Legislature(2003 - 2004)

04/07/2003 03:20 PM House L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 194-REGIONAL DEVELOPMENT ORG TAX CREDIT                                                                                    
Number 0056                                                                                                                     
CHAIR ANDERSON  announced that the  only order of  business would                                                               
be HOUSE  BILL NO. 194, "An  Act creating a tax  credit under the                                                               
Alaska  Net   Income  Tax  Act  for   contributions  to  regional                                                               
development organizations; and providing for an effective date."                                                                
CHAIR  ANDERSON, as  sponsor of  HB 194,  testified that  several                                                               
corporations approached  him, noting  that many  companies donate                                                               
to   the  state's   13   ARDORs   [Alaska  regional   development                                                               
organizations] but  do not  receive a tax  credit.   He explained                                                               
that ARDORs do a variety  of economic projects, from recycling to                                                               
port  development.    He  noted  that  this  bill  gives  Alaskan                                                               
corporations a  tax credit  for a  donation up  to $10,000  to an                                                               
ARDOR, but the bill does not  change the existing $150,000 cap on                                                               
tax  credits.   He  said the  $10,000 tax  credit  does not  take                                                               
revenue from  the general  fund.   The bill  has two  zero fiscal                                                               
Number 0288                                                                                                                     
CHAIR ANDERSON moved  to adopt the committee  substitute (CS) for                                                               
HB  194,  Version  23-LS0773\H, Kurtz,  4/4/03,  as  the  working                                                               
document.    Hearing  no  objection, Version  H  was  before  the                                                               
CHAIR ANDERSON explained the provisions  of the proposed CS.  The                                                               
Department  of Community  & Economic  Development asked  that the                                                               
following language be inserted.  On  page 3, lines 9-10 and lines                                                               
16-17, the CS reads in part:                                                                                                    
     For purposes of  this subsection, "regional development                                                                    
     organization"   means  a   nonprofit  organization   or                                                                    
     nonprofit corporation that ...  (3) has been designated                                                                    
     by   the   Department   of   Community   and   Economic                                                                    
     Development as a regional development organization.                                                                        
CHAIR ANDERSON commented that this  change assures that a company                                                               
gets a  tax credit for  a contribution to  one of the  state's 13                                                               
designated ARDORs.   He quoted Mayor  George Wuerch, Municipality                                                               
of  Anchorage,  who wrote  in  his  [March  28, 2003]  letter  of                                                               
support  that "Without  economic development,  we cannot  hope to                                                               
solve  the state's  fiscal dilemma  nor can  we ensure  a vibrant                                                               
future for the state."                                                                                                          
CHAIR  ANDERSON   listed  the   13  ARDORs:   Anchorage  Economic                                                               
Development  Corporation,  Arctic   Development  Council,  Bering                                                               
Straits Development  Council, Copper Valley  Economic Development                                                               
Council,  Fairbanks  North   Star  Borough  Economic  Development                                                               
Commission,   Interior    Rivers   Resource    Conservation   and                                                               
Development   Council,    Kenai   Peninsula    Borough   Economic                                                               
Development  District,   Lower  Kuskokwim   Economic  Development                                                               
Council,  Mat-Su  Resource  Conservation  and  Development  Inc.,                                                               
Northwest Arctic Borough  Economic Development Commission, Prince                                                               
William   Sound   Economic    Development   District,   Southeast                                                               
Conference,  and Southwest  Alaska  Municipal  Conference.   [The                                                               
work of the various ARDORs] reaches the entire state, he added.                                                                 
Number 0480                                                                                                                     
REPRESENTATIVE  CRAWFORD asked  if these  companies already  take                                                               
full   advantage  of   the  $150,000   tax   credit  cap,   would                                                               
[contributions  to other  charities  be reduced]  because of  the                                                               
addition of ARDORs [to the tax credit law].                                                                                     
CHAIR ANDERSON responded that it's hard to predict.                                                                             
Number 0536                                                                                                                     
REPRESENTATIVE CRAWFORD  asked if  HB 194  would hurt  the United                                                               
Way.    He   said  there's  a  social  good   in  developing  new                                                               
businesses.    But  when legislators  created  the  $150,000  tax                                                               
credit, did they consider [ARDORs]  as charities the same as food                                                               
banks or the United Way, he asked.                                                                                              
CHAIR ANDERSON  noted that this  [additional type of  tax credit]                                                               
