HB 290-ESTABLISH ENDOW ALASKA GRANT PROGRAM  9:00:49 AM CHAIR MUNOZ announced that the next order of business would be HOUSE BILL NO. 290, "An Act creating the endow Alaska grant program in the Department of Commerce, Community, and Economic Development to encourage community development." 9:01:41 AM REPRESENTATIVE SADDLER moved to adopt CSHB 290, Version 27- LS1094\D, Kirsch, 2/1/12, as the working document. There being no objection, Version D was before the committee. 9:02:04 AM ERIN HARRINGTON, Staff, Representative Austerman, Alaska State Legislature, recalled that at the prior hearing the committee raised questions that revolved largely around the applicability of the language to the circumstances in Alaska. The legislation was originally drafted based on a law in Iowa, where all communities are neatly organized into counties. The aforementioned doesn't mirror the situation in Alaska, in which areas may be organized or unorganized, as communities or boroughs, and communities and independent municipalities that are not in boroughs. In addressing the points raised by the committee and working with Alaska community foundations, quite a few changes were made to HB 290 to make it relevant for Alaska. The committee packet includes a memorandum dated February 1, 2012, which relates the changes encompassed in Version D. However, everywhere the memorandum incorrectly refers to Version I it should refer to Version D. She pointed out that in addition to the changes that make the legislation relevant to Alaska there are also two policy changes. The first policy change is in Section 1, where the language clarifies that the funds raised and matched through the Endow Alaska program are meant to grow their unrestricted endowed funds of community foundations and thus make them available in perpetuity to support a broad range of needs and communities as determined by the involved residents making the decisions where the earnings on the funds are spent. The second policy change is that Version D removes the requirement that grantees demonstrate substantial compliance with the national standards of the National Council on Foundations. The aforementioned was the result of continued discussion with members of the community foundation organizations in Alaska. There were concerns that the requirement that grantees demonstrate substantial compliance with the national standards of the National Council on Foundations would place an undue hurdle with regard to communities being able to access this program. She pointed out that the committee should have a handout regarding the timeline involved in demonstrating compliance with the national standards of the National Council on Foundations. The process is fairly lengthy in that it takes from 300 days to 450 days and there are associated costs. Currently, there are only two community foundation organizations that meet this accreditation standard. Although other community foundations have chosen not to seek accreditation, she didn't believe there is any question of the quality of work or commitment of those foundations. MS. HARRINGTON then detailed the changes encompassed in Version D. On page 1, lines 11-12, language was added to clarify that the purpose of the grants under this program are to grow the unrestricted endowed funds. She then explained that on page 2, lines 5-6, the language didn't accurately describe the Alaska Community Foundation (ACF), which is envisioned as the lead philanthropic entity in Alaska, and therefore it was deleted. The language requiring the Council on Foundations national standards compliance was also deleted. Throughout the legislation the language "community affiliate organization" was replaced with "community foundation affiliate" in order to more clearly describe the entities in Alaska. The ambiguous language regarding the ranking for applicants [on page 2, lines 17-18] was also deleted. The sponsor didn't want the language to imply that the needs in 2013 somehow dictate the use of the funds in 2085. [On page 2, lines 16-17] language was inserted to clarify that funds should be used to help create new community foundations as well as grow existing community foundations. On page 2, line 31, the language "plan for distributing grant funds" was replaced with the language "spending policy". The legislation was also inconsistent with regard to definitions, and thus the language on page 3, lines 3-5, was deleted. In proposed AS 11.33.180, the term "organization" was replaced with "foundation affiliate" in order to more clearly describe the organizations in Alaska. The language on page 3, lines 10-11, that specified that no more than five grants could be received within a single borough in a year was removed since not all Alaska communities are