Legislature(2011 - 2012)CAPITOL 106
04/08/2011 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB23 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 23 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 23-FILM PRODUCTION TAX CREDIT/AUDITS
3:23:14 PM
CHAIR OLSON announced that the only order of business would be
CS FOR SENATE BILL NO. 23(FIN), "An Act relating to transferable
film production tax credits and film production tax credit
certificates; requiring the legislative audit division to audit
the Alaska film production incentive program; and providing for
an effective date by amending the effective dates of secs. 3 and
4, ch. 63, SLA 2008."
3:23:27 PM
SENATOR JOHNNY ELLIS, Alaska State Legislature, related that the
Governor has indicated he would like to work together to get
this bill for the film industry extended. He related he has
been working diligently with the executive branch to bring forth
a team effort with this bill. He said that something exciting
is happening. Some film production has happened in the past but
nothing like what is currently happening. He did not
characterize it as a "stampede" but indicated people with multi-
million dollar budgets are poised to help Alaska's future.
Elected officials dream of diversifying the economy. He related
that Alaska is starting to see some of that happening now. He
pointed out that cable television and reality television has
washed over Alaska. The scenery has been beautiful. The tie in
to Alaska's seafood has been amazing. Alaska could not have
purchased the promotion in its marketing programs. The latest
program is called Mounted in Alaska. If you are a fan of
hunting or taxidermy as many Alaskans are the ratings are good.
The family, located on Arctic Boulevard, has a hit on their
hands. He related that multiple feature films are being filmed
in Alaska. Many Alaskans knew about Everybody Loves Whales.
This production recruited actors and extras from all over the
state. He commended the casting and the breadth of the
production throughout the state. This resulted in room rentals
for over 12,000 nights at the Hotel Captain Cook in the off
season and positively affected construction companies,
engineers, car and recreational vehicle rentals, as well as jobs
for security guards, caterers, and truck drivers, electricians,
and more. When people think of films, many people think about
what is in front of the camera but it is really about what is
behind the camera that is exciting.
3:27:56 PM
SENATOR ELLIS related when he visited the set for Everybody
Loves Whales that he was most interested in the people working
behind the scenes. He said these folks thanked him for their
jobs. Thus, the "blue collar" tint to this is "very exciting."
The business opportunities for small business were also
exciting. He turned to the incentives in SB 23 and related that
these new productions must occur in Alaska and must invest in
Alaska. All debts must be satisfied prior to any incentive
being offered. The qualified expenses must be audited by an
Alaskan certified public accountant. He stated that several
fail safe mechanisms are in place to ensure the state benefits
retrospectively.
3:29:25 PM
SENATOR ELLIS related that sometimes other state's losses are
our gains. Many of you know that some states are "broke" and
are reducing or eliminating their programs. The film business
is a multi-million dollar business in Louisiana yet some people
are attracted to Alaska because "we are open for business." The
cable television series and feature films provide great
advertising for Alaska which far exceeds any advertising Alaska
could afford with its advertising budget. He reported he has
received suggested changes to the bill and has incorporated
them, including additional reporting and improved reporting to
assess the benefits of these film production incentives. The
bill improves oversight and better balances the public's need
for information and enhances a positive business climate. Some
people would like to "open up the tax records of corporations,"
he said. He pointed out Alaska does not do so with the oil
industry and will not do so with the film industry either.
While he recognized that people would like to examine tax
records of corporations that to go beyond what is currently
being done would create an unfriendly business climate. He said
he strives for a balance between the public's "need to know" and
to foster a "friendly business climate" for Alaska's corporate
partners. The bill would add additional protection for Alaskan
workers and businesses by requiring that all debts must be paid
prior to applying any tax credits to corporations.
3:31:20 PM
SENATOR ELLIS related that for some SB 23 is about keeping the
momentum of success going and enhance confidence and
predictability to private sector investors who want to finance
sound stages and other new equipment. He said his goal is to
have equipment from Alaskan businesses available for film
productions. He added that corporations do not want to pay per
diem and transportation costs from Pasadena or Vancouver for
equipment and personnel so provisions in the bill provide
alignment of economic interests with the film production
companies. Besides the sound stage, he envisioned Alaskan
companies would make small to medium incremental capital
infrastructure investments to strengthen our economy. We all
benefit. He predicted that the future looks bright for Alaska's
film industry. He emphasized that everyone involved in the
business of supporting film and television production would
appreciate your support. He reported that people have been in
Kodiak scouting for a major production and Jeff Bridges has
signed to do an Iditarod movie. He expressed surprise that the
1925 diphtheria serum run to Nome could be so exciting, but
saving children's lives, using sled dogs, combined with Alaska's
scenery is enticing. He predicted this film will be great for
Alaska. "It's a happy ending. The children survive," he said.
