Legislature(1997 - 1998)
04/24/1997 11:55 AM Senate L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SB 159 NEW BUSINESS INCENTIVE PROGRAM
VICE CHAIRMAN MACKIE called the Senate Labor and Commerce Committee
meeting to order at 11:55 a.m. and announced SB 159 to be up for
consideration.
MR. JORDAN KOKO , Intern to Senator Pearce, sponsor, said this
legislation intended to bring high value jobs and new manufacturing
into Alaska working with the Alaska Industrial Development and
Export Authority (AIDEA). The program will be limited to certain
defined costs up to $3 million annually in funds generated by
AIDEA. The program will target three essential functions:
generating cargo, generating additional revenues and diversity in
our corporate tax base, and maintaining and generating more high
value jobs and full time employment opportunities for Alaskans.
VICE CHAIRMAN MACKIE asked if he knew of any opposition to the
legislation. MR. KOKO replied that AIDEA has some suggestions
which are in a letter to the committee. He said that Senator
Pearce supports the amendments proposed by Senator Leman.
Number 45
MR. KEITH LAUFER , AIDEA, said they agree with the purpose and
intent of the bill and support it. Business incentives are
important tools to encourage businesses to locate here.
MR. LAUFER said they have a couple of concerns that are mentioned
in their letter. Briefly, AIDEA believes this program should grant
specific regulatory authorization to the Department of Commerce to
promulgate regulations which will define objective standards or
requirements, because for this type of program to be truly
effective, businesses have to be able to look at the program and
properly handicap what value that brings to them.
Secondly, they think that the regulatory authority granted to the
Department of Commerce should give them the flexibility to make
standards that are effective and target specific industries that
would be advantageous for the State to attract.
Finally, because of AIDEA's role in this process, they should be
given objective standards to judge the various proposals on.
MR. LAUFER said he thought the bill needed to better clarify the
roll of AIDEA and the DCED. AIDEA has not been a grant making
agency and it's important to their primary mission of economic
development that they not be a grant making agency. The financial
markets understand this as their roll.
Another issue is that AIDEA financing has specific requirements
that not all businesses will be attracted to. Not all projects
necessarily qualify for AIDEA financing and this might limit the
program. On the other hand, businesses that would not otherwise
seek financing from AIDEA because they don't need it would now be
encouraged to do so if it's the only way they can receive a
business incentive grant. This would put AIDEA in the position of
competing with private financing entities which they have
traditionally avoided.
The bill as currently drafted references the AIDEA dividend
44.88.088 as a source for the fund. Under their statutory dividend
program which the legislature passed last year, that program
requires an annual appropriation in order to transfer the funds to
the State. So the language in the bill would not be effective to
actually fund the program and they believe actually creates some
confusion as to how the AIDEA dividend is to work and how funding
to this program actually occurs.
CHAIRMAN LEMAN arrived at the meeting and assumed the chair and
welcomed Ms. Patty DeMarco to testify.
Number 228
MS. PATTY DEMARCO, President, Anchorage Economic Development
Corporation, said she thought AIDEA's comments would expedite the
smooth functioning of this program. She said we suffer from the
lack of a program like this compared to other states with whom we
compete on a daily basis.
CHAIRMAN LEMAN asked if she thought any other amendments were
needed to make it work. She answered that she thought their
concerns should be addressed expeditiously. They are anxious that
the bill be workable and adjustments be made to it.
SENATOR KELLY asked how this program would interface with the old
Bidco program. MS. DEMARCO replied that that program is a function
of the Science and Technology Foundation and is designed for start
up business development activities focusing on technology and
entrepreneurial initiative. It presumes a viable, sound, private
sector investor making a business decision to operate in Alaska for
value added manufacturing opportunities. It is reimbursement of
expenses that they have to make and have to document having made.
It is not a grant out in terms of dollars on the table as an
incentive.
SENATOR KELLY asked why they call it in Section 45.80.10.20
eligibility for grants and where does it say to pay back. MS.
