Legislature(2021 - 2022)ANCH LIO DENALI Rm
09/10/2021 10:00 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Overview: Budget Efficiencies and Reductions | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
Anchorage, Alaska
September 10, 2021
10:04 a.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Andy Josephson
Representative Calvin Schrage
Representative Mike Prax
MEMBERS ABSENT
Representative Adam Wool
Representative Andi Story
Representative David Eastman
COMMITTEE CALENDAR
OVERVIEW: BUDGET EFFICIENCIES AND REDUCTIONS
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
CONOR BELL, Fiscal Analyst
Legislative Finance Division
Juneau, Alaska
POSITION STATEMENT: During the overview on Budget Efficiencies
and Reductions, gave a PowerPoint presentation, titled "Indirect
Expenditure Report Overview," dated 9/10/21.
ALEXEI PAINTER
Director, Legislative Finance Division
Juneau, Alaska
POSITION STATEMENT: Answered questions during the overview on
Budget Efficiencies and Reductions.
ACTION NARRATIVE
10:04:45 AM
CHAIR IVY SPOHNHOLZ called the House Special Committee on Ways
and Means meeting to order at 10:04 a.m. Representatives
Josephson, Schrage, Prax, and Spohnholz were present at the call
to order.
^OVERVIEW: Budget Efficiencies and Reductions
OVERVIEW: Budget Efficiencies and Reductions
10:05:29 AM
CHAIR SPOHNHOLZ announced that the only order of business would
be an overview on Budget Efficiencies and Reductions.
10:06:32 AM
CONOR BELL, Fiscal Analyst, Legislative Finance Division, gave a
PowerPoint presentation, titled "Indirect Expenditure Report
Overview," dated 9/10/21 [hard copy available in the committee
packet]. He defined "indirect expenditure" [slide 2], related
requirements of an expenditure report [slide 3], and reviewed
disclaimers [slide 4]. He noted the agencies covered in the
2021 report [slide 5]: the Department of Commerce, Community
and Economic Development (DCCED); the Alaska Department of Fish
and Game (ADF&G); the Department of Health and Social Services
(DHSS); the Department of Labor and Workforce Development
(DLWD), and the Department of Revenue (DOR).
MR. BELL pointed out the summary of recommendations required
from the Division of Legislative Finance [pie chart, slide 6]
and discussed termination requirements [slide 7]. In response
to Chair Spohnholz, he offered his understanding that the
estimate of foregone revenue was based on net revenue.
10:15:07 AM
MR. BELL covered the topic of corporate income tax and major
provisions recommended for termination [slide 8]; oil and gas
production tax [slides 9-10].
10:19:06 AM
MR. BELL, in response to Representative Josephson, confirmed
that the division does accounting based on worldwide accounting
versus a separate accounting system.
10:21:31 AM
ALEXEI PAINTER, Director, Legislative Finance Division, in
further response to the question, confirmed that in the 1980s,
under separate accounting, corporate income tax was higher. He
said this is dependent on oil prices and both systems of
accounting are volatile. He said he could come back with
further information on the topic.
10:23:27 AM
MR. PAINTER, in response to a question from Representative Prax,
explained that the division's recommendation to terminate the
exclusion for S corporations [slide 8] was in response to the
differential treatment between various types of corporations and
the lack of legislative intent behind that. Where the line is
drawn is a policy call for the legislature, he said.
10:26:59 AM
MR. BELL highlighted the most significant oil and gas production
tax provisions [slide 9]. He covered per taxable barrel credits
for gross value reduction value, for which the division
recommends reconsideration, and carried-forward lease
expenditures, for which there is no recommendation based on
recent legislative action. In response to Representative
Josephson, he discussed carried-forward lease expenditures in
terms of net profits.
10:34:27 AM
MR. PAINTER added that these were a replacement from the prior
system in which the state could purchase the credit. To further
questions, he talked about tax credits being more of an "offset"
and suggested this issue is a policy call for the legislature.
In response to Representative Prax, he confirmed under ACES
there had been a lower tax rate with progressivity increases.
10:39:07 AM
MR. BELL, in response to Representative Schrage, clarified that
lease expenditures can only be carried into the future; they
cannot be used against past years' production tax liabilities.
MR. PAINTER, in response to a follow-up question, explained that
indirect expenditures are often intentional credits, but are
foregone revenue. The definition in statute refers to any tax
credit like this that is an indirect expenditure.
MR. BELL added that DOR did not include carried forward leases
as indirect expenditure, but the Division of Legislative Finance
included them in the report as an item of impact worthy of
focus.
10:46:25 AM
MR. PAINTER, in response to Chair Spohnholz, offered his
understanding that corporate income tax was positive under the
spring forecast, which has higher oil prices than the fall
forecast, which is when the corporate income tax was a negative
number. Per individual company, the state may have to pay out
more credits than money received from that company, he noted.
10:47:34 AM
MR. PAINTER, in response to Representative Prax, indicated that
the state's paying out money to corporations to compensate for
operating losses was a feature of the tax code prior to tax
reform in 2017. He said under the code, losses could be carried
forward or backward; the 2017 reform eliminated carrying
backward, but that was reinstated under the CARES Act for
calendar years 2020 and 2021. Alaska is effected because it
adopts the federal definition, he explained.
10:52:01 AM
MR. BELL noted points pertaining to oil and gas production tax
[slide 10] and regarding credits currently applicable only to
Middle Earth: the transferable 10 percent credit for qualified
capital expenditure (QCE); the 20 percent well lease
expenditure, which can be combined with the QCE credit; and a
transferable credit up to 40 percent, an alternative credit for
exploration that the division recommends allowing to expire at
the end of the year because of redundancy.