forces  charities  to  compete  for donations,  and  he  said  he                                                               
applauds  that.   Charities should  compete  to prove  themselves                                                               
efficient and  worthy, he said;  ARDORs are equally  important in                                                               
terms of development.                                                                                                           
Number 0672                                                                                                                     
REPRESENTATIVE  CRAWFORD asked  if only  $10,000 out  of $150,000                                                               
cap could be given to an ARDOR.                                                                                                 
Number 0765                                                                                                                     
MARK GRABER,  Auditing Manager, Division of  Taxes, Department of                                                               
Revenue,  said   there  is   a  flat   $10,000  limit   for  each                                                               
corporation, which could be divided  among several ARDORs.  But a                                                               
corporation can't get  more than a $10,000 credit  [for this type                                                               
of donation].                                                                                                                   
REPRESENTATIVE  GATTO  stated   that  a  tax  credit   is  a  tax                                                               
forgiveness, dollar for  dollar - a great  deal for corporations.                                                               
He  said corporations  can use  tax money  that would  go to  the                                                               
state  to donate  to an  ARDOR  of their  choice.   How does  the                                                               
public benefit,  he asked; what  is the advantage to  the citizen                                                               
and  to  the  state.    He   noted  that  the  advantage  to  the                                                               
corporation is enormous.                                                                                                        
Number 0903                                                                                                                     
MERTEN  BENGEMANN-JOHNSON,  Vice  President,  Anchorage  Economic                                                               
Development  Corporation  [AEDC],  stated that  his  organization                                                               
supports  HB 194.   He  said he  believes this  bill will  have a                                                               
positive impact on economic development.   It will make it easier                                                               
for AEDC and other regional  development organizations to solicit                                                               
contributions from corporate taxpayers  to support local economic                                                               
development  efforts.   HB  194  will  give regional  development                                                               
organizations  an incentive  to build  strong relationships  with                                                               
local businesses.   It may  have a  positive impact, not  just on                                                               
the  state  budget, but  also  on  local budgets  by  encouraging                                                               
economic growth, he testified.                                                                                                  
Number 1016                                                                                                                     
REPRESENTATIVE  GATTO questioned  how the  state gets  a tool  to                                                               
help develop businesses with HB 194.                                                                                            
MR. BENGEMANN-JOHNSON said  this [new type of tax  credit] is not                                                               
a  matter of  taking money  away from  the state.   The  $150,000                                                               
limit  remains in  place.   The money  would be  used to  recruit                                                               
businesses into the state and  to help retain and expand existing                                                               
businesses, all activities  that would increase the  tax base, he                                                               
REPRESENTATIVE GATTO said  he would prefer to  invest the $10,000                                                               
Number 1129                                                                                                                     
MR.  BENGEMANN-JOHNSON  explained  that  the AEDC  is  a  public-                                                               
private  partnership.    The  group  receives  funds  to  support                                                               
economic development  from the  [Municipality] of  Anchorage, the                                                               
State of  Alaska, and from  private corporations.  The  AEDC, for                                                               
example, successfully recruited Federal  Express to locate at the                                                               
Ted Stevens Anchorage International Airport.                                                                                    
CHAIR ANDERSON listed the letters  of support received for HB 194                                                               
from various ARDORs, local governments, and businesses.                                                                         
Number 1224                                                                                                                     
REPRESENTATIVE GATTO noted  that the letters are  from groups who                                                               
will benefit from  the bill.  He  said he does not  object to the                                                               
bill, but  he disagrees  that these  corporations are  allowed to                                                               
direct their  tax money, something he  said he'd like to  be able                                                               
to do.   Taxpayers are not  allowed to chose how  their tax money                                                               
is spent on  the federal level, but it's  okay [for corporations]                                                               
to do it on the state level, he said.                                                                                           
CHAIR  ANDERSON  reviewed  the  concepts   behind  HB  194.    He                                                               
suggested that if Representative Gatto  objects to the concept of                                                               
the  tax credit,  he needs  a different  bill to  deal with  that                                                               
objection.   This  bill simply  says that  a company  can receive                                                               
