Legislature(1995 - 1996)
04/12/1995 01:45 PM House FIN
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* first hearing in first committee of referral
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HOUSE FINANCE COMMITTEE
April 12, 1995
1:30 P.M.
TAPE HFC 95-83, Side 1, #000 - end.
TAPE HFC 95-83, Side 2, #000 - end.
TAPE HFC 95-84, Side 1, #000 - #617.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:45 p.m.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Kohring
ALSO PRESENT
Larry Wigget, Anchorage School District, Anchorage; Kathy
Hoyt, Soldotna; Richard Swarner, Kenai School District,
Kenai; Steve McPhetres, Alaska Council of State
Administrators, Juneau; Tom Wright, Staff, Representative
Ivan; Bob Bartholomew, Director, Income and Excise Audit
Division, Department of Revenue; Debra Garrish, Juneau; Jack
Fargnoli, Office of Management and Budget, Office of the
Governor; Dr. Shirley Holloway, Commissioner, Department of
Education; Edward Rasmuson, National Bank of Alaska; Robert
Gottstein, State Board of Education; Dale Staley, Juneau
Board of Education, Juneau; Rich McClear, Southeast Alaska
Media Consortium; Willie Anderson, NEA-Alaska.
SUMMARY
HB 230 An Act making appropriations to the Department of
Education for support of kindergarten, primary,
and secondary education and for community schools
programs for fiscal year 1996 and fiscal year
1997; making appropriations from the
constitutional budget reserve fund under art. IX,
sec. 17(c), Constitution of the State of Alaska;
and providing for an effective date.
HB 230 was HELD in Committee for further
discussion.
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HB 269 An Act relating to credits against certain taxes
for contributions to certain public educational
radio and television networks and stations and to
endowments for public educational radio and
television networks; and providing for an
effective date.
HB 269 was HELD in Committee for further
discussion.
HOUSE BILL NO. 269
"An Act relating to credits against certain taxes for
contributions to certain public educational radio and
television networks and stations and to endowments for
public educational radio and television networks; and
providing for an effective date."
TOM WRIGHT, STAFF, REPRESENTATIVE IVAN testified in support
of HB 269. He observed that the legislation provides a tax
credit for contributions made to instate public radio and
television stations and networks. The tax credit ceiling
was raised from $100 thousand dollars to $450.0 thousand
dollars. The credit is allowed on 50 percent of the first
$100.0 thousand dollars in contributions and 100 percent of
the next $400.0 thousand dollars. The new limits would also
apply to the university system and library and museum
acquisitions. The tax credit would be applied against a
taxpayer's liability under insurance premiums, corporation
income, oil and gas production, oil and gas property, mining
licenses and fisheries business taxes. He explained that a
credit claimed under one of the tax types may not be claimed
under another tax type.
Members were provided with a proposed committee substitute
for HB 269, Work Draft #9-LS0937\K, dated 4/3/95 (copy on
file). Mr. Wright explained that the work draft
incorporates technical changes requested by the Department
of Revenue.
Representative Mulder MOVED to adopt Work Draft #9-LS0937\K,
dated 4/3/95. There being NO OBJECTION, it was so ordered.
Mr. Wright reviewed changes incorporated by CSHB 269 (FIN)
as outlined in the sectional analysis prepared by
Representative Ivan (copy on file).
Representative Mulder observed that the fiscal note shows a
loss of revenue to the state of $35 million dollars. Mr.
Wright emphasized that revenue is currently being lost
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through contributions to the University of Alaska and
libraries.
Representative Brown asked if the total potential loss of
state revenues have been calculated.
BOB BARTHOLOMEW, DEPURTY DIRECTOR, DIVISION OF INCOME AND
EXCISE AUDIT. DEPARTMENT OF REVENUE replied that the fiscal
note was calculated by assuming that tax payers who
participated in the program in FY 95 would take the maximum
credit allowed in FY 96. He stated that there is no way to
estimate the maximum loss revenue through deductions by
corporations that are not participating.
Representative Navarre expressed concern with the level of
deduction allowed under the legislation. He emphasized that
tax credits allow appropriations without the legislative
process.