3:33:06 PM
SENATOR ELLIS referred to members' packets and to other
potential productions including that Leonardo DiCaprio's company
has been scouting in Nome to potentially film Firecracker Boys,
which is based on a book by Dan Oneill about the proposed
nuclear explosion to build a deep water port. In response to
Chair Olson's comments, he affirmed the collaboration between
their offices will create better legislation.
3:34:21 PM
REPRESENTATIVE CHENAULT acknowledged that he watches some shows,
including Swamp People. He said he was unsure how that film
would play into an Alaska theme.
SENATOR ELLIS remarked that he loves Swamp People. He related
that Louisiana is open for business and while they have had
budget problems, the film industry represents a billion dollar
industry for Louisiana. He pointed out that the U.S. Coast
Guard rescue film that depicts a rescue in Alaska was filmed in
Louisiana. He reported while some shots were made in Kodiak the
bulk of the film took place in Louisiana. He also reported that
this film was a multi-million dollar movie. He said, "We're out
to change that kind of scenario."
3:35:52 PM
REPRESENTATIVE MILLER asked whether this production will be
called the "Jeff Bridges to Nowhere."
SENATOR ELLIS promised the committee it would not use that
title.
3:36:17 PM
REPRESENTATIVE SADDLER asked whether this program is based on
another state's model.
SENATOR ELLIS provided a brief history of Alaska's film history
noting that many years ago the Alaska Film Office existed but
was dismantled. He explained that the film incentive bill he
introduced several years ago passed. He said his goal has been
to bring back the Alaska Film Office. The goal is to join the
multi-billion dollar international industry and provide
transferable tax credits to reduce the tax burden. Alaska has
been one of the last states to join in. Alaska has been slow in
starting but has gained momentum in part based on the
information it has garnered from other locales.
3:38:58 PM
REPRESENTATIVE SADDLER asked how Alaska's system is different
and what mistakes to avoid.
SENATOR ELLIS answered that many other states have permanent
programs. Alaska decided to try a five-year experiment and this
bill would propose a 10-year extension to the program. A ten-
year timeframe represents the shortest timeframe necessary for
business decisions and amortization of investments in
commitment. He offered his belief that this bill is not
politically motivated but rather is "business oriented." He
reported that Iowa had problems when one person was bribed to
approve film tax credits in Iowa so this bill was crafted to
provide three layers of redundancy in the Department of
Commerce, Community & Economic Development (DCCED) to avoid the
types of issues that Iowa experienced.
3:40:38 PM
REPRESENTATIVE SADDLER recalled reading about benefits to the
state from the program. He inquired as to whether any direct
benefits have resulted from the current program.
3:40:54 PM
SENATOR ELLIS answered yes. He reported that Anchorage's Mayor
Sullivan is a big fan of the program. Although Anchorage does
not have a sales tax it does have a bed tax so the MOA benefits
from people staying at hotels. He stated that Alaska does not
have a state sales tax so it doesn't have the direct benefit
some states receive, but any municipality with a sales tax would
benefit. He remarked that he is proud of the fact that Alaska
does not have a personal income tax or state sales tax. This is
the same for all private companies and individuals in Alaska.
3:43:07 PM
REPRESENTATIVE SADDLER asked whether this bill would encourage
additional short term or long-term jobs in Alaska.
SENATOR ELLIS answered that by their nature the film industry
jobs are temporary jobs, but the goal is to create and enhance
the film industry in Alaska. He envisioned that people would
work on one production for two to six months and then work on
the next production. He indicated that Representative Saddler
has precisely identified the reason to extend the program so
that some businesses could make investments while others could
train the workforce so people will be able to qualify for the
jobs. He acknowledged that some technical people will always be
imported, including jobs such as skilled cinematographers.
However, the goal is to build the industry to allow for
successive jobs.