another type of tax credit under the $150,000 tax cap.                                                                          
Number 1421                                                                                                                     
LEE  THIBERT,  Chief  of  Staff,  Chugach  Electric  Association,                                                               
explained that  his company  is the  largest electric  utility in                                                               
Alaska, serving 60,000 member-owners.   He said that roughly half                                                               
of  the  retail load  is  from  commercial customers,  and  these                                                               
small- and medium-sized businesses  benefit the most from overall                                                               
economic development.   He  said that  organizations such  as the                                                               
Anchorage  Economic  Development   Corporation  provide  valuable                                                               
information to  businesses who are  trying to expand  and attract                                                               
new markets.  Chugach Electric supports HB 194.                                                                                 
REPRESENTATIVE ROKEBERG asked  whether Chugach Electric qualifies                                                               
for a  tax credit [as  a business] or  whether it is  a nonprofit                                                               
MR.  THIBERT  explained that  Chugach  Electric  is a  tax-exempt                                                               
organization so it will receive no direct benefit from HB 194.                                                                  
Number 1506                                                                                                                     
CARL  BERGER,   Executive  Director,  Lower   Kuskokwim  Economic                                                               
Development Council, testified  that the council is  a very small                                                               
organization; he is  the sole employee.  The  council operates in                                                               
Southwest  Alaska and  represents  Bethel and  26 other  villages                                                               
that are accessible only by air.   The program has operated since                                                               
1992.   He  noted  that  the council  receives  $47,000 in  state                                                               
funding and raises  other funds to keep  the program functioning.                                                               
The cost  of doing business is  much higher [in this  part of the                                                               
state].  The  new tax credit in  HB 194 gives him  one more tool,                                                               
but  there's no  guarantee that  he'll get  such a  contribution.                                                               
Many local businesses  assist with cash contributions  as well as                                                               
in-kind contributions for the various  activities promoted in the                                                               
CHAIR  ANDERSON   noted  the  types  of   tax  credits  currently                                                               
available  in state  law:   insurance  tax credits  for gifts  to                                                               
colleges,  insurance tax  credit  for gifts  to  the Alaska  Fire                                                               
Standards  Council,  income  tax  education credit,  oil  or  gas                                                               
producer education credit, oil or  gas property education credit,                                                               
mining  business education  credit, fisheries  business education                                                               
credit, and fisheries resource landing tax education credit.                                                                    
Number 1647                                                                                                                     
MR.  BERGER  responded  to   two  questions  from  Representative                                                               
Rokeberg  about his  council.   The annual  budget last  year was                                                               
$74,170; $26,100  of that  was cash  contributions because  of an                                                               
inadequate  state   grant.    He  described   several  successful                                                               
projects.     The  council  provided   ice  bags   to  commercial                                                               
fishermen,  which  improved the  quality  of  the catch,  thereby                                                               
earning a slightly higher price.   With the low return of fish in                                                               
the region,  he said, there  have been disaster  declarations for                                                               
the last four out of five  seasons.  Another project involved the                                                               
visitor industry.   The  council sponsored  familiarization trips                                                               
for  travel industry  representatives.   He explained  that these                                                               
visits  demonstrated  the  local attractions  of  sport  fishing,                                                               
river rafting, and bird watching.   He indicated a small increase                                                               
in  the number  of  visitors  to the  region;  every new  visitor                                                               
brings money to the region.                                                                                                     
CHAIR ANDERSON  noted these tax  credits are related  to business                                                               
enterprise and resource development.                                                                                            
Number 1902                                                                                                                     
MR. BERGER explained that his group  is not a charity.  Answering                                                               
two questions  from Representative Guttenberg, he  explained that                                                               
the council  is a nonprofit  with 501(c)(3) status from  the IRS.                                                               
The council does not earn any income through gaming.                                                                            
REPRESENTATIVE  GUTTENBERG  asked  Mr.  Berger  to  describe  the                                                               
economics of the  icing project and inquired  whether it provides                                                               
enough of an enhanced product to pay for itself.                                                                                
MR.  BERGER replied  that  the council  has  received funds  from                                                               
groups  as   diverse  as  the  Alaska   Conservation  Foundation,                                                               