Mr. Bartholomew observed that not all corporations have made
contributions. He did not know if all the corporations that
gave did so at the maximum level.
Representative Navarre expressed support for the philosophy
of HB 268. He expressed reservations in regards to the
level of contribution that would be diverted from the
general fund by the tax credit.
In response to a question by Representative Brown, Mr.
Wright acknowledged that the sponsor considered setting up
two different contribution deductions. He stressed that the
sponsor did not want the public broadcasting credit to be in
competition with the credit for the University of Alaska and
libraries and museums.
Representative Brown expressed reservations in regards to
the constitutionality of the tax credit. She noted that
there is a prohibition against appropriating public money to
private institutions. She indicated support for public
broadcasting.
In response to a question by Representative Mulder, Mr.
Bartholomew stated that the state lost $944.0 thousand
dollars through the tax credit in FY 95. Representative
Mulder suggested that the credit would be a "back door"
appropriation. He emphasized the difficult decisions the
Committee has had to make in regards to cutting the
operating budget.
Representative Navarre pointed out that there is no match
requirement for the tax credit.
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EDWARD RASMUSON, EXECUTIVE DIRECTOR, NATIONAL BANK OF ALASKA
spoke in support of HB 268. He noted that the educational
tax credit was passed approximately 5 years ago. He
observed that the university system, public and private,
have used them extensively. He maintained that the Alaska
Pacific University and Sheldon Jackson College would not be
operating without the tax credit. He stated that about a
third of the contributions go to the University of Alaska, a
third to the Alaska Pacific University and a third to
Shelton Jackson College. He stressed that it is difficult
to quantify how much the State will loose as a result of the
tax credit. Mr. Rasmuson urged members to consider the
benefit to the state of Alaska. He stressed that
contributions will remain in the state. He did not think
that the state would loose $3.5 million dollars as estimated
by the fiscal note.
ROBERT GOTTSTEIN, CHAIR, ALASKA PUBLIC BROADCASTING
ENDOWMENT TRUST maintained that more people will be educated
in the state as a result of the credit. He observed that
the goal of the Trust is to wean public broadcasting from
state support. He stressed that the Trust will be more
creditable if funding is provided through the tax credit.
He emphasized that the money will help the Trust to leverage
funding in order to build an endowment for the future.
Mr. Gottstein stressed that Alaska will remain a public
schooling state. He maintained that the public will benefit
from a better educated society. He asserted that something
needs to be done to ensure that essential radio and
television service exists in all parts of Alaska in the
future.
Representative Navarre commended the efforts of Mr. Rasmuson
and Mr. Gottstein. He noted the competition for general
fund dollars, including K - 12 education funding. He
observed that the state of Alaska spends more in the
university system per student than in K - 12. He suggested
that the Committee meet in executive session in order to
more accurately ascertain the potential drain to the general
fund that the tax credit represents.
Mr. Gottstein emphasized that the legislation attempts to
create a mechanism to provide incentives for greater
contributions. He stated that the mission is to attract
outside, non-state investment to the recipients of the
credit. He accentuated that they are seriously interested
in raising outside capital contributions that will result in
more education in Alaska and provide a better assurance that
essential radio and television service will take place.
Mr. Rasmuson observed that more money was paid by outside
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sources to Shelton Jackson than the college received from
inside Alaska. He added that there was as much money paid
from outside sources to the Alaska Pacific University as
came from inside the state. He emphasized his desire to see
a better educated work force.
Representative Mulder emphasized the need to balance what
works with what is affordable to the state. He suggested
that the credit amounts to an appropriation from the state.
He reiterated the need to reduce spending. He asked how the
credit ceiling was decided. Mr Rasmuson stated that the
ceiling level was arbitrary.
Mr. Gottstein emphasized that if the cap is not raised that
public broadcasting will be in competition with the funds
that are currently being raised. He stressed that it is not
the intent to take money away from universities which are
already receiving funds from the credit. He stated that
public radio and television is an educational enterprise.
