Legislature(1995 - 1996)

04/10/1995 09:10 AM Senate HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                         April 10, 1995                                        
                           9:10 a.m.                                           
    SENATE   MEMBERS PRESENT                                                   
 Senator Lyda Green, Chairman                                                  
 Senator Loren Leman, Vice-Chairman                                            
 Senator Mike Miller                                                           
 Senator Johnny Ellis                                                          
 Senator Judy Salo                                                             
  SENATE MEMBERS ABSENT                                                        
 All members present.                                                          
  HOUSE MEMBERS PRESENT                                                        
 Representative Con Bunde, Co-Chair                                            
 Representative Cynthia Toohey, Co-Chair                                       
 Representative Caren Robinson                                                 
    HOUSES   MEMBERS ABSENT                                                    
 Representative Al Vezey                                                       
 Representative Gary Davis                                                     
 Representative Norman Rokeberg                                                
 Representative Tom Brice                                                      
  COMMITTEE CALENDAR                                                           
 Presentation by Rebecca Rufner, Arizona State Coordinator, National           
 Committee for the Prevention of Child Abuse.                                  
 SENATE BILL NO. 103                                                           
 "An Act providing an income tax credit for certain taxpayers who              
 provide child care for their employee's minor children; and                   
 providing for an effective date."                                             
  PREVIOUS SENATE COMMITTEE ACTION                                             
 SB 103 - No previous action to record.                                        
  WITNESS REGISTER                                                             
 Senator Salo                                                                  
 State Capitol                                                                 
 Juneau, Alaska 99801-1182                                                     
 POSITION STATEMENT:  Prime sponsor of SB 103.                                 
 Bob Bartholomew, Deputy Director                                              
 Income and Excise Tax Division                                                
 Department of Revenue                                                         
 PO Box 110420                                                                 
 Juneau, AK 99811-0420                                                         
 POSITION STATEMENT:  Discussed various aspects of SB 103,                     
                      specifically the possibility of double                   
  ACTION NARRATIVE                                                             
 TAPE 95-29, SIDE A                                                            
 CHAIRMAN GREEN called the Joint House & Senate Health, Education              
 and Social Services (HESS) Committee to order at 9:10 a.m.  She               
 invited Rebecca Rufner to come forward and give her presentation.             
 Number 028                                                                    
 REBECCA RUFNER, Arizona State Coordinator of the National Committee           
 for the Prevention of Child Abuse, informed the committee that she            
 would be speaking about her experience in Arizona and the national            
 progress of the Healthy Families Program.  She commented that today           
 social problems threaten the future of our country, families and              
 communities.  She explained that she is a National Site Visitor for           
 Healthy Families which is a neo-natal home visitation program aimed           
 at child health and development, family functioning, and prevention           
 of child abuse and neglect.  Child abuse is believed to be the root           
 of many of the social problems facing us today.  She informed the             
 committee that persons in maximum security prisons have all been              
 severely abused and neglected as young children.  This common link            
 of severe abuse and neglect of young children can also be found in            
 juvenile delinquents, the mentally ill, high school dropouts, teen            
 runaways, pregnant teens, and alcohol and drug abusers as well as             
 long-term welfare dependents.                                                 
 Ms. Rufner stated that child abuse is costing the State of Alaska             
 millions of dollars a year in child welfare investigations and                
 treatment, foster care, special education, and residential care.              
 She noted that in Arizona the cost of opening an investigation of             
 a child abuse case totals approximately $10,000 not to mention the            
 hundreds of thousands spent in treatment.  The long-term can barely           
 be estimated.  She informed the committee that approximately 80               
 percent of severe abuse affects children under the age of five.               
