HOUSE BILL NO. 112 "An Act repealing the film production tax credit; providing for an effective date by repealing the effective dates of secs. 31 - 33, ch. 51, SLA 2012; and providing for an effective date." 4:14:22 PM MIKE DELVIN, CEO, EVERGREEN FILMS, ANCHORAGE (via teleconference), spoke in opposition to the bill. He communicated that the bill would cause the company to cease its projects in Alaska. He spoke to his background; the company was currently in production of its first major feature film titled Walking with Dinosaurs 3D, which would be distributed later in the year by 20th Century Fox. He detailed that the film had been shot in Alaska and New Zealand. He emphasized that the company had made substantial capital investments in the state including in the construction of a $6 million facility in Anchorage for the housing of post-production and screening operations and a high-tech advanced stage; the investment did not qualify for the tax credit, but represented investment the company was making in Alaska. He communicated that the global market was competitive for producers who had to find locations that could provide a good economic environment and a talented labor pool. He stressed that the existing tax credits were necessary for Alaska to compete globally and for the company to do business in the state. He spoke from his perspective as an Alaska resident and relayed his preference for doing business locally. 4:17:24 PM PATRICIA HULL, ALASKA FILM GROUP, JUNEAU, spoke in opposition to the legislation. She spoke to the purpose of the group. She relayed that films took many years to plan and culminated in weeks or months of activity. She communicated that while a shoot may be brief, it represented a boon to communities where filming took place, infusing millions of dollars. She pointed to letters from small businesses throughout the state that had benefited from major films; one letter was written by a "mom and pop" snow removal company that had expanded to a year-round business after earning money from renting equipment to the film industry. She stated that the 27th legislature's decision to extend the credits by 10 years was visionary. She stressed that the credits allowed the industry to begin planning projects in Alaska. Ms. Hull stressed that the rumor that the credits would be discontinued had caused a chilling effect. She stated that films that should be coming to the state were not; there was a film about the Nome serum run that would be filmed in Canada. She believed the legislative audit brought forward an accurate assessment of the strengths and weaknesses of the tax incentives. She accentuated that the program had returned $2.00 for every $1.00 that was paid out. She stated that improvements to the program were scheduled to go into effect on July 1, 2013 including incentives to hire more Alaskans and a sliding scale application process fee. Another change included a content review; she believed that some Alaskans had been offended by the way they were portrayed in a reality television show and had taken aim at the industry as a whole. She stated that the content review would ensure that Alaska was portrayed in a positive light. She emphasized that the state was a unique and beautiful location to make films. She pointed to other beautiful locations and the aggressive courting of the film industry by other governments. She stated that Alaska's 44 percent tax credit was the most competitive. She emphasized that the legislation would sabotage years of constructive effort and would divert the potential for hundreds of millions of dollars away from the state. She noted that unlike some forms of economic development activity, it was not necessary to clean up after the film industry. She encouraged the committee to retain the legislature's 10- year commitment to the film incentive program. 4:22:37 PM Representative Wilson noted that some of her constituents had been upset about the way they had been portrayed in a show. She pointed out that there had been a negative impact for some individuals related to their jobs and increased regulation as a result. Ms. Hull understood the issue existed. She observed that the reality television show genre was notorious for portraying people in a negative light. Co-Chair Stoltze relayed that his motivation for the legislation was financial. Ms. Hull stressed the importance of portraying the state in a positive way. Representative Wilson noted that her constituents were miners and were working to make a living. Representative Munoz asked whether Ms. Hull believed the reality television portion should be retained under the incentive program. Ms. Hull replied that she was not an expert related to the specific issue. She added that her comments related to the reality television industry did not reflect the opinion of the Alaska Film Group. She stated that it was difficult to control content in the specific type of programming. 4:25:11 PM CODY LAWHORN, SPROCKETHEADS LLC, ANCHORAGE (via teleconference), spoke to his education in film production. He stated that Alaska's image had changed subsequent to 2010. He pointed to the television show The Deadliest Catch and to Alaska's great potential for the film industry. He discussed the Drew Barrymore film Big Miracle that had been filmed in Alaska. He had returned to Alaska from school in 2011 to work as an unpaid production assistant on a Nicolas Cage film The Frozen Ground; he had received college credits and many valuable hours learning about the job. The position had led to other opportunities in the industry. He had just received his degree in film production in Portland. He discussed his desire to move home to make films and to help grow the industry in Alaska. He had come home to stay and had brought projects with him. He urged the committee to not pass the legislation. He asked the legislature to maintain the film bill extension. 