Legislature(2009 - 2010)HOUSE FINANCE 519
04/01/2010 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB357 | |
| HB344 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 357 | TELECONFERENCED | |
| + | HB 344 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 1, 2010
1:40 p.m.
1:40:20 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:40 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Vice-Chair
Representative Allan Austerman
Representative Mike Doogan
Representative Anna Fairclough
Representative Neal Foster
Representative Les Gara
Representative Reggie Joule
Representative Mike Kelly
Representative Woodie Salmon
MEMBERS ABSENT
None
ALSO PRESENT
John Coan, Staff, Representative Bill Stoltze; Peter
Ecklund, Staff, Representative Bill Thomas, Sponsor; Paul
Dick, Chief of Operations, Tax Division, Department of
Revenue; Mary McDowell, Vice President, Pacific Seafood
Processors Association; Greg Fisk, Bristol Bay Economic
Development Corporation.
PRESENT VIA TELECONFERENCE
Peter Macksey, Customer Relations, SteelFab, Anchorage;
John Binkley, Chair, Board of Directors, Alaska Railroad
Corporation, Fairbanks; Mark Stearns, Owner, Alaska Wood
Moulding, Inc., Anchorage; Bonne Woldstad, Fairbanks; Terry
Smith, Chief Financial Officer, Carlile Transportation
Systems, Anchorage; Mark Palmer, President, Ocean Beauty
Seafoods; Bob Waldrop, Executive Director, Bristol Bay
Regional Seafood Development Association. Kris Nororsz,
Government Affairs, Icicle Seafoods, Petersburg.
SUMMARY
HB 344 SALMON PRODUCT DEVELOP. TAX CREDIT
HB 344 was HEARD and HELD in Committee for further
consideration.
HB 357 AK RAILROAD CORP. LAND SALES
HB 357 was HEARD and HELD in Committee for further
consideration.
HOUSE BILL NO. 357
"An Act relating to the sale of land owned by the
Alaska Railroad that is not needed for railroad
purposes."
1:40:48 PM
JOHN COAN, STAFF, REPRESENTATIVE BILL STOLTZE explained the
legislation. He explained that HB 357 is an act giving the
Alaska Railroad Corporation the ability to sell land that
is not used for railroad purposes. The bill does not
establish a method for the railroad to liquidate land
assets or force the railroad to dispose of any lease hold
interests. The legislation creates flexibility to sell
unneeded land. The bill received numerous letters of
support from unhappy leaseholders that do not have the
ability to purchase the property they have improved. The
letters were unsolicited and the lease holders are
reluctant to make new or additional improvements for fear
that they will not be able to adjust their lease or
purchase the property. The bill was designed to give a
voice to the lease holders.
Representative Austerman understood that the legislation
indicated that the railroad cannot sell land. Co-Chair
Stoltze concurred, but stated that a more precise
definition will be available during testimony from the
Alaska Railroad Corporation.
Representative Salmon asked if the legislation affected the
land surrounding Nenana. Co-Chair Stoltze responded that
the legislation might affect the mentioned area, but a
designated area is not mandated. The intent was not
geocentric, but instead affects the landholding of the
whole Alaska Railroad.
Representative Salmon commented that the Alaska Railroad
owns the land surrounding the loading dock in Nenana. He
referenced reports of the steep prices charged to maintain
and lease the land. He opined that the action constituted a
disadvantage to the barge company. Much of the high lease
rate is passed on to inhabitants of villages.
Representative Salmon stated concerns. He referenced that
other village entities having difficulty with the high
lease payments.
1:46:32 PM
Co-Chair Stoltze referred to other concerns raised
regarding the Alaska Railroad. The legislation spurred many
similar comments.
Representative Gara reported many questions about railroad
issues. He was concerned that the state allows the railroad
to control the land that they own. He expressed concern
about allowing the railroad to sell state land and keep the
money. He opined that the railroad might take what belongs
to the people and use the money for internal operations
that the legislature may or may not agree with.
Co-Chair Stoltze opined that funds would not be eligible
for use without legislative intervention. He agreed that
problems existed. He reported that the testimony would
provide answers.