 Forty-three percent of the children who die from abuse and neglect            
 have not reached their first birthday.  She expressed the need to             
 solve the social problems facing the country in order to decrease             
 the costs of social programs while increasing their effectiveness             
 and outcome.  She pointed out that Human Services is under much               
 scrutiny and pressure to become more accountable, more outcome                
 based and more cost effective with all of its programs.  There is             
 a tremendous amount of fragmentation in their service delivery                
 Number 117                                                                    
 Healthy Families Alaska is under way and has much interest across             
 the state.  Ms. Rufner noted that currently, there are three                  
 programs that are funded and operating.  All fifty states are in              
 various stages of planning, implementing and securing state funding           
 for this program on a pilot basis.  Arizona has $4.7 million in               
 state funds which funds approximately 16 sites.  She informed the             
 committee of the goals of the Healthy Families Program:  child                
 health and development, the enhancement of family functioning and             
 the prevention of child abuse and neglect.  Those people who are              
 most likely to have poor parenting outcomes in the first few years            
 face great burdens during the birth of their children.  The burdens           
 of those people can be identified as poverty, substance abuse,                
 criminal history, domestic violence and a history of abuse or                 
 neglect as a child themselves.                                                
 The Healthy Families program provides home visitation to those                
 families soon after they return from the hospital.  Ms. Rufner                
 pointed out that in Arizona, there has been a 95 percent acceptance           
 rate of the families with major stressors.  The family can refuse             
 services at any time.  The home visitor helps the family identify             
 their goals as parents, their family aspirations as well as                   
 assisting the family in moving forward in those issues.  Ms. Rufner           
 looked forward to positive outcomes in the programs in Alaska.  The           
 states who have done outcome evaluations of this program, have seen           
 a 95 percent immunization rate in children in the program and all             
 program children receiving preventive and primary health care.  She           
 explained that preventive and primary health care is very important           
 in order to avoid the treatment of basic health problems in                   
 emergency rooms and acute care settings where the costs are higher.           
 Ms. Rufner stated that there is good outcome information about                
 child development scores.  Children with developmental delay risks            
 have been identified early and placed them in services addressing             
 that problem.  Again this early intervention would decrease costs             
 of special education and later intervention programs.  There have             
 been positive scores in family functioning.  Ms. Rufner pointed out           
 that the home visitors in Arizona are from the community and they             
 share the culture and values of the community.  There has been a 95           
 percent success rate in the prevention of abuse and neglect in this           
 high risk parent group.  She expressed pleasure in Arizona's                  
 outcomes and predicted that Alaska could expect the same.  The cost           
 effectiveness of this program is very exciting.  She estimated the            
 cost to be $3,000 per year per family as compared to the $10,000              
 cost in merely opening a case for an investigation of child abuse             
 in Arizona.  In conclusion, Ms. Rufner stated that the Healthy                
 Families Program is an exciting and promising approach with regards           
 to long-term solutions to these costly problems.                              
 Number 217                                                                    
 REPRESENTATIVE TOOHEY asked Ms. Rufner if she thought the cost in             
 Alaska would be $3,000 or would it be a little higher.  REBECCA               
 RUFNER said that there may be a percentage higher cost per family             
 in Alaska which would also mean that investigation and treatment              
 costs would also be higher.  The average cost in Arizona is                   
 approximately $3,000 in the first year while the cost dropped to              
 approximately $2,250 in the second year.  Visits after the first              
 year are less frequent and the family becomes more self-sufficient            
 in the second year.                                                           
 In response to Representative Toohey, REBECCA RUFNER clarified that           
 the family needs assessment person works in the hospital directly             
 with OB and pediatrician and hospital staff.  The family needs                
 assessment person has a BA or above; that person needs good skills            
 with face to face interviews as well as the ability to discuss                
 problems with new mothers.  Ms. Rufner explained that the home                
 visitor in Arizona is a non degreed woman.  Program supervisors               
 should be Masters level people.                                               
 REPRESENTATIVE CON BUNDE inquired as to what a home visit would               
 consist.  REBECCA RUFNER explained that the early focus of the home           
 visit is building a trusting relationship with the parent.  Often             
 overburdened families lack trust in traditional services.  As the             
 parent and home visitor build trust the focus of the visit turns to           
 the needs of the infant.  Child health is another important focus             
 of the visit.  The visit also focuses on personal issues of the               
 family.  Ms. Rufner specified that the issues addressed in the home           
 visits are issues that have been identified by the family as their            
 needs and wants.  The family is in control.  After a few months in            
 the program, family stress levels decline which affords the family            
 more opportunity to focus on the children.                                    