located in boroughs. The final provision of the legislation regarding definitions was reordered to correspond with the hierarchy of community foundations and the affiliates underneath them. Ms. Harrington then provided a document relating the hierarchy of community foundations. She explained that community foundations can hold within them affiliate funds, which are known as community foundation affiliates in terms of HB 290. These community foundation affiliates can have independent boards that work at the local level. For instance, the nonexistent Kodiak Community Foundation would have a local level policy board, but they would be an affiliate to a higher level community foundation that would actually hold the funds and have the fiduciary responsibility for it. With regard to partner foundations, she explained that the Juneau Community Foundation would be considered a partner to ACF because the Juneau Community Foundation has deposited a portion of its endowed funds with ACF, although they hold the rest independently and locally with in the community. She also provided a document that relates some of the results of the Endow Iowa and Kentucky programs. She highlighted that from June 2010 through June 2011, the Endow Iowa funds grew by $100 million and have grown from 20 community organizations to 130. Iowa's investment in the grant portion of the Endow Iowa program was $200,000 over four years. The Endow Iowa program also has a tax credit portion that continues today. 9:14:33 AM DIANE KAPLAN, President & CEO, Rasmuson Foundation, reminded the committee that in the 1800s Solomon Guggenheim and J.P Morgan made a lot of money in Alaska, but none of those dollars earned in Alaska benefitted Alaskans in the future. She then related that in more recent years, she met a woman in Seattle whose father had a thriving business in Anchorage, the funds of which were used to create a foundation in Seattle and all the grants made from the organization are to entities in Seattle. Through initiatives such as HB 290, she expressed hope that the trend of people earning lots of money in Alaska and using that money to benefit other places will end. In 2005, in recognition of the aforementioned, the Rasmuson Foundation created the community asset building initiative. This initiative was done in concert with colleagues around the country who had done similar programs to create community funds to give philanthropic individuals a vehicle through which they can provide long-term support for the organizations in the communities in which they live and thrive. Through the aforementioned initiative the Rasmuson Foundation has new funds in communities such as Seward, Haines, Petersburg, and Talkeetna. Each of those communities stepped forward to create permanent endowments that would benefit the community in the long-term as well as organizations people value. The Rasmuson Foundation provided a lot of technical assistance through ACF, which was the lead partner. The Rasmuson Foundation also worked with existing affiliates such as the Juneau Community Foundation and the Homer Community Foundation, which has previously been established. The result has been the creation of new opportunities for philanthropic Alaskans. For example, local Seward resident Tony Rollo (ph) left almost $2 million to the Seward Community Fund at ACF. If the Seward Community Fund hadn't been created in 2005, those dollars wouldn't be there to benefit Seward in the long-term, she opined. In recognition of the aforementioned, the Rasmuson Foundation Board approved an additional $2 million to help establish three to four new affiliate funds at the ACF. She expressed hope that Kodiak, Ketchikan, Fairbanks, and the Mat-Su Valley will create such funds in the future. Ms. Kaplan related that HB 290 is very timely because the Rasmuson Foundation has allocated lots of funding to provide the technical assistance to help communities apply for these funds and be successful. She expressed hope that there could be more funds to put toward this effort because the Rasmuson Foundation found that its $25,000 challenge grants is adequate for communities the size of Petersburg, Haines, or Talkeetna but probably inadequate for communities the size of Kodiak or Fairbanks. Ms. Kaplan then told the committee that the Rasmuson Foundation supports the policy change in Version D regarding supporting unrestricted endowments, which she characterized as the "sweet spot." She related that the Rasmuson Foundation does like the requirement to meet the Council on Foundations national standards, which ACF already does. However, that was deleted from Version D. Version D also doesn't include the statewide lead organization language, which Ms. Kaplan felt should be included because an organization administering these funds should have a statewide board and perspective. Ms. Kaplan characterized HB 290 as an excellent opportunity. In fact, Alaska's congressional delegation is on the national level supporting similar legislation, the Rural Philanthropy Gross Act, through the United States Department of Agriculture (USDA). In closing, she mentioned that the former governor of Iowa, who established Endow Iowa, is now the secretary of the USDA and knows the value of this program. 