Representative Austerman viewed that the scenario is such
that the railroad has the ability to lease the land at the
chosen rate. Co-Chair Stoltze concurred.
Representative Austerman pointed out that the railroad
already has the ability to use lease money for salaries.
Representative Gara communicated the limitation of short
term leases as an advantage. Another benefit of the limited
lease was that the state will eventually reclaim the land.
With the legislation, the railroad receives the money and
the state never sees the land again.
Co-Chair Stoltze acknowledged the many questions associated
with the legislation.
1:51:04 PM
PETER MACKSEY, CUSTOMER RELATIONS, STEELFAB, ANCHORAGE (via
teleconference), addressed Representative Gara's comment
and opined that the investment made by some people would be
difficult if the state took the land back. He stated that
he felt confined by the railroad periodically raising the
rent. He commented that the mentioned property is without
rail and he believed that the railroad has no further use
for the land. A piece of property in Anchorage leased under
the railroad is heavily taxed. He opined that with private
ownership, the investment and sense of worth would be
greater. He announced that the railroad increases stress
levels with the steep lease prices.
Representative Doogan requested more detail on the
statement "taxed as if own the land." Mr. Macksey responded
that he paid property taxes in addition to taxes for the
City of Anchorage.
Co-Chair Stoltze commented that the municipal of Anchorage
taxed airport property in a similar manner.
Representative Doogan asked where the land was located. Mr.
Macksey replied Railroad Avenue.
1:55:51 PM
Representative Gara asked if Mr. Macksey realized that the
land was owned by the railroad when he agreed to lease it.
Mr. Macksey responded that many of the leases were 100 year
leases and the original intent was to provide an industrial
base for Anchorage. He believed that the length of time
that his company existed on the land warranted the option
to buy.
JOHN BINKLEY, CHAIR, BOARD OF DIRECTORS, ALASKA RAILROAD
CORPORATION, FAIRBANKS (via teleconference), commented that
the legislation highlighted the importance of the
relationship between the lessees and the Alaska Railroad
Corporation. The real estate division of the Alaska
Railroad Corporation is critical to the corporation's
success. The real estate division relies completely on the
revenue from the lessees. The steady revenue provided by
the lessees allows the corporation to succeed throughout
varying business cycles.
Mr. Binkley shared that the board understands the need to
renew efforts to communicate well with the tenants. He
mentioned the railroad's fiduciary responsibility to the
shareholders of Alaska to treat lessees in an equal manner
and to receive a fair return on the asset value. He
stressed the importance of ensuring that the people of
Alaska receive a fair return for the asset made on the
leased land.
2:00:22 PM
Mr. Binkley referred to a mechanism already in place to
release Alaska Railroad Corporation land utilizing a
procedure to determine public purpose and report to the
legislature for advice. He believed the legislation would
refine the process.
Representative Austerman asked Mr. Binkley's stand on the
bill. Mr. Binkley reported that the railroad was "not
necessarily supportive" of the legislation. The board
believed that the mechanisms were already in place in terms
of discharging land with the appropriate role of the
legislature. He repeated that the opinions of the lessees
were important to him.
Representative Doogan asked how many lessees the railroad
had under contract. Mr. Binkley responded approximately
250.
Representative Doogan asked for the annual basis income.
Mr. Binkley replied approximately $9 million.
Representative Doogan queried the annual budget. Mr.
Binkley replied that the corporation had operating revenues
of $143 million or approximately 7 percent.
Representative Gara referred to years of net income for
railroad from leaseholds not operations; if that were true
he expressed concern about the lessening of leasehold
rental potential. He asked how long the corporation's net
income has been attributable to its leasehold interest. Mr.
Binkley responded that the income goes up and down; in some
years the real estate is necessary to carry the corporation
through, in other years the corporation creates a return on
the operations of the railroad plus the real estate. The
railroad was experiencing tough times because of less fuel
availability leading to a reduction in the bottom line.
