HB 364-TAX CRED: CONTR. TO HOMELESS SHELT/DETOX  8:49:57 AM CHAIR MUNOZ announced that the final order of business would be HOUSE BILL NO. 364, "An Act relating to a credit against the net income tax for a contribution made by a taxpayer to a nonprofit organization that provides an emergency shelter for the homeless or a facility for alcohol or drug detoxification." 8:50:15 AM TERRY HARVEY, Staff, Representative Munoz, Alaska State Legislature, pointed out that the committee should have a Legislative Research Services' document that identifies the nonprofit emergency and drug and alcohol detoxification facilities in Alaska. The document does note that there is the possibility that they may have overlooked other existing facilities. He told the committee that information regarding categorizing the facilities that offer only housing versus those that offer housing and additional services for the homeless is forthcoming. 8:51:51 AM REPRESENTATIVE GARDNER recalled that the Salvation Army has a facility that offers housing for fathers and children, which isn't on the list. MR. HARVEY offered to research that facility. In further response to Representative Gardner, Mr. Harvey acknowledged that facilities could face erratic funding if there aren't repeat donors to these organizations, which could result in holes in their budget for which they approach the legislature to fill. The proposed committee substitute incorporates changes to address the aforementioned. 8:54:43 AM REPRESENTATIVE GARDNER moved to adopt CSHB 364, Version 27- LS1425\I, Nauman, 3/27/12, as the working document. There being no objection, Version I was before the committee. 8:54:58 AM MR. HARVEY offered to review the changes encompassed in Version I. He related that he heard from several of the shelters regarding the requirement for individual organizations to report to the state the donations received, the amount, and the use of it. There was concern with regard to the paperwork involved and the ability to track the donations, particularly for small organizations that receive small dollar donations. There was also concern with regard to how this would impact state agencies involved with providing operational dollars to these organizations, specifically there was concern that reports indicating a certain amount of incoming dollars could impact what the organization annually expects from the state. Those concerns were addressed by deleting the reporting requirement and on page 2, line 10, inserting paragraph (d), as follows: (d) The commissioner shall, by January 1 of each year, provide to the legislature a list of recipients of contributions, the total amount of contributions reported, and the total amount of credit claimed under this section during the previous calendar year. 8:58:24 AM CHAIR MUNOZ clarified that in HB 364 the organization had to report to the legislature, but the change encompassed in Version I requires the commissioner of DOR to provide a report to the legislature regarding those organizations that had utilized the tax credit. MR. HARVEY replied yes, adding that it's still important for the legislature to know how this tax credit is being implemented and how effective it is. He reminded the committee that the legislation includes a sunset provision. He then opined that he doesn't believe the information would be used against an organization requesting grants and state funding. 8:59:49 AM REPRESENTATIVE FOSTER related that his district and region are supportive of this legislation. Upon review of the list of organizations, it seems to offer good regional balance. 9:00:51 AM REPRESENTATIVE GARDNER maintained concern regarding whether these funds [receiving the tax credit] would potentially supplant state funds and create a lack of sustainability for these organizations. 9:01:52 AM MR. HARVEY, returning to his review of the changes in Version I, directed attention to page 2, line 3, subsection (c). The impetus for subsection (c) was from Representative Austerman who expressed the desire for organizations that want to make a donation to be able to obtain a predetermination regarding whether their donation would receive the tax credit. 9:03:25 AM REPRESENTATIVE GARDNER expressed concern that there is no plan to have DOR confirm that an agency actually received a donation for which the taxpayer filed a claim. Therefore, she questioned whether there should be a confirmation process to confirm those reported as receiving the donation actually did receive it. MR. HARVEY deferred to DOR. 9:04:58 AM JOHANNA BALES, Deputy Director, Tax Division, Department of Revenue, explained that this proposed tax credit would work as the existing tax credits. Therefore, when the division performs its audit, it would confirm that the recipient received the funds. With new tax credits, the division often performs a compliance project, which reviews every taxpayer who claimed the tax credit and reaches out to the recipients to ensure receipt of the funds. The aforementioned are common processes for which the division doesn't need additional statutory authority. 