3:44:29 PM
REPRESENTATIVE SADDLER inquired as to the amount of the tax
credits and whether this bill would increase it to 10 percent or
50 percent.
SENATOR ELLIS prefaced his response by stating that hundreds of
millions and possibly $3 to $4 billion in tax credits have been
offered to the oil industry. This bill would offer up to $100
million over five years. He offered his belief that the first
five years for revamping Alaska's film office has paid off.
This bill would propose two additional five-year increments with
an audit in between for an overall ten year extension.
CHAIR OLSON pointed out that the Legislative Budget and Audit
(LB&A) would also conduct audits in addition to the CPA audits.
SENATOR ELLIS agreed. He acknowledged that $100 million is real
money but is small compared to how Alaska has incentivized other
industries.
3:46:16 PM
CHAIR OLSON offered his belief a comparable amount has been
invested in Cook Inlet drilling.
SENATOR ELLIS agreed the state has made a sizeable investment.
CHAIR OLSON reiterated that this proposal is not anywhere close
to oil and gas incentives the state has provided.
SENATOR ELLIS agreed the magnitude is different.
3:46:43 PM
REPRESENTATIVE MILLER asked for a comparison of the amount of
tax incentive credits currently offered as compared to the film
production spending in Alaska including bed tax, rentals, and
other costs.
SENATOR ELLIS responded that he does not have the direct figures
but the Department of Commerce, Community & Economic Development
(DCCED) should be able to provide the information. He advised
that the reporting requirements have been enhanced.
3:47:47 PM
MATTHEW MOSER, Staff, Senator Johnny Ellis, Alaska State
Legislature, on behalf of Senator Ellis, stated that the
legislature created the Alaska Film Office and film production
incentives in 2008 to encourage economic growth and film
production growth. The film production credits are structured
to put Alaskans to work. The 2008 program contained a sunset
provision triggered after five years or $100 million. The
program currently offers a transferable credit of 30 percent for
qualified Alaska spending, with an additional 10 percent for
Alaska hire. The program also offers an additional two percent
for film production work performed in rural Alaska and an
additional two percent for any work done during the offseason
winter months. Eligible productions can sell the credit to any
company with a corporate income tax liability to offer tax
relief to companies as varied as commercial fishing, mining, and
oil. Tax credits would be issued only after the film production
has finished filming and an Alaska certified public accountant
(CPA) has verified the expenditures. It is worth noting that
thus far the average credit has been about 32 to 33 percent with
the highest at 38 percent of the 44 percent incentive cap. He
explained that SB 23 proposes extending the tax incentives for
ten years with $100 million in funding for each five year
period. [Before the committee was the CSSB 23(FIN). This bill
represents the sponsor's efforts to address concerns from the
public and the committee process.
3:49:57 PM
MR. MOSER provided a section-by-section analysis of SB 23. He
referred to Section 1 of the bill which would amend AS 24.20.271
to require LBA to conduct audits in three five-year periods,
ending June 20, 2013, 2018, and 2023.
MR. MOSER related that Section 2 would amend the existing film
production incentives to require the Department of Revenue (DOR)
to provide a certificate for a film production tax credit.
3:50:56 PM
MR. MOSER explained that Sections 3, 4, and 5 of SB 23 would
update the statutes to reference the certificate. It would also
change the period that the tax credit can be used from three to
six years. This would add value for the corporate income
taxpayers who could use the credit over additional tax years.
MR. MOSER referred to Section 6 which would add an additional
$200 million in incentives, with the $100 million for each of
two five-year periods.
3:51:42 PM
MR. MOSER related that Section 7 would create two new
subsections to add a cap for the tax credit for any single
production at 44 percent.
MR. MOSER stated that Section 8 of SB 23 would authorize pooling
of tax credits. This would clarify in statute that an entity
could pool multiple credits and authorize the DOR to combine
credits or divide a single credit into multiple credits. In
response to Representative Saddler, he referred to page 7, line
29 of Section 19 to the definition of rural Alaska which would
update the definition of rural. He also referred to page 6,
line 2, which is the reference to the citation for his earlier
comment.
3:53:09 PM
MR. MOSER referred page 4 line 19, to Section 8, which adds
additional reporting requirements to the legislature. The DCCED
would report the total amount of expenditures paid to Alaska
businesses and to Alaska residents as wages. He reported that
the Department of Labor & Workforce Development (DLWD) will be
able model the indirect spending using the same model used by
the McDowell Group for its analysis.
