Legislature(1997 - 1998)
04/25/1997 09:06 AM HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 116 WELFARE TO WORK TAX CREDITS CHAIRMAN WILKEN announced that SB 116 was the next order of business before the committee. Number 402 JIM NORDLUND , Director of the Division of Public Assistance, informed the committee that he was present to testify on the behalf of the Administration in support of SB 116. SB 116 will provide tax credits to Alaska corporate employers who hire disadvantaged workers. Mr. Nordlund has a particular interest in SB 116 because of the challenge of the division and the state as a whole to find work opportunities for up to 4,000 individuals in the next year due to state and federal mandates. This is a multi-departmental effort. Mr. Nordlund noted his work with the employer community to review incentives for employers to hire welfare recipients and SB 116 is a key to this goal. Mr. Nordlund mentioned that a representative from the Department of Revenue and the Department of Labor are present for questions regarding the respective departments. SB 116 is modeled after federal legislation that provides a tax credit on the federal income tax to businesses that hire welfare recipients. SB 116 would require a state tax credit of up to $1,000 per employee and an additional $500 if the employer provides job training to the recipient. The employee must be on the job for 180 days or 400 hours, and those need not be consecutive days which recognizes the seasonal employment in Alaska. Mr. Nordlund mentioned that the federal law and SB 116 are not limited to welfare recipients, but are available to other categories of disadvantaged workers. For the number of employers who hire recipients, there is a significant cost savings in terms of welfare benefits that would have otherwise been paid offsetting the cost to the Treasury of providing that tax credit to employers. Mr. Nordlund noted that SB 116 makes it as administratively simple for employers as possible. SENATOR LEMAN said that he liked the idea. Senator Leman noted that a few years ago, he introduced a welfare reform bill which included a provision similar to the concept of SB 116. Senator Leman was concerned with limiting the tax credit to the corporate income tax. Perhaps, there is a way in which to broaden the base to include more employers to participate in employing welfare recipients. The number of corporate tax payers in Alaska is small in comparison to the number of business licenses. JIM NORDLUND recognized that SB 116 would only benefit Alaskan corporations because corporations are the only businesses that pay income taxes. Mr. Nordlund emphasized that SB 116 is one of several incentives being utilized to encourage employers to hire welfare recipients. Mr. Nordlund informed the committee that a program modeled after the Green Star program is being reviewed. The Work Star program which recognizes businesses hiring disadvantaged workers or welfare recipients is also being reviewed. Under SB 98 from last year, the actual welfare benefit can be used as a wage subsidy to businesses not limited to corporations hiring welfare recipients. Mr. Nordlund pointed out that most who work outside of government work for a corporation. The bigger businesses who hire more are generally corporations. SENATOR LEMAN inquired as to the numbers of employees hired by the corporations covered under the corporate income tax versus the total number of employees in Alaska. JIM NORDLUND said that could be provided. Number 489 SENATOR GREEN inquired as to how the wage subsidy would work. JIM NORDLUND explained that for a business, such as KMART, who pays $7 an hour and who hires a welfare recipient for six months to a year; the business would receive $2 an hour. The welfare benefit would be utilized to subsidize $2 an hour of the wage. Mr. Nordlund pointed out that the program has been used in other states. Due to the combination of the residual benefit and the wage, the person would do better than with the welfare benefit alone. The employer experiences a reduced payroll cost. The wage subsidy is good for the State Treasury because the needs of the family are being provided for partially through wages as opposed to 100 percent through the welfare benefit. Mr. Nordlund noted that the wage subsidy will be placed in regulation by October 1997. SENATOR GREEN asked if this would be part of the training component or the work requirement. How does this impact the two year and five year time limit with regard to the individual's participation in the tax credit? JIM NORDLUND said that presuming the individual is working, the individual would not be subject to the two year time limit which is the requirement for people to be in a job. If the job has a low wage and the individual is eligible for welfare, the individual would receive a reduced benefit. Between now and five years, hopefully the individual would be at a point to support themselves without any assistance. SENATOR GREEN