of an            
 Number 1967                                                                   
 PAM LaBOLLE, President, Alaska Chamber of Commerce, stated that her           
 organization is supportive of this legislation.  They feel that it            
 doesn't create jobs, but member employers feel that there is a                
 great deal of turnover and a related cost of bringing someone in              
 with very little job experience.  Given the opportunity to hire               
 someone with experience over someone who doesn't, the business will           
 chose the person with the experience so this incentive will not               
 take a job away from a more qualified applicant.  She wasn't sure             
 how many businesses would qualify for the tax credit, but the                 
 bottom line is that HB 169 provides a credit for the extra effort             
 of training someone who doesn't have any experience.  She stated              
 business' concerns over the education system in Alaska.                       
 TAPE 97-43, SIDE A                                                            
 Number 0000                                                                   
 REPRESENTATIVE GREEN asked if there would be merit in having a                
 business develop a five year plan to avoid the large turnover.                
 Number 0036                                                                   
 MS. LaBOLLE answered that these employers with the large turnover             
 have struggled with how to reduce training costs.  At the                     
 conference mentioned by Representative Kemplen, businesses                    
 mentioned a $2,500 per employee training cost with a 60 percent               
 Number 0085                                                                   
 REPRESENTATIVE GREEN suggested that if just a small fraction was              
 added to the wage, then that $2,500 would be stretched over a long            
 period and turnover would be reduced.                                         
 Number 0098                                                                   
 MS. LaBOLLE answered that it is the nature of the type of employee            
 that causes the turnover.                                                     
 Number 0130                                                                   
 REPRESENTATIVE VEZEY asked the average wage or pay scale.  He said            
 that all the information he has seen indicates that our welfare               
 payment is far above any entry level wage.  He wondered how the               
 state was going to get people to take an entry level job.                     
 Number 0185                                                                   
 MS. LaBOLLE felt that welfare recipients were not going to have a             
 choice.  The welfare program is going to disappear from under these           
 recipients and then they will have to work.                                   
 Number 0202                                                                   
 REPRESENTATIVE VEZEY asked why the state would need to pay an                 
 incentive to employers.                                                       
 Number 0216                                                                   
 MS. LaBOLLE clarified that the incentive would go to the employer.            
 The state is trying to find places to put people who must come off            
 the welfare rolls.  The bill encourages businesses to consider                
 those people.                                                                 
 Number 0266                                                                   
 REPRESENTATIVE VEZEY stated that if those people are forced to go             
 out into the job market, then why does the state need to pay the              
 employer an incentive to hire them.                                           
 Number 0291                                                                   
 MS. LaBOLLE answered that some businesses say this labor pool is              
 not that large because of the job turnover.  There isn't an                   
 abundance of people in that labor pool.                                       
 Number 0314                                                                   
 REPRESENTATIVE VEZEY responded that we haven't kicked people off of           
 welfare yet.                                                                  
 Number 0317                                                                   
 MS. LaBOLLE answered that this labor pool will not be large, even             
 when welfare is cut.  Businesses expect that people who come off              
 welfare will go into these basic, entry level positions.                      
 REPRESENTATIVE VEZEY stated that this was his point.  He questioned           
 why the state needed to pay businesses to hire someone they are               
 looking to hire.                                                              
 Number 0339                                                                   
 CHAIRMAN BUNDE announced that this was the first time this bill was           
 heard and it would be held for the committee's consideration.                 

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