DEMARCO replied on page 2, line 20. SENATOR KELLY said he was
concerned about line 29, "reimbursement for." He wasn't sure we
should be in the business of granting feasibility studies if we are
talking about existing businesses. That should be their
responsibility. Most business feasibility studies result in no
action. MS. DEMARCO clarified that this is the reimbursement after
they have made a decision to come here and were particularly
targeting this for things that would require special design
considerations for Alaskan conditions. They find that a number of
companies come to look at Alaska and their normal mode of operation
is in some tropical environment where the design constraints of
Alaskan conditions do not apply. They wanted to find a way to
bridge that obstacle.
CHAIRMAN LEMAN asked if she had a problem with limiting that to
feasibility market studies that are specifically directed toward
unique Alaskan conditions. MS. DEMARCO said she would have no
problem. CHAIRMAN LEMAN asked if anyone objected to that. MR.
KOKO said he didn't think Senator Pearce would object.
SENATOR MACKIE said he supported this legislation, but also didn't
understand why they are doing feasibility studies. He was
concerned that people would just come up to check Alaska out if we
were paying for the studies. CHAIRMAN LEMAN explained that they
would not be eligible to receive the grant until after they had
made their decision to make the investment and it would be as
reimbursement. MS. DEMARCO reiterated that they wouldn't receive
the grant unless they had come up.
SENATOR KELLY asked what if there was more than one business that
wanted to do this and they all invest expecting to get reimbursed
and the money is not there, because someone else already got it
that particular year. He thought they might come in for a one line
change to increase $3 million and then the State would be in the
business of buying jobs.
SENATOR KELLY said that he had been reading that states are backing
away from these excessive incentive type programs because they are
being found to be counterproductive. MS. DEMARCO said she is aware
of that, but she thought we were a far cry from that issue at this
time. Especially since manufacturing is a very small part of the
Alaskan economy and we are trying to broaden our economic base.
SENATOR MACKIE asked if the sponsor would object to removing the
feasibility study reimbursement. MR. KOKO said he would have to
ask her, but he thought it could be addressed in the Finance
Committee. SENATOR MACKIE asked staff to let Senator Pearce know
that he has that concern about feasibility.
CHAIRMAN LEMAN said he would like to have a conceptual amendment
addressing the Alaskan conditions to at least limit what
feasibility studies they are talking about. He added that Ms. Pam
LaBolle, State Chamber of Commerce, left a note in support of the
concept of this bill. He noted that there were three amendments in
their packets.
SENATOR MACKIE moved to adopt amendment #1. There were no
objections and it was so ordered.
SENATOR MACKIE moved to adopt amendment #2. There were no
objections and it was so ordered.
SENATOR MACKIE moved to adopt amendment #3. There were no
objections and it was so ordered.
SENATOR MACKIE moved to adopt conceptual amendment #4 dealing with
Alaskan conditions. There were no objections and it was so
ordered.
SENATOR KELLY said he was going to show some reluctance on this
legislation. Not because he didn't support the goal of increased
manufacturing in Alaska, but because once we start down this road,
we'll never get back in a position where we're not subsidizing
private industry to come to Alaska in an era of declining State
revenues. He thought that eventually no one would come to Alaska
unless they got this grant. He questioned whether some of these
endeavors would be worth $3 million to the State. He said a lot of
states give credit on income tax for an incentive. He wouldn't
object to that, but the problem we have is that most of our
businesses don't pay income tax. We only get $140 million per year
in corporate taxes and $110 million of that was paid by 11
corporations. So most businesses in Alaska are either businesses
with no personal income tax or they are sub S corporations where
they don't have to pay State income tax. He questioned whether in
1997 the State of Alaska ought to be giving $3 million to everyone
we hope moves in here to create some new business. He thought the
pressure would be that no one would come here without demanding a
piece of this program.
SENATOR KELLY said he supported the bill, but he has reservations
about how it is structured. CHAIRMAN LEMAN concurred with Senator
Kelly and wanted the Finance Committee to consider other
possibilities, like tax credits, other than cash disbursements. He
thought this would be a tough item to fund and it could create some
bad appearances. It also creates almost an expectation by some.
CHAIRMAN LEMAN asked if the committee wanted to work on it more
before reporting it. He announced an at ease from 12:25 - 12:27
p.m. He said that there were sufficient concerns expressed by
committee members who would like to see the CS back before them.
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