Legislature(2001 - 2002)

03/27/2002 01:35 PM Senate CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     SB 312-ENTERPRISE ZONES                                                                                
CHAIRMAN TORGERSON  announced he  didn't intend  to move  the bill                                                              
from committee that day, but he did  want to hear it and determine                                                              
whether adjustments were necessary.                                                                                             
ZACH WARWICK, aide to Senator Therriault,  explained that the bill                                                              
authorizes  the governor to  declare up  to four enterprise  zones                                                              
per  year.  It  is  designed  to  offer  economic  incentives  for                                                              
businesses to  locate within that  area and hire people  from that                                                              
area.  The  possible  state and  city/borough  incentives  are  as                                                              
Local Incentives                                                                                                                
   · It reduces municipality's user or permit fees.                                                                             
   · Offers credits toward exemptions from property taxes.                                                                      
   · Offers flexibility in regulations like zoning, permitting                                                                  
     and exemptions from local ordinances.                                                                                      
   · Offers lease or sale of the municipality's real property                                                                   
     within the zone as long as the property was not designated                                                                 
     for public use.                                                                                                            
State Incentives                                                                                                                
   · 15 percent of the initial investment in the area would count                                                               
     as a credit to state corporate income taxes.                                                                               
   · After a business operates in a zone for one year they would                                                                
     qualify for a $500 corporate income tax credit for each new                                                                
     employee hired.                                                                                                            
These incentives  would  allow a  company to invest  in a  certain                                                              
distressed economic  zone of a city  or municipality. In  order to                                                              
get federal  grants  for federal  economic zones  there must  be a                                                              
state or local economic zone program.                                                                                           
He pointed out that  that they just learned there  is a problem on                                                              
page  2,  lines   5  &  6  that  say,  "   'eligible  neighborhood                                                              
development    organization'   has    the    meaning   given    in                                                              
42U.S.C.5318(a)a." The  problem arises within the  code because it                                                              
states that in order to be an economic  enterprise zone within the                                                              
state  it must  first  be a  federal economic  zone.  A change  in                                                              
language would be necessary to deal with this problem.                                                                          
CHAIRMAN TORGERSON  asked, "Why don't we  just use ARDORs? (Alaska                                                              
Regional Development Organization)                                                                                              
MR. WARWICK wasn't  clear about how ARDORs operate  so he couldn't                                                              
answer the question.                                                                                                            
CHAIRMAN TORGERSON  asked how an  enterprise zone is  operated. Is                                                              
there a general manager and who does the book work?                                                                             
MR. WARWICK  replied  he thought  it would be  someone within  the                                                              
city government but he wasn't sure.                                                                                             
SENATOR LINCOLN pointed out that  the wording restricts enterprise                                                              
zones to urban  areas rather than to the entire  state. She didn't                                                              
believe the sponsor  intended to exclude areas  and was interested                                                              
in expanding the scope to include many Alaskan communities.                                                                     
MR. WARWICK  thought  the bill was  designed that  way. There  are                                                              
four designations allowed every year  and each could last up to 20                                                              
SENATOR LINCOLN reiterated her concern  that current wording makes                                                              
rural areas ineligible.                                                                                                         
MR. WARWICK didn't follow her interpretation.                                                                                   
SENATOR LINCOLN referred him to page 2, line 7-10.                                                                              
CHAIRMAN TORGERSON asked  Mr. Warwick to confirm that  was not the                                                              
MR.  WARWICK responded  it was  not  the intent  to exclude  rural                                                              
CHAIRMAN TORGERSON stated they would review the wording.                                                                        
SENATOR  AUSTERMAN noted  that Senator  Drue Pearce  worked on  an                                                              
enterprise package  several years  age to encourage  businesses to                                                              
come to Alaska.  He asked whether  that bill passed but  was never                                                              
funded. He suggested  that they check and see  whether there would                                                              
be  an inner  tie  between that  piece  of legislation  and  this.                                                              
Taking a business from one area and  placing it in another because                                                              