 Number 277                                                                    
 REPRESENTATIVE CON BUNDE stated that this program seemed to provide           
 a state supported conscious for these people which supports the               
 notion that it takes a village to raise a child as opposed to the             
 past years of encouragement of privacy.  Representative Con Bunde             
 felt that Ms. Rufner's use of the word "burden" indicated that the            
 families plight was imposed on them.  He preferred to say that the            
 families were making poor choices.                                            
 SENATOR ELLIS asked the House members what had happened with the              
 governor's funding proposal for this program.  Senator Ellis asked            
 if Ms. Rufner could then give an estimate as to the level of                  
 program possible with regards to the funding.  REPRESENTATIVE                 
 TOOHEY hoped that it was the same, but was unsure.  REPRESENTATIVE            
 C. ROBINSON specified that funding had been requested for three               
 programs while only the program in Juneau received funding.                   
 Number 308                                                                    
 SHERRI GOLL, Alaska Women's Lobby, clarified that the House passed            
 a budget that included $200,000 more for one additional project               
 than existed last year.  The governor had requested $600,000                  
 additional money, beyond last year's appropriations in order to               
 open new sites for Healthy Start.  The House included $200,000 more           
 for one additional site; which would be in addition to the Juneau             
 program that was funded last year.                                            
 CHAIRMAN GREEN inquired as to the net funding.  SHERRI GOLL                   
 explained that last year was the first year of the program which              
 had an appropriation of $200,000.  Now there is a total of $400,000           
 appropriated for Healthy Start.                                               
 REBECCA RUFNER believed that the best way to build these programs             
 on a state level is team by team, community by community.  The                
 three sites in Juneau, Kenai, and Anchorage are a good start.  Ms.            
 Rufner informed the committee that there are more than 11,000                 
 births a year; approximately a quarter of the population that is              
 high risk would be served.                                                    
 SENATOR SALO noted that overcoming substance abuse even with help             
 is difficult, however, Ms. Rufner had presented overwhelmingly                
 positive and successful statistics.  Senator Salo asked if there              
 was any particular manner in which substance abuse problems are               
 REBECCA RUFNER said that there are no particular ways in which to             
 deal with substance abuse families.  Perhaps the most positive                
 aspect of this program is that when home visitors recognize                   
 substance abuse in families with new babies, someone is watching              
 out for the health and safety of the infant.  A good percentage of            
 the program's new mothers have entered substance recovery programs.           
 She explained that birth is a time of emotional focus for the                 
 parent.  She pointed out that in Arizona there is a shortage of               
 effective and available treatment programs.  Child care becomes a             
 problem for parents seeking residential treatment.  She emphasized            
 that the availability and awareness of help early on is important.            
 She mentioned that approximately 60 to 70 percent of the child                
 abuse referrals involve substance abuse.  That would seem to be the           
 case in Alaska or even higher.  She indicated that a large number             
 of infant and child fatalities could be involved in substance                 
 abuse.  Ms. Rufner reiterated that the program has served very                
 substance abusing high risk families with no fatalities and no                
 severe abuse.                                                                 
 Number 380                                                                    
 CHAIRMAN GREEN inquired as to the responsibility of these programs            
 with regard to confidentiality.  REBECCA RUFNER agreed that was               
 difficult, but it is manageable with respect to the confidentiality           
 aspect and the ethical perspective of the home visitor.  Home                 
 visitors are mandated to report child abuse and neglect; that is a            
 federal and state law.  Ms. Rufner noted that the families are                
 notified of this law, furthermore, the family signs an informed               
 consent when they begin the program.  The family can decide at any            
 time to leave the program.  There is no punitive follow up unless             
 the child was in imminent harm of abuse or neglect in the opinion             
 of the home visitor.  Ms. Rufner informed the committee that public           
 opinion polling by the National Committee to Prevent Child Abuse              
 found that 86 percent of Americans polled feel that providing a               
 home visitor to new parents is positive.  All other industrialized            
 countries provide public health home visitation to new parents.               
