HOUSE BILL NO. 233 "An Act relating to the insurance tax education credit, the income tax education credit, the oil or gas producer education credit, the property tax education credit, the mining business education credit, the fisheries business education credit, and the fisheries resource landing tax education credit; providing for an effective date by repealing the effective dates of secs. 3, 5, 7, 10, 14, 16, 18, 21, 23, 25, 28, 30, 32, 35, 37, 39, 42, 44, 46, 49, 51, 53, and 55, ch. 92, SLA 2010, sec. 14, ch. 7, FSSLA 2011, secs. 15, 17, 19, 21, 23, and 25, ch. 74, SLA 2012, sec. 49, ch. 14, SLA 2014, secs. 37, 40, 43, and 46, ch. 15, SLA 2014, and secs. 26 and 31, ch. 61, SLA 2014; providing for an effective date by amending the effective date of secs. 1, 2, and 21, ch. 61, SLA 2014; and providing for an effective date." 2:25:09 PM REPRESENTATIVE CHRIS TUCK, SPONSOR, introduced the PowerPoint presentation, "House Bill 233 Education Tax Credits" (copy on file). He thanked the committee. KENDRA KLOSTER, STAFF, REPRESENTATIVE CHRIS TUCK, provided a history of the Education Tax Credit on slide 2, "Education Tax Credit": 1987: Education Tax Credit (ETC) established to encourage private businesses to make charitable contributions to Alaska educational institutions and facilities 2010: Credit increased from 50% to 100% on contributions between $101-$300k; maximum annual credit expanded from $150k to $5 million (SB236) 2011 and 2014: List of institutions and programs eligible for donation were expanded; eligibility varies by tax-type (SB84 and HB278) 2014: ETC sunset established for Dec 2018 as part of newly established Indirect Expenditure Report (HB306) Ms. Kloster reviewed what the bill did on slide 3, "Education Tax Credit": HB233 extends the effective date for the repeal of the education tax credits from December 31, 2018 to January 1, 2025. Ensures that the credit that exists in statute today will be maintained until January 1, 2025, instead of narrowing in scope and decreasing in value on January 1, 2021. Ms. Kloster continued to slide 4, "Education Tax Credit": Today, there are many opportunities to make private donations to a variety of educational institutions, facilities and programs However, there are specific eligibility requirements for both organizations and tax type Selection of eligible entities: Non-profit, public or private accredited Alaska two-year or four-year colleges Non-profit elementary or secondary schools and school districts State operated vocational education and training schools Non-profit regional vocational training centers Apprenticeship programs Alaska higher education investment fund Postsecondary institutions providing dual-credit courses Ms. Kloster further discussed the credit on slide 5, "Education Tax Credit": Non-transferable, non-refundable credit that a donor can apply against the following categories of State of Alaska taxes. The use and deductibility of contributions varies by tax type: Corporate Income Tax Fisheries Business Tax / Fisheries Resource Landing Tax Insurance Premium Tax / Title Insurance Premium Tax Mining License Tax Oil and Gas Production Tax Oil and Gas Property Tax General Credit Provisions: 50 percent of annual contributions up to $100,000 100 percent of the next $200,000 50 percent of annual contributions beyond $300,000 Total annual credit per taxpayer, across all tax types not-to-exceed $5 million Ms. Kloster detailed why Education Tax Credits are important on slide 6, "Why Are ETC Important?": ETC allows a need to be filled directly. Encourages private industry to partner with education institutions, creating more opportunity in our state. Expanding our educational programs to provide more opportunities for our students. Training our future workforce for Alaskan jobs. 2:30:12 PM Ms. Kloster discussed slide 7, "Benefits to Education: Summary of 2015." She indicated that Mr. Alper was available to answer any detailed information. The chart showed what was coming into the state's system. It was money that the state was seeing going into the education system. Ms. Kloster moved to slide 8, "Benefits to Education: Summary of CY 2017 - Alaska Education Credits." Ms. Kloster reviewed the industry investment in education on slide 9, "Industry Investment in Education": In 2000, members of the At-Sea Processors Association began making private contributions to support student fellowships and to fund sustainable oceans and fisheries research Association members established the Ted Stevens Professorship of Marine Policy UA and the At-Sea Processors created the Pollock Conservation Cooperative Research Center (PCCRC) within the College of Fisheries and Ocean Sciences at UAF The PCCRC has put over $20 million into marine research and education since 2000, the largest single contributor to marine research at the University of Alaska. The work done over the years has had an impact far beyond what the University could have accomplished alone. Participating companies have included Trident, American, Starbound, Glacier Fish, Arctic Storm, and the Coastal Villages Region Fund Representative Wilson asked about the donations and whether they had to be made to Alaska nonprofits and Alaska schools. She also looked at page 9, and wondered whether the student fellowships were required for Alaskans. Ms. Kloster responded that they must go to programs within Alaska, and benefitted Alaskans. She shared that the private industry would give the donation to the educational program or university; and that entity would put it toward their tax. Representative Ortiz returned to slide 2. He wondered if it included the ability to make contributions to private Alaska education institutions. Ms. Kloster pointed to the document in the packet that listed all of the organizations that received a tax credit, and felt that it would help to explain the eligibility. Co-Chair Seaton referred to page 7 and wondered what the $2.26 million was directed toward under "Corporate Income Tax." Ms. Kloster responded that the "other" might refer to the nonprofits, and deferred to Mr. Alper for more information. 