MR. MOSER referred to page 4, lines 21-24, to Section 9 of SB
23, which would add to the duties of the film office to design a
logo. He referred to page 6, line 13, of Section 17 which
requires the logo.
MR. MOSER referred to page 4, line 28 to Section 10 of SB 23,
which would amend the timeframe to allow qualified expenditures
from 24 months to 36 months to recognize the post-production
work.
3:56:17 PM
MR. MOSER referred to page 5, line 11, to Section 11 of SB 23,
which includes natural resource development as a consideration
when determining whether a production is in the best interests
of the state. Currently, the film must consider employment of
Alaska residents and the economy.
SENATOR ELLIS clarified that suggestion came from Representative
Dick, which was shared by other legislators.
CHAIR OLSON acknowledged the sponsor's responsiveness to his
staff as well as the LBA's staff.
SENATOR ELLIS offered his belief that some tweaking may be
necessary in the timing of the audits.
3:58:20 PM
MR. MOSER referred to page 5, lines 12-15, to Section 12 of SB
23 which sets into statute current film office policy to protect
commercially valuable information within a production company's
prequalification documentation. He related that Section 13
would add a reference to AS 44.33.235(i), previously mentioned.
MR. MOSER referred to page 5, lines 22-26, to Section 14, of SB
23 which would amend the base amount of a tax credit available
to reality television programs. Many of the programs would come
to Alaska so this would reduce the base credit from 30 to 20
percent. He offered his belief that the credit is still
generous.
SENATOR ELLIS clarified that Alaska was not making enough money
off reality television, that the industry would still operate,
but the program would target films.
3:59:52 PM
REPRESENTATIVE MILLER inquired as to whether he could define
what would constitute qualified expenditures.
MR. MOSER explained that qualified expenditures must be directly
related to the production, incurred in the state, reasonable,
not in excess of fair market value. He outlined that
expenditures can be real or tangible property, fees, services,
and state and municipal taxes. The audit by an Alaska CPA is
not included as a qualified expenditure. Additionally, the film
office works with film productions to compute the depreciation
value of capital equipment using the Internal Revenue Service
(IRS) code.
4:00:58 PM
REPRESENTATIVE MILLER inquired as to whether credits for the
full cost of rental equipment could be used once Alaska
businesses expand to provide those services.
MR. MOSER answered that is correct. The Alaska Film Office and
the production companies have currently been working with some
small Alaska businesses who lease equipment.
4:01:46 PM
MR. MOSER referred page 6, line 2, to Section 15, which would
increase the percentage of qualified expenditures in rural
Alaska from two to six percent but the total qualified
expenditures are capped at 44 percent. As previously mentioned
Section 16 would require that all outstanding balances must be
confirmed by the auditor and paid before the credit can be
awarded.
MR. MOSER referred to page 6, lines 13-22, to Section 17, of SB
23 which requires that the film office logo and acknowledgment
text be included in a qualified film or a short Alaska
promotional video or advertisement must be included in a DVD or
other media.
4:02:46 PM
MR. MOSER explained that Section 18, page 7, line 8, would add a
qualified expenditure for the cost of transfer of digital media
to film or tape. He related that this can be done in the state
but had been omitted from the initial legislation.
MR. MOSER referred to page 7, line 29, of Section 19, of SB 23
which changes the definition of rural as a community not
connected to the road system and increases the population from
5,500 to 10,000.
4:03:29 PM
REPRESENTATIVE SADDLER asked which communities are affected by
the change from a population of 5,500 to 10,000.
MR. MOSER related his understanding that Kodiak, Bethel, and
Sitka are all communities whose population falls in that range.
He offered to confirm this in writing.
SENATOR ELLIS commented that Representative Herron "was a big
fan" of that language change.
CHAIR OLSON also recalled the change.
MR. MOSER referred to page 7, line 31 and to page 8, line 8, of
Section 20 which updates the statutes references to match the
program extension.
4:04:34 PM
MR. MOSER referred to page 8, lines 9-16, to Section 21 of SB 23
which changes the trigger point when the DOR's Commissioner must
report the aggregate tax credits reach $200 million. Currently
the commissioner must report to the legislature when the tax
credits and estimated tax credits equal an aggregate $100
million.