9:20:14 AM REPRESENTATIVE SADDLER inquired as to the impact the creation of an Endow Alaska fund would have on the informal charitable giving organizations in Alaska. MS. KAPLAN used Eagle River as an example. Eagle River is a new community fund for which the Rasmuson Foundation supported a major effort to place a clock in the town center. The aforementioned is a local project that gets folks to make a donation for the first time. Furthermore, there are local institutions that folks may like to support over time and without a local community fund there is no way to do so. She opined that since most people like their giving to be local, it's a real benefit to establish local funds to capture the giving. She informed the committee that Seward has $2.3 million that will generate over $100,000 annually, in perpetuity, for Seward organizations. This model has already proven to be successful in just a few short years, she opined. 9:22:31 AM REPRESENTATIVE SADDLER said he understood the benefit of having local foundations as it creates a higher profile and provides a mechanism [for giving]. He reiterated his question regarding whether the creation of more structured state philanthropy with a state match/grant impacts any other giving patterns. MS. KAPLAN offered that the structured state philanthropy is more about giving from savings or bequests whereas for the smaller less organized charitable organizations the giving is from the checking account. What is really being discussed is establishing a savings account for long-term needs and providing philanthropic individuals a way in which to endow things they care about. Those generally come from an estate gift once an individual has passed away. For example, the Rasmuson Foundation was originally a $6 million foundation, but when Elmer Rasmuson passed away the majority of his estate passed to the foundation. The aforementioned resulted in the Rasmuson Foundation being a $500 million foundation. Although it's easy to underestimate the assets in communities, there are 5-6 millionaires in Alaska and the [Rasmuson Foundation] wants to ensure those assets stay in Alaska rather than go elsewhere merely because of a lack of a local vehicle to support the local organizations. 9:25:25 AM MS. HARRINGTON pointed out the Endow Iowa and Kentucky document relates that a Transfer of Wealth Study estimated that through probate estates alone, from 2020-2049, $531 billion will transfer hands in Iowa as Baby Boomers pass away. Although the scope may be smaller in Alaska, the opportunity to capture the giving remains. 9:26:13 AM CHAIR MUNOZ recalled that Ms. Kaplan related the importance of the statewide lead organization, the language for which is retained, but on line 1 it's an option of the department to identify the lead philanthropic entity due to the use of the term "may" rather than "shall"[page 1, line 9]. MS. KAPLAN said that it's important to have a statewide entity to create buy-in to have a statewide entity administer the funds. 9:27:29 AM KEN KASTNER, Member, Board of Trustees, Homer Community Foundation, informed the committee that the term "unrestricted" is a term of art when used with regard to these funds. For a community foundation, an "unrestricted fund" means a fund in which both the corpus and the interest, the distributable amount through a spending policy, is at the discretion of the board. The aforementioned is of concern, although he said that he agreed with the intent. He then opined that the growth through HB 290 wouldn't be through new community foundations or affiliates, rather it would likely be through a community fund, which is a basket of funds. For example, the Homer Community Foundation includes the City of Homer Fund and the Kachemak City Fund, both of which are permanent endowments the purpose of which are to provide annual operational support for 501(c)(3)s located within the municipal boundaries. In Homer, [the Homer Community Foundation] has never competed with anyone. In fact, he suggested that the 501(c)(3)s in Homer would say that the creation of a community foundation opened avenues of income to them that they have never had. Therefore, he suggested that what he refers to as a community fund should be specifically included in HB 290. Lastly, he suggested that there should be legislative guidance as to the distribution of funds in new and existing funds. He said he wouldn't want existing funds to have a priority over funding decisions. MR. KASTNER, in response to Chair Munoz, clarified that an "unrestricted fund" to a community foundation means that both the corpus and earnings are available for distribution. He offered his belief that the intent is to refer to "unrestricted use of earnings" rather than "unrestricted fund" since he believes the intent was to place the funds and the matching funds in permanent endowments the purpose of which would be unrestricted. 