2:35:02 PM KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE, stated that the graph was page 2 of a three-year report. He stated that DOR provided a cover letter, a table, and a detailed list of recipients. He stated that the list of recipients contained the list of the so-called "other." That "other" list consisted of the various nonprofits, watershed partnerships, and anything that would be eligible to receive the tax credit donations that were not either a university or vocational program. He stressed that the education tax credits was a rich area of legislative involvement. The list of eligible entities had evolved dramatically over the year. He noted that there were several boutique line items, which were added for various reasons. He stressed that the list was not the donors, rather it was the recipients who received the donations. He shared that those who made the donations were tax payers of some sort, but that information was confidential. 2:37:04 PM AT EASE 2:37:20 PM RECONVENED Representative Guttenberg asked why Alaska Business Weekly and Granit Construction were eligible. Mr. Alper replied that it did not necessarily mean the two entities were eligible, it was not a refundable tax credit. He detailed that when a company made a donation, DOR did not know about it until the tax was paid and it went through the department's review process. He guessed it was a job training or apprenticeship program. He noted that Senator Click Bishop had taken an interest in the type of program over the years. Representative Guttenberg looked forward to the follow up. Representative Tilton asked if the entities were all Alaska-based. Mr. Alper answered that the statutory language stated that there must me an entity in Alaska. He guessed the Smithsonian had a research project in Alaska, but the recipient was the home office in the Smithsonian. 2:40:17 PM Representative Ortiz queried the amount of discussion regarding the allowance of public funds to go to private institutions, and the annual amount that went to private institutions. Mr. Alper responded that it would be in the other category, but could not report the actual amount by recipient. He stated that the section was subsection 1, and believed that it was the original language from the 1980s. He did not know whether it had evolved over the years to include the reference to public or private entities. He stated that there had been a dozen or more amendments over a thirty- year period Ms. Kloster added that on slide 4 showed a list of eligible entities. 2:45:00 PM SUSAN FOLEY, PRESIDENT, UNIVERSITY OF AK FOUNDATION (via teleconference), thanked members for their service. The University of Alaska and the University of Alaska Foundation strongly supported HB 233. The programs that received contributions were not directed or established by industry. Regarding research opportunities, often times research opportunities reached beyond the scope of the donor program. She invited questions. Co-Chair Seaton wondered whether the tax credit for sports tournament should continue. Ms. Foley responded in the affirmative. 2:50:06 PM DOUG WALRATH, NORTHWEST ALASKA CAREER AND TECHNINCAL CENTER (via teleconference), spoke in support of the bill. He stated that the loss of federal funding, with the elimination of earmarked appropriations and the constriction of stage UGF had made the education tax credit increasingly important to the technical center operations and programming. The tax credit contributions accounted for on-third of its annual operating budget. He stated that since 2009 it had actively pursued industry partnership. 2:53:20 PM TOMMY SHERIDAN, SILVER BAY SEAFOODS, CORDOVA (via teleconference), reported that Silver Bay Seafoods strongly supported the bill. He read a prepared statement: Silver Bay Seafoods, LLC (Silver Bay, or SBS) is writing to support Alaska House Bill 233, "An Act relating to the insurance tax education credit, the income tax education credit, the oil or gas producer education credit, the property tax education credit, the mining business education credit, the fisheries business education credit, and the fisheries resource landing tax education credit." SBS is a vertically integrated, primarily fishermen- owned processor of frozen salmon, herring, and other seafoods products for both domestic and export markets. Silver Bay began in 2007 as a single salmon processing facility in Sitka, Alaska, and has since grown into one of the largest seafoods companies in Alaska. Silver Bay has state of the art, high volume processing and freezing facilities throughout Alaska, currently operating in Sitka, Craig, Valdez, Naknek and Metlakatla. SBS is dependent upon a large and diverse workforce, the likes of which can and do receive their training through the University of Alaska Southeast's (UAS) School of Career Education, which includes the following programs of relevance to Silver Bay's operations: Construction Technology, Diesel Technology, Welding, and Fisheries Technology. With regards to the lattermost program, industry funding made possible through education credits have resulted in increased training opportunities for Alaskan youth. For example, in fall of 2017 36 Alaskan high school students took UAS courses, thanks to financial assistance from the At-Sea Processors Association (APA) and Goldbelt Inc. APA previously assisted with a pilot UAS program in spring 2017, allowing 13 high school students to complete four credits of college coursework. Goldbelt Inc. has worked to engage Juneau-based Alaska Native students in the sciences, beginning with a summer 2017 oceanography learning experience and culminating with 22 students taking an iPad-based Introduction