Legislature(1997 - 1998)

02/26/1998 03:06 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
HB 169 - WELFARE TO WORK TAX CREDITS                                           
                                                                               
Number 1172                                                                    
                                                                               
CHAIRMAN BUNDE announced the next order of business 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."  He noted                
this bill had been heard previously and asked Mr. Kreher to give               
the committee an update.                                                       
                                                                               
Number 1201                                                                    
                                                                               
RON KREHER, Special Assistant, Division of Public Assistance,                  
Department of Health & Social Services, testified in support of                
HB 169.  He said there has been a significant reduction in the                 
public assistance caseload since last July and HB 169 would give               
the department an additional tool to further that progress.  The               
early successes have been the easiest to gain and it is important              
for the department to use all the available tools to help move                 
clients with limited skills and work experience into employment.               
Employer involvement is critical and the department needs to                   
capitalize on the growing interest in the employer community to                
hire welfare recipients and other disadvantaged workers.  He said              
this particular legislation develops a tax credit for employers who            
hire disadvantaged workers and in essence piggybacks two federal               
tax credits; the work opportunity tax credit and a welfare to work             
tax credit that targets specific disadvantaged workers, including              
long-term welfare recipients, disabled veterans, individuals in                
vocational rehabilitation, ex-felons and a number of other targeted            
populations.  He pointed out that tax credits appear to work.                  
Judging from the success in other states, it is a positive                     
incentive for employers, attractive to small businesses that are               
very conscious of the bottom line, and generally reduce the tax                
burden of corporations that hire, train and retain disadvantaged               
workers.                                                                       
                                                                               
Number 1310                                                                    
                                                                               
MR. KREHER noted that under the Governor's proposed legislation,               
corporations that are certified for the federal work opportunity               
tax credit and welfare to work tax credits would be eligible for               
this state's welfare to work tax credit, given amendments to this              
legislation.  He pointed out the Alaska Chapter of the National                
Federation of Small Businesses, with over 3,000 members, recently              
conducted a survey and over 75 percent of the businesses surveyed,             
favored this legislation.  There is an additional incentive for                
this legislation which is driven by the department's need to get as            
many people as possible into gainful employment to reduce welfare              
rolls and this will give another incentive for employers to hire               
disadvantaged workers.  He added that representatives from the                 
Departments of Revenue and Labor were on hand to answer questions              
concerning the legislation.                                                    
                                                                               
CHAIRMAN BUNDE asked Bob Bartholomew from the Department of Revenue            
to comment.                                                                    
                                                                               
Number 1358                                                                    
                                                                               
BOB BARTHOLOMEW, Deputy Director, Income & Excise Audit Division,              
Department of Revenue, said the division had prepared a revised                
fiscal note for the original version of the bill.  He explained the            
tax credit is basically to allow businesses to claim 15 percent of             
the wages paid to a qualified employee, up to a $1,000 tax credit,             
or up to a $1500 tax credit if training is provided that meets                 
criteria established in a program referred to in HB 169.  The                  
division's estimate shows that in the first two years a loss of                
revenue of $993,000 due to placing welfare recipients on the                   
payroll; however, in 2001 and years forward, it's actually a                   
positive fiscal note.  He said, "How we get from the first two                 
years and -- there is an amendment that would make this a three-               
year program, it was intended to be a three-year program last year             
-- and our original fiscal note showed three years of revenue loss,            
then if we amended it, this would become a three year program again            
and you'd see a revenue loss for three years.  But what happens                
once the program expires, is we currently allow in our Alaska tax              
code, kind of by default we've adopted a federal credit that has               
been on the books for years, and whether you hire a worker in                  
Alaska, California, Montana, you're eligible to take that federal              
credit against your state taxes on an apportioned basis.  So the               
positive fiscal note starting in 2001 of where we would recover                
$262,000 a year, this bill repeals the adoption of the federal                 
credit completely; it adopts a state credit for a limited number of            
years - two currently, the amendment would make it three - then                
both programs would go away, the federal one immediately and the               
state one at the end of three years.  Then we would not be allowing            
employers who may hire in other states. And the primary                        
beneficiaries of the credit have actually not been Alaska hires;               
they've been multistate corporations working in other states where             
they've had programs that have hired a lot of people that have                 
qualified for the federal credits."                                            
                                                                               
Number 1561                                                                    
                                                                               
CHAIRMAN BUNDE commented that it's basically revenue neutral at the            
end of the program.                                                            
                                                                               