2:05:26 PM
Representative Gara asked what the railroad was doing to
accommodate lessees. He asked about any changes made by the
corporation regarding the treatment and communication with
lessees. Mr. Binkley responded that an important issue was
sound communication with lessees to enable businesses to
succeed. He referred to the extension of leases from 35
years to 55 years for increased stability.
Representative Gara asked if companies like SteelFab would
lose their improvements. Mr. Binkley hoped SteelFab would
not; he wanted them to succeed and commended their
achievements.
Co-Chair Stoltze noted that the purpose of the legislation
was not to sell the land but instead to function like a
permanent fund within the railroad. The corporation would
use the earnings for their operations.
2:09:06 PM
Representative Salmon asked about the lease situation in
Nenana with the cost passed on to the village people. He
believed the legislation would change nothing. He wanted
action and not just talk.
Co-Chair Stoltze advocated for the bill, which will lead to
discussion and potentially change.
Mr. Binkley stated that the railroad is working with Nenana
to renew the lease. He discussed the history of the
railroad as part of the overall transportation system. He
mentioned the process of renegotiating a lease for the dock
properties. He reiterated promises to communicate better
with lessees and support their success.
Representative Austerman asked about a standard year
renegotiated contract or yearly fee. Mr. Binkley responded
that the corporation re-evaluates every five years and a
reappraisal is presented with a ceiling no greater than 35
percent.
Representative Kelly queried the concerns of the railroad.
Mr. Binkley replied that the railroad does not want to sell
the real estate. He expressed concern regarding the
importance of the railroad's success being tied to the real
estate. He mentioned that the railroad has operated as a
state owned entity for 25 years without annual requests for
operating funds. He pointed out that the state would suffer
the loss of the real estate even if the proceeds were
reinvested. He noted that real estate is a great
investment. He commented on the wisdom of the Alaska
Legislature in establishing the Alaska Railroad
Corporation.
2:15:27 PM
Co-Chair Stoltze commented that additional testimony for
the railroad would be organized by Mr. Binkley.
MARK STEARNS, OWNER, ALASKA WOOD MOULDING, INC., ANCHORAGE
(via teleconference) informed that he has been a lease
holder for ten years. He provided the history of increasing
lease prices for his company. He discussed his experience
with changes in lease terms without notice or discussion.
He understood that the railroad has a fiduciary
responsibility to maximize the benefit of their assets for
the shareholders. He understood the need to utilize the
property as a revenue source.
Mr. Stearns referred to other buildings in the area that
have been taken over by the railroad. He understood that
the money earned from the sale of the land could be used as
a permanent fund; the railroad did not lose the value. He
was concerned with a long-term ability to control expenses
for his business. The lease has gone up dramatically, which
hurts the ability to reinvest in the business.
Representative Kelly pointed out that HB 357 would only
permit the railroad to sell the land if they chose to. He
asked how the bill would help.
Mr. Stearns explained that the mentioned property was not
used by the railroad. He believed that the property that he
leases is not essential to the railroad's operations. He
argued that if the railroad does not require land as an
essential part of their operation, then the sale of land
would only strengthen the business climate.
2:23:10 PM
Co-Chair Stoltze pointed out that Mr. Binkley was
responsive to the needs of the lessees.
Representative Doogan asked about the municipality of
Anchorage's decision to tax lessees. Mr. Stearns confirmed
that he was taxed by the Municipality of Anchorage for an
additional $6 thousand per year. He pointed out that his
company pays an additional $26 thousand in taxes each year
as a result of the changes instituted by the railroad.
Representative Doogan asked about the lease rate increases.
He asked about the communication with the railroad
following the rate increase notices. Mr. Stearns responded
that he received the information "just because" and listed
problems that the railroad responded to by requesting a
letter. He stated that the damage has been done.
2:28:16 PM
Representative Kelly asked if property was sold during a
lease expiration time, would improvement costs be required.
Mr. Stearns replied that the improvements on the property
belong to his business "from the ground up."
Representative Kelly verified that the answer provided was
no. He asked if the corporation would own the improvements
if he did not renew his lease. Mr. Stearns replied that the
corporation could own the improvements or they could
request or require that the improvements were removed.