ExxonMobil Corporation,  and the U.S. Department  of Agriculture.                                                               
Most of the funds go into  equipment for fishermen to use without                                                               
charge, for  example, the flesh  ice bags.   In this  fishery, he                                                               
noted, people use open skiffs, pick  fish from the nets, put them                                                               
right into  the bags  filled with slush  ice, then  transport the                                                               
fish directly  to the buyer.   The single buyer,  Coastal Village                                                               
Fisheries, insists on iced fish  but is paying several cents more                                                               
a pound than it did in the past.   This project gives a return to                                                               
the  fishermen, he  said, and  it makes  a good  quality product.                                                               
The fishermen face tremendous shipping  prices getting their fish                                                               
to market.                                                                                                                      
Number 2078                                                                                                                     
TIM  ROGERS,  Legislative  Program Coordinator,  Municipality  of                                                               
Anchorage,  explained that  the municipality  supports AEDC  with                                                               
about $450,000 per year from tax  revenues.  He said this public-                                                               
private   partnership   has    successfully   promoted   economic                                                               
development.   AEDC has been  instrumental in  attracting Federal                                                               
Express, UPS, and  several smaller businesses.  He  noted that HB
194  will not  dilute the  revenue that  the state  receives from                                                               
[corporate income] taxes.                                                                                                       
REPRESENTATIVE GATTO  quoted a  letter of  support from  an ARDOR                                                               
that  noted it  had made  150 small  business loans  in order  to                                                               
stimulate business opportunities.  He  asked if there is room for                                                               
abuse in loans and questioned who oversees these activities.                                                                    
MR. ROGERS replied  that AEDC does not make loans.   Primarily it                                                               
attracts  new  businesses  to Anchorage  and  provides  technical                                                               
assistance to existing businesses.                                                                                              
CHAIR  ANDERSON noted  that Representative  Gatto  was quoting  a                                                               
[March 26, 2003]  letter of support from  Mayor Roswell Schaeffer                                                               
Sr., of the Northwest Arctic Borough.                                                                                           
Number 2195                                                                                                                     
REPRESENTATIVE  GUTTENBERG asked  whether  a corporation  getting                                                               
this tax credit also gets a deduction off its federal return.                                                                   
MR.  GRABER, Department  of Revenue,  responded that  the federal                                                               
rules operate  independently of  the state  tax credit.   Whether                                                               
the corporation  receives a federal deduction  depends on whether                                                               
the   ARDOR  has   a   501   [charitable  organization]   federal                                                               
designation.   He answered  another question  from Representative                                                               
Crawford,  saying that  the corporation  could get  a tax  credit                                                               
from the state  and a deduction from the  federal government [for                                                               
the same  contribution to an  organization with a  501 charitable                                                               
Number 2277                                                                                                                     
MR. GRABER, at the request  of Chair Anderson, clarified that the                                                               
education  credit  currently in  the  statute  goes to  four-year                                                               
colleges  in  Alaska and  is  limited  to  $150,000.   Under  the                                                               
$150,000  cap in  state law,  there  are three  types of  current                                                               
credits:   the  education credit,  a  credit to  the Alaska  Fire                                                               
Standards  Council,  and  a  new  third  credit  for  the  Alaska                                                               
Veterans Memorial  Fund.  HB 194  would add a fourth  credit type                                                               
for  ARDORs.     [Contributions   to  ARDORs]   shouldn't  affect                                                               
charitable  contributions  at all,  but  there  might be  an  [an                                                               
impact on donations to] colleges and universities.                                                                              
CHAIR ANDERSON  reiterated that corporate donations  to charities                                                               
are not affected by this bill.                                                                                                  
TAPE 03-30, SIDE B                                                                                                            
Number 2360                                                                                                                     
REPRESENTATIVE  ROKEBERG asked  Mr. Graber  to clarify  whether a                                                               
corporation is double-dipping  with a contribution to  an ARDOR -                                                               
if  it has  501 status  - because  it receives  both a  state tax                                                               
credit and  a deduction on its  federal return.  He  asked if the                                                               
language on  page 3, lines  18-21, prevents such  double dipping.                                                               
This language reads in part:                                                                                                    
