HB 367-TAX CREDITS FOR EDUCATIONAL CONTRIBUTIONS  9:49:15 AM CHAIR SEATON announced that the final order of business would be HOUSE BILL NO. 367, "An Act relating to tax credits for cash contributions by taxpayers that are accepted for certain educational purposes and facilities; and providing for an effective date." 9:49:20 AM REPRESENTATIVE MUNOZ, speaking as the prime sponsor of HB 367, said the bill allows tax credits for educational contributions to postsecondary institutions and vocational education schools and universities. Current law allows a tax credit of $150,000, and the bill would expand the tax credit to beyond that, as a way to encourage further investment in Alaska's postsecondary institutions. She then moved the Committee Substitute (CS) for HB 367, 26-LS1538\R, Bullock, 3/9/10, as the working document. 9:50:07 AM CHAIR SEATON objected for the purpose of discussion. 9:50:24 AM KENDRA KLOSTER, Staff to Representative Cathy Munoz, Alaska State Legislature, presented HB 367, paraphrasing from the sponsor statement, which read as follows [original punctuation provided]: Under current law, tax payers that make cash contributions to an Alaskan educational or vocational institution receive a maximum tax credit allowable in any given year of $150,000. House Bill 367 would increase the higher education tax credits to 50 percent for the first $100,000 contribution, 100 percent for contributions over $100,000 and up to $300,000, and 50 percent on contributions that exceed $300,000. A cap was placed in the amount of $25,000,000. The current limitation has a constraining effect on corporate donations and investments in educational and vocational institutions. In 2008, only 11 donors contributed enough to the University of Alaska to maximize the current tax credit. Many major employers in Alaska understand the importance of educating Alaskans to create a skilled workforce. These businesses want to hire Alaskans from vocational schools, colleges, and universities. By expanding the educational tax credit companies can help Alaska's universities expand their existing research and development capacities, and help to maximize the potential for economic development. By facilitating greater cooperation between Alaska's business and education sectors, and encouraging greater financial support, HB 367 will leverage important workforce and economic development goals. With Alaskans working together we can strengthen our workforce, increase collaboration between school and local business, diversify funding sources for Alaska's higher education institutions, enhance student activities and facilities, and develop research programs that contribute to the economic development of Alaska. 9:51:52 AM MS. KLOSTER then explained provisions in the CS would require the director of insurance to submit an annual report informing the legislature of the success of the program. Furthermore, the CS will be redrafted to fully reflect the intent of the sponsor to keep the first $100,000 contribution at a 50 percent tax credit, the second $100,000 contribution at an 100 percent tax credit, and, for contributions from $200,000 and above, contributors would receive a 50 percent tax credit. The cap amount would remain at $25,000,000. CHAIR SEATON clarified that the 50 percent tax credit on the first $100,000, and the 100 percent tax credit on the second $100,000, is now existing law. MS. KLOSTER said correct. 9:53:21 AM CHAIR SEATON removed his objection, and, there being no further objection, announced that CSHB 367, Version R, was before the committee. 9:53:32 AM REPRESENTATIVE MUNOZ moved Conceptual Amendment 1, which read: The amount of the credit is (1) 50 percent of contributions of not more than $100,000; and (2) 100 percent of contributions of the next $100,000 of contributions; and  (3) 50 percent of the amount of contributions that  exceed $200,000.  9:54:03 AM CHAIR SEATON objected for the purpose of discussion. 9:54:15 AM CHAIR SEATON removed his objection, and, there being no further objection, announced Conceptual Amendment 1 was adopted. 9:54:57 AM CHAIR SEATON opened public testimony. 9:55:23 AM MARY RUTHERFORD, President, University of Alaska Foundation; Chief Development Officer, University of Alaska, spoke in support of HB 367, and said that the university is always excited to see new opportunities and incentives that foster close relationships. Tax credits have been an effective tool, and the expansion will garner increased support for the university system from groups that support programs such as the Summer Bridge and K-12 Outreach programs. 9:57:00 AM JAMES JOHNSEN, Senior Vice President of Administration, Doyon, Limited, testified in favor HB 367, and stated that the bill would increase business support for higher technical education in Alaska. He described Doyon, Limited, as follows: owned by 17,500 Alaska Native shareholders; owns 12,500,000 acres of land; operates subsidiary companies in oil field and gas field services, government contracts, and land and resource development; is proud to rank number one of the top 10 privately-owned Alaska companies, in the percentage of employees who are Alaskan. Doyon, Limited, is a for profit company, which makes money for its shareholders primarily by developing two resources: natural resource development and human resource development. In fact, in 2009, Doyon explored for natural gas in the Nenana Basin at a cost of about $15 million. The state recognized the importance of this exploration by granting a 50 percent incentive tax credit. He conjectured that if Doyon had invested an equal amount in internships, scholarships, research programs, facilities, endowed shares, and workforce development programs, the company would have only received a one percent tax credit in the amount of $150,000. The proposed legislation would balance the state's support for private sector investments in human resources, with what is available for investing in natural resources. Mr. Johnsen stressed that by enacting the bill, the legislature would effectively encourage businesses to invest in postsecondary education-vocational/technical programs to university programs-in order to open up another revenue source for higher education, and strengthen the relationship between colleges and the businesses that employ the graduates of these programs. Furthermore, the bill encourages a long-term collaboration in support of economic development in Alaska. He concluded by informing the committee that Doyon is one of twelve regional Native corporations in Alaska, and the effort being put into this bill is a high priority amongst the corporations. 10:00:25 AM CHAIR SEATON observed that the bill includes vocational/technical training, as well as facilities to provide a variety of postsecondary training, courses provided by a state operated vocational school, and facilities for non-profit public or private accredited institutions. Further, he said the bill is an expansion of the amount of tax credit that would be used to help leverage additional private funds. Chair Seaton requested comments from the Department of Revenue (DOR). 10:02:38 AM JOHANNA BALES, Deputy Director, Tax Division, DOR, said that the department does not object to the intent of the bill. She directed attention to the attached fiscal note, and said it is difficult to know the exact amount of giving that increasing the tax credit might promote. The department reviewed 2008 corporate income tax filers and estimated that if each of the corporations took advantage of the opportunity provided by HB 367, to the fullest extent, the state would suffer a drop of $200 million in corporate income tax. Ms. Bales said a complete analysis has not been completed, and pointed out other taxes that could be affected such as mining license taxes, fisheries business taxes, fisheries resource landing taxes, oil and gas production taxes, property taxes, and insurance taxes. She concluded that the revenue impacts may potentially be far reaching, depending on how many taxpayers take advantage of the program. CHAIR SEATON surmised that the projections were based on a contribution cap of $25 million, or in the case of a corporation with a tax liability of $400,000, basing the projection on its tax liability. MS. BALES said that is correct. 10:05:01 AM CHAIR SEATON asked for the state's contribution in tax credits under current law. MS. BALES reported the number and approximate amount of education tax credits claimed under the most recent filings were as follows: 16 corporate taxpayers for $1 million in tax credits; 3 insurance premium taxpayers for $450,000 in tax credits; 1 fishery resource landing taxpayer for $150,000 in tax credits; 3 business taxpayers for $450,000 in tax credits. The credits totaled $2.1 million, and she added that there were none from the tax categories of oil and gas, or production tax and property tax. This can be explained because the categories of oil and gas taxes, production taxes, property taxes, and corporate income taxpayers can only take a total of $150,000, regardless of the tax type the credit is claimed against. Ms. Bales confirmed that this disincentive would not be changed by the proposed legislation. 10:06:43 AM CHAIR SEATON closed public testimony and said that HB 367 would be held over.