BONNE WOLDSTAD, FAIRBANKS (via teleconference), had
concerns about the legislation. She expressed that the bill
might solidify the inverse take that the railroad created
on her property in 2003 by repealing Sections 1208 and 1209
of the Alaska Railroad Transfer Act (ARTA). She explained
that she owned a homestead that predates the railroad. The
railroad received an exclusive use easement on her
property. She expressed concern that the corporation might
sell her land.
Co-Chair Stoltze expressed a lack of understanding
regarding the railroad transfer. Ms. Woldstad pointed out
that ARTA stated that if railroad track was unused for 18
years, then it would be declared vacant and revert back to
the adjacent property owner.
2:33:48 PM
Representative Kelly asked if a change in language would
help to ensure that the bill did not negatively affect the
property. Ms. Woldstad responded that language might be
inserted to recognize that if the railroad was to vacate
their easement with a prior existing right, then the land
would revert back to the adjacent property owner.
Representative Kelly commented that a language change might
be difficult to achieve, as he was not the bill sponsor.
Ms. Woldstad thought that a language change would alleviate
concerns that the bill is not intended to prejudice those
ownership rights.
Representative Fairclough asked if the easement was passed,
was the homestead compensated by the railroad. Ms. Woldstad
stated that she had not found record of compensation under
the original 1914 law. Following changes in the original
Homestead Act of 1862, any future homestead had a clause
into patent for construction of railroad, telegraph, and
telephone lines. The territory had the right to traverse by
the Homestead Act, but not to own.
Co-Chair Stoltze promised to follow up on the issue.
TERRY SMITH, CHIEF FINANCIAL OFFICER, CARLILE
TRANSPORTATION SYSTEMS, ANCHORAGE (via teleconference)
stated that the railroad has been a good partner, but his
personal standpoint was that the amount of road controlled
by the railroad leads to scarcity. He added that leased
land is not favored as collateral in lending situations. He
understood the value of land ownership for the railroad,
but for investors the preference is to reduce risk and gain
ownership to control destiny.
2:39:18 PM
Ms. Woldstad commented on the fiduciary rights of the
state. She wished to communicate the maximum benefit by
considering the jobs provided by the lessees.
2:40:36 PM AT EASE
2:42:33 PM RECONVENED
Representative Austerman asked how the railroad arrived at
8 percent. Mr. Binkley responded that 8 percent is the
corporation's policy with a couple of exceptions including
waterfront land.
Representative Austerman clarified that the action was
determined via board policy. Mr. Binkley concurred and
stated that the action was consistent for leases around the
state. Many leases were initiated under the federal
government and rather than terminating the leases, the
state allowed federal leases to lapse under the terms and
conditions of the federal government. Many of the leases
were a better deal for leaseholders than state system. He
understood the shock when the federal leases expired
placing them under the state system.
Representative Austerman asked when municipalities of
Anchorage and Fairbanks initiated any adjustment on leases
from the railroad. Mr. Binkley replied that there was not
an adjustment by the railroad when the lessees paid the
additional amount for property taxes. Some lessees express
that the cost of the lease can be expensed over a period of
time; from a tax standpoint, there is sometimes an
advantage to leasing.
2:46:21 PM
Co-Chair Stoltze suggested that this was the permissive
nature to be discussed between the government owner and the
lease holder. He appreciated the discussion and the
testimony from the Alaska Railroad Corporation.
Representative Austerman commented that he understood that
the leasing agreement presents a good deal for the
railroad.
Co-Chair Stoltze agreed that the legislation provided a
permissive route for the Alaska Railroad Corporation.
HB 357 was HEARD and HELD in Committee for further
consideration.
2:49:10 PM AT EASE
2:56:55 PM RECONVENED
HOUSE BILL NO. 344
"An Act relating to the salmon product development tax
credit; and providing for an effective date by
amending an effective date in sec. 7, ch. 57, SLA
2003, as amended by sec. 4, ch. 3, SLA 2006, and by
sec. 4, ch. 8, SLA 2008."
