Legislature(1997 - 1998)
01/29/1997 01:35 PM Senate CRA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SENATE COMMUNITY & REGIONAL AFFAIRS COMMITTEE
January 29, 1997
1:35 p.m.
MEMBERS PRESENT
Senator Jerry Mackie, Chairman
Senator Gary Wilken, Vice Chairman
Senator Dave Donley
Senator Randy Phillips
MEMBERS ABSENT
Senator Lyman Hoffman
COMMITTEE CALENDAR
SENATE BILL NO. 52
"An Act establishing additional tax credits against the fisheries
business tax; and providing for an effective date."
PREVIOUS SENATE COMMITTEE ACTION
SB 52 - No previous action to record.
WITNESS REGISTER
Dave Gray, Staff to Senator Mackie
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Presented sponsor statement on SB 52
Doug Donegan, Vice President
Trident Seafoods
5011 Jewel Lane, #203
Anchorage, AK 99502
POSITION STATEMENT: Testified in support of SB 52
Debra Vogt, Deputy Commissioner
Department of Revenue
P.O. Box 110405
Juneau, AK 99801-0405
POSITION STATEMENT: Administration neutral on SB 52 at this time
Rick Lauber
Pacific Seafood Processors Association
321 Highland Drive
Juneau, AK 99801
POSITION STATEMENT: Association has not established a position on
SB 52
ACTION NARRATIVE
TAPE 97-3, SIDE A
Number 001
SB 52 FISHERIES BUSINESS TAX CREDITS
CHAIRMAN MACKIE called the Senate Community & Regional Affairs
Committee meeting to order at 1:35 p.m. He noted the presence of
Senator Wilken, Senator Donley and Senator Phillips, as well as
noting that Senator Hoffman was out of town.
CHAIRMAN MACKIE brought SB 52, sponsored by Senators Mackie,
Torgerson, Taylor and Leman, before the committee as the only order
of business.
DAVE GRAY , staff to Senator Mackie, read the following sponsor
statement into the record:
"I introduced SB 52 to help bring some economic stability and
growth to Alaska's commercial fisheries industry. I think the best
way to do this is through development incentives that increase
operational efficiencies, improve product quality, or bring new
products to market. The incentives are business tax credits, up to
50 percent of a company's tax liability, for any capital
investments in shore based facilities that achieve these goals.
"Alaska's fishery resources provide nearly 70,000 jobs in the
private sector, far more than any other industry. These are
fishermen, processors and the processing labor force. For most of
the state's coastal and river communities, commercial fishing is
the dominant economic activity that sustains the community. Thus,
when markets deteriorate and fish prices fall, as has happened with
salmon, the effects can be immediate, wide spread, and devastating.
"SB 52 is modeled after a similar program that was in effect from
1986 to 1991. This program was largely responsible for large
investments in processing quality control in facilities throughout
the state. It is also credited with stimulating Alaskan
participation and expansion into the harvesting, processing, and
marketing of new bottom fisheries.
"The Alaskan fisheries industry needs a boost to improve the
marketability of its traditional fishery products and to introduce
new, value added products that appeal to consumers worldwide. This
will require large investments in new and better equipment. I feel
that the tax incentive program is the way to accomplish these
improvements in the most direct and efficient manner. The benefits
will accrue to both resident commercial fishermen as well as the
processing labor force through increased fishing opportunities and
increased processing jobs."
Mr. Gray noted the members' packets contained a sectional analysis,
a fiscal note from the Department of Revenue, as well as an
analysis that was prepared when the previous fisheries tax credit
program was in effect indicating some of the impact of the program,
which was generally acknowledged as beneficial to the fishing
industry.
CHAIRMAN MACKIE stated that this program was not something new he's
dreamed up -- it was a program that was in effect and had real good
results in terms of economics for the fishing industry in the past.
He added that he doesn't think it could come at a better time than
right now.
Number 090
DOUG DONEGAN , Vice President of Trident Seafoods, a company which
has extensive operations throughout Alaska, informed the committee
there were some other people from the industry who wanted to attend
the meeting, but they were participating in the salmon summit at
Centennial Hall.
Mr. Donegan said the commercial seafood industry is in serious
trouble. Alaskans who fish for a living are receiving historically
low prices for their catch as a result of a worldwide glut of
salmon -- a product of consistently high quality available year
round that competes head on with Alaska's wild stock. He believes
the Alaskan product can compete in this arena because of its flavor
and texture that make it a superior product.
Mr. Donegan acknowledged that the industry needs help in fighting
back, and he thinks SB 52 is an excellent step in that process.
The bill provides the incentive to financially strap processors to
produce a better product more economically, as well as encouraging
smaller operations to experiment with new products.
Mr. Donegan voiced his strong support for SB 52, which, he said, is
a concept that worked in the past.
Number 122
CHAIRMAN MACKIE asked how many plants Trident Seafoods has in
operation. MR. DONEGAN responded they have 11 plants in various
locations throughout the state, as well as five large platform
floating processors which generally operate within a half mile of
shore. He also related Trident Seafoods employs up to 3,000
people, but a seasonally adjusted full-time equivalent is
approximately 1,280 people.