the latter  is a more  depressed area  doesn't help the  growth of                                                              
Alaska. It simply satisfies the growth  of one unit at the expense                                                              
of  another. He  expressed  reservations about  moving  businesses                                                              
around Alaska  rather than encouraging  new businesses to  come to                                                              
MR. WARWICK replied  that the intent was to get  more investing in                                                              
PAM LABOLLE,  President of the  Alaska State Chamber  of Commerce,                                                              
testified   in   support  of   the   legislation.   It  is   their                                                              
understanding  that it  is to  provide an  incentive for  business                                                              
development in depressed  areas or communities. They  feel that it                                                              
could enhance  economic development  opportunities throughout  the                                                              
She noted there  is a British Columbia company  that has developed                                                              
a process  to use  wood chips as  fuel. There  are many  places in                                                              
Southeast that are depressed due  to the faltering timber industry                                                              
and this  type of operation could  offer them an  economic option.                                                              
She thought  the impact  of spruce bark  beetle kill on  the Kenai                                                              
Peninsula might be  cushioned if they were to use  this process on                                                              
those trees.  "Legislation like  this could  help bring  a company                                                              
activity like that into those parts of the stateā€¦"                                                                              
PETER FREER, a local government specialist  with the Department of                                                              
Community and Economic  Development, has spent most  of his career                                                              
working as a government specialist  with Southeast communities and                                                              
is now managing economic development programs.                                                                                  
He  looked at  the bill  recently and  thought there  might be  an                                                              
issue  related  to  a  requirement  for  federal  designation  for                                                              
enterprise zones prior  to a state designation being  able to take                                                              
place. There  is a provision  for state designation  of enterprise                                                              
zones and a submittal  of those zones to the  Secretary of Housing                                                              
and  Urban  Development  (HUD)  for   consultation  among  various                                                              
department secretaries before that designation is granted.                                                                      
Many other  states have enterprise  zone legislation in  place and                                                              
he could furnish examples of how  others have use this legislation                                                              
to promote industry  and business development  within economically                                                              
distressed areas.                                                                                                               
The federal legislation is not anti  rural, but is primarily meant                                                              
to  focus on  urban areas  that are  distressed.  However, he  has                                                              
found  instances  of  rural  locations  in New  Mexico  and  other                                                              
western states where  enterprise zones have been  created and used                                                              
as an incentive to attract business.                                                                                            
It  does  appear as  though  there  would  need  to be  a  federal                                                              
designation before  the state designation took place.  Another way                                                              
of doing this is for the state to  make the designation and submit                                                              
it  to  the HUD  secretary  who  consults  with the  Secretary  of                                                              
Interior  and several  others and  then the  designation is  made.                                                              
There are not  a lot of these  in the country but he  did find the                                                              
section  of the U.S.  code that  deals with  enterprise zones.  It                                                              
appears that the  HUD secretary has the authority  to designate up                                                              
to 100  enterprise zones  across the country.  He didn't  know how                                                              
many  are   currently  designated  but   is  in  the   process  of                                                              
determining the status of those designations.                                                                                   
Enterprise  zones do  appear  to  be very  well  used devices  for                                                              
promoting economic  development so  clearly there may  be benefits                                                              
to this type of legislation.                                                                                                    
CHAIRMAN  TORGERSON asked  whether  he thought  that  consultation                                                              
with the  HUD secretary would be  enough to allow the  federal tax                                                              
MR. FREER  replied he would need  to research that  further before                                                              
giving  a conclusive  answer, but  would be happy  to continue  to                                                              
look  into  it  and  provide  any  information  he  could  to  the                                                              
committee to clarify the issues.                                                                                                
CHAIRMAN  TORGERSON said he  wanted to  work on  the bill,  but he                                                              
knew there would be many questions.  He asked Mr. Freer to discuss                                                              
Senator Lincoln's concerns regarding the rural issue.                                                                           