2:57:05 PM
PETER ECKLUND, STAFF, REPRESENTATIVE BILL THOMAS, SPONSOR,
Vice-Chair Thomas delivered the sponsor statement.
House Bill 344 extends the deadline for salmon
processors in Alaska to receive a salmon product
development tax credit. The program allows applicants
to claim a credit on their annual fisheries business
tax for 50% of the purchase costs of eligible
equipment. Credits received may not exceed 50% of a
taxpayer's annual tax liability. Under current law,
processors can claim the credit for the property first
placed into service by December 31, 2011. This bill
would extend the program's sunset date to December 31,
2015, allowing processors ample time to continue their
long-range investment planning.
The salmon product development tax credit was a key
recommendation of the Joint Legislative Salmon
Industry Task Force. First enacted in 2003, the
credit was part of an effort by Alaska's elected
leaders and the fishing industry to develop innovative
value-added salmon products. Since then it has
stimulated some important changes in Alaska's
commercial fishing industry. New processing equipment
eligible for the tax credit enables businesses to
offer a more diverse complement of Alaska salmon
products which helps increase overall customer
acceptance. Modern equipment also helps increase
efficiency of processing operations and improves
output, meaning that quality has improved. This tax
credit also encourages in-state processing of our
salmon resource which is critical to job creation and
retention in fishing communities.
Although Alaska's salmon industry is beginning to
recover from years of low values caused by factors
such as competition from fish farming, the industry
continues to be challenged by the recent economic
depression, changes in the marketplace, and increasing
labor and energy costs. Extending the tax credit
beyond its current sunset date of December 31, 2011
will allow the industry to continue the progress that
is being made in developing and producing salmon
products that will keep Alaska's fisheries competitive
in world markets. The state should continue to
support one of our most important basic industries by
extending the salmon product development tax credit
thought passage of HB 344.
Vice-Chair Thomas MOVED to ADOPT Work Draft (26-LS1473\E,
Kane, 3/11/10) as a working document. Co-Chair Stoltze
OBJECTED.
Mr. Ecklund noted that the fisheries committee added
qualified ice-making systems to the initial legislation. He
stated that he worked with Department of Revenue (DOR) who
administers the program to clarify that ice-making machines
would qualify for the tax credit.
3:01:32 PM
Co-Chair Stoltze queried how ice machines fit into
technological advances. Mr. Ecklund responded that chilled
fish are required to produce a quality product. The
fisheries committee believed that encouraging investment in
ice machines would help preserve the value of the base
product.
Co-Chair Stoltze commented on the necessity of the
legislation.
Vice-Chair Thomas responded that ice-making products are
lacking in the state. The demand for quality fish demands
additional ice. He added that Bristol Bay has been behind
the times in this area. The need to keep the fish chilled
for value-added products is high. Co-Chair Stoltze
clarified that he did not feel negatively about the
legislation, but encouraged open-mindedness.
Representative Doogan clarified that the state would cover
a portion of the cost through tax credits, with the theory
that better fish would be the result. He asked who benefits
from the higher quality fish. Vice-Chair Thomas responded
that the ice machines are located at the cannery or on a
barge. The boats visit the cannery or barge to collect the
ice, two tons at a time. He stated that everyone benefits
from the ice and the higher quality fish.
3:07:54 PM
Representative Doogan asked about the size of the ice
machines. Vice-Chair Thomas responded that the ice machines
create 25-30 tons of ice per day. Many canneries require a
large amount of ice. Representative Doogan guessed that the
commercial ice machines were much larger than those needed
for personal use. Vice-Chair Thomas agreed.
Representative Austerman clarified that the fishing boat
does not receive credit for the ice machine. The incentive
was for the processing industry to allow the fishermen to
get a better price for the fish and allows for greater flow
of money through the state. The processing industry paid
the fishery business tax that received the credit.
Co-Chair Stoltze asked if an industry standard exists for
the cost of the ice.
Vice-Chair Thomas responded that the policy depends on
whether the boats are employed by the processing company.
