HOUSE BILL NO. 306 "An Act relating to tax credits and administration of tax credit programs; requiring the Department of Revenue to report indirect expenditures; relating to the duties of state agencies; requiring the legislative finance division to analyze certain indirect expenditures; relating to lapse dates for appropriations for capital projects; repealing certain statutes authorizing indirect expenditures; and providing for an effective date." 3:25:00 PM REPRESENTATIVE STEVE THOMPSON, SPONSOR, spoke to the bill's goal pertaining to fiscal responsibility. The bill would create a process by which lost revenue through indirect spending was reviewed by the legislature. The bill would enable the legislature to make sound policy decisions on whether certain indirect spending should continue. He read from a prepared statement: House Bill 306 creates the process which lost revenue through indirect spending is reviewed by the legislature and enables them to make sound policy decisions on whether certain indirect spending should continue. With our future budget declining, this legislature must have a mechanism established that routinely brings indirect spending under legislative scrutiny. Indirect spending in the State of Alaska is authorized through provisions in law that confers preferential treatment through credits, exemptions, deductions, deferrals, discounts, exclusions, and differential allowances. Like direct spending, indirect spendings are designed to encourage certain kinds of activities for public benefit or to aid tax payers. Unlike direct spending programs, indirect expenditures are not itemized and do not go through the scrutiny of any budget process that we have. An indirect expenditure provision may continue indefinitely without any fiscal oversight. [Discounts] were designed to encourage benefit for taxpayers and encourage business. What this bill does is require that the Department of Revenue prepare and deliver a report to include the name of the indirect expenditure, a brief description, statutory authority, sunset date, date of repeal if applicable, legislative intent, public purpose, estimated annual effect for the past five years, cost to administer the indirect expenditure, and the number of beneficiaries. The report would be prepared by November 1, before the first regular session of each new legislature. All the department agents and agencies and public corporations are directed to work with the Department of Revenue commissioner to complete this information. This requires Legislative Finance to prepare and deliver a report to the legislature that includes the estimate of the lost revenue from the indirect expenditure, the estimate of the monetary benefit of the indirect expenditure to the recipients, a determination if legislative intent was met or not and why the intent was not met if applicable, a recommendation whether this indirect expenditure should continue, and an explanation of the methodology and the assumptions used to create the report. Representative Thompson explained that the report would analyze all departments, agencies, and public corporations beginning with the FY 15 legislative two-year session and including: Department of Fish and Game, Department of Health and Social Services, Department of Labor and Workforce Development, and Department of Revenue. The legislative session beginning in 2017 would include the Alaska Court System and the Department of Administration. All remaining agencies would be reviewed in 2019. After initial review, reviews would be conducted every 6 years. The report would be delivered on the first day of the first regular session of each new legislature. The legislature would have two years to review the reports. 3:29:56 PM Representative Thompson continued to read a statement. Sunsets the following credits on the day after the last day of the regular session of the 29th Legislature. First up would be education tax credits, film tax credits, veteran employment tax credits, Winn Brindle scholarship tax credits, salmon production tax credits, salmon utilization tax credits, CDQ tax credits. Representative Thompson acknowledged that many of the credits were important and created jobs; therefore, the vast majority of the items would most likely be renewed. He pointed to an extensive study that compiled the list of credit programs over the prior interim. He stated that the bill would not place a significant burden on the Department of Revenue. He believed it was important for the legislature to review credits it had created years earlier and to determine their effectiveness. Additionally, the bill included a claw-back provision that would lapse unused appropriations when substantial and ongoing work on capital projects failed to begin within five years of the appropriation; including named recipients, unincorporated communities, and state agencies. Currently municipalities and boroughs were the only entities required to use or loose within five years. Entities would either be granted a reappropriation or the funds would be returned to the state. He thanked the committee for its time. 3:32:03 PM Co-Chair Stoltze disclosed that he was co-sponsoring the legislation. He discussed that the bill would address the state's general fund expenditures. He relayed that the bill included much more than the film industry credit. He believed the bill reflected substantial change in the way business was done. Representative Thompson replied that every piece of legislation representing an indirect expenditure to the state had been included. He spoke to the importance of providing equal scrutiny to all programs. HB 306 was HEARD and HELD in committee for further consideration. Co-Chair Stoltze discussed his intent to recess the meeting until the following morning.