 America did this in the past through public health nursing, but we            
 switched over to clinic based services which was believed to be               
 more cost effective.  The preventive capacity has been lost when              
 new parents are not supported when they leave the hospital.                   
 CHAIRMAN GREEN asked if any of the sites in Arizona were considered           
 rural.  REBECCA RUFNER replied yes and explained that the home                
 visitors spend a lot of time in transit.  Families are widely                 
 spaced from one another.  The costs are about the same.                       
 REPRESENTATIVE TOOHEY inquired as to the number of single parents             
 in these programs.  REBECCA RUFNER explained that in Arizona the              
 program serves a higher percentage of single parents than in Hawaii           
 due to Arizona's higher divorce rate and teen birth rate.  In the             
 Tucson program, of the unemployed families enrolled in the program            
 at the time the babies were born, 75 percent of those families had            
 an employed parent within one year.  That is strongly encouraged by           
 the home visitor.                                                             
 REPRESENTATIVE C. ROBINSON understood that the home visitor helps             
 the family set goals.  Often young families do not have the skills.           
 Representative C. Robinson asked if the family needed                         
 transportation to a health care facility, would the home visitor              
 provide that.  REBECCA RUFNER replied yes and explained that the              
 home visitor attempts to help the family identify the needs of the            
 family and the child.  Then the home visitor helps the parent feel            
 competent to solve their problems; the home visitor does not solve            
 the family's problems.  The solutions are generated as part of the            
 relationship between the parent and the home visitor.                         
 Number 446                                                                    
 REPRESENTATIVE C. ROBINSON inquired as to how these programs were             
 funded in Arizona.  Representative C. Robinson also asked if                  
 Arizona had a Children's Trust Fund.  REBECCA RUFNER pointed out              
 that Arizona's Children's Trust Fund was the original funding                 
 source of the first two pilot sites.  That trust fund is funded by            
 marriage decrees and divorce dissolutions and $1 from death                   
 certificates.  Last year the Healthy Families Program was expanded            
 with a combination of funding from the Children's Trust Fund, state           
 dollars as well as community foundations and dollars.                         
 REPRESENTATIVE C. ROBINSON asked if Ms. Rufner had found an average           
 age level of those served.  REBECCA RUFNER did not know the median            
 age of the parents served, however, most of the parents served are            
 under the age of 25.  A number of parents in the program are having           
 there third or fourth child.                                                  
 SENATOR SALO asked how long the family would be served after the              
 birth of the baby.  REBECCA RUFNER specified that the home visitor            
 can visit up to five years.  The goal of the program is to ensure             
 that the children enter school safe, healthy, and ready to succeed            
 in school.  Ms. Rufner commented that a universal transition to               
 Head Start for a child at age three is an exciting aspect of this             
 program.  A way to save money in the state's system is to develop             
 a seamless transition from the home visitation program into Head              
 Start at age three.                                                           
 There being no further questions, Chairman Green thanked Ms. Rufner           
 for her presentation.  Chairman Green called a brief at ease from             
 9:45 a.m. to 9:50 a.m.                                                        
          SB 103 TAX CREDIT FOR PROVIDING CHILD CARE                         
 Number 494                                                                    
 CHAIRMAN GREEN called the Senate Health, Education & Social                   
 Services meeting to order and announced  SB 103  as the only order of         
 business before the committee.                                                
 SENATOR SALO pointed out that the committee had a CS to SB 103.               