He added that the ice is normally given away. Language in
the bill prohibits the industry from selling ice for three
years.
Co-Chair Stoltze requested further clarification. Mr.
Ecklund responded that the issue of selling the ice was not
as important as tracking of the value of the fish processed
with the ice from the said ice machines. If a processor
receives a credit from an ice machine, the ice can only be
given or sold to employed fishermen.
Vice-Chair Thomas pointed out that two pounds of ice are
required to chill one pound of fish.
3:11:28 PM
Mr. Ecklund opined that the current tax credit is working.
He commented on the Alaska Tax Division Report (copy on
file) for FY 2007-2009 showing that the total tax received
by the state has increased from $29 to $42 million. The tax
credit is not responsible for the entire increase, but it
helped.
Representative Salmon asked why the ice contributes to the
added-value label for the fish. Mr. Ecklund responded that
there is a list of qualified and non qualified expenditures
that explain changes in the industry, primarily with
incentivizing value-added products.
Vice-Chair Thomas added the incentive of retaining jobs in
Alaska versus exporting them.
Co-Chair Stoltze pointed out that the discussion is based
on a policy issue and the CS has yet to be adopted. Mr.
Ecklund agreed and noted that the prior committee felt
strongly about ice machines.
Representative Fairclough pointed out that the revenue book
does not match the provided data.
Mr. Ecklund requested testimony from DOR.
3:15:05 PM
PAUL DICK, CHIEF OF OPERATIONS, TAX DIVISION, DEPARTMENT OF
REVENUE addressed the technical question.
Representative Fairclough restated her question from page
51 of the 2009 Revenue Sources Book which illustrates
numbers that vary from the document provided in the
committee packet.
Mr. Dick explained that the Revenue Source Book lists all
taxes on fisheries, including salmon enhancement tax
revenue, diving, and other types of seafood marketing. He
offered to provide the required breakdown from the Revenue
Sources Book.
Representative Fairclough explained her process in finding
the information and asked if the percentage was
proportional to the municipal share. Vice-Chair Thomas
stated that the municipal share was 50 percent. Mr. Dick
Figure added that the Revenue Sources Book does show 50
percent of the tax.
Representative Fairclough agreed to review the data later
with Mr. Dick.
Representative Doogan asked about the inclusion of ice
machines. Mr. Dick responded that the ice machines would
provide benefits to industry, but he was unable to comment
on the policy call.
3:19:23 PM
Representative Doogan added that ice machines used to be
specifically excluded and he wondered about the change in
circumstances that altered the decision. Mr. Dick believed
that the fisheries committee suggested adding the ice
machines.
Co-Chair Stoltze asked about departmental concerns
regarding the ice machines. Mr. Dick replied that the
concerns were with the technical changes regarding the
definition of qualified investment. The ice machines were
included with processing equipment and the ice machine does
not in fact "process."
Representative Salmon asked if the committee was including
"added-value" products to the list. Co-Chair Stoltze opined
that the committee is "doing it because we can."
Vice-Chair Thomas suggested that the list is an older one.
He repeated that covering the fish with ice increases the
value and allows Alaska to compete on an international
level. He stated that he did not know why the ice machines
were not a priority before. The trend in Bristol Bay is
moving toward iced fish.
3:23:32 PM
Co-Chair Stoltze suggested that the processors in Cook
Inlet and in Southeast Alaska already had ice machines.
Representative Austerman added that farmed fish entered the
market place a few years ago. Icing allowed the farmed fish
to arrive with a longer shelf life. If fish is not iced,
then one to two days of shelf life are lost. He pointed out
that the value is in the freshness of the fish. As Alaska
began to compete with farmed fish the ice helped. Ten years
ago, ice machines were not the issue. He agreed that
Bristol Bay was a difficult place to fish and ice machines
were necessary.
Representative Fairclough agreed that the case was well
made for ice machines; she supported the underlying issue.
She wished to ensure that the fiscal note reflects the
added ice machines. Mr. Dick responded that DOR had not
considered the work draft in the creation of the fiscal
note.