He maintained that it is appropriate to include them in the
statute. He indicated that a lower ceiling on the credit
would be acceptable. He urged the Committee to adopt a
level high enough not to impact current contributions. He
emphasized the need to ensure that public broadcasting
remains in the state of Alaska.
Mr. Rasmuson pointed out that most corporations in Alaska
are subchapter (s) corporations and do not pay state taxes.
He gave a brief history of the institutions that have taken
advantage of the tax credit.
Representative Kelly suggested that public broadcasting be
deleted and the current credit ceiling raised. Mr. Rasmuson
replied that he would not support such an amendment. He
emphasized that public broadcasting and postsecondary
education are both educational items. He stated that public
broadcasting should not be sacrificed for education. He
emphasized that they should be treated together.
Mr. Gottstein speculated that more than 50 percent of the
benefit will go to higher education.
Representative Martin suggested that the state's general
fund contribution to the University was reduced in response
to increased contributions in the form of tax credits. He
thought there would be no net gain in terms of University
funding. He observed that the University is a
responsibility of the state. He expressed concern that
other non-profit organizations would want to be added to the
credit.
Mr. Rasmuson did not think that corporations would give to
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other organizations.
(Tape Change, HFC 95-83, Side 2)
Representative Parnell queried the long term plan for
phasing out state funding.
Mr. Gottstein replied that the plan is to create a mechanism
to provide a substantial trust that will throw off income in
lieu of federal and state funding. He observed that the
state contributes $7.2 million dollars to public radio,
television and RATNet. He noted that they are asking for
less in FY 96 than was appropriated in FY 95. He
acknowledged that the state contribution must be reduced.
He stated that the goal is to raise $100.0 million dollars
for the endowment. He emphasized that it would be easier to
raise money if there was some money in the bank. He
stressed that incentives to attract private capital must be
developed. He reiterated that the contribution amount could
be reduced.
Mr. Rasmuson emphasized that there are not many corporations
that pay taxes in the state of Alaska.
In response to a question by Representative Mulder, Mr.
Gottstein stated that a five year sunset would be
reasonable. He did not support a sunset in regards to the
education contribution.
Representative Navarre noted that the legislation allows
credits to individual stations as well as to the endowment.
He expressed concern that the system will suffer as
contributions are allocated to individual stations. Mr.
Gottstein felt that the majority of contributions would go
to the endowment. He stated that most of the contributions
to the University are given to endowments. He emphasized
that contributions to the endowment will protect the
principal investment.
Mr. Rasmuson observed that most stations do not have the
luxury of setting money aside for an endowment.
Representative Navarre expressed concern that the Anchorage
television station and other urban radio stations could
create competition for the endowment.
Mr. Gottstein emphasized that essential service needs to be
protected. He stated that contributions to rural Alaska
would be to the same end, of ensuring that service is
provided. He did not think that urban broadcast centers
would receive significant contributions, since substantial
commercial competition exists in those areas.
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Representative Kelly asked if underwriting on public
broadcasts will amount to commercials.
RICH MCCLEAR, SOUTHEAST ALASKA MEDIA CONSORTIUM replied that
Congress set in the Communications Act specific parameters
which limit underwriting to things that do not mention
price, adjectives that are comparative or superlative, and
do not amount to a call to action. He did not think that
federal guidelines would be relaxed.
HB 269 was HELD in Committee for further discussion.
HOUSE BILL NO. 230
"An Act making appropriations to the Department of
Education for support of kindergarten, primary, and
secondary education and for community schools programs
for fiscal year 1996 and fiscal year 1997; making
appropriations from the constitutional budget reserve
fund under art. IX, sec. 17(c), Constitution of the
State of Alaska; and providing for an effective date."
SHIRLEY HOLLOWAY, DR., COMMISSIONER, DEPARTMENT OF EDUCATION
testified in support of full funding for education. She
observed that the public has demanded better schools. She
asked that dollar decisions consider the consequences to
student learning. She stated that student learning will be
adversely impacted by a funding level that does not include
money for increased enrollment. She observed that students
have special needs that require additional services. She
maintained that ground will be lost if funding does not
remain stable. She stressed that innovations and risks have
been made to keep kids in school, do a better job at
preparing students and raise standards. She discussed some
innovations being made by teachers and parents.