 She explained that the Department of Revenue's analysis had                   
 discovered the problem with double dipping which lead to the                  
 changes in the CS.  The major change in the CS is the allowance of            
 50 percent of the costs up to $100,000 for start up costs on a                
 child care facility.  She pointed out the possible problem with               
 giving a tax credit to a facility that is totally open to the                 
 public; that lead to the change in the CS which specifies that the            
 majority of the children in the facility must be of the employer or           
 taxpayer.  The CS also clarifies the start up costs which pose a              
 major barrier.                                                                
 SENATOR SALO moved the 4/8/95 CS be adopted in lieu of the original           
 bill.  Hearing no objection, it was so ordered.  She also noted the           
 presence of the sponsor statement and pointed out that the first              
 paragraph is not entirely accurate with regards to the CS.                    
 SENATOR MILLER asked if the credit referred to in the bill would              
 only be for the first year the operation in which the facility is             
 built; does it include the construction of the facility, the                  
 facilities maintenance?  How long does the credit last for any                
 given taxpayer?  SENATOR SALO directed Senator Miller to page 2,              
 lines 3-5 in which "start" is defined by what it does not mean.               
 The credit would be given to the taxpayer during the tax year a new           
 child care facility is started.                                               
 SENATOR LEMAN indicated agreement with the changes in the CS.  He             
 noted that he had worked to create uniformity in tax credits.  He             
 recognized that a 50 percent credit, which is a large credit, does            
 provide incentive.  What is the credit offered in the other 17                
 states referenced in the backup?  SENATOR SALO said she did have a            
 state by state comparison and could have that information for him.            
 SENATOR LEMAN felt that the 50 percent credit seemed consistent               
 with other credits.                                                           
 Number 554                                                                    
 CHAIRMAN GREEN informed the committee of the Mat-Su Campus which              
 has a wonderful child care facility and within a three or four mile           
 radius from that are three wonderful child care centers.  The                 
 concern arises regarding the subsidy which would compete with                 
 privately run child care centers.  Where would this bill fall in              
 the realm of unfair or subsidized competition?                                
 SENATOR SALO acknowledged that question as central to corporate               
 sponsored or corporate subsidized child care.  Alaska is lacking in           
 good quality child care which would support the encouragement of              
 more quality child care.  In addition, corporate sponsored or                 
 subsidized child care seems to be a higher degree of quality; such            
 a child care center's operation would probably mesh with the                  
 demands of the employer which sponsors it.  Furthermore, the                  
 commitment from the employer to the importance of raising children.           
 Senator Salo said that she did not want to negatively effect good             
 privately owned child care.  Privately owned child care centers               
 could enter into a corporate sponsorship agreement.  In conclusion,           
 Senator Salo hoped that this bill would not pose barriers to                  
 private child care centers, however the benefit of corporate                  
 sponsored child care is worth the effort.                                     
 SENATOR MILLER clarified that a corporately sponsored child care              
 facility would be a private entity because the corporate sponsor is           
 a private business.                                                           
 TAPE 95-29, SIDE B                                                            
 Number 582                                                                    
 SENATOR MILLER recognized that the corporately sponsored child care           
 facility may be in competition with a child care facility in the              
 area, but the corporately sponsored child care is a privately run             
 business also.                                                                
 CHAIRMAN GREEN questioned if by giving a tax credit to the                    
 corporately sponsored child care facility, the small child care               
 business was disadvantaged because it did not receive a comparable            
 tax credit.                                                                   
 SENATOR MILLER understood the concern of Chairman Green, however he           
 agreed with Senator Salo regarding the shortage of child care in              
 Alaska.  Often only large businesses can achieve such measures;               
 small businesses often do not have the resources.  He pointed out             
 that studies have shown that corporately sponsored child care                 
 facilities create more productive employees of the corporate                  
 sponsor as well as a better work environment.                                 
 SENATOR LEMAN expressed interest in discovering how a little                  
 company could be given some advantage.  In regards to the                     
 definition of "start", he asked what would be the problem with                
 allowing "start" to apply to the substantial expansion of an                  
 existing facility.  Would an expansion of a facility be that                  
 different from the construction of a new facility?  He understood             
 that the intent was probably to avoid claims for credit for new               
 toys or other things that are not intended.  Perhaps, there is a              
 manner in which to clarify a substantial remodel.                             
 SENATOR SALO explained that the CS attempts to eliminate the tax              
 credit for operational costs; the incentive is only intended for              
 the development of the center.  Although she did not intend for the           
 bill to include expansion or remodeling, she felt that it would be            
 acceptable.  That could be addressed with a small change in                   
 SENATOR LEMAN suggested using the language "capital expenditures              
 that increased its capacity" which would allow for the enhancement            
 of the facility in its capacity to receive more children.  Perhaps,           
 the bill drafters could address that issue.                                   
 SENATOR SALO indicated that a better definition of "start" could be           
 determined and she would be available to work on that.                        
 SENATOR LEMAN requested the information regarding the tax credit in           
 other states in order to determine if Alaska is being reasonably              
 Number 541                                                                    
 BOB BARTHOLOMEW, Deputy Director for the Income and Excise Tax                
 Division at the Department of Revenue, informed the committee that            
 tax credits shrink the state's revenue base at a time when revenue            
 short fall should be reversed.  Therefore, there is hesitancy in              
 backing tax credit bills.  With regard to SB 103, the initial                 
 fiscal note did not anticipate any increased costs to the                     
 department.  However, the fiscal note does not necessarily reflect            
 a zero fiscal note.  The asterisks in the fiscal note indicated               
 that the department could not anticipate or calculate the loss to             
 revenue; there would be a fiscal impact, but it is unknown at this            
 Mr. Bartholomew pointed out that the change in the tax credit to 50           
 percent of the expenditures would decrease the impact to the                  
 treasury.  He reiterated Senator Leman's concern regarding keeping            
 tax credits similar, or as the department calls it "double                    
 dipping".  The CS does not specifically address that problem.  The            
 corporation can deduct the entire expenditure from their income.              
 If the corporation spends $100,000 to construct a child care                  
 facility, the entire $100,000 would be deducted from income to                
 calculate taxable income which would determine the tax liability.             
 Then 50 percent of the same $100,000 that the corporation deducted            
 would also reduce their taxes by $50,000.                                     
 SENATOR SALO asked if the corporation deducts the $100,000 from               
 their income in order to determine their taxable income; dependent            
 on their tax rate, what does that mean in money terms?  BOB                   
 BARTHOLOMEW explained that with the highest state corporate income            
 tax rate, 9.4 percent, a $100,000 deduction would reduce their tax            
 liability by 10 percent.                                                      
 SENATOR SALO thought she had solved that issue by changing to the             
 50 percent tax credit.                                                        
 SENATOR LEMAN said that there is still a problem with double                  
 dipping.  In this case, $50,000 plus $9,400 which totals $59,400.             
 There is a way to only get the $50,000 which is 50 percent of...              
 BOB BARTHOLOMEW clarified that, as with other credits, if the                 
 corporation has an expenditure that is eligible for a tax credit              
 that expenditure would not be deductible from gross income in                 
 calculating the corporation's tax liability.  A credit is                     
 calculated and deducted from the tax liability.  He explained that            
 any expenditure eligible for a credit comes out of the equation of            
 the calculation of taxable income and the credit returns after the            
 tax liability has been determined.                                            
 SENATOR MILLER pointed out that this construction would depreciate            
 over the years.  The corporation would not write off the entire               
 amount all at once in one year.  BOB BARTHOLOMEW said that would be           
 correct with capital expenditures under the rules of the Internal             
 Revenue Service which would determine the write off over a                    
 specified number of years.  Mr. Bartholomew recommended that if a             
 capital expenditure is made eligible for a tax credit, then do not            
 place that expenditure into your fixed asset records to be                    
 depreciated; that expenditure would not depreciate.  This bill                
 would allow the corporation to receive the full benefit of those              
 expenditures up to the percentage in the first year.                          
 Number 469                                                                    
 SENATOR MILLER said that would be tough on the taxpayer.  The                 
 taxpayer would have to pay federal taxes which should be                      
 depreciated.  This would add more bookkeeping requirements because            
 it could not be done at the state level while it would be allowed             
 at the federal level.  Senator Miller did not believe this issue to           
 be as great a problem as Mr. Bartholomew has described.                       
 BOB BARTHOLOMEW stated that he merely wanted to point out that                
 there is double dipping.  If the intention is to allow a $59,400              
 tax credit, then leave the bill and there would be a difference               
 between how some credits are applied versus this credit.  He stated           
 that the same dollar comes away twice.  SENATOR MILLER specified              
 that the $9,400 would be spread over 27 and a half years due to the           
 federal rules.                                                                
 BOB BARTHOLOMEW predicted that the corporations would take on the             
 double bookkeeping themselves and take the entire credit in the               
 first year.  The corporations would take a credit for their                   
 expenditures against the Alaska tax in the first year to the                  
 maximum.  SENATOR MILLER pointed out that the corporations could              
 not do the double bookkeeping because the other $9,400 would be               
 depreciated out; that tax would come off their taxes in the next 27           
 and a half years.  BOB BARTHOLOMEW clarified that the double                  
 dipping would occur over the life of the asset if the corporation             
 capitalized the building of the new facility.  The intent of the              
 bill is to focus on capital construction.  SENATOR SALO said yes.             
 CHAIRMAN GREEN stated that the tax credit would be immediate versus           
 being spread.  BOB BARTHOLOMEW noted that this bill would give the            
 corporations the immediate credit for a major portion.                        
 SENATOR SALO disagreed with the term double dipping.  If the 100              
 percent tax credit had been allowed and the corporation could also            
 deduct that amount, then double dipping would be the appropriate              
 term.  The CS only allows a tax credit for half of what was spent             
 and only up to $100,000, therefore, the additional tax credit would           
 fall in the other half of the costs which may be a benefit and a              
 half not double dipping.                                                      
 BOB BARTHOLOMEW explained that if a corporation spent $250,000 on             
 a new facility, then they would receive $109,000.  The method that            
 the credit is worked on allows double dipping.  SENATOR LEMAN said            
 that the corporation would get 9.4 percent of the excess which is             
 more than the $9,400 if $250,000 is spent.                                    
 BOB BARTHOLOMEW emphasized that the original break is intended.  If           
 a corporation spends $250,000, the corporation would still receive            
 a tax deduction for expenditures incurred to run their business.              
 Those same expenditures would be applied to a credit.                         
 SENATOR LEMAN asked if the same phenomena occurred with other                 
 credits.  BOB BARTHOLOMEW explained that the Department of Revenue            
 and the IRS attempts to utilize the investment tax credit.                    
 Property expenditures are not placed in a schedule for depreciation           
 if an investment tax credit is used.  Alaska has a mixed bag.  Mr.            
 Bartholomew noted that the department has proposed amendments to              
 other legislation such as Public Broadcasting.  The department                
 would propose an amendment to this bill that would limit the total            
 benefit to the set percentage.                                                
 SENATOR MILLER pointed out that the amendment would be easier to              
 accomplish with Public Broadcasting than with this bill which would           
 involve depreciation schedules.  As someone who owns a business,              
 the more forms added the worse it becomes.                                    