4:29:24 PM RANDY DALY, FILM INDUSTRY PARTICIPANT, KENAI, testified in opposition to the bill. He spoke to his role as the former president of the Kenai Peninsula Borough of Economic Development district and in the film industry. He addressed his support of business development, economic diversification, and a year-round stable economy in Alaska. He highlighted various examples of private funding responsible for building film studios in Anchorage. He emphasized that industry had invested millions of dollars into business development and production facilities. He stated that film and film production was a new industry that was diversifying Alaska's economy statewide; it was capable of producing well-paying, year-round jobs. He noted that energy and government revenue were in decline in the state. He stressed that it was the responsibility of citizens to explore new opportunities to provide a better future. He opined that film should be part of the future. He detailed that over the past few years the state had worked with private industry on legislation that would allow the industry to move forward; credits to the industry would only be maximized when business was conducted with Alaskans and Alaskan owned businesses. He noted that the legislation also included a cap to limit financial exposure, a review process after five years, and the oversight of third-party certified public accountants. He stressed that it was time for the state to keep its word. He urged the state to act accountable and to allow the industry to conduct its work. He stated that vacillation on the issue sent the message that Alaska was not a stable place to do business. He urged the committee to not pass the legislation. 4:32:22 PM D.K. JOHNSTON, ALASKA FILMMAKERS, ANCHORAGE, spoke against the legislation. He provided his personal background in the film and education fields. He had received many questions about why the legislature would entertain cutting down a program that had been working vigorously to establish itself over the past five years. He stated that the program had helped to create jobs, diversify the state's economy, promote new forms of education for Alaska's youth, and to bring together talented artists to tell Alaska's stories. He opined that a repeal of the film tax credit was a step in the wrong direction; whereas, the continuation of the program was a step towards new development. He shared that millions of dollars had been invested in the new industry and that turning Alaska's back on the industry would be a mistake. He pointed to multiple documents in members' packets expressing opposition to the bill (copy on file). 4:35:16 PM RON HOLMSTROM, SCREEN ACTORS GUILD AND AMERICAN FEDERATION OF TELEVISION AND RADIO ARTISTS, ANCHORAGE, testified in opposition to the bill. He shared that he had worked the film industry since 1975 on both sides of the camera. He spoke to the federation's excitement that its Alaska membership had more than tripled since the incentive program's creation. He communicated that in the past year 12 feature films had qualified for the program; however, following the introduction of the legislation, there had been no applications. Additionally, the federation had not had any Alaskans join its rank of professional performers. He observed that Alaska had become less attractive to major production companies; however, he believed there was time to experiment with the program, which could be incredibly fruitful for Alaskan workers and local businesses. He did not understand why the bill to repeal the program had been introduced. He was bewildered at the idea of closing down a young industry that had shown itself to be financially sound. He was available to discuss the business opportunity at any time. He stressed the importance of rebuilding the state's reputation as a film community and of moving forward with the film industry. Co-Chair Stoltze remarked that government policy did have deleterious effects on the economy. Representative Gara expressed support for the program. He asked whether a travel credit could work if the larger program was discontinued. Mr. Holmstrom replied the issue came down to arithmetic. He had dealt with motion picture budgets his entire adult life; the issue related to how much it would cost to get everything to the location for filming. He stated that there had been a move to improve the grip, electric, and camera equipment in Alaska, but the effort was currently not moving forward. He opined that subsidizing the expenses of moving trailers, dressing rooms, wardrobe trailers, and other could potentially help; however, it would be difficult to balance the savings against the tremendous above-the-line expenses (including actors, producers, writers, and directors), which made up at least half of a motion picture budget. 4:40:02 PM Co-Chair Stoltze commented that the committee would look at alternatives to the overall elimination of the program. DEBORAH SCHILDT, PRESIDENT, THE ALASKA FILM GROUP, ANCHORAGE (via teleconference), spoke against the legislation. She provided information about the organization. She stated that 32 films had been shot in the state since 1924; 24 of the films had been shot the state subsequent to 2000 and only 7 of the 24 had been entirely filmed in Alaska. She stressed that all 7 films shot entirely in Alaska had been made following the implementation of the film credit program. She emphasized that incentives were the way the business worked at present. She stated that HB 112 stifled the industry in the state. She highlighted that the industry had provided a positive economic impact on the workforce and businesses in Alaska. She pointed out that the program included increased incentive for local hire. There were currently actors, students, and tradespersons enrolled in training programs statewide. The organization expected that hundreds of skilled workers would be added to the state's workforce in the upcoming year. She wondered where the individuals would go if the legislation passed. She spoke to the high paying jobs provided by the industry. She wondered why the legislature would choose to discourage the industry and reduce employment opportunities. Ms. Schildt discussed the program's success and quoted from the 2012 legislative audit by Northern Economics (page 19): ...the state realizes a positive return on investment from the AFPTIP. The AFPTIP generates an estimated $2 in Alaskan economic output for every $1 dollar in tax credits - an economic multiplier of $2.05 per the consultant's analysis. Ms. Schildt stressed that the bill failed to take into account that only $8.4 million out of the $34 million in issued credits had been redeemed; leaving $27 million in funds to be utilized by Alaskan corporations. She highlighted that money spent in Alaska generating the tax credit amounted to $109 million and that much of the money continued to circulate in the state. She stated that the bill was a losing proposition; many producers had pulled out of production after the bill had been introduced. She expounded that the state would move backwards with the film industry if the bill passed, which would lead to the loss of millions of dollars. She stressed that the film credit program was new and improved; it was more Alaska-centric, it offered credits as opposed to subsidies, and offered proven value to Alaskans statewide. She urged committee members to vote no on the legislation. 4:46:56 PM Co-Chair Stoltze made a statement about his influence related to the legislation. DIANA FEJES, TAX CONSULTANT, ANCHORAGE (via teleconference), spoke against the bill. In 2012 she had been asked by NANA Development Corporation to examine the economics of the film credit program. She conducted an analysis using other states as models; projections showed that over a 10-year period the film industry could become a $1 billion industry if the state had an experienced workforce and the infrastructure to support larger films. She continued that over time almost $4.00 of economic benefit could be realized for each $1.00 of credit issued. She stated that indirect spending resulting from an industry is difficult to predict, but is a widely accepted concept. She pointed to the 2012 Legislative Budget and Audit Committee internal audit; the audit had found that over $2.00 was returned for each $1.00 of credit issued. She furthered that $50 million of economic benefit had come directly from the incentive program through February 2012. She noted that the data was for a period of time prior to the strengthening of the program, which would provide additional benefit to the state. Ms. Fejes stated that total spending during the 4-year period ending February 2012 was over $58 million, which included all films produced whether or not the credit was allowed. She provided an example related to the benefits of the incentive program; if a film cost $20 million to make and $10 million of the amount was spent on Alaskan wages and businesses, the average credit was around 33 percent; therefore, cash out the door for the credit would be just over $3 million, but $10 million remained in the economy. She emphasized that between the multiple economic effects and the time value of money, the $10 million could have a significant impact. She relayed that Alaska had one of the highest corporate tax rates in the U.S. at 9.4 percent. She stated that buying a credit at a discount of 80 to 85 percent provided industry more incentive to stay and increase business in the state. 4:50:58 PM Co-Chair Stoltze turned the gavel over to Representative Costello. Ms. Fejes continued to testify against the bill. She relayed that if the allowable tax credits were to be fully used over the upcoming 10 years it would cost $200 million; however, a $200 million credit would generate just under $600 million in revenue for Alaska's economy. She discussed industries impacted by the indirect spend of the money in the state. She observed that the program was not perfect and that adjustments may be required; however, she suggested not throwing the baby out with the bath water. She stated that the program had energized many small businesses and had helped larger businesses as well. New productions would keep individuals in the state. She stressed that starting and stopping a program from year to year would build distrust. She pointed to other competitive locations where film companies could take their work. She asked the legislators to continue the program. 