9:06:08 AM REPRESENTATIVE GARDNER posed a scenario in which a contribution is for a building fund. She asked if that information would be easily included in the report so that having a building fund with assets in it wouldn't adversely impact the organization when it approached the legislature for operating funds. MS. BALES answered that more than likely, the division wouldn't know specifically for what the funds were used. The division would merely track the contribution to ensure that a qualified organization received it. Therefore, at the time the agency requests additional funds, it would be up to it to let the legislature know how the funds were used. The division would provide the data to confirm that the agency did receive the contribution. 9:07:30 AM DAN AUSTIN, General Manager, St. Vincent de Paul Society of Juneau, began by highlighting that Juneau is Alaska's most homeless city. On a per capita basis, Alaska has one-and-a-half times the homeless rate in Anchorage, four times that of Fairbanks, and three times that of Los Angeles County to which some refer to as the homeless capital of America. Over the last two decades, homelessness has grown throughout the nation but the resources to operate shelters have not kept pace. For instance, after more than 10 years of operating a childcare facility for low income families St. Vincent de Paul had to close it last year because it had to decide whether to utilize its resources for maintenance and operation of its homeless facility or to subsidize its childcare facility. On top of that, just last month heating oil increased to over $4.00 per gallon. Furthermore, St. Vincent de Paul had to suspend the purchase of food vouchers. Mr. Austin emphasized that it's important to know that many shelters such as St. Vincent de Paul provide housing as well as other services to those who are homeless and poor, including food vouchers, travel assistance, medical assistance, and emergency family aid. Therefore, as the operating expense of the shelter and the demand on the shelter increase, something has to be eliminated. Normally, the discretionary services that help keep the safety net together for the poor in the state is the first to be eliminated. Mr. Austin informed the committee that St. Vincent de Paul doesn't rely on state and federal grants for the shelter's operation rather it relies on the thrift store revenues, which supply about 51 percent of the actual operating expense of the shelter, and the other 49 percent is provided by the residents themselves. In conclusion, Mr. Austin urged the committee to move HB 366 forward so that shelters in Alaska can sustain operations while working on the critical issue of homelessness. 9:11:30 AM LAUREN RICE, Director, Public Advocacy, Covenant House Alaska, explained that Covenant House is a shelter for homeless and at- risk youth in Anchorage. Although the facility is located in Anchorage, it truly serves the entire state. Last year, Covenant House Alaska served over 4,000 individual youth of which about 48 percent of the youth served are Alaska Native. Covenant House Alaska provides a spectrum of services including emergency services as the facility is open all day every day and programs through which youth can stay with Covenant House for up to a year-and-a-half and live in transitional housing and gain life skills. Covenant House Alaska offers everything from food and showers to long-term educational support. She characterized Covenant House Alaska as almost serving as the family for these youth well into their late teens and early twenties. Ms. Rice related support for HB 364 and the intent behind it; private investment in the nonprofit community is essential not only so that nonprofits can provide services but also for the health of the entire community. The majority of the Covenant House Alaska budget consists of private funds and its work is to share with individual corporations and businesses in the community stories of the youth and the mission of Covenant House Alaska to meet the needs of the youth. The aforementioned is vital to Covenant House Alaska's operating budget and to its advocacy and communication efforts because the youth at Covenant House Alaska are some of the most invisible youth in the state. Homeless youth become invisible as a means of survival, she stated. The corporate employees to which Covenant House Alaska reaches out become mentors, instructors of life skills classes and provide service work and special events. The benefits youth receive from corporate volunteers go well beyond the monetary amount invested. This legislation incentivizes the efforts of Covenant House Alaska even more as it provides an incentive for companies to learn and invest in nonprofits serving their neighbors. Furthermore, HB 364 facilitates private investment in human services from which all involved parties benefit. Ms. Rice noted her appreciation for the changes in Version I. In conclusion, Ms. Rice stressed that Covenant House Alaska's support of HB 364 is to encourage and incentivize private investment in nonprofits, not to diminish or impact the state's role in caring for the state's most vulnerable population. She related her view that HB 364 is a way to increase private investment and community support of Covenant House Alaska's work, not replace state funding or grants. 9:15:15 AM REPRESENTATIVE GARDNER asked then if Ms. Rice has no concern that corporate donations might supplant state funding. MS. RICE answered that wouldn't say that she has no fear of that and acknowledged that tax incentives and tax breaks have replaced some federal funding. However, nothing in HB 364 indicates to Covenant House Alaska that the aforementioned is a process the state will go through. This legislation is viewed as another tool in the tool box. If organizations find that [the tax credit] impacts gaining state support for their services, they could choose not to participate. Ms. Rice opined that the onus is on the organization to do the strategic planning and maximize resources and services provided when there is extra revenue while not putting into place systems that are unsustainable. Organizations such as Covenant House Alaska, which has been providing services for over 20 years, that have a long history of building sustainable budgets understand that every year they have to build their operating budget and they are prepared to make responsible decisions. 9:17:18 AM REPRESENTATIVE GARDNER inquired as to the purpose for including the requirement that DOR provide a list of donation recipients to the legislature if it's not to possibly supplant state funding. MR. HARVEY related that he worked with DOR on that language. He further related that the success of this program depends upon donations and what kind of tax credit is acted upon. The annual report to the legislature was felt to be beneficial and provide insight into how the program develops. 9:18:47 AM CHAIR MUNOZ asked whether this requirement is similar to that of the education tax credit and other tax credit programs. MR. BALES informed the committee that in other tax credit programs DOR provides the aggregate number of contributions, not a list of who receives the contribution. CHAIR MUNOZ asked then if Ms. Bales believed it would be best to make the language consistent with what is done with other [tax credit programs]. MS. BALES responded that it would depend upon the legislature's intent in terms of analyzing this credit. She recalled the hearings on the film credit, during which she understood the legislature wanted to know the recipients of the tax credit in order to determine whether the tax credit is working. Ms. Bales said she wasn't sure the list of recipients of the tax credit would really tell the legislature [whether it's working] rather it provides knowledge as to how many contributions were made. Therefore, she opined that it's up to the legislature to determine. 9:20:16 AM CHAIR MUNOZ announced that she is amenable to a language change regarding the list. 9:20:33 AM REPRESENTATIVE GARDNER moved Amendment 1, as follows: Page 2, line 11, Delete "a list of recipients of contributions," 9:21:06 AM REPRESENTATIVE SADDLER objected, and added that the legislation proposes some generous incentives. Therefore, it might be useful to know who is receiving the [tax credit]. He opined that who is receiving the benefits might be useful for the state to know how effective the organizations are. 9:21:42 AM REPRESENTATIVE CISSNA said she could see real value in knowing the categories of totals there are. However, listing specific names is problematic, she indicated. She asked whether there is an easy way to provide an aggregate of different groups, such as those dealing with homelessness, substance abuse, and child welfare. 9:23:08 AM CHAIR MUNOZ pointed out that the legislation already speaks to emergency shelters for the homeless and facilities for alcohol and drug detoxification. She asked whether it would be possible to provide aggregate totals in those two broad categories. MS. BALES answered that the division could do that, but asked if the committee is interested in the size or other details of the shelters. CHAIR MUNOZ asked whether the aforementioned can be accomplished with Amendment 1. MS. BALES said the division would need more specific language, such as "and the types of facilities". She related that when the division writes regulations it listens to the appropriate legislative meetings to determine the intent. 9:25:05 AM REPRESENTATIVE GARDNER withdrew Amendment 1. 