asked if this could be construed to be a disincentive to get off welfare. JIM NORDLUND did not think so. This is invisible to the recipient, except that employers would be willing to hire the recipient. SENATOR LEMAN asked if the Work Star program is a recognition program and there is no money involved. JIM NORDLUND agreed that the Work Star program is a recognition program that is being tested with employers. A steering committee of employers has been formed in order to receive advice from employers. SENATOR LEMAN encouraged Mr. Nordlund to recognize businesses who help programs such as Bootstraps which is designed to move folks from welfare to work. Number 539 JOSEPH FRIEDMAN , Director of the Trade Dollar Exchange, informed the committee that he represented about 100 small businesses in Alaska. The Trade Dollar Exchange is a program allowing small businesses to actively participate in the hiring of persons through trade. Mr. Friedman pointed out that the Tax Equity & Fiscal Responsibility Act of 1982 said that trading or bartering must be declared as income, but businesses can deduct the income as it is spent for business expenses. The Trade Dollar Exchange provides a forum for low income persons to trade skills amongst each other and are awarded trade dollars. With those trade dollars, the individual can go to participating businesses and redeem the trade dollars for goods and services. For example, the People Mover in Anchorage will provide bus passes for trade dollars. The YMCA is part of the Trade Dollar Exchange. The Trade Dollar Exchange is a debit-credit banking system. Mr. Friedman noted that the Trade Dollar Exchange comes from the Time Dollar Programs. In St. Louis, the largest Time Dollar Program has over 8,000 people trading skills. If those 8,000 people participated 10 hours a week, that results in 80,000 of hours of services delivered without asking for money from the government. If those hours were paid at $10 an hour, that would result in $800,000 in savings. Mr. Friedman noted that in Michigan and Missouri, the state has paid for services that cannot be provided by the system itself. Mr. Friedman said that the Trade Dollar Exchange makes Alaskan businesses more competitive and profitable. Businesses can employee these people using trade dollars. This program allows the private industry group to present the program to small businesses and enlist support. SB 116 is important in that it moves corporations into the arena. Mr. Friedman noted that the Trade Dollar Exchange had contacted the Democratic and Republican State Parties and inquired as to donations of time and skill. TAPE 97-43, SIDE B Mr. Friedman stated that the program is looking for the opportunity, amendment to SB 116, to have the trade dollars be disregarded for income analysis for AFDC, ATAP and SSI. SENATOR LEMAN asked if there are other similar exchange programs in Alaska. If so, why would those programs not be eligible for income disregard as Mr. Friedman suggested for the Trade Dollar Exchange. JOSEPH FRIEDMAN explained that exchanges work by a profit incentive. Moving low income people from welfare to work does not appeal to many. Mr. Friedman pointed out that the Trade Dollar Exchange is a program that offers training in order that people would come in for four of the six weeks and become part of a community and then move to a job. Within the trading industry many do not view this as a business opportunity. Number 561 PAM LABOLLE , Alaska State Chamber of Commerce, informed the committee that the chamber represents about 700 employers and businesses statewide who support SB 116. SB 116 would encourage businesses to hire persons without current experience and would alleviate some of the on the job training costs. Ms. LaBolle believed that the costs of on the job training is a major deterrent for hiring persons on the welfare rolls. SENATOR LEMAN inquired as to how many of the 700 members of the chamber were corporate taxpayers. PAM LABOLLE said that she could survey the members. Ms. LaBolle believed that at a recent chamber breakfast, Mike Abbott indicated that about 3,500 corporations pay corporate taxes in Alaska. A huge percentage of that is paid by 11 corporations. SB 116 is an opportunity to join in a partnership with the state and there is an incentive to do so. SENATOR LEMAN asked Ms. LaBolle how she viewed expanding this to other costs that businesses incur such as fuel taxes and business license fees to those that are employers, but are not corporate tax payers. PAM LABOLLE believed that could be explored amongst the membership of the chamber. The cost-benefit relationship may be an obstacle. SENATOR WARD asked if the chamber has a position on carrying the credit for 2-3 years. PAM LABOLLE replied no. CHAIRMAN WILKEN stated that he would like to move SB 116 to Senate Finance. SENATOR GREEN moved to report SB 116 out of committee with individual recommendations and accompanying fiscal notes. Without objection, it was so ordered.