Commissioner Holloway noted that the State Board of
Education is committed to reviewing the foundation formula
in order to provide recommendations to the Legislature.
Representative Martin noted the amount of overhead in
education funding. He suggested that savings could be made
if school districts were combined. Commissioner Holloway
stated that the Board has started a dialogue in regards to
combining school districts.
LARRY WIGGET, ANCHORAGE SCHOOL DISTRICT testified via the
teleconference network. He stated that the Anchorage School
District opposes HB 230. He stressed that the District
supports the $61.0 thousand dollar instructional unit level.
He maintained that HB 230 would result in a loss to the
Anchorage School District of $4.0 million dollars in FY 96
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and $9.0 million dollars in FY 96-97. He observed that the
Anchorage School District is the 80th largest school
district in the United States and the largest in Alaska. He
emphasized the need to pursue computer technology. He
stated that Anchorage has the second lowest student cost in
Alaska.
Representative Grussendorf observed that Sitka has the
lowest student cost in the state.
In response to a question by Representative Brown, Mr.
Wigget noted that student ratios would increase if HB 230 is
enacted. He discussed ramifications of a $4.0 million
dollar reduction to the Anchorage School District.
KATHY HOYT, SOLDOTNA testified via the teleconference
network. She spoke in opposition to HB 230. She compared
the cost of supporting individuals in the criminal system to
educating a high school student in Alaska. She noted that
89 percent of the nation's criminals are high school drop
outs. The high school drop out rate in Alaska is 33
percent. It costs approximately $32.0 thousand dollars to
incarcerate a prisoner annually. In Anchorage in 1991, it
cost $4,050 thousand dollars to educate a high school
student. She insinuated that it is cheaper and better to
provide education than to pay for institutionalizing
offenders.
RICHARD SWARNER, EXECUTIVE DIRECTOR, BUSINESS MANAGEMENT,
KENAI PENINSULA SCHOOL DISTRICT testified via the
teleconference network. He testified in opposition to HB
230. He testified in support of the Governor's proposed
$61.0 thousand dollar foundation formula instructional unit.
He stressed that the foundation program needs to be
reviewed. He observed that the Kenai School District is up
against the local effort cap. He noted that assessed value
in the Borough has dropped 5.87 percent. He noted that the
cost per pupil over 10 years has only increased 1.44
percent. He noted that Kenai School District employee's
salaries have not been raised in four years. He emphasized
that 38 percent of their school district's budget comes from
local contributions.
DEBRA GARRISH, JUNEAU testified in opposition to HB 230.
She expressed concern with the quality of state education.
She observed that the student/teacher ratio is high, books
are obsolete and that teachers have been laid off. She
suggested that state school and income taxes be re-
instituted. She maintained that HB 230 sacrifices the
education and future of children in the state.
JACK FARGNOLI, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF
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THE GOVERNOR testified in support of the Governor's proposal
for full funding. He stated that the Governor is concerned
with the function of the bill and the funding source the
bill uses. He observed that the two year forward funding
mechanism would be disadvantageous in respect to the state's
reserves. He maintained that the state's ability to respond
to cash flow problems will be inhibited. He observed that
if the second year's funding remains in the general fund it
would not provide any of the constancy or predictability
that true forward funding would provide. He stated that the
Governor does not support forward funding. He stressed that
the state is facing a $300 to $400 million dollar deficit in
cash projections. He expressed concern that the work and
purpose of the Long Range Fiscal Planning Commission not be
truncated or prejudged.
Mr. Fargnoli discussed the effect that the legislation would
have on the Constitutional Budget Reserve Fund. He stated
that the Governor prefers that education is funded through
the general fund as all other items.
(Tape Change, HFC 95-84, Side 1)
In response to a question by Representative Martin, Mr.
Fargnoli agreed that the state's cash flow problem would be
diminished by funding education from the Constitutional
Budget Reserve Fund. He stated that there is no consensus
in regards to leveling expenditures or altering revenue in-
flows.