MR.  FREER replied  there  are  several programs.  The  enterprise                                                              
program is  actually a  designation rather  than a program.  There                                                              
are  programs within  the U.S.  Department  of Agriculture  (USDA)                                                              
such as  Rural Development and  The Champion Communities  Program.                                                              
There are  a number  of communities  in the Yukon-Kuskokwim  Delta                                                              
that are  still designated  under this program.  He would  have to                                                              
check and  see what has happened  as a result of  that designation                                                              
in those  communities.  The Metlakatla Indian  Reservation  is the                                                              
one federally designated empowerment  zone currently in the state.                                                              
They received  that  designation as  a result  of the collapse  of                                                              
their resource economies in fishing  and timber and it has brought                                                              
them considerable benefits in the form of federal grants.                                                                       
SENATOR  AUSTERMAN  asked  whether  there  was  anything  stopping                                                              
communities from offering incentives to attract business.                                                                       
MR. FREER replied municipalities  have broad power under state law                                                              
and he thought  they would have the authority to  design local tax                                                              
incentives to attract business.                                                                                                 
SENATOR  AUSTERMAN asked  what the  enterprise zone  does for  the                                                              
municipality other than the two points listed above.                                                                            
MR.  FREER  thought  it  might  open  the  door  to  some  federal                                                              
assistance but  in what form and  what amounts he  wasn't prepared                                                              
to say.                                                                                                                         
CHAIRMAN TORGERSON commented that  federal law defines an eligible                                                              
neighborhood but doesn't address cities and boroughs.                                                                           
SENAOTR   LINCOLN  asked   members  to   be  aware  that   federal                                                              
definitions are not necessarily the  same as those used by Alaska.                                                              
It's important to be aware of the potential differences.                                                                        
She supports the  concept of the legislation, but  doesn't want to                                                              
close any doors for anyone in any area of the state.                                                                            
MR.  FREER  said he  would  be  happy to  provide  examples  where                                                              
similar  programs  have  benefited rural  areas.  He  acknowledged                                                              
Senator  Lincoln's  concern  is  valid  and noted  that  seven  of                                                              
Alaska's   largest  cities   might  be   rural  under  a   federal                                                              
SENATOR  AUSTERMAN  asked  Mr.  Freer   whether  he  had  read  AS                                                              
44.33.311, which is how an enterprise zone has been defined.                                                                    
MR. FREER  replied he has  not looked it up  yet, but does  have a                                                              
detailed definition of enterprise zones in federal law.                                                                         
CHAIRMAN TORGERSON  asked whether there was a  size restriction on                                                              
an enterprise zone.                                                                                                             
MR. FREER  replied a census tract  is identified as  the preferred                                                              
unit. He thought  you could aggregate census tracts  because other                                                              
states  have done  so.  Alaska has  154 census  tracts  in its  27                                                              
census areas and the threshold population for a tract is 10,000.                                                                
CHAIRMAN TORGERSON  thought using  the census tract  would address                                                              
Senator Lincoln's  concern. He  then asked  whether we  could make                                                              
smaller units through state law.                                                                                                
MR. FREER said  he would be more comfortable checking  the federal                                                              
law to see whether subunits are allowed before giving an answer.                                                                
CHAIRMAN  TORGERSON replied  they already  determined they  didn't                                                              
care what the federal requirements  are because they could consult                                                              
directly with the Secretary of Housing and Urban Development.                                                                   
MR. FREER  said the  minimum size  might be  a requirement  in the                                                              
state's establishment of the zones.                                                                                             
CHAIRMAN TORGERSON  asked Mr. Freer  to work with his  staff, Mary                                                              
Jackson, regarding the requested information.                                                                                   
He asked  Mr. Warwick  the status  of the  similar House  bill and                                                              
whether is had been amended.                                                                                                    
MR.  WARWICK replied  it  was in  House Finance  and  it had  been                                                              
amended to the current Senate bill form.                                                                                        
There was no further testimony.                                                                                                 
CHAIRMAN TORGERSON held the bill in committee.                                                                                  

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