       (b) A contribution claimed as a credit under this                                                                        
     section may not                                                                                                            
            (1) be claimed as a credit under another                                                                            
     provision of this title;                                                                                                   
          (2) also be allowed as a deduction under 26                                                                           
     U.S.C. 170 against the tax imposed by this chapter;                                                                        
MR. GRABER  replied that  this language  means for  Alaska income                                                               
tax  purposes, a  corporation cannot  take  a [state]  charitable                                                               
deduction [in  addition to a  state tax  credit].  He  added that                                                               
Alaska has no  say over whether the corporation  claims a federal                                                               
deduction.    In  response  to  a  question  from  Representative                                                               
Rokeberg, he  surmised that the federal  government wouldn't care                                                               
about  Alaska's tax  credits;  states  commonly treat  charitable                                                               
contributions  differently  than  the  federal  government.    He                                                               
explained that  the section  of the  bill references  the federal                                                               
revenue code because  [AS 43.20], the Alaska Net  Income Tax Act,                                                               
adopts  the Internal  Revenue Code  with some  exceptions.   That                                                               
rule  says that  if  a business  takes a  credit  for an  Alaskan                                                               
purpose,  the business  won't  get the  deduction  on the  Alaska                                                               
income tax return.                                                                                                              
Number 2218                                                                                                                     
REPRESENTATIVE GUTTENBERG asked if HB  194 throws ARDORs into the                                                               
same pool [competing for  donations] as [charitable organizations                                                               
such as] Big Brothers Big Sisters.                                                                                              
REPRESENTATIVE ROKEBERG  noted that  a business  can "double-dip"                                                               
by  donating to  a  charity  such as  Big  Brothers Big  Sisters,                                                               
getting a  deduction on both  state and federal returns;  but the                                                               
business doesn't also get a tax  credit on its Alaska income tax.                                                               
He confirmed  with Mr. Graber that  HB 194 involves a  tax credit                                                               
instead  of  a  tax  deduction,  so  it's  a  dollar  for  dollar                                                               
reduction  in the  taxes owed,  rather  than a  reduction of  its                                                               
adjusted gross income.  He noted  that the tax credit offered for                                                               
a  contribution to  an  ARDOR  is a  more  inviting donation  for                                                               
corporations because they get a better tax benefit.                                                                             
CHAIR ANDERSON  noted, as a  board member of [the  Anchorage] Big                                                               
Brothers Big Sisters, that  various corporations regularly donate                                                               
to this organization.   He said he did not  think they would stop                                                               
giving because of HB 194.                                                                                                       
CHAIR ANDERSON closed the public testimony.                                                                                     
Number 2000                                                                                                                     
REPRESENTATIVE DAHLSTROM  moved to report the  proposed CSHB 194,                                                               
Version  23-LS0773\H,  Kurtz,  4/4/03,   out  of  committee  with                                                               
individual recommendations  and the two accompanying  zero fiscal                                                               
Number 1985                                                                                                                     
REPRESENTATIVE  GUTTENBERG  objected.    He noted  that  all  the                                                               
sources of funding for nonprofits  - the legislature, the federal                                                               
government, and  other grantors -  are decreasing, and HB  194 is                                                               
one more consideration [making it  harder for nonprofits to raise                                                               
money].   Development is important  to get out of  the [economic]                                                               
hole, but he said, he's not  sure where the return [to the state]                                                               
is on HB 194.                                                                                                                   
REPRESENTATIVE  CRAWFORD said  HB 194  is a  zero gain  under the                                                               
existing $150,000 tax  credit.  He said the  fact that businesses                                                               
making donations  get a dollar  for dollar credit for  ARDORs but                                                               
only a  deduction for charities  disturbs him greatly.   However,                                                               
he noted,  HB 194 is the  wrong vehicle for looking  at the whole                                                               
tax credit issue.                                                                                                               
Number 1903                                                                                                                     
REPRESENTATIVE GUTTENBERG removed his objection.                                                                                
Number 1893                                                                                                                     
With no further objection, CSHB  194(L&C) passed out of the House                                                               
Labor and Commerce Standing Committee.                                                                                          

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