STEVE MCPHETRES, EXECUTIVE DIRECTOR, ALASKA COUNCIL OF
SCHOOL ADMINISTRATORS testified in opposition of HB 230. He
spoke in support of the $61.0 thousand dollar instructional
unit. He observed that parents are concerned about
education. He stressed that the state is not broke. He
referred to the Alaska Permanent Fund Dividend Program.
Representative Therriault suggested that rural Alaskan's
will support the re-institution of an income tax over the
use of their permanent fund dividends. He observed that a
15 percent state income tax would only cover half of the
state's deficit. He emphasized that a combination of taxes
and spending cuts are needed to balance the budget.
Mr. McPhetres stated that school administrators would
welcome dialogue in regards to raising revenues. He
emphasized that "all the cards have got to be placed on the
table."
WILLIE ANDERSON, NEA-ALASKA testified in opposition to HB
230. He observed that if the instructional unit had kept
pace with increases in the cost of living the instructional
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unit would now be $81,318 thousand dollars. He urged the
Committee to "do the right thing by our kids." He
maintained that we must educate our children and look to the
future. He suggested that revenues could be raised through
taxes or capping permanent fund dividends. He stressed the
need for quality education.
Representative Kelly questioned if NEA-Alaska would accept
downward negotiations in teacher's pay. Mr. Anderson
pointed out that increases were not taken in 1986 - 1987.
He stressed that teachers or public schools employees should
not carry the whole burden.
Representative Parnell stressed that education funding will
increase by $200 million dollars over the next five years at
the current rate. He emphasized that we need to reinvent
how we provide government and education. He urged NEA-
Alaska to join in rethinking the delivery of education
services. He stressed that he has a deep concern about the
children of Alaska.
Mr. Anderson agreed that education delivery must be
rethought, but emphasized that it cannot be transformed
overnight. He observed that technology can assist in
education delivery. Representative Parnell emphasized the
need to start working towards doing something now.
ROBERT GOTTSTEIN, ALASKA STATE SCHOOL BOARD spoke in support
of full funding for education. He acknowledged the need to
do more with less. He stressed that solutions must be
found. He noted that there are 54 school districts in
Alaska. He suggested that the number of school districts is
not cost effective. He observed that the correspondence
school program costs about $1.5 hundred dollars. It costs
about $7.5 hundred dollars to teach a student in the
Anchorage School District. He maintained that the level of
parent involvement makes the difference. He stressed that
principles and teachers cannot replace parents. He observed
the value of quality parents and emphasized the need to
provide opportunities to improve parenting skills. He
acknowledged the need for change. He asserted that success
will be greater if funding is protected than if it is cut.
He stated that the state of Alaska must invest in our
children, their parents and in creating an economic
opportunity for everyone in the state. He stressed that if
the state does more for children the public will do more for
the state. He maintained that revenue will not be raised by
making the state less worthy. He stated that there is no
area in state government more worthy than education. He
expounded that the way out of this dilemma is to make sure
that everyone has a value received from the state. He
maintained that there is no better opportunity than to
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provide a value education.
Representative Grussendorf noted the need to maximize the
revenue that is due the state of Alaska. Mr. Gottstein
stated that an Anchorage survey showed that if the public
was guaranteed educational opportunities for everyone in
their family, including postsecondary education, then 85
percent would be willing to give up their dividend and begin
to pay taxes.
DALE STALEY, PRESIDENT, JUNEAU SCHOOL BOARD testified in
support of full funding for education. He noted that
nurses, counseling services, janitorial services and
teachers have been reduced in the Juneau School District.
He observed that the District will not be able to lay
teachers off in the coming year since most are tenured.
There are only 8 non-tenured staff and 3 non-tenured
administrators. He observed that the District's teaching
staff is experienced and well educated. He observed that if
the state reduces funding to the Juneau School District, the
local contribution must also be reduced. He noted that
Juneau's local contribution has been at its cap for several
years. He acknowledged the need to do more with less, but
asserted that it cannot be accomplished in the next three or
four months.
HB 230 was HELD in Committee for further discussion.
ADJOURNMENT
The meeting adjourned at 3:52 p.m.
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