02/22/2001 05:10 PM House EDT
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ECONOMIC
DEVELOPMENT, TRADE AND TOURISM
February 22, 2001
5:10 p.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative Joe Green
Representative Jeannette James
Representative Carl Morgan
Representative Beverly Masek
Representative Norman Rokeberg
Representative Fred Dyson
Representative Harry Crawford
MEMBERS ABSENT
Representative Gretchen Guess
COMMITTEE CALENDAR
HOUSE BILL NO. 36
"An Act relating to enterprise zones."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 36
SHORT TITLE:ENTERPRISE ZONES
SPONSOR(S): REPRESENTATIVE(S)HAYES
Jrn-Date Jrn-Page Action
01/08/01 0033 (H) PREFILE RELEASED 1/5/01
01/08/01 0033 (H) READ THE FIRST TIME -
REFERRALS
01/08/01 0033 (H) EDT, CRA, FIN
01/08/01 0033 (H) REFERRED TO EDT
02/09/01 0287 (H) COSPONSOR(S): GUESS
02/22/01 (H) EDT AT 5:00 PM CAPITOL 124
WITNESS REGISTER
NATHANIEL (NATE) MOHATT, Staff
to Representative Joe Hayes
Alaska State Legislature
Capitol Building, Room 422
Juneau, Alaska 99801
POSITION STATEMENT: Presented HB 36 on behalf of sponsor.
PAT POLAND, Director
Division of Community and Business Development
Department of Community and Economic Development (DCED)
550 West 7th Avenue, Suite 1770
Anchorage, Alaska 99501-3510
POSITION STATEMENT: Explained "census tracts" in relation to HB
36.
TAMARA COOK, Director
Legislative Legal and Research Services
Legislative Affairs Agency
Alaska State Legislature
State Capitol
Juneau, Alaska 99801-1182
POSITION STATEMENT: Answered questions relating to HB 36 and
state income taxes.
ACTION NARRATIVE
TAPE 01-10, SIDE A
Number 0001
CHAIR LESIL McGUIRE called the House Special Committee on
Economic Development, Trade and Tourism meeting to order at 5:10
p.m. Members present at the call to order were Representatives
McGuire, Green, Morgan, Masek, and Crawford. Representatives
Dyson, James, and Rokeberg arrived as the meeting was in
progress. Representative Guess was excused.
HB 36 - ENTERPRISE ZONES
CHAIR McGUIRE announced that the committee would hear HOUSE BILL
NO. 36, "An Act relating to enterprise zones."
Number 0081
NATHANIEL (NATE) MOHATT, Staff to Representative Joe Hayes,
Alaska State Legislature, presented HB 36 on behalf of
Representative Hayes, sponsor, who was out of town. He read
from the sponsor statement and elaborated, as follows:
The idea of enterprise zones originated in England
under Margaret Thatcher and was brought to the United
States by the Reagan Administration in the early '80s.
The basic idea is to stimulate the economy of
depressed areas by offering incentives; traditionally,
tax incentives have been the primary incentive
offered.
Enterprise zones have gained bipartisan support from
lawmakers across the country for the last two decades.
Thirty-eight states have passed enterprise zone
legislation, and in 1994 the Clinton Administration
reshaped the enterprise zone idea into a federal
program that they named Empowerment Zone/Enterprise
Communities [EZ/EC].
The purpose of HB 36 is to help reinvigorate Alaska's
depressed urban and rural areas. By providing
incentives, businesses will be more likely to develop
in a depressed area. This will in turn provide more
jobs to the community, increase the average household
income, and, therefore, also the standard of living.
Enterprise zones work and have been yielding promising
results for the last two decades.
Traditionally, enterprise zones have relied on
reductions in state taxes or fees. In Alaska,
however, we don't have much of a state tax structure
to talk about. Therefore, in order to make the
concept fit to Alaska, House Bill 36 is based on local
control and local option.
The designation of an enterprise zone would authorize
localities to offer the incentive or incentives of
choice from a short list of options: ... a reduction
in the municipality's permit or user fees; credits or
even exemption from [the] municipality's property
taxes; flexibility in regulation of the area; or ...
lease or sale of the municipality's real property to
private persons.
On top of the incentives program, House Bill 36 ...
will also facilitate access to federal grant money
available through the [EZ/EC] program .... One of the
requirements for becoming a federal empowerment zone
is that you put together what they call a strategic
plan; two of the pieces of the strategic plan would
be more easily filled if we had a state enterprise
zone program in place. ... The first of these is ...
proving that ... the affected community is a full
partner in the process.