MR. MOSER referred to page 8, line 17, of Section 22, which
extends the sunset date for the transferable film tax credit
program to July 1, 2023 and establishes the amount of the tax
credits awarded under the program to $200 million.
MR. MOSER referred to page 8, line 14, to Section 23, which
updates the audit. The film office has one year after the
sunset date or after the total qualifications have been reached
to address any outstanding claims or issues.
4:05:57 PM
REPRESENTATIVE MILLER referred to page 6, line 3, to Section 16
of SB 23, which read, "a rural area." He asked whether this
should be changed to add "Alaska" to signify that the rural area
must be in the state.
MR. MOSER answered that it a good suggestion. He stated that
the definition of rural area refers to a community 1,500 or less
or one not connected by road or rail to Anchorage or Fairbanks.
REPRESENTATIVE MILLER recalled films that are filmed in exotic
location often have post production in other places. He wanted
to ensure that the program would not subsidize other states'
post production.
CHAIR OLSON offered his belief that the bill drafters would
address that type of issue.
4:08:27 PM
ROBIN KORNFIELD, Vice President, Communication and Marketing,
NANA Development Corporation (NANA), read from a prepared
statements. She stated that NANA supports SB 23 since this bill
helps create something new in Alaska: a developing industry
that is a renewable resource which is "making movies." NANA
also supports the film tax credit since it will lead to a wide
array of private sector jobs. Some jobs will be new, at a time
when diversifying the economy is important if not crucial. The
bill will divert money that would otherwise be paid in taxes but
the diversion creates a flow back to the state's private
economy. NANA developed Red Dog mine and in doing so created
opportunities for thousands of Alaskans, but cannot rest and
must look for the next opportunity. Economies are built on
decade-long cycles and resource extraction cannot do it all.
Alaska must keep its eyes on the future. The corporation began
to review the film industry two years ago when Mike Devlin
opened a studio in Alaska called Evergreen Films. This company
moved to Alaska due to the state's special social and physical
attributes. Initially, NANA thought that the business was for
other people. However, upon closer examination, NANA discovered
that this business holds interesting economic possibilities. It
holds some similarities to natural resources as it is a platform
industry that creates primary products including films, series,
and programs. The industry requires support services similar to
what NANA currently provides such as construction, food
services, hospitality, and security services. The industry also
creates specialized job opportunities that are not yet
widespread in Alaska.
4:11:10 PM
MS. KORNFIELD continued. She pointed out that the whole state
can be involved. The film industry goes beyond making whale
movies. Although the big productions get attention, the
television industry consists of hundreds of cable channels
trying to fill 24 hours of programming each day with
documentaries, reality television shows. She reported that the
industry has been moving from film to digital formatting and
technological solutions. She offered her belief that this is
the way of the future and Alaska can participate since digital
images travel over the Internet to global markets. She
suggested that Alaska may be able to retain some of its
graduates instead of having them move to California to
participate in the film industry.
MS. KORNFIELD stated that NANA began as skeptics but ended up
investing in Evergreen Films. She related that NANA is willing
to invest in people through training and in infrastructure such
as sounds stages and specialized equipment. She pointed out
that investments in training and facilities require risk and are
not eligible for tax credits. She stressed that NANA needs the
tax credits to bring the film business to Alaska, as well as a
ten year timeframe to make it worthwhile. The film credit
program is set to expire in two years. As with any business, a
long-term investment decision requires some level of certainty.
The rapid increase in Alaska's film and television productions
proves that the current film production tax credit program is
working. This bill would help Alaska build for the long term.
4:13:04 PM
MS. KORNFIELD concluded by offering NANA's support for SB 23
since it wants to make a long-term commitment to film production
in Alaska. The 10-year extension would provide assurances that
the future is solid. She stated that NANA is a conservative
company. It researched the film industry prior to any
investment. Films about Alaska should be made in Alaska, she
said. Alaska is a wonderful global brand and with the right
catalyst the state can be long term participant in this
industry.
4:13:54 PM
REPRESENTATIVE SADDLER recalled that some Native Corporations
have invested outside Alaska and asked whether NANA has
considered investing in other states that have a film industry
and tax credit programs, such as in Louisiana.
MS. KORNFIELD answered that it has not. She related that NANA
is driven by job opportunities for its shareholders.
REPRESENTATIVE SADDLER asked whether NANA would have made its
investments absent any tax credits. He further asked whether
the industry solely justify the investment or if it depends on
the tax credits.
MS. KORNFIELD answered that NANA has made a significant
investment in Evergreen Films. She related that the film tax
credit program was in place, that Evergreen Films was attracting
films to Alaska. She said she hoped that NANA would be able to
build a sound stage but that level of investment requires some
level of certainly prior to making the investment.
4:15:40 PM
REPRESENTATIVE MILLER asked for clarification on longer term
plans to perpetuate the industry. He inquired as to the current
staffing and any plans NANA has to further train Alaskans to
handle the specialized jobs in the film industry.
MS. KORNFIELD responded that NANA created a film support
company, Piksik LLC, to provide services to any film production.
In fact, 15 NANA shareholders are attending a session today
conducted by Alaska Crew Training, which is a nonprofit put in
place to train people to be prepared to serve the industry.
Tomorrow, NANA plans on sending 10 more people to attend the
training. She remarked that NANA plans on being active to
create the workforce to be ready to enter the industry.
4:17:22 PM
REPRESENTATIVE MILLER inquired as to whether NANA has created
any connections to the university systems in the state. He
recalled from his personal work in television news that people
in the industry often wished more educational programs were
available in Alaska so they could remain in Alaska.
MS. KORNFIELD characterized the process being on the "ground
floor" at NANA. She reported that the University of Alaska
Fairbanks (UAF) has just approved a film program that she thinks
will be useful for everyone. She stated that one of NANA's more
successful efforts with the film industry has been through the
engineering companies so opportunities exist for students in
computer technology, graphics and other areas. This industry is
so new to Alaska that the possibilities are unknown. NANA has a
company that provides surveying and it turns out surveying
technology has become a tool that will reduce the production
time for an animated film Evergreen Films is currently producing
by a year. She offered her belief that many possibilities still
exist and NANA has attempted to use as many services as
possible. She anticipated that NANA will continue to learn
about the film industry.
4:19:16 PM
WANETTA AYERS, Director, Anchorage Office, Economic Development
Section, Department of Commerce, Community & Economic
Development (DCCED), stated that the DCCED provided comments to
the sponsor and committees on SB 23 to refine the bill and
incorporate technical corrections to the bill. The Alaska Film
Office administers the Film Production Incentive Program within
the DCCED. The basic provisions of would extend the program
until 2023 and would maintain a ceiling of $100 million in
available tax credits over two five-year periods. The
department believes this would be a good addition to the
program. The bill could help provide certainty to the local
film providers service providers, support businesses, and
skilled and talented Alaskan workers to realize the economic
benefits of increasing film production in Alaska. Some 35
communities in Alaska have been venues for film production
activities to date. Additionally, an extension of the program
would provide some degree of certainty that could encourage the
type of private sector investment from corporations such as
NANA. The development of additional film industry
infrastructure and investment in equipment and other capital
investments are a necessity for the next evolution in the film
industry in Alaska. The DCCED also believes that SB 23 provides
increased utility and flexibility in the tax credit program that
would be helpful in administering the program and incentivizing
its use. The additional reporting and transparency requirements
for audits would also help strengthen the program. She recapped
that the DCCED finds the provisions in SB 23 enhance the Film
Production Incentive Program and serve as a timely signal of the
state's commitment to developing the film industry in Alaska to
encourage ongoing and future investment. In further response to
Chair Olson, she answered that the administration supports SB
23.
4:22:25 PM
REPRESENTATIVE SADDLER inquired as to whether $20 million per
year was the right amount to invest in the industry.
MS. AYERS answered that the department feels based on its
experience thus far that the amount is correct. She related
that this amount as the program matures seems to be the correct
amount. The DCCED has observed increased interest in the
program. She provided figures to date which indicates that the
"ground-spend" has exceeded $19 million and the program approved
tax credits of nearly $6.3 million. The average amount for tax
credits has equaled 33 percent tax credits for the Alaska
"ground-spend." She remarked that the DCCED experienced an
increased level of pre-qualifications which has accelerated as
the industry continues to mature in Alaska. Thus far, the state
has prequalified over 50 productions of which 36 are active
applications. In response to Representative Saddler, she
explained that "ground-spend" represents the qualified
expenditures expended in Alaska.
