SENATE BILL NO. 159 "An Act relating to the new business incentive program." SENATOR DRUE PEARCE spoke to the point that SB 159 would create a new business incentive and economic development program targeted at companies locating or expanding into manufacturing businesses in Alaska. The program is designed to attract substantial business with high value and year round jobs. The grant program would be limited to reimbursement of defined portions of relocation costs, site development costs, special employee training not covered by other programs, and special analysis of sites in Alaska. The program is limited to $3 million dollars annually and all unallocated funds would be returned to the General Fund. Allocations would be made each year to fund the program and would be administered by the Department of Commerce and Economic Development (DCED). Senator Pearce continued, the New Business Incentive Program will target three essential functions: 1. A need to generate cargo and freight exports from Alaska. 2. A need for more diversity in the corporate tax base. 3. High value jobs for Alaskans. Senator Pearce noted that the proposal had been initially presented by the Anchorage Economic Development Corporation (AEDC) and has been embraced by the other Alaska Regional Development Corporation (ARDOR) in the State. She interjected that it is not unusual for any state to provide this type of incentive program. Co-Chair Therriault referenced the business feasibility and analysis study, pointing out that a business would not be reimbursed for costs unless they actually went forward in manufacturing. He inquired that if the business went bankrupt, would the State continue to be secure. Senator Pearce was not clear on how the Department of Commerce and Economic Development would create the security aspect. She advised that at least 75% of the United States currently, use such incentive programs. Representative J. Davies referenced Page 1, Line 14, and Page 3, Line 1, language that indicates that the business requires continued operation to receive funding. Senator Pearce agreed that the costs would be reimbursable only after the business was in operation. She stated that she would not oppose some sort of alternative clarification to Page 1, Line 14, as long as the new language could guarantee to assure the grant work. Representative Grussendorf inquired if new business established in the proposed legislation would compete with already existing State business. Senator Pearce replied that the program targets mainly manufacturing done in the State for export. At present time, there is very little manufacturing occurring in Alaska. The program will act as an enticement for manufacturing and fabricating plants. She stressed the amount of interest and support for the bill. Representative G. Davis asked when the "five years of operation" specification would begin - at the time of the contract or at the time of production. Senator Pearce acknowledged the concern. She suggested that issue could lend itself to a House Finance Committee Letter of Intent directing the Department of Commerce and Economic Development (DECD) when writing the regulations to specify that production would have had to occur. ERNIE HALL, CHAIRMAN OF THE BOARD, ANCHORAGE ECONOMIC DEVELOPMENT CORPORATION (AEDC), ANCHORAGE, noted that he was the owner of a small furniture manufacturing company in Anchorage. AEDC has the responsibility for growing an economic base in the State. Alaska generates about $140 million dollars a year in corporate taxes. Of that, eleven corporations, pay $110 million dollars, six of which are oil corporations. He stressed the need to broaden the economy base in the State given the declining oil revenues. The State must diversify. The question that any manufacturing corporation will ask is what are the incentives Alaska has to offer. He stressed that passage of the proposed legislation would be an asset to the entire State. DONNA TOLLMAN, (TESTIFIED VIA TELECONFERENCE), GLENNALLEN, spoke in support of passage of SB 159. She suggested that it would be instrumental in providing a "level playing field" for Alaska when competing with other states inticing new manufactures. KEITH LAUFER, (TESTIFIED VIA TELECONFERENCE), ALASKA INDUSTRIAL DEVELOPMENT EXPORT AUTHORITY (AIDEA), ANCHORAGE, expressed AIDEA's support for SB 159. AIDEA believes that the legislation could be an important tool for attracting new business to Alaska. The bill provides a role for AIDEA to review applications on the objective standards. Representative J. Davies asked if the Committee would be writing a Letter of Intent. Co-Chair Therriault suggested that the "grant provisions" could be clarified by changing language on Page 3, Line 1, inserting after "must" the language "be operating and". Senator Pearce supported the addition of that language. Co-Chair Therriault MOVED that conceptual language as Amendment #1. There being NO OBJECTION, it was adopted. Representative J. Davies asked why the bill required that a business be engaged in exporting outside the State rather than just "manufacturing". Senator Pearce replied that language would alleviate the concern that business' would not compete with small business' already established. She added, the intent of the legislation is to create a business in Alaska of materials that are for export, providing for greater cargo and freight needs. Anchorage is an economic crossroad and the International Airport is a primary economic driver. Cargo and freight seriously impact that consideration and the original intent is to help build on that aspect. Co-Chair Therriault pointed out that there has been concern expressed that Alaska ships out a lot of our raw and organic resources to be processed outside of the State to supply the rest of the world with product. He suggested that business in Alaska should be encouraged to process the natural resources. Representative J. Davies concurred, questioning why the legislation does not encourage creation of new business engaged in manufacturing inside the State. Senator Pearce explained that her intent was to limit the amount of dollars spent on the program. As the focus is expanded, so is the cost. She felt that SB 159 would not be the proper vehicle to provide that incentive. Representative J. Davies stated that he was not speaking about services, but instead about manufacturing. There have been a number of businesses' which have proposed to open up small scale manufacturing forest products. He pointed out that those businesses would not be eligible for funding from the proposed program. PATTY DEMARCO, PRESIDENT, ANCHORAGE ECONOMIC DEVLEOPMENT CORPORATION (AEDC), ANCHORAGE, acknowledged Representative Davies concern, although pointed out that the focus of the proposed legislation is to find ways to bring revenue into the State through manufacturing. AEDC is looking for ways to incentify small companies to expand their operation for exporting. She felt that the program has provoked people to consider how value could be added so that Alaska can reach a world market. The market would create higher value jobs and production with a broad base of primary functions in the State. Representative J. Davies reiterated why eliminate the privilege of manufacturing with the intent to keep it in the Alaska market. Representative Moses pointed out that the State has a great need for value added processing. He urged consideration of that concern. Senator Pearce pointed out that the bill would allow for incentives for business' doing that in Alaska and then expanding into the export market. The intent of the program is not to start new businesses in Alaska just for Alaskans. The point is to bring in more revenues by bringing in business from outside and providing export privileges. Co-Chair Therriault noted that the legislation was permissive. It would allow money to be set aside into a fund. The appropriation would have to be a yearly appropriation and the unexpended funds would lapse at the end of each fiscal year. The proposed fiscal note is zero; a specific appropriation would be requested yearly. Co- Chair Hanley commented that the way the appropriation had been established would limit the way the program was set up. Senator Pearce replied that there are many senators sensitive about adding fiscal notes to legislation, consequently, SB 159 has been submitted with zero fiscal notes. She anticipated that the Legislature could appropriate required funding and provide for carry forward. Representative Kohring asked why the bill provided grant funding rather than low interest rate money. Senator Pearce explained that it is essential that Alaska be competitive with other States. Elsewhere, states and local governments are making huge tax concessions and they are willing to build the infrastructure to bring high value jobs to their communities. It is important that Alaska is involved with a similar effort. Co-Chair Hanley MOVED to report HCS CS SB 159 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. HCS CS SB 159 (FIN) was reported out of Committee with a "do pass" recommendation and with two zero fiscal notes by the Department of Commerce and Economic Development dated 1/23/98. (Tape Change HFC 98-27, Side 2).