Co-Chair Stoltze asked if the change in the fiscal note
will be substantive. Mr. Dick did not believe so. He
explained that the department observed the last three years
of credits to create an average of $2.4 million. He was
unaware of the exact fluctuation of investments. He
anticipated a continued $2.4 million.
Co-Chair Stoltze asked if the ice machines will then
compete with the other technological investments. Mr. Dick
responded yes.
Representative Fairclough asked for the average cost and
life expectancy of an ice machine intended for heavy-
production.
3:27:27 PM
MARY MCDOWELL, VICE PRESIDENT, PACIFIC SEAFOOD PROCESSORS
ASSOCIATION spoke strongly in support of HB 344. She
stressed that the tax credit will allow the industry to
keep pace with consumer demands on tough world markets. She
referred to letters in the packet regarding the targeted
program. She stated that companies are faced with
challenges and those in rural areas are faced with high
energy and transportation costs. She declared that this was
an important time for Alaska to support the investment with
the additional economic incentive. The tax credit pays for
a small portion of the required product investment.
Ms. McDowell continued that fine market niches raise the
value of the salmon which benefit the fishermen,
communities, the processors and the state coffers.
Co-Chair Stoltze asked if there was concern about the
amendment and the ice machines. Ms. McDowell answered no.
She thought the amendment served as a good addition to the
bill. She agreed that icing fish allows for a high quality
item to smoke or can.
Co-Chair Stoltze asked about ice machines and the cost of
diesel to power the machine. He asked if the fuel was
covered in the tax credit. Ms. McDowell responded no.
Representative Doogan asked why companies are not investing
in ice machines if they are a good deal both in terms of
product and income derived.
3:32:58 PM
GREG FISK, BRISTOL BAY ECONOMIC DEVELOPMENT CORPORATION
stated that the installed cost per production ton of ice
machines is approximately $12,000 to $18,000. A ten-ton ice
machine costs approximately $180 thousand. He responded to
the question about the timing of policy change. He
explained that the tax credit was helpful for those wishing
to make investments in value-added equipment. The findings
were that high quality fish are not available particularly
in Bristol Bay. The state incentivized the purchases, but
full value is not achieved without enough number one
quality fish.
MARK PALMER, PRESIDENT, OCEAN BEAUTY SEAFOODS (via
teleconference), spoke in support of the legislation. He
explained that Ocean Beauty Seafoods has added a value-
added line, increasing employment and production capacity
as a result of the legislation. Often the freezing capacity
of a facility can act as a bottleneck. The legislation has
accelerated investment due to the tax incentive.
Representative Fairclough asked the amount of fish tax paid
by Ocean Beauty Seafoods.
Mr. Palmer responded that the company's fish tax totals an
average around $1.2 million. The company has taken
advantage of $600 thousand of the value added processing
tax credit. He offered to provide more detail.
Representative Fairclough stated that she was interested in
the percentage of the credit that the company utilized. She
understood that 50 percent of the company's liability to
the state is returned in the form of credits. Mr. Palmer
replied that 50 percent is the maximum amount available.
The bill allows for carry-over of the credit.
Representative Fairclough asked if the carry-over option
was a new addition to the bill.
3:39:26 PM
Mr. Palmer responded no, the company has a certain period
of time following the investment to carry-over.
Mr. Palmer pointed out that shore plants are not the only
ones that lack ice capacity. The fleet is widespread in
Bristol Bay. Some of the ice capacity would exist on
tenders. Ice is occasionally transported a great distance.
A thousand permits exist in Bristol Bay without
refrigeration capacity on board their vessels. Local
fishermen can only participate in premium programs if they
have the ability to chill the fish.
3:42:19 PM
Representative Austerman asked for an estimate of the
amount invested in value-added fisheries over past five
years and how much was based on tax credit ability. Mr.
Palmer responded that the company invested in excess of $2
million each season in increasing capabilities for value-
added products.
Co-Chair Stoltze disclosed that he served with Mr. Palmer
as a member of the Alaska Seafood Marketing Institute
helping to advance the marketing of Alaska Seafood
products.