4:23:59 PM
REPRESENTATIVE SADDLER inquired as to whether conducting an
audit once every five years will be adequate.
MS. AYERS suggested that an audit needs to be conducted after
five years. She offered her belief that the DCCED and DOR
concur that five-year increments are sufficient since enough
productions and a variety of film activity will have occurred.
4:24:50 PM
REPRESENTATIVE SADDLER recalled that the reporting requirement
to the legislature is triggered when tax credits reach $200
million. He asked whether it would be beneficial to have a
shorter frequency of reporting.
MS. AYERS answered that the DCCED currently provides an annual
report to the legislature on the program which should be
sufficient to give the legislature insight into what is
occurring in the film industry in Alaska between the audit
periods. She stated that if the cap is reached earlier it would
be noted in the report. In further response to Representative
Saddler, she answered that the information on tax credits is
included in the report which is provided electronically and is
also available on the Internet at film.alaska.gov.
4:26:03 PM
REPRESENTATIVE THOMPSON recalled reading that other states have
placed on cap on the actual wages that can be paid to
superstars. He asked whether that is something the state should
be considering, too.
CHAIR OLSON responded that his office is working on language to
that effect.
4:26:33 PM
PAT DAVIDSON, Legislative Auditor, Division of Legislative
Audit, Alaska State Legislature, responded to the question on
whether five years between audits is adequate. She indicated
that the current program is set to terminate in 2013 and the
bill would extend the program until 2023. She related that it
makes good business sense not to wait until the last minute to
conduct an audit, but the current audit requirements raise
questions. Under the bill audits would be conducted in 2018 and
2023 with the program set to terminate in 2023. However, it may
result in the legislature considering in 2021 whether to extend
the program based on an audit that is two or three years old.
She suggested that due to the legislative process, the committee
may wish to consider whether it would need more current
information when making the decision on whether to extend the
program. She acknowledged that she has a better idea why the
audits were scheduled for every five years but she maintained
that the committee may wish to consider different dates. She
pointed out any legislator could request an audit through the
Legislative Budget and Audit Committee at any time. Thus, the
mechanism to obtain an earlier audit would still exist. She
reiterated that the committee may wish to examine the dates in
SB 23 and decide if the dates match up to the legislature's
needs.
CHAIR OLSON agreed that the dates needed review. He offered to
do so for inclusion in a potential committee substitute for SB
23.
4:29:27 PM
REPRESENTATIVE SADDLER asked whether it would be better to
report the film tax credits in $50 million increments or wait
until the qualified tax credits approached $200 million.
MS. DAVIDSON responded that she has considered this issue and
from a process perspective the bill would move through the
process several years prior to the program's sunset. She
suggested the legislature may prefer to consider the program at
the $150 million mark. She pointed out that the annual report
to the legislature would contain any pre-qualified films so
considerable information would be available for members to
review.
CHAIR OLSON offered his belief that if Alaska becomes the
"Hollywood of the North" that it would be investing more money
in the film program. He acknowledged that the legislature would
be receiving annual reports.
4:31:18 PM
DAVE WORRELL, Development Specialist II, Anchorage Office,
Economic Development Section, Division of Economic Development,
Department of Commerce, Community & Economic Development
(DCCED), introduced himself as the manager of the film office.
4:31:56 PM
REPRESENTATIVE MILLER inquired as to the cost of a proposed
sound stage and the personnel needed to run one.
MR. WORRELL responded that question lies beyond his expertise.
He related from his discussions with producers their desire is
to have places to shoot out of the weather in the 20,000 to
40,000 square-foot range. He stated that such a facility would
have 40-foot ceilings and no internal supports. He
characterized the proposed space as a very large warehouse
space. Currently, Alaska does not have a surplus of that type
of real estate so it would mean building something from the
ground up. He related his understanding that NANA Services has
been considering the economics of building such a facility.
Additionally, a facility in Palmer has recently become available
that would be suitable for smaller independent film use. He
emphasized the importance of allowing the private sector to
drive the need for any sound facilities.
4:34:16 PM
REPRESENTATIVE MILLER asked whether training is available for
Alaskans to operate the facilities or if Alaskan businesses
would provide the building and equipment and out of state
personnel would operate the facility.