to Oceanography class for University of Alaska General Education credit. Altogether, in 2017 APA and Goldbelt Inc. helped over 50 high school students take on university-level coursework all over the state, from Kodiak, Juneau, and Sitka to Unalaska, Galena, and Petersburg. I personally benefitted from similar financial assistance several years ago as a student in UAS's Fisheries Technology Program. With financial assistance made possible by donations from Icicle Seafoods, I completed an Undergraduate Certificate in Fisheries Technology before going on to complete graduate-level programs at Oregon State University. Extension of the education tax credit program through House Bill 233 will continue to promote private investment in Alaskan higher education, which is essential to ensuring that Alaskans learn the skills needed to sustain and grow Alaska's commercial fishing industry. Our thanks to you for sponsoring this important bill. 2:56:44 PM KAREN MATTHIAS, COUNCIL OF ALASKA PRODUCERS, ANCHORAGE (via teleconference), read a prepared statement: The Council of Alaska Producers (CAP) is writing to support Senate Bill 116, "An Act relating to the insurance tax education credit, the income tax education credit, the oil or gas producer education credit, the property tax education credit, the mining business education credit, the fisheries business education credit, and the fisheries resource landing tax education credit." CAP is a non-profit trade association formed in 1992 to represent the interests of large metal mines and mine developmental projects in Alaska. CAP informs members on legislative and regulatory issues, supports and advances the mining industry, educates members, the media and the general public on mining related issues, and promotes economic opportunity and environmentally sound mining practices. CAP's members have welcomed the opportunity to partner with the State of Alaska and provide funding directly to Alaska's higher education projects and programs that support and enhance the mining industry. Between 2011 and 2017, mining companies in Alaska education tax credit program to invest $19.6 million in programs such as: .notdef UAF Mining Engineering research endowment .notdef UAF Mining Engineering scholarship fund .notdef UAA Geology Scholarships .notdef Mining and Petroleum Training Services (MAPTS), UAF Cooperative Extension Services, Anchorage, Soldotna, Juneau .notdef UAS Pathways to Mining .notdef UAA Institute of Social and Economic Research .notdef Northwest Arctic Borough School District .notdef Angoon High School Vocational Technical program MAPTS and the Pathways program provide educational opportunities and training that lead directly to good jobs in the industry. The importance of these educational and training programs is underscored by a survey of Alaska's mining workforce which revealed that there is considerable aging of skilled employees; for example, 47.1 percent of mechanics, 51.1 percent of mining materials engineers and 65.4 percent of mining machine operators are 45 years of age or older. Faced with the challenges of attrition and aging within the current workforce, and competition from the global mining industry, the mining industry embarked on a workforce development planning process which resulted in the Alaska Mining Workforce Development Plan. SB116 extends the education tax credit program so it will continue to promote private investment in higher education in our state, an essential component of realizing the objective of ensuring that Alaskans learn the skills needed to sustain and grow Alaska's mining industry. Thank you for sponsoring this bill. We hope that it will be scheduled soon for a hearing in the Labor and Commerce Committee. 2:59:32 PM BRADLEY MORAN, DEAN, COLLEGE OF FISHERIES AND OCEAN SCIENCE, UAF, FAIRBANKS (via teleconference), spoke in support of the legislation. He noted that his college had utilized the education tax credit for nearly twenty years with great benefit with over $25 million in support for research, scholarship, fellowships, and outreach funding. He thanked the legislators who had worked to continue the program for the benefit of the university and the state. Vice-Chair Gara asked if his school was a non-profit. Mr. Moran responded in the affirmative. Vice-Chair Gara asked if contributions to the university treated as nonprofit contributions. Mr. Moran replied that the contributions went through the University Foundation. Vice-Chair Gara noted that a company would get a federal tax deduction for donating. He wondered whether the same amount of money would not come in, even without the smaller state tax credit. Mr. Moran replied that he was not an expert in the tax laws. He stated that through the tax credit, it allowed for the corporations to invest in the college. Representative Thompson queried the amount of leveraged federal grant money. Mr. Moran responded that in FY 17, the college brought in approximately $43 million in federal research dollars. He furthered that a large portion of that money was the operation of the research vessels operated in the university. Representative Thompson asked if it was a 50/50 match, or whether there was more leverage. Mr. Moran responded that it was not a 50/50 match. Co-Chair Foster OPENED Public Testimony 3:04:49 PM GRETA SCHUERTH, ALASKA RED DOG MINE, NANA REGIONAL, ANCHORAGE (via teleconference), spoke in favor of the legislation. She stated that multiple Nana subsidiaries provided support services to the mine operations providing many jobs to the Nana shareholders and other Alaskans. Representative Wilson asked how many Alaskans were able to get education assistance. Ms. Schuerth agreed to provide that information. Co-Chair Foster CLOSED Public Testimony. Co-Chair Foster indicated amendments were due in his office by Thursday at 5:00 PM. HB 233 was HEARD and HELD in committee for further consideration.