BOB WALDROP, EXECUTIVE DIRECTOR, BRISTOL BAY REGIONAL
SEAFOOD DEVELOPMENT ASSOCIATION (via teleconference), spoke
strongly in support of HB 344. He stated that the most
valuable salmon fishery in the world is rising sharply.
Filet production in Bristol Bay increased by over 18
percent between 2008 and 2009 to 21 million pounds. He
expected to see the trend continue as a result of the tax
credit. He expressed hope that the committee would approve
the modest expansion of the tax credit to include ice
making. Ice is a necessary condition for higher value
products. Higher value products lead to higher prices upon
which the fishery's business tax and fishermen's income is
based. He mentioned the suffering market in Chile.
3:47:20 PM
Representative Doogan asked about the change in philosophy
regarding the qualification of ice machines as expenditures
when in the past they were considered non-qualified
expenditures. Mr. Waldrop believed that the tax credit
stimulated the growth of value-added equipment.
Representative Doogan referred to long list of non-
qualified expenditures including ice machines. He asked how
many other things not currently listed as qualified
expenditures will get moved to qualified list as time goes
on.
Representative Doogan asked whether additional pieces of
equipment will be moved over to the list of qualified
expenditures, which will ultimately increase the expense to
the state. Mr. Waldrop did not believe that the inclusion
of the ice machines qualified as "mission creep" but that
the original mission of the legislation was too narrow. The
Bristol Bay Regional Seafood Development Association has
invested $300,000 to $400,000 into ice making equipment.
3:51:51 PM
Representative Austerman noted that the equipment list is
ten years old and he did not think one change in ten years
signaled danger. He emphasized that the benefits of ice
machines had been discussed in committee for years.
KRIS NORORSZ, GOVERNMENT AFFAIRS, ICICLE SEAFOODS,
PETERSBURG (via teleconference), testified in support of
the bill. She explained that her company purchased and
processed salmon throughout Alaska. Icicle Seafoods has
utilized the tax credit to purchase equipment, further
diversify the product line, improve quality and prolong
product viability. She described the various equipment
purchased that prolong the shelf life of the salmon.
Vice-Chair Thomas closed public testimony. He asked DOR
about the fiscal note. Mr. Dick responded that the fiscal
note would not change with the added amendments.
Representative Fairclough asked if the credits carry
forward. Mr. Dick answered that the provision to carry-over
for three years after the tax year has always existed in
the legislation. He added that HB 344 simply extends the
carry over provision end-date.
Representative Fairclough asked for more information about
the carry-over. She asked how the carry-over functions if a
person purchases a piece of equipment for $1 million and is
able to declare up to $500 thousand. Mr. Dick responded
that the with a $100,000 tax liability, a company could use
$50,000 and carry over the remainder of the investment to
the subsequent tax years, for four years.
Representative Fairclough clarified that the provision
existed in the current legislation. Mr. Dick responded yes.
Representative Fairclough asked about the life-cycle of new
equipment provided for as a credit. She requested a cost
analysis regarding the payment schedule for the equipment.
Mr. Dick deferred to the industry for an answer.
Mr. Fisk answered that the typical life expectancy for an
ice plant was approximately 20-30 years.
3:58:20 PM
Representative Foster stated support for the legislation.
He believed that help for the rural, western, and
impoverished communities was always a step in the right
direction.
HB 344 was HEARD and HELD in Committee for further
consideration.
3:59:37 PM
ADJOURNMENT
The meeting was adjourned at 3:59 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB357 Letters.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 357 |
| HB344 PSPA support.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344--Alaska Tax Division 2009 Detail[1].pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344N Pac Seafood support.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344--Qualified and Non-qualified Expenditures[1].pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| peter pan Letter HB 344.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| PSPA support.pdf |
HFIN 4/1/2010 1:30:00 PM |
|
| ss Hb 344 Sponsor Statement.doc |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344 CS WORKDRAFT 26-LS1473 E Version.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344 Letter Icicle Seafoods.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |