HOUSE BILL NO. 302 "An Act repealing certain audit requirements for entities receiving contributions from permanent fund dividends." 3:43:43 PM Co-Chair Thomas MOVED to ADOPT proposed committee substitute for HB 302, Work Draft 27-LS1264\I (Kirsch, 2/23/12). Co-Chair Stoltze OBJECTED for purpose of discussion. KACI SCHROEDER-HOTCH, STAFF, REPRESENTATIVE BILL THOMAS, explained that the CS added new Sections 1 and 2. Section 1 clarified that the University of Alaska was required to pay a $250 application fee to the Pick, Click, Give program for every program or campus that was submitted. Section 2 outlined that the university should apply for the program in a manner described by the department. Co-Chair Thomas noted that the university had found a way to not pay the application fee for the Pick, Click, Give program in the past. The bill worked to treat applicants equally and required all applicants to pay the $250 fee. He discussed that there was a cost associated with running the program. Representative Doogan asked for more detail on the term "university program." Co-Chair Thomas noted that there were different programs within the university system. Co-Chair Stoltze suspected that there were elements of the university that had more fundraising success than individual campuses. Representative Doogan wondered how much it would cost the university if the fee was applied program by program. Co-Chair Thomas explained that non-profit organizations included in the program all paid the fee to the Department of Revenue (DOR) to be listed as a recipient. He reiterated that the goal was to treat all applicants equally. Co-Chair Stoltze discussed the minimum barrier fee requirement that had been set at $250 to show that an entity was a serious fund-raiser. Ms. Schroeder-Hotch responded in the affirmative. Vice-chair Fairclough noted her support for the legislation. She discussed that the university was included in the drop down list in multiple areas. She clarified that the university would be required to pay $250 to receive the benefit of each of its advertising opportunities. She had received multiple solicitations from the university in her legislative and private email inboxes; somehow it had figured out how to avoid paying the $250 fee that non- profits were required to pay to the program. 3:48:43 PM Co-Chair Stoltze WITHDREW his OBJECTION. There being NO further OBJECTION, Work Draft 27-LS126\I was ADOPTED. REPRESENTATIVE PAUL SEATON, SPONSOR, discussed that the bill had been introduced because he had heard from a number of small non-profits including the Seward Senior Center. The center had a $260,000 budget; it had been participating [in the Pick, Click, Give program], but audit costs were $15,000 and it had only received approximately $8,000 in contributions. The question that arose was whether the audit was necessary for individuals to donate to a charity that was required to be a 501(c)(3). The program required entities to maintain their 501(c)(3) status, which involved the completion of the lengthy Internal Revenue Service (IRS) 990 form. There was a federal audit requirement that kicked in if the entity received over $500,000 in federal funds to distribute. There were multiple non-profits throughout the state (Juneau Arts and Humanities Council, Seward Senior Center, Ketchikan library, etc.) that had difficulty with the $15,000 audit requirement and people had challenges donating to the entities when they were not included as non-profits on the Pick, Click, Give program lists. There had been a common misperception that if an entity did not appear on the program list that it was no longer a non-profit organization. Representative Seaton explained that the bill proposed to delete the audit requirement for entities with annual budgets above $250,000 in order to provide equity for entities included in the program and to avoid confusion about an organization's non-profit status. He opined that that the mandatory annual IRS 990 form sufficiently satisfied all the necessary requirements. 3:52:02 PM JORDAN MARSHALL, SPECIAL PROJECTS MANAGER, RASMUSON FOUNDATION, ANCHORAGE (via teleconference), thanked the committee for its support of the Pick, Click, Give program. He reported that presently $1.59 million had been contributed to the program since January 1, 2012 by more than 17,000 Alaskans, which was higher than the prior year's total; the program was on track to reach $2 million in donations to the 400-plus organizations and university campuses. Mr. Marshall highlighted detail related to the program filing fee requirement. Every organization that participated paid an annual filing fee, which covered the cost of basic administration of the program including vetting the eligibility of applications, sending out checks, managing the online donation form, and providing technical assistance for non-profits wishing to enroll. The campuses of the University of Alaska were the only organization entities not paying the fee. The CS clarified that all names on the program list for permanent fund dividend charitable contributions were required to pay the filing fee to help pay the costs associated with administering the program. Mr. Marshall clarified that the CS would allow each individual campus program to elect to pay the filing fee to be listed separately as a potential beneficiary. He added that it would be a non-profit's prerogative to decide whether to submit an application for inclusion in the program. Vice-chair Fairclough thanked Mr. Marshall for his work on the program. She wondered why other non-profits might not follow the example of the university and submit programs in $250 increments in order to be listed more frequently on the program list. Mr. Marshall replied that each organization was only entered into the database once, but they could appear in several different categories depending on the search that an individual conducted when making a donation. He expounded that every organization only had one record, but it could be found in numerous ways depending on which search characteristics were applied. For example, a person searching for organizations based in Fairbanks would find each of the University of Alaska Fairbanks campuses and rural campuses listed; the campuses would also appear if the search was related to educational organizations. 3:57:44 PM Vice-chair Fairclough referred to the Forget Me Not children program that was housed within the Anchorage Hospice program. She believed she had seen the various campuses listed differently in the drop-down menu. She thought the university was represented in more than just one form. She wondered whether she needed to direct other non-profits to start entering specific programs to the list. Mr. Marshall responded that each of the university campuses were listed separately. Currently none of the programs were listed in the Pick, Click, Give program. There were a number of non-profits that listed a particular program as their common name; each organization had an option to be listed as their official name or a common name (e.g. Anchor Arms conducted business as Safe Harbor Inn and was typically listed as Safe Harbor). Vice-chair Fairclough had heard several years earlier that a $500 filing fee came closer to covering the program costs than the current $250 fee. She wondered whether a $500 fee would be more appropriate. Mr. Marshall replied that when the filing fee had been reset there had been a couple of years of data available to establish the program's basic administration costs. The $250 fee was a very good guess so that each organization was making that much or more through the program while paying for program costs. He relayed that to the best of his knowledge $250 had been proved to be an excellent number to enable DOR to carry out its work. 4:02:16 PM MIKE WALSH, VICE PRESIDENT, FORAKER GROUP, FAIRBANKS (via teleconference), thanked the committee for the opportunity to speak on the legislation. He felt it was important to discuss the purpose of the program audit requirement, but the group did not have a position on the amount or removal of the program audit requirement. He was very happy to hear the update on the progress of the program. The initial idea of the legislation was to help Alaskans decide where their charitable dollars should be best spent. Another critical piece of the bill was related to talking about the ability of a non-profit to meet the IRS requirements of mission, fiduciary responsibility, legal responsibility, etc.; however, there had been no way to add an extra layer of confidence for a donor. He furthered that the idea behind the audit requirement was that it was an added level of scrutiny, which allowed for an outside opinion on the finances and general management principles of a non-profit organization. Dr. Walsh discussed that the reason for the audit requirement was because donors wanted to have confidence that an organization would spend their funds well (i.e. being good stewards of the dollars and spending them in a way that made the most of the money). He believed the audit was also a very valuable tool for organizations whether or not they took part in the Pick, Click, Give program; it was valuable internally to help organizations track their management and financial practices and to meet the needs of external funders who were interested in management practices. 4:07:31 PM Co-Chair Stoltze CLOSED public testimony. He referenced the zero fiscal note. Co-Chair Thomas MOVED to report CSHB 302(FIN) out of committee with individual recommendations and the accompanying fiscal note. Co-Chair Stoltze OBJECTED for discussion. He asked whether there were any amendments. Vice-chair Fairclough mentioned she would work with the sponsor to determine whether one program could have multiple donation streams. She understood that a donation to the university as a whole could be used throughout the university; however, a donation to a specific university program could only be used for the particular program. She believed other non-profits should be provided the same opportunity if the university was allowed to list multiple programs in the Pick, Click, Give list. There being NO further OBJECTION, it was so ordered. CSHB 302(FIN) was REPORTED out of committee with a "do pass" recommendation and with one new zero fiscal note from the Department of Revenue. Co-Chair Stoltze discussed the schedule for the following day.