10:56:01 AM
MR. BELL moved on to fisheries business tax [slide 11] and a
salmon and herring product development credit of: 50 percent of
qualified investments up to 50 percent of tax liability incurred
for processing salmon and herring. He explained the legislative
intent behind this tax credit was to encourage development of
value-added seafood products in Alaska. The sunset was
12/31/20. He said the division estimated this credit reduced
tax revenue by approximately $3 million and recommends
reconsideration.
10:57:29 AM
MR. PAINTER explained that because of confidentiality, DOR could
not break down the activity for salmon versus herring; the
Division of Legislative Finance recommends changing that
confidentiality in order to better evaluate the effectiveness of
credit for different species, as well as ensuring the credit
reflects current needs of the industry. In response to
Representative Prax, he talked about product diversity to
counteract gluts in fish caught. He spoke of the difficulty in
determining the impact of the credit with so many variables in
play.
11:02:31 AM
MR. BELL next discussed fisheries resource landing tax [slide
12] and the community development quota (CDQ) credit for
contributions to certain fisheries-related non-profit
corporations. He said it is a 100 percent credit up to a
maximum of 45 percent of tax liability, and the credit was taken
against the municipal share of tax, so there was no impact to
state revenue. The sunset was 12/31/[20].
MR. BELL moved on to corporations [slide 13]. He said the
division recommends reviewing the entire corporate fee structure
for effectiveness and to determine whether Alaska's fee
structure is comparable to and competitive with fees in other
states, and the total revenue impact of indirect expenditures is
$2.3 million [annually].
MR. PAINTER offered a distinction between registration fees
versus corporate taxes.
11:04:51 AM
MR. BELL, in response to Representative Schrage, explained that
the $2.3 million is separate from reviewing the entirety of the
corporate fee structure, which could be much larger.
MR. PAINTER offered to follow up with the information to shed
further light on the issue of corporate fees.
11:06:43 AM
MR. PAINTER, in response to Representative Prax, explained that
whether fees were primarily used to run a program was highly
dependent on the program, and he offered examples. To follow-up
questions from Representative Prax, he said the distinction
between fees and taxes in Alaska is more a philosophical one; he
is not familiar with challenges to fees; and there is list of
all credits.
11:14:03 AM
MR. BELL, in response to a question from Representative Prax,
said he could find out and report back whether municipal tax
being deductible against the state tax rate is included in the
report of state expenditures.
CHAIR SPOHNHOLZ offered her understanding it is included.
11:15:06 AM
MR. PAINTER, in response to a question from Representative
Josephson about "fair economic motivation," declined specific
comment but noted that there are a wide variety of taxes against
which credit can be taken.
11:16:52 AM
MR. BELL resumed the presentation, directing attention to mining
license tax [slide 14], for which the division recommends
reconsideration of the tax structure in its entirety because it
was established pre-statehood and its effectiveness may be
obsolete. He discussed depletion deductions and a 3.5-year
exemption for newer mining operations.
11:18:23 AM
MR. BELL, in response to Representative Josephson, remarked on
the expected differences of tax revenue in high or low oil
revenue years.
11:20:17 AM
MR. PAINTER, in response to a follow-up question, offered to
return with information regarding the derivation of proper tax
rates.
11:25:19 AM
MR. BELL moved on to sport fishing and hunting licensing [slide
15]. He said the division recommends an overall review of the
program. He said the state increased fees in 2017, but the
agency struggles with low balance in the Fish and Game fund and
requires undesignated general funds (UGF) to maintain agency
functions. He noted the cost to the state resulting from
reduced license rates is approximately $1.2 million for
nonresident military, about $300,000 for Yukon residents, and an
indeterminate amount for disabled veterans, seniors, and low-
income individuals.
MR. BELL next discussed the alcoholic beverages tax [slide 16],
specifically the small brewery reduced rate, which reduces the
tax rate from $1.07 to $0.35 for qualified brewers producing
[less] than 2 million [gallons] per year. He explained it is
unclear whether it was the intent of the legislature in aiding
Alaska-based breweries and brewpubs to also include out-of-state
breweries. The division recommends revisiting the overall
program, which reduces tax revenue be an estimated $3 million
annually.
11:28:13 AM
MR. PAINTER, in response to Representative Josephson,
acknowledged outlying costs and the consideration for the
legislature of the conflict between statute and current
practice. He mentioned boards subsidizing each other and an
improvement toward boards paying for themselves. He said there
are areas where the state may still be spending UGF when perhaps
the costs should be covered by a board. In response to
Representative Josephson, he confirmed that the legislature has
chosen not to follow statute in order to subsidize boards, for
example during the pandemic. In response to Chair Spohnholz, he
recalled a policy direction years ago to encourage economic
growth by reducing fees and offering a subsidy from the UGF.
11:34:00 AM
MR. PAINTER, in response to Representative Prax, confirmed that
the Division of Legislative Audit ensures that boards and
commissions are performing adequately and are "paying their
way."
CHAIR SPOHNHOLZ thanked the presenters.
11:39:07 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
[11:39] a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2021 Indirect Expenditure Report.pdf |
HW&M 9/10/2021 10:00:00 AM |
|
| 2019 Indirect Expenditure Report.pdf |
HW&M 9/10/2021 10:00:00 AM |
|
| 2017 Indirect Expenditure Report.pdf |
HW&M 9/10/2021 10:00:00 AM |
|
| 2015 Indirect Expenditure Report.pdf |
HW&M 9/10/2021 10:00:00 AM |
|
| DOR FY15-FY19 Indirect Expenditure Report.pdf |
HW&M 9/10/2021 10:00:00 AM |
|
| Indirect Expenditure Report Presentation.pdf |
HW&M 9/10/2021 10:00:00 AM |