Basically, if we have a region designated as an
enterprise zone, that is conclusive proof that the
community and the local state are already a full
partner, are already working on producing economic
development in the area.
Number 0401
Also, the plan must identify the amount and type of
state and local resources available to the community.
Having talked with people from the NCSL [National
Conference on State Legislatures] and ... with [U.S.]
Senator Stevens' office, I've been informed that these
local resources that must be made available do not
need to be monetary, and that an enterprise zone
program ... could be considered a resource that the
state made available.
The designation of a community as a state enterprise
zone would provide conclusive evidence and
demonstration of the state's ... and locality's
commitment to the revitalization of the community.
The goal of House Bill 36 is to encourage business
development and economic growth while providing new
options to Alaskan communities to improve the quality
of life. House Bill 36 would be good for economic
development in Alaska, and I ask for your support.
Number 0572
REPRESENTATIVE GREEN said he could understand that this would be
a godsend for a large community in the Lower 48. He asked where
this would apply in Alaska, however, and what would be
considered a depressed area.
MR. MOHATT answered that it would benefit primarily any
municipality incorporated into a borough or similar structure,
but a number of rural municipalities and boroughs could
potentially benefit. He reported that he had been in contact
with the following to determine interest: John Walsh, lobbyist
for the Bristol Bay Borough; people in the Ketchikan area; and
NANA Corporation, which was perhaps going to provide some
proposed changes [to HB 36].
Number 0709
MR. MOHATT explained that a locality or municipality would apply
to the state, asking to be part of this program because of being
a depressed community. The Department of Community and Economic
Development (DCED) would prioritize the applications and make a
list, which the governor would review in order to pick four each
year. There is no different process for urban versus rural
areas.
Number 0838
REPRESENTATIVE GREEN restated that he can certainly see it in a
large city. He requested further clarification.
MR. MOHATT reiterated that he doesn't know that there is any
difference between the way that a rural or urban area would
apply for the program. Mr. Mohatt said he suspects that if a
couple of villages are geographically close, within the same
census tract, both could be within the same enterprise zone, to
his understanding of the bill.
Number 0945
REPRESENTATIVE MASEK referred to the sponsor statement and said
she is a big supporter of economic development. She expressed
concern, however, about the tax credit and property taxes. She
asked who would pay for police and fire service, for example.
Would that fall to other property owners in the borough or a
municipality?
MR. MOHATT emphasized the local option and local control in
terms of who pays for such services. The idea is not to erode
any tax base within a community, he said, but to bring in new
businesses through incentives. If it were felt that offering a
property tax break, exemption, or credit would hurt the
infrastructure and cause an inability to pay for fire and police
protection, [a community] could choose to use another incentive,
such as the sale of the municipality's real property to private
persons or flexible regulations relating to the zoning process.
REPRESENTATIVE MASEK asked, in essence, who would pick up the
tab in depressed areas where development was attempted but had
failed.
MR. MOHATT answered that if no business decided to develop
within an enterprise zone, there would not be a property tax
credit. If there were no businesses developing there, there
wouldn't be any loss of property taxes.
Number 1150
MR. MOHATT, in response to a question by Representative Masek,
clarified that the strategic plan is for the federal program;
the state program proposed in HB 36 would not require one.
Currently, two empowerment zones in Alaska are designated under
the federal program: Metlakatla and a section of Anchorage,
"Mountain View/Fairview." Both had gone through a long
application process, the biggest part of which was putting
together the strategic plan.
MR. MOHATT pointed out that the state program would provide an
easy way to fulfill some requirements of the strategic plan. He
also suggested that streamlining the process of putting together
a strategic plan would be greatly helped if the state were to
apply for more empowerment zones under the federal program,
which has a lot of money, available in block grants, to give
businesses to develop in the empowerment zones.
REPRESENTATIVE MASEK commented that it is still federal tax
dollars, however, "taxes that we pay."
Number 1294
REPRESENTATIVE JAMES asked how long Metlakatla and Mountain View
have been in this program, and what has happened.
MR. MOHATT responded that Metlakatla was one of the first
enterprise communities designated in the U.S. In the ensuing
six years, to his understanding, there has been significant
economic development, including improved job opportunities on
the reservation.
CHAIR McGUIRE reported that she had met with those folks.
Through this empowerment zone, they had secured grants and
attracted funding. Their main project, a hard-rock facility,
should be completed by next year.
MR. MOHATT explained that Mountain View is still relatively new
as an enterprise zone, having been around for two or three
years. The trend with the federal program is that in the first
five years, not too many benefits have been noticed. He said he
doesn't know what has happened in the Mountain View area over
the last two years.