MR. BARTHOLOMEW pointed out it would be revenue positive to around             
$260,000 which is historically what the state has been losing to               
the federal credit.  It was his understanding the intent of the                
legislation isn't to be revenue neutral; it is to recognize there              
is a cost to providing that additional incentive for helping take              
people off the welfare rolls.  He didn't want to leave the                     
impression that it was going to be revenue neutral; there is a cost            
to it and in bringing this forward, the position is that the                   
benefit that's going to be gained outweighs the cost.                          
                                                                               
Number 1636                                                                    
                                                                               
REPRESENTATIVE PORTER referred to the analysis prepared by the                 
department which projects to the year 2004, (indisc.) and asked do             
we know if the federal program is going to be there in 2004.                   
                                                                               
MR. BARTHOLOMEW responded the assumption is the federal program                
would be in existence in 2004.  He added the federal program has               
changed shape a couple different times, changing to whatever the               
current need is, but it has been maintained.                                   
                                                                               
Number 1688                                                                    
                                                                               
REPRESENTATIVE PORTER said he assumed that based on the fiscal                 
note, the federal programs don't provide the same level of credit              
that's being proposed in HB 169.                                               
                                                                               
MR. BARTHOLOMEW responded that page 5 of the fiscal note compares              
what an Alaska corporation would receive under the federal program             
versus the state program.  For example, a 100 percent Alaska                   
corporation could  currently get a $432 benefit on the federal tax,            
whereas under HB 169 it could be up to a $1500 credit.  In short,              
Representative Porter was correct in that the federal credit                   
doesn't provide the same level of fiscal incentive.                            
                                                                               
REPRESENTATIVE PORTER wondered if the federal program was viewed as            
ineffective or what was the reason behind this proposal to                     
quadruple the credit?                                                          
                                                                               
MR. BARTHOLOMEW said it would, in essence, triple for an Alaska-               
based corporation; mainly, because currently there is no Alaska                
incentive, it's a federal incentive.  His understanding was the                
reason for the increase is to provide a bigger benefit to try to               
provide a bigger incentive to hire workers off the welfare rolls.              
                                                                               
Number 1828                                                                    
                                                                               
BILL EHLERS, Program Coordinator, Work Opportunity Tax Credit                  
Program, Division of Employment Security, Department of Labor,                 
explained that on the federal side, an employer still receives a               
substantial credit off their federal income tax.  The credit to the            
state income tax is reduced by this legislation, but the employer              
would still receive the full benefit of the federal program.  Under            
the work opportunity tax credit, the maximum credit an employer can            
receive is $2400 and under welfare to work, an employer can receive            
up to $8500 (indisc.-paper shuffling).                                         
                                                                               
REPRESENTATIVE VEZEY asked how many for profit corporations there              
are in Alaska and how many people are employed by these                        
corporations.                                                                  
                                                                               
MR. BARTHOLOMEW estimated the number of registered corporations at             
12,000 but he didn't have the employment figures available at this             
time.                                                                          
                                                                               
REPRESENTATIVE VEZEY expressed concern that corporations are the               
only entity in the state that's assessed an income tax.  The                   
majority of employers in Alaska are not in the corporate entity                
form and the majority of employees in the state do not work for                
corporate entities.  He wanted to know why corporations were being             
singled out to assist with the welfare program.                                
                                                                               
MR. BARTHOLOMEW thought it was indicative of who pays for some of              
the state services.  Only 55 percent of the corporations registered            
are subject to income tax because of federal provisions that allow             
an entity to be a subchapter S.  The only way to provide an                    
incentive to someone not paying into the state would be a grant.               
                                                                               
REPRESENTATIVE VEZEY pointed out that less than 6,000 of the                   
registered corporations are subchapter C which are subject to                  
income tax.                                                                    
                                                                               
MR. BARTHOLOMEW interjected there are about 7,000 C corporations.              
                                                                               
Number 2123                                                                    
                                                                               
MR. KREHER noted the department is looking at other options for                
providing incentives to all employers to hire disadvantaged                    
workers, particularly welfare recipients.  Through research of                 
other states, the department found that one of the biggest                     
incentives for employers was public recognition by doing their fair            
share in helping to move forward welfare reform initiatives.  The              
department is also looking at wage subsidies and on-the-job                    
training subsidies for employers who hire welfare recipients and               
put them into jobs as a way of offsetting the costs of hiring                  
welfare recipients.  He pointed out these incentives are still in              
nascent stages at this point.  The department recognizes that many             
of these people will be moving into entry level jobs offered by                
smaller employers and smaller businesses, so it is important that              
some form of incentive be offered them as well.                                
                                                                               