 Number 395                                                                    
 BOB BARTHOLOMEW informed the committee that there was a resolution            
 that was sent to Congress which had requested a flat tax in order             
 to simplify matters on the other hand, there are lots of tax credit           
 legislation.  He agreed with Senator Miller that it would                     
 complicate matters.  The investment tax credit is already being               
 utilized at the federal level; the distinction is already being               
 made, assets are not included.                                                
 SENATOR MILLER emphasized the need to develop a fiscal note before            
 the bill reaches the floor.  BOB BARTHOLOMEW indicated that he                
 could talk with the sponsor.                                                  
 CHAIRMAN GREEN asked if the corporation is given a tax credit when            
 they provide a health plan, an insurance plan, a vacation leave               
 plan or other items that are perceived as perks.  BOB BARTHOLOMEW             
 explained that if the corporation incurs a dollar of expense to               
 provide a benefit to its employees, that becomes a business expense           
 deduction from their sales which would be similar to salaries.                
 That would not be considered a credit or a special benefit.  There            
 are no specific tax credits for Alaska.                                       
 CHAIRMAN GREEN inquired as to what would prevent a small                      
 corporation from setting up a child care facility.  SENATOR SALO              
 said money.  SENATOR MILLER specified that the bill would not                 
 prevent a small business from providing a child care facility.                
 CHAIRMAN GREEN asked if an office of seven people of which three              
 have children and they decide to allow child care...  SENATOR SALO            
 replied that they could.                                                      
 SENATOR MILLER reiterated that nothing would prevent small                    
 businesses from doing this, but large taxpayers would probably take           
 advantage of this option because small taxpayers usually cannot               
 afford to provide such services.                                              
 Number 347                                                                    
 BOB BARTHOLOMEW restated Senator Salo's earlier clarification that            
 a majority of those in child care must be from the employer in                
 order to receive this benefit.  That would seem to allow smaller              
 employers the ability to take advantage of this.  He indicated the            
 need to review the CS more closely in order to ensure that the                
 legislation is very specific which would avoid the need for                   
 regulations.  In other words, the need for the majority of those in           
 child care to be from the employer made need to specified in the              
 bill as 51 percent.  Mr. Bartholomew explained that such a                    
 clarification would alleviate the problem in differences in                   
 regulation and legislative intent.                                            
 CHAIRMAN GREEN asked if a fee for the service, if the employees               
 paid for their children to be in the employer's child care, would             
 impact any aspect of this.  SENATOR SALO replied no, that has                 
 nothing to do with the revenue.  A corporate sponsored child care             
 center would cost the parents about the same as if their children             
 were in a private child care setting.  Senator Salo stated that the           
 quality of the child care in a corporate sponsorship situation is             
 probably higher which results from the money the sponsor puts into            
 the child care.  Corporate sponsored child care usually has better            
 equipment, less children per caregiver than in private child care.            
 Senator Salo clarified that any extra money given to the child care           
 facility is left to the corporation's discretion and would not                
 impact this tax credit.                                                       
 Number 315                                                                    
 CHAIRMAN GREEN stated that the bill could be held until Monday in             
 order to receive the requested information.                                   
 SENATOR SALO expressed her desire to make this bill workable.  She            
 agreed that holding the bill to clarify some of the remaining                 
 questions would be for the best.                                              
 SENATOR LEMAN asked Mr. Bartholomew if state regulations require              
 that the expenditure be reasonable and necessary, as the tax code             
 specifies.  Is there a provision for a test of reasonableness?  BOB           
 BARTHOLOMEW explained that the test for taxes which should apply to           
 credits specifies that one is eligible if they meet the expenditure           
 definition for tax deduction.  The definition for tax deduction is            
 ordinary and reasonable business expenditure.  Mr. Bartholomew said           
 that he would check to make sure that a corporation could be                  
 eligible for credit which could not be used as an ordinary and                
 reasonable everyday business expense.  It would seem that the two             
 are tied together and the test would have to be meet.                         
 CHAIRMAN GREEN asked if there was anyone else present who wanted to           
 testify on this bill.  No one came forth.                                     
 There being no further business before the committee, the meeting             
 adjourned at 10:24 a.m.                                                       

Document Name Date/Time Subjects