4:53:06 PM Representative Gara asked what the film production companies had paid in the state since the credits had taken effect. Ms. Fejes replied that many companies did not pay the taxes in state, which was the reason the incentive credits had originated. She explained that credits were approved and sold to entities such as banks, cruise ship companies and others conducting business in the state. The program helped the businesses to save on their taxes as credits were purchased at a discount. Representative Gara remarked that he would follow up for more detail from the Department of Revenue. He believed that companies were taxed pro rata for their presence in a state based on the state's income taxes. Ms. Fejes replied that the statement was accurate relating to corporations; however, many of the film companies were constructed as pass-through entities such as partnerships. 4:54:57 PM PIUS SAVAGE, OMAYACON PICTURES, ANCHORAGE (via teleconference), spoke against the legislation. He discussed his background in the film industry. He shared that during his work in various locations people had seen films showing Alaska's beauty; the industry helped small businesses and tourism throughout the state. He pointed to current work with producers planning seven films in Alaska as a result of the film tax incentives. He spoke to one film that would employ all local actors. He discussed his work with many famous producers and actors. He was currently in conversations with investors for a project with an estimated budget of $10 million. He mentioned another production that would cost $16 million or more. 4:59:10 PM Co-Chair Stoltze resumed chairing the meeting. Mr. Savage continued to speak against the bill. He stressed that the beauty of Alaska attracted the industry. He mentioned that the introduction of HB 112 was discouraging investment and causing filmmakers to look to other locations such as Iceland. He stated that the decision was up to the legislature. 5:00:32 PM GARY ZIMMERMAN, GENERAL MANAGER, ALASKA RENTAL CAR INC., ANCHORAGE (via teleconference), spoke against the bill. He communicated that the company benefited from the money spent by the industry in Alaska. He relayed that film production funds provided a substantial economic benefit statewide. He communicated that the rental car service industry generated over $22 million in taxes and fees collected from renters and paid to the state and local government; when business increased, the money going to the state increased as well. He relayed that productions featuring Alaska promoted the state more successfully than advertising campaigns; the increased awareness helped to further the state's goal of promoting tourism. He continued that the film industry was just beginning to gain traction in the state. He asked the committee to allow the incentive program to benefit the film industry, Alaskan businesses and workers, and the state. He asked the committee to not pass the bill. 5:02:53 PM KELLY BENDER, LAZY OTTER CHARTERS, WHITTIER; opposition testimony was read for Ms. Bender by Merna Jenson (via teleconference): Good afternoon Chairman Stoltze and the House Finance Committee. I am not in the film industry; we are a business that has benefitted from the film industry. We operate a water taxi and sightseeing business in Whittier; we also have a small café. We hire Alaskans to work and live in the community where we operate. The impact the film industry has sometimes been direct. We helped out with a film shoot onboard our boat; the show aired this past fall. But sometimes it's indirect; like when we took out members of the cast and crew from movies that have been shot here on a sightseeing cruise. This was about $12,000 to $15,000 to our company. Often this business has come during the shoulder season, a time when were slow and can use the additional income. This may seem like a drop in the bucket to some, but to us it meant that we paid our Alaskan employees, it meant we bought goods and services from our Alaskan suppliers. To us this is business or some might say stimulating the economy. This isn't really about [indecipherable]; it's about Alaskans and Alaska businesses making a go of it. The state puts a lot of money into industry that has finite resources. This industry has infinite reach and trickle-down effect, not to mention what it does for tourism like the previous speaker said. As a small business owner I'm asking you to continue to support the film industry in Alaska, which really means supporting business and economic diversity in Alaska. Please do not pass HB 112. Thank you. Co-Chair Stoltze asked for a copy of the document. 5:05:29 PM ROBIN KORNFIELD, VICE PRESIDENT, CORPORATIONS AND MARKETING, NANA REGIONAL CORPORATION, ANCHORAGE (via teleconference), spoke against the legislation. She pointed to the value of programs that encouraged the development of new opportunities for the next generation of Alaskan business. She relayed that NANA supported the film tax credit because the existing program had created jobs for its shareholders and private sector income for an array of Alaskan businesses. The organization wanted to be a part of building new economies in the state. She discussed other developments the organization had been involved in during the past including the Red Dog Mine. She furthered that NANA had looked at the film business as it did with any other business opportunity; the industry required support services including construction, food service, information technology, transportation, hospitality, and security. Additionally, the industry created specialized job opportunities that were not yet widespread in the state. She stressed that the entire state could get involved. The company had been involved in the production of a documentary about the people of Diomede, Alaska and whales. She pointed to various national commercials shot in the state. She relayed that investment in training and facilities was made at NANA's own risk and was not eligible for tax credits; however, the credits were needed to bring the business to Alaska. She spoke to the global competition for production locations. She urged the committee to reject the bill. 5:09:10 PM STEVE RYCHETNIK, CINEMATOGRAPHER, SPROCKETHEADS LLC, ANCHORAGE (via teleconference), spoke in opposition to the bill. He discussed the company's work in the developing film industry. He stated that because of the tax incentive program he had been hired on multiple projects and had been able to remain in Alaska. He had been asked to be involved in several large budget films working to bring productions to the state. He recalled working on the film Insomnia in the past that had been filmed in Canada because Alaska had no incentive program. He emphasized that incentives always trumped location; he provided an example. The company was currently working with over 10 feature films that had invested years of time and money to come to Alaska. He pointed to the economic benefit provided to Maryland as a result of the Netflix original show House of Cards. He spoke to the benefit a dramatic series would provide Alaska. He stated that movie making was a business; there were as many conservatives as there were liberals. He emphasized that a film business in Alaska represented aggressive economic development. He urged the legislature to keep its promise of extending the film incentive program to 2023. 5:13:21 PM MAYA SALGANEK, DIRECTOR, UNIVERSITY OF ALASKA FAIRBANKS FILM PROGRAM, FAIRBANKS (via teleconference), testified in opposition to the bill. She stated that the university's film program had been established in 2011; record numbers of students had applied. She stated that the students had already demonstrated great successes. She relayed that the bill would eliminate the university program and the opportunity for the students to move forward in the career field. She continued that students interested in the field had been leaving the state, which was one of the reasons for the implementation of the program. She furthered that the industry had turned to the university wondering where trained students were. She elaborated that the program was for a Bachelor of Arts to create producers, directors, and other; the program prepared students for work in the film industry and provided hands-on training. There had been a 60 percent enrollment increase since 2010 in the number of student credit hours; there were students enrolled from all over the state. The credit program provided great publicity for the state. She shared that the program enrollment was growing approximately 10 percent per year; the university anticipated the figure would go up if the tax incentives continued. She spoke to the diverse population of students in the field. She stated that 50 percent of the students had been working on professional productions in the past 30 days. Ms. Salganek continued that the students would go on to be leaders in the industry in the future. She estimated that the tax incentive had doubled the amount of work in the state and was bringing more labor hours per production for Alaskans. She stated that the incentives were providing hands-on training opportunities; internships would prepare students for higher level positions in the future. She discussed that the training program had been in development for over a year. Students would be devastated to learn that there would no longer be long-term career opportunities in the industry in Alaska. She continued to speak about benefits of the program. She implored the legislature to support the students and the film industry. 5:21:19 PM CHARLIE HEWITT, MIRROR STUDIOS, ANCHORAGE (via teleconference), spoke in opposition to the bill. He shared that he was a Republican and owner/operator of Mirror Studios (a recording and post production facility in Anchorage). He discussed an additional revenue stream that was a byproduct of the film incentives. He explained that when a production was working in-state, many actors were needed for the post production process on other projects elsewhere. For example, during the filming of the movies Big Miracle and The Frozen Ground there had been numerous individuals using the studio for other film projects. He emphasized that the dollars were not insignificant and had not cost the state a dime. He expended significant money to bring the studio up to par prior to the implementation of the film incentive program. He had trusted the legislature's intent when it had voted to approve the credit program. He asked the committee to drop the bill and to keep the film credits until 2023. 5:23:54 PM Co-Chair Stoltze stated that his concerns about the issue were fiscal. He CLOSED public testimony. HB 112 was HEARD and HELD in committee for further consideration.