Number 2213                                                                    
                                                                               
REPRESENTATIVE VEZEY said that Mr. Bartholomew had talked about                
this being a three year program, but he read it as a five-year                 
program.                                                                       
                                                                               
MR. BARTHOLOMEW explained that HB 169 allows an employer three                 
years of an active program and if there isn't enough liability to              
use the full credit within the three years, it can be carried                  
forward two more years.  So, the credit can be carried on a tax                
return for five years, but the active hire must have been made                 
before that.  He further explained there are three active years of             
the program in which a hire must have been made to be eligible for             
the credit, but as is typical with tax credits, a carry forward is             
allowed in the event the full credit isn't used.  The department,              
for administrative purposes, made a short carry forward period.                
                                                                               
TAPE 98-15, SIDE A                                                             
Number 0001                                                                    
                                                                               
REPRESENTATIVE VEZEY observed this program appears to duplicate a              
number of programs already in existence and questioned why the                 
state didn't take a pool of money and make it available for                    
incentives to subsidize the minimum wage.                                      
                                                                               
MR. BARTHOLOMEW responded it would take an appropriation, which is             
an increase in the budget.  He agreed that a reduction in revenue              
is the same thing as an appropriation, but it generally doesn't                
work that way in the budgetary process; credits have a better                  
chance of passing than a direct appropriation.                                 
                                                                               
Number 0124                                                                    
                                                                               
REPRESENTATIVE BRICE surmised that while the employers are                     
receiving the tax credit for hiring these disadvantaged                        
individuals, these individuals are losing their welfare benefits.              
                                                                               
MR. KREHER replied if the individuals are indeed employed and                  
earning wages, there would be a reduction in their public                      
assistance benefits.  Ideally, the individuals would be earning                
enough money to take them off the welfare rolls quickly, so the                
department would be realizing program savings for every individual             
that's employed at one level or another, depending on the earned               
wages.                                                                         
                                                                               
Number 0196                                                                    
                                                                               
REPRESENTATIVE BRICE said he didn't see the positive impact from               
the anticipated decrease in public assistance payments reflected on            
the fiscal note.                                                               
                                                                               
MR. KREHER responded the department has no mechanism for projecting            
how many individuals would be hired. He said, "If I could                      
speculate, if 100 individuals were hired - 100 adults off of 100               
cases - and each one of those individuals received a job which paid            
them $10.50, which is probably unrealistic -- I won't even go at               
the minimum wage level because that's about what it would take in              
order for them to be ineligible for assistance based on their                  
income.  We paid last month - our average monthly benefit for a                
temporary assistance case was $720 so for those 100 individuals, it            
would be a sizeable chunk of change every year that we would save              
if those 100 cases went off assistance as a result of employment."             
                                                                               
Number 0299                                                                    
                                                                               
REPRESENTATIVE J. ALLEN KEMPLEN said he was under the impression               
the department had previously come before the legislature and                  
requested the program savings achieved from reduced caseloads be               
reinvested into the training of the welfare recipients.  He                    
wondered if the reinvestment funds couldn't be the pot of money                
referred to by Representative Vezey as incentives to subsidize the             
minimum wage.                                                                  
                                                                               
MR. KREHER said he really wasn't qualified to respond to that                  
question, and added the department's budget indicates there are                
funds they would like to reinvest in a number of different areas;              
e.g., child care.  He said there was considerable leeway in the use            
of the block grant under the federal welfare reform law, but the               
reinvestment of any money would be dependent on the legislature.               
                                                                               
Number 0390                                                                    
                                                                               
REPRESENTATIVE KEMPLEN was of the opinion the legislature had used             
those funds last year as a way to reduce the operating budget.  He             
pointed out the opportunity does exist however, for the legislature            
to consider Representative Vezey's proposal.  It means that instead            
of those program savings being used to reduce the operating budget,            
it would be reinvested in the people of the state.                             
                                                                               
REPRESENTATIVE VEZEY asked what the actual statistics were on the              
reductions in the welfare rolls.                                               
                                                                               
MR. KREHER referred to the division's monthly caseload and benefits            
summary report and said there is typically a spike in the winter               
months because it's a low employment period, but currently the                 
public assistance caseload is the lowest since the early 1990s.                
There are under 11,000 temporary assistance cases currently.                   
                                                                               