Number 1433
CHAIR McGUIRE asked Mr. Mohatt if he could contact some people
in the Mountain View area who might have a better understanding
about that program's success and/or failure. She also suggested
that it would be helpful to hear from Metlakatla.
MR. MOHATT agreed to do that, noting that he had been talking
with the mayor's office in Anchorage already.
CHAIR McGUIRE suggested that a list of questions be presented to
Representative Hayes and his staff, who could return and fill
the committee in.
Number 1505
REPRESENTATIVE CRAWFORD asked whether the purpose is to get
federal or state dollars. He suggested there probably aren't
many local "breaks" in Dillingham or Ketchikan; if so, that
would have been done already. He also asked what kind of
geographic area "one census tract" is.
MR. MOHATT deferred to DCED personnel to answer the "census
tract" question.
Number 1583
PAT POLAND, Director, Division of Community and Business
Development, Department of Community and Economic Development
(DCED), said he had limited experience with census tracts, but
they would vary depending upon the locality. Anchorage, for
example, has a number of census tracts. More typically, a
census tract in rural areas will consist of a community, in and
of itself.
MR. POLAND remarked that census tracts are "conglomerated into
another division that the census uses in assembling their
numbers." He said he isn't certain whether the term "tract"
applies to a really small locality or to the larger ones, which
tend to correlate with municipal boundaries. In other words,
all of the tracts in the Anchorage areas would fit within the
Municipality of Anchorage. In rural areas, there may be larger
census groupings. In response to a comment by Representative
Rokeberg, he further clarified that it is different from a grid
on a map; it will often follow a river, for example.
Number 1733
MR. MOHATT emphasized that the main goal of the bill is not the
federal money, although it would be a great bonus. Instead, the
goal is to step up to the plate, as a state, and do something
for economic development. This concept has been around for more
than 20 years, and none of the 38 states with enterprise zones
has repealed the law. The bill is intended to find a way to
bring this concept for economic development, which has had
astounding results across the country, to Alaska.
MR. MOHATT, in response to a question by Representative Dyson,
characterized this as a "marketing ploy" as well, because a
state program can not only allow these incentives to be in
place, but also lets the businesses know that this is available.
Number 1920
REPRESENTATIVE DYSON inquired about the fiscal note.
MR. MOHATT explained that it had just been received that day.
In the first year, DCED will need to dedicate half of an
employee's time to setting up the regulations and getting the
program in place and moving. Following that, the $16.6
[thousand] is for one-quarter of [an employee's time] to review
applications and make suggestions.
Number 1976
REPRESENTATIVE ROKEBERG asked why a state law is needed if a
[community] such as Metlakatla or Mountain View can establish an
enterprise zone.
MR. MOHATT clarified that Metlakatla and Mountain View are part
of the federal program, which is limited in the number of zones
that can be established. To his understanding, there also is a
restriction upon how many zones can be designated within a
certain population; Mr. Mohatt said he would be willing to
review the law itself regarding that. In addition, the federal
program requires a strategic plan, which involves a long,
difficult process; this will help to speed that process along.
He added, "On top of it, it's not just relying on the federal
government to bring economic development to the state."
Number 2064
MR. MOHATT, in response to a question by Representative Green,
referred to a list in bill packets of the 38 states [that have
this program]. He noted that some states consider this mainly
an urban incentive program, whereas other states directly target
rural areas.
REPRESENTATIVE GREEN pointed out that the listed states have
large cities, where he believes this plan might work in the
"blighted" portions. He again questioned how this might work in
rural areas.
MR. MOHATT agreed that a predominance of the states have large,
urban [populations]. However, Iowa and Colorado have one big
city each, with the rest of the state being fairly rural -
although not in the way Alaska is. He added that the federal
program has targeted both urban and rural areas, which is why
there are two different names: empowerment zones are urban-area
programs, and enterprise communities are the rural version, to
his understanding. He mentioned that the Pine Ridge Reservation
in South Dakota, an enterprise community, was the first economic
development program to show any results in Pine Ridge, which he
called "extremely rural," similar to much of Alaska.
Number 2265
CHAIR McGUIRE requested that when the sponsor and his staff come
back before the committee, they pick a few states that they
believe to be "success stories" in areas classified as rural, in
order to give members an idea of how this is working "in the
field."