9:31:26 AM MS. HARRINGTON agreed with Mr. Kastner that the intent is they be endowed funds the purposes of which would be unrestricted. She suggested that perhaps on page 1, line 12 the term "unrestricted" should be deleted and following the term "funds" insert the language ", the purposes of which would be unrestricted". 9:32:36 AM REPRESENTATIVE GARDNER suggested that perhaps the language on page 1, line 12, should read "to increase endowed funds the purpose of which would be unrestricted." 9:33:50 AM CHAIR MUNOZ inquired as to any comments regarding Mr. Kastner's concern with regard to including community funds in addition to community foundations and community foundation affiliates. MS. HARRINGTON related that the sponsor struggled with finding a mechanism through which communities that didn't have the capacity to establish an affiliate, and ultimately felt it would be difficult to put in law. She characterized it as a policy call. As HB 290 is currently written, the legislation provides the opportunity for communities or regions to establish foundations or affiliates and do fundraising to benefit them. She said she didn't believe the activity is precluded. 9:35:38 AM CHAIR MUNOZ inquired as to whether the $25,000 grant amount is an annual or one-time amount. MS. HARRINGTON clarified that the grant amount is not meant to be one time, but rather annually. 9:36:13 AM CHAIR MUNOZ inquired as to the sponsor's vision with regard to the initial funding of the program since the legislation carries a zero fiscal note. REPRESENTATIVE AUSTERMAN explained that the Department of Commerce, Community & Economic Development (DCCED) provided a zero fiscal note from because it believes it can handle pass through grant funds. Perhaps, there needs to be an indeterminate fiscal note to have the fiscal conversation because the program could have a yearly appropriation or an endowment. He anticipated four to six applications at $25,000 a year. However, the program may reach a point at which it may not need to be funded and would be viewed as a yearly appropriation by the House Finance Committee. 9:38:44 AM CHAIR MUNOZ, upon determining no one else wished to testify, announced that public testimony would be closed. 9:39:51 AM REPRESENTATIVE GARDNER moved that the committee adopt Amendment 1, as follows: Page 1, line 9, following "a" Insert "statewide" Page 2, line 4; Delete "an" Insert "a statewide" There being no objection, Amendment 1 was adopted. 9:41:31 AM REPRESENTATIVE GARDNER moved that the committee adopt Amendment 2, as follows: Page 1, line 11; Delete "for the purpose of increasing unrestricted endowed funds." Insert "to increase endowed funds the purpose of which would be unrestricted." There being no objection, Amendment 2 was adopted. 9:41:59 AM REPRESENTATIVE GARDNER moved that the committee adopt Amendment 3, as follows: Page 2, line 31, following "$25,000"; Insert "annually" There being no objection, Amendment 3 was adopted. 9:42:27 AM REPRESENTATIVE SADDLER asked if there was the intent to have a lifetime cap on the grants. MS. HARRINGTON responded that it wasn't discussed. REPRESENTATIVE SADDLER asked if the purpose of the community foundations or community foundation affiliates is to grow their endowments so that they can provide operating grants to smaller 501(c)(3)s. REPRESENTATIVE AUSTERMAN replied yes. MS. HARRINGTON clarified that ACF, the lead philanthropic entity, wouldn't contribute the match rather the local entity would contribute the match. The lead philanthropic entity, ACF, would simply administer the program with the state dollars being matched at the local level. 9:43:49 AM REPRESENTATIVE GARDNER surmised then that the local entity would apply for the grant, proceed through the system, and be approved as comporting with the intent. MS. HARRINGTON replied yes. 9:44:23 AM REPRESENTATIVE FOSTER moved to report CSHB 290, Version 27- LS1094\D, Kirsh, 2/1/12, as amended, and an indeterminate fiscal note, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 290(CRA) with an indeterminate fiscal note was reported out of the House Community and Regional Affairs Standing Committee.