REPRESENTATIVE VEZEY observed reductions in food stamp recipients              
as well as temporary assistance cases; however, there are increases            
in the Medicaid program and adult public assistance program.                   
                                                                               
MR. KREHER said the increases in the Medicaid and adult public                 
assistance programs are largely driven by an aging population.  The            
Medicaid program is largely federally funded and the expanding need            
for Medicaid services is what's driving those numbers up.  The bulk            
of effort and costs are associated with the temporary assistance               
program, from the state's perspective.  By focusing on that program            
in particular, the department believes the savings generated by                
caseload reductions will partially offset costs associated with                
growth in other areas.                                                         
                                                                               
REPRESENTATIVE GREEN expressed concern that if the state gives a               
tax credit to employers hiring individuals coming off welfare, into            
what he presumed would be mostly entry level positions, would this             
be displacing other workers through the normal hiring process.                 
                                                                               
MR. KREHER remarked that many of jobs are entry level jobs, and                
many of them are seasonal in nature.  He pointed out that federal              
and state laws are very specific in terms of displacing current                
employees.  He didn't believe that hiring disadvantaged workers in             
any job would necessarily displace other qualified individuals.  He            
was of the opinion this legislation was a win/win situation for                
employers and for employees.                                                   
                                                                               
Number 0854                                                                    
                                                                               
REPRESENTATIVE KEMPLEN noted that many of the jobs are high                    
turnover positions.  Employers like Fred Meyers, Carrs and Safeway,            
which have high turnover positions such as checkers and baggers,               
viewed this credit as an incentive to train a disadvantaged worker             
for these entry level positions with the hope the individuals would            
move on to better jobs.                                                        
                                                                               
Number 0950                                                                    
                                                                               
CHAIRMAN BUNDE asked the wishes of the committee with respect to               
HB 169.                                                                        
                                                                               
Number 0960                                                                    
                                                                               
REPRESENTATIVE BRICE stated he had a technical amendment for                   
consideration.                                                                 
                                                                               
Number 0990                                                                    
                                                                               
MR. KREHER explained that because HB 169 was introduced last year,             
the technical amendment simply changes the dates and adds language             
that includes the new federal welfare to work tax credit as one of             
the options.                                                                   
                                                                               
Number 1048                                                                    
                                                                               
REPRESENTATIVE BRICE offered Amendment 1 which read:                           
                                                                               
     Page 1, line 10:                                                          
          Following "liability":                                               
               Insert "(1)"                                                    
                                                                               
     Page 1, line 1:                                                           
          Following "51":                                                      
               Insert ", or (2) the welfare to work credit allowed             
     as to federal taxes under 26 U.S.C. 51A"                                  
                                                                               
     Page 2, line 2:                                                           
          Delete "1996"                                                        
          Insert "1997"                                                        
                                                                               
     Page 2, line 3:                                                           
          Delete "2000"                                                        
          Insert "2001"                                                        
                                                                               
     Page 2, line 8:                                                           
          Delete "1996"                                                        
          Insert "1997"                                                        
          Delete "2002"                                                        
          Insert "2001"                                                        
                                                                               
     Page 2, line 16:                                                          
          Following "for":                                                     
               Insert "either (A)"                                             
                                                                               
     Page 2, line 17:                                                          
          Delete "1997"                                                        
          Insert "1998; or (B) the federal welfare to work credit              
     under 26 U.S.C. 51A, as in effect on January 1, 1998"                     
                                                                               
     Page 2, line 24:                                                          
          Delete "1996"                                                        
          Insert "1997"                                                        
                                                                               
     Page 2, line 26:                                                          
          Following "federal":                                                 
               Delete "work opportunity credit"                                
               Insert "credits"                                                
          Following "26 U.S.C. 51":                                            
               Delete "is"                                                     
               Insert "or 26 U.S.C. 51A are"                                   
                                                                               
     Page 3, line 8:                                                           
          Delete "1997"                                                        
          Insert "1998"                                                        
                                                                               
     Page 3, line 10:                                                          
          Delete "2002"                                                        
          Insert "2003"                                                        
                                                                               
CHAIR BUNDE asked if there was any objection. There being none,                
Amendment 1 was adopted.                                                       
                                                                               
CHAIRMAN BUNDE noted that House Bill 169, as amended, would be held            
in committee for further discussion.                                           

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