Number 2297
REPRESENTATIVE JAMES offered her personal experience with this
kind of issue, where people coming into a community are given an
advantage such as reduced taxes that everyone [else] pays. She
cited an example in the Lower 48 where a company was given free
water for 20 years; when the 20 years was up and the city opted
not to renew the free water, the company "closed and went away,"
which was devastating [to the community].
REPRESENTATIVE JAMES said it seems that in order to set up an
enterprise zone, something must be given from the community;
however, the kinds of communities that [would qualify] wouldn't
have anything to give, including cheaper electricity, water, or
taxes; they might not even have specifically trained people to
take the jobs. She suggested that if communities had an ability
to coax people to come in, they could do that without this
legislation. Unless some outside money or assistance were being
sought from the state or federal government, she failed to see
the real advantage, Representative James said. She requested
that when the sponsor comes before the committee again, he try
to convince her that it isn't so.
MR. MOHATT clarified that many people with whom he has spoken
have been excited about the program because it would be easier
to get federal money, which would be given to businesses to help
curb setup costs, for example. He added that some "granted
towns" in rural Alaska aren't incorporated into a borough or
municipality, and may not be able to offer one of the four
incentives [in HB 36]. Mr. Mohatt said he would like to find a
solution for that. He emphasized the desire to find a way to
make this work for all of rural Alaska, rather than just for
incorporated boroughs; he restated that he is awaiting a
response from NANA Corporation regarding that.
MR. MOHATT pointed out that there are rural cities within
boroughs, and that there have been hardships in some
Southeastern communities because of the loss of the timber
industry. Drawing attention to the list [of local incentives]
at the top of page 3 of the bill, he suggested this could work
well in communities such as Ketchikan, which has property taxes,
permits and fees, and so forth.
Number 2563
REPRESENTATIVE MORGAN referred to Section 2, page 3, line 27,
which talks about "credits on state income taxes or exemptions
from the taxes". He also referred to Section 4, page 5, line
10, which contains the phrase "Alaska income tax". He asked why
those references to state income taxes are in the bill.
MR. MOHATT deferred to the drafter, but noted that she was
temporarily out of town.
Number 2606
TAMARA COOK, Director, Legislative Legal and Research Services,
Legislative Affairs Agency, came forward. She pointed out that
Section 5, an amendment to the Alaska Net Income Tax Act, is an
important section that hasn't been discussed [in this
committee]. She explained that the Alaska Net Income Tax Act
applies to businesses. Although there is no personal income
tax, it doesn't mean Alaska doesn't have a state income tax.
MS. COOK explained that Section 5 contains one of the "carrots"
with which to lure businesses. Noting that "investments" is
defined, she said if new businesses come in, they will qualify
for a state income tax credit, as well as special treatment, she
believes, for their employees, under the provision that begins
on page 6, line 27.
Number 2686
REPRESENTATIVE ROKEBERG acknowledged that Ms. Cook wasn't the
drafter of HB 56. He then asked whether, by amending the code,
[HB 56] would be making provisions for "credits against trust
partnerships and limited liability companies." He said he knew
that corporations paid taxes, but that he didn't know that LLPs
[limited liability partnerships], partnerships, and trust paid
taxes in the state.
MS. COOK replied that this section, as it is drafted, allows
credit for any tax imposed under that chapter, the Alaska net
income tax chapter. Ms. Cook said she knew so little about
taxation that she would have to read the chapter in order to
find out to whom it applies; however, she believed that it
applied to various business entities.
REPRESENTATIVE ROKEBERG restated his understanding that the
state doesn't tax partnerships, LLPs, or LLCs [limited liability
companies]. He expressed concern about what the drafter had in
mind, "unless they're anticipating any change in the tax regime
in the future." He suggested that it is tampering with the
corporate income tax.
Number 2741
MS. COOK responded that on its face, it only applies to taxes
that would be otherwise collected under [AS] 43.20.
REPRESENTATIVE ROKEBERG replied, "Which is the corporate income
tax."
MS. COOK agreed, restating that it is the Alaska Net Income Tax
Act.
REPRESENTATIVE ROKEBERG referred to Section 5, paragraph (d)(2)
[page 6, beginning at line 8].
REPRESENTATIVE JAMES asked whether a net mining tax is included
in that.
REPRESENTATIVE ROKEBERG noted that it has a list including
corporations, LLCs, partnerships or associations, and trusts.
He suggested that the drafter would have to be asked about it.
MS. COOK specified that the drafter would be back on Monday.
Number 2797
CHAIR McGUIRE asked whether there were further questions; none
were offered. She announced that HB 36 would be held over for
further discussion.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Economic Development, Trade and Tourism
meeting was adjourned at 5:54 p.m.
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