9:25:19 AM REPRESENTATIVE GARDNER moved Conceptual Amendment 2, which would insert language requiring a list of total [contributions] by category of recipients. Representative Gardner specified the language to be inserted [in place of the language on page 2, line 11, "a list of recipients of contributions,"] would be: "the amount of the contributions subtotaled by category of recipient for" and the categories would match those listed on page 1, lines 11-13 of Version I. There being no objection, Conceptual Amendment 2 adopted. 9:27:25 AM REPRESENTATIVE GARDNER asked whether it would be the intention of DOR to make the list of eligible entities available on its website. MS. BALES answered that DOR would do that. Because of the 501(c)(3) requirement the IRS has a list of those and the division would work with the sponsor and the organizations in the state to compile such a list. 9:28:09 AM CHAIR MUNOZ recalled that there was an Anchorage facility missing from the list of [nonprofit emergency shelters and drug and alcohol detoxification facilities in Alaska]. She expressed the need to include any organizations that may have been inadvertently missed. REPRESENTATIVE GARDNER informed the committee that the facility, the McKinnell House in Anchorage, is actually listed. MS. BALES told the committee that the statutory language would trump the list, and therefore those entities that are properly designated would be on the list. 9:29:22 AM REPRESENTATIVE SADDLER maintained his belief that it would be beneficial for the state to have more specific information regarding who is using the tax credits and how they are applied. Therefore, he expressed interest in obtaining a clear definition of the various types of facilities so that as much information as possible could be obtained in order to determine how effective the tax credit program is. He also expressed the need to know which entities would fall under HB 364 and which wouldn't because there is a list from Legislative Research Services and another list of homeless shelters and they don't necessarily overlap. For example, Beans Cafe and Alley Chalet aren't on the Legislative Research Services list. REPRESENTATIVE GARDNER clarified that those entities not on the Legislative Research Services list aren't shelters. 9:31:04 AM CHAIR MUNOZ asked if Ms. Bales could further refine those categories as the legislation moves forward. MS. BALES agreed to do so. 9:31:30 AM REPRESENTATIVE CISSNA expressed concern with regard to lists of taxpayers who donate as there would seem to be privacy issues. CHAIR MUNOZ clarified that it would be an aggregate list by broad category of recipients. Therefore, the individual donor information wouldn't be reported. REPRESENTATIVE CISSNA acknowledged that, but expressed suspicion that [the individual donor information] may be linked. Moreover, she didn't want people to unknowingly jeopardize [an entity] and expressed concern with donations taking over the role of state funding. CHAIR MUNOZ related her understanding that this tax credit is for companies that make donations and receive a corporate tax credit or other tax credit per the IRS code. MS. BALES confirmed Chair Munoz's understanding and then directed attention to the language on page 2, line 1, which specifies that the amount of the credit is 50 percent of the contribution up to $200,000. Therefore, for a corporation that makes a $400,000 donation, $200,000 will come from the corporation and $200,000 from state's general fund in the form of a tax credit. The tax credit proposed in HB 364 is structured such that for every dollar a donor gives, the state matches. CHAIR MUNOZ related her understanding that this doesn't refer to small individual donations rather it refers to corporate donations. MS. BALES agreed, and added that the only tax type for which this contribution can be taken against is the corporate income tax. 9:36:31 AM REPRESENTATIVE SADDLER offered his understanding that there are 26 different pieces of tax credit legislation. The legislature should be concerned with regard to the cumulative impact of those tax credits to the state treasury even though much of the information indicates the cost to the state treasury is indeterminate. While this is a generous credit and it's good to review creative efforts to support worthy causes, there has to be concern with regard to the possibility of supplanting federal funds and the need for more state funds later for these causes/charities. 9:37:31 AM REPRESENTATIVE GARDNER related her agreement, but hesitated to draw the line for the most indigent and needy group. Furthermore, the cumulative issue is for the House Finance Committee to address. 9:38:11 AM REPRESENTATIVE GARDNER moved to report CSHB 364, Version 27- LS1425\I, Nauman, 3/27/12, as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 364(CRA) was reported from the House Community and Regional Affairs Standing Committee.