CHAIRMAN MACKIE requested that Mr. Donegan provide a letter
explaining what Trident did with the program the last time it was
in effect and how it benefited them in upgrading the quality of
their product.
Number 145
SENATOR WILKEN inquired what the dollar effect would be of a 50
percent tax credit to Trident Seafoods for 1998. MR. DONEGAN
responded that Trident Seafoods' total tax liability to the state
is approximately $8 million to $9 million a year, and obviously
they couldn't use even a fraction of that on this program.
SENATOR WILKEN asked if Trident Seafoods were to take advantage of
this program, what specially would they do with that money. MR.
DONEGAN said the company hasn't yet had a chance to think about
that, but he's certain they would do something. He believes there
are a lot of areas that they need to experiment with, but he added
that experimentation is risky, it's a difficult process, and there
is no assurance of the outcome. However, this sort of incentive
lessens the risk of trying something new, and that is the
particular appeal of this legislation. CHAIRMAN MACKIE suggested
that the line of questioning from Senator Wilken could be included
in the information that Mr. Donegan provides to the committee.
Number 165
DEBRA VOGT , Deputy Commissioner, Department of Revenue, pointed out
that in his State of the State message, Governor Knowles mentioned
that he was looking at the idea of providing some sort of
incentives such as financial assistance or tax relief to the
fisheries businesses. However, he is waiting for the results of
the salmon summit before he makes a specific proposal, so at this
point, the Administration does not have an official position.
Ms. Vogt also pointed out that the department's fiscal note
indicates a fiscal impact in FY 98. The bill takes effect July 1,
1997, but the first tax year it effects would be tax year 1998 so
it wouldn't have a fiscal effect until FY 99. It is a zero fiscal
note in terms of administrative impact, but it does reflect the
dollar impact on the general fund. She said the state shares 50
percent of the Fisheries Business Tax revenue with the
municipalities so they are already only keeping half of the
Fisheries Business Tax revenue, and it would be that half that
would be available to take credits against under this legislation.
Currently, the state collects in the neighborhood of $38 million in
fisheries business taxes, which means the available potential
credit would be in the neighborhood of $19 million.
It was also noted by Ms. Vogt that amendments were made to the
Landing Tax last year in order to provide a system of parody
between the Landing Tax and the Fisheries Business Tax. This bill
doesn't do that and it is a technical change that the department
thinks the Legislature should consider. She added that the
department has a number of other more technical issues that came up
in their experience with the previous program which she would be
happy to discuss with the sponsor or the next committee of
referral.
CHAIRMAN MACKIE commented that it would not be a problem to work
with the department on any technical changes that need to be made.
Number 245
RICK LAUBER , representing Pacific Seafood Processors Association,
stated the association has not had an opportunity to take a
position on SB 52, however, he pointed out that they did support
the original program which many companies took advantage of. It
played a significant role in the processors being able to bring
more product on shore, as well as companies being able to diversify
into value added products, and he thinks the same thing would apply
now.
Mr. Lauber said one of the arguments often made about any tax
credit is that a tax credit will be given to someone who would do
it anyway, so therefore, they are saving money by taking advantage
of the tax credit. In other words, they are doing their expansion
on the state's money, not their own money. It was one of the
arguments used when the original tax credit program went into
effect, but he thinks that even the Department of Revenue was
surprised to find that while there were certainly cases of that, in
large measure it was a catalyst and used to do things that would
not otherwise have been done.
Mr. Lauber said at this time he doubts whether there is a single
company in the seafood processing industry that is in a position to
do any type of innovative processing, construction, new equipment,
etc., to take advantage or attempt to expand the markets. But if
this tax credit or any tax credit is passed by the Legislature in
order to benefit the state of Alaska, he thinks any money used from
a tax credit would be money that would not otherwise be spent.
Number 307
CHAIRMAN MACKIE said the way the bill is written it is something
that needs to be negotiated in advance in terms of what's going to
take place with the project, its cost, etc., so it's not just
writing a retroactive check back to a processor. He asked Mr.
Lauber if he thought processors could work with that sort of
scenario. MR. LAUBER didn't see a problem with that, and he
pointed out the department used a similar technique in the last tax
credit program and established ground rules as to what was
allowable under the tax credit.
Number 332
SENATOR WILKEN commented that he supports the legislation, but the
people of Alaska are being asked to invest some sixty or seventy
million dollars over the next five years. He expressed his hope
that as this bill goes through the next two committees, those
people that may become beneficiaries of this program are to list
specific projects which they would be interested in and the return
on those projects in order to ensure that the people of Alaska
realize that sixty or seventy million dollars back five years from
now. CHAIRMAN MACKIE agreed and said he would request those types
of information from processors. He added that he knows the
legislation will get significant scrutiny in the overall picture of
finances when it gets to the Finance Committee.
Number 355
CHAIRMAN MACKIE asked for the pleasure of the committee on SB 52.
SENATOR DONLEY moved that SB 52 and the accompanying fiscal note,
as corrected, be passed out of committee with individual
recommendations. Hearing no objection, it was so ordered.
There being no further business to come before the committee, the
meeting was adjourned at 1:58 p.m.
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