MR. WORRELL responded it would likely be a combination of both.
He offered his belief that any director would likely specify
certain production personnel on the set, including any chief
camera personnel. However, second level personnel could be
Alaskans and as more Alaskans become trained more jobs would
likely go to Alaskans. He pointed out that the DCCED is working
with the DLWD to institute a variety of apprenticeship programs.
Additionally, the DCCED has been working with the University of
Alaska system in Anchorage and Fairbanks for students to
participate in internships and on the job training in addition
to the academic setting. He said he is delighted that NANA is
interested in training opportunities for its shareholders. He
concluded that a variety of activities are concurrently
happening.
MS. AYERS interjected that the sound stage development is
largely a real estate development. She reported that in other
jurisdictions the sound stage has been a "stand-alone" facility
or has been developed as a campus. She explained that the
standard services available are typically of the type any
industrial business park provides, including building
management, site management, security, and food services. She
characterized the services as "camp services" and noted that
many Alaska businesses have already developed this type of
expertise. She pointed out that corporations such as Doyon and
NANA currently have this expertise and would like to apply it to
the film industry.
4:36:52 PM
REPRESENTATIVE SADDLER recalled that states such as New Jersey
and New York lost out to Southern California in the early part
of the century due to sunlight. Thus, Hollywood has become the
nexus of movie making in America. He expressed concern about
the cyclical nature of public taste. He inquired as to whether
any case study has been done that could identify the film
industry trends outside Hollywood.
MR. WORRELL answered that New Mexico and Louisiana are examples
of viable industries. He advised that 43 states have active
incentive programs and some additional states have passive
incentive programs. He pointed out that the best example for a
model would likely be Canada, in particular, British Columbia
and Vancouver. He pointed out that 20 years ago no one had even
heard of Vancouver as a place to make films. Now it is
considered "Hollywood North" due to Canada's aggressive
incentive and workforce development programs. He related his
understanding that the British Columbia film industry increased
from $1 million to $19 billion annually over the course of the
last few years.
4:38:52 PM
REPRESENTATIVE SADDLER answered one plausible reason for
Vancouver's popularity is that it can be made to look like New
York City. He asked whether Vancouver has withdrawn some of its
incentives as its film business has grown or if the incentives
are necessary as part of the economy.
MR. WORRELL responded that he thought incentives were an
integral part of the industry. He further thought British
Columbia conducts ongoing assessments of its program. He
offered his belief that the British Columbia program is directed
more towards "workforce" support versus "ground-spend" support.
He pointed out that the Canadians also provide a federal
incentive program as well as provincial programs.
4:39:48 PM
GREG KERN, Owner, A K Grip and Lighting, stated that his
business is Alaska's largest grip and lighting house in Alaska.
He stated that over the past 20 years he has been able to ply
his trade in Alaska, which he said is no small feat considering
the small marketplace. He related that some of his peers have
had to go Outside to work but he has been able to hone his
skills in Alaska. He attributed his past success with the film
tax incentive program has allowed him to consider hiring more
people and bolster his inventory of equipment to support these
projects.
4:41:18 PM
JOHNATHAN HUFF, Owner, Alaska Universal Productions, stated that
his company is also a grip company. He has benefited from the
film program by working on projects, such as shooting a
Chevrolet commercial in Valdez, the Everybody Loves Whales film,
and Ice Road Truckers. He said he has recently invested in a
significant amount of film, grip, and hardware equipment
including film lighting and a film dolly. He is considering
purchasing more equipment to meet the film industry expansion.
He predicted that the 10-year extension of the program would
result in additional film work in Alaska which will benefit his
company and other similar support businesses. He said the
University of Alaska Fairbanks (UAF) is now offering a four-year
film degree program that should help expand the program. He
reported that he just came from the set of a feature film,
AlaskaLand which is being filmed in Fairbanks. He related that
a director of photography, Dave Selle, and other professionals
working on that project would have liked to testify today but
were busy working on the feature film.
CHAIR OLSON welcomed their testimony at other hearings.
4:43:59 PM
CINDY DRAPER, Manager, ABC Motor Home Rentals, stated that
Everybody Loves Whales allowed her company to keep employees on
staff through the winter and improve the company's economic
status at a time when it normally would not be earning money
since they typically provide services during the summer.
[SB 23 was held over.]