HB - 54 EDUCATION TECHNOLOGY PROGRAM Number 0523 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division, Department of Revenue, said DOR would provide a fiscal note for CSHB 54(HES) after today's meeting. He said there is not currently an official fiscal note, but one could be generated to go with CSHB 54(HES). Number 0591 CHAIRMAN BUNDE said there is some concern about the size of the fiscal note and asked if this project could be launched without a fiscal note. He said CSHB 54(HES) is asking folks in the community, businesses, to basically set up this technology grant and asked if the effort could go forward without state seed money. Number 0613 MR. BARTHOLOMEW said the fiscal note he is referring to would be the loss of revenue from the tax deduction which is around $114,000. As far as the cost of the staff positions, the Department of Education could provide an answer to that suggestion. Number 0636 REPRESENTATIVE GREEN said there was a question regarding the subcommittee report and the chart that the DOR provided. Number 0658 MR. BARTHOLOMEW said DOR tried to look at what happened in other tax credits which provide more of an incentive to give than just allowing a business deduction. Two scenarios were provided that were pretty close to a linear relationship. He said the lower option scenario is more realistic. He said you could try to guess the risk of a higher one based on your perceived conception of private business support. He said there is a growing competition for private companies to contribute to various charitable organizations and funds. Number 0699 REPRESENTATIVE VEZEY said he had trouble understanding the table. He said he accepted the assumptions from DOR. He said if you look at the first table, the deductions for corporations with $100,000 or more in the state of Alaska corporate income tax liability, there are 15 taxpayers in that category. If those taxpayers participated in this fund, he believed that the statute limited the contribution to a $100,000 deduction for this corporation. He asked for verification that at 9.5 percent of 15 taxpayers owing $100,000 equals $141,000 in lost tax revenue. Number 0742 MR. BARTHOLOMEW said this was correct. Number 0743 REPRESENTATIVE VEZEY said we are saying for $220,000 of potential tax savings, we can get the corporate tax payers in the state to contribute $3.7 million. Number 0759 MR. BARTHOLOMEW said these are the assumptions based in Scenario A. Number 0775 REPRESENTATIVE VEZEY asked why we need CSHB 54(HES). He said this fund can be done under existing law. Number 0780 MR. BARTHOLOMEW said, under existing law, you are allowed to take a limited deduction for charitable contributions but he did not think that schools qualified as a 501-C(3), which is what allows you to deduct contributions from your taxes. He said CSHB 54(HES) amends the Alaska tax statutes to allow a general business deduction. Number 0801 REPRESENTATIVE VEZEY said his opinion differed. He said an educational organization is capable of getting a 501-C(3) tax, it is one of the functions, educational purposes, that is recognized by the Internal Revenue Service (IRS). He said there are limits on the amount of charitable contributions that a corporation can make, they are fairly generous based on gross earnings not on tax liability. He said the main factor here is that the biggest credit is the federal income tax. He said any entity, including the state of Alaska if we pass CSHB 54(HES), would still have to address it on their income tax and get recognized by the IRS. He said any entity that we set up would still have to apply for the 501-C(3) status, you do not need to pass a statute to create a 501-C(3) corporation. He asked what the committee was doing, other than creating a new bureaucracy. Number 0872 MR. BARTHOLOMEW said he could not say today whether schools can apply and become a 501-C(3), but it makes sense within the guidelines. He said there are limitations that apply to how much of a charitable contribution you can deduct. He said it was correct that if CSHB 54(HES) passed and a business gave a contribution to the technology fund, they would get a general business deduction for state tax purposes which would not be deductible on their federal income tax unless you went through the route and became a recognized 501-C(3) corporation which would subject you to limitations. He said it is strictly a state tax code amendment. Number 0925 REPRESENTATIVE VEZEY said if we create this new bureaucracy is it their intent to go out and get qualified as a 501-C(3) corporation or association. Number 0944 GEORGE SMITH, Deputy Director, Libraries, Archives and Museums, Department of Education (DOE), referred to the fiscal note submitted by the DOE which was originally zero. He said it was assumed that, at least initially, there would not be a large amount of money in the program and that his division could handle training in the public library and the school libraries with the existing library development staff. He said he had a note that said, if the fund received a large grant or an endowment, a staff would need to be hired for additional training. He said you cannot put computers and technology into small communities and expect them to bring it up and know how to use it without some good training. MR. SMITH said the initial fiscal note, in one of the other divisions, Teaching and Learning Support, was that there would be a need for staffing to handle this fund. He said if the provision were made that some of the endowment money could be used for training purposes to hire a staff, then a zero fiscal note could be submitted. He clarified that this issue was discussed in the subcommittee meeting. He said his division, Libraries, Archives and Museums could handle their fiscal note in the same way. If that provision were included in CSHB 54(HES), the libraries division would not need a fiscal note. Number 1032 CHAIRMAN BUNDE clarified that Mr. Smith was referring to the DOE fiscal note, the $121,000. MR. SMITH said, "yes, actually for both of us. With that provision both of us could handle it and I discussed that issue with the other division." CHAIRMAN BUNDE said if it doesn't work, you won't take any money but if it does work you may need it. MR. SMITH said, even if there were small amounts of money, his division could handle it with existing staff. Number 1055 REPRESENTATIVE PETE KOTT, sponsor of HB 54, said he did not feel that CSHB 54(HES) would create a growing bureaucracy. He said, as indicated, there might be one or two individuals put on staff to allocate the grants, monies to the individual school districts and libraries. The staff will be responsible for insuring that the requirements for the application are met. He said he did not think that a great bureaucracy would be growing here. REPRESENTATIVE KOTT said, currently, the DOE has a $1 million grant. He said there is a provision in that federal grant that gives them up to 5 percent for administrative costs. He said passage of CSHB 54(HES) will assist in the state's ability to obtain future grants by getting a program that shows that the state is interested and committed to providing education technology. He said it is his understanding after talking to potential recipients of grants that one of the first questions asked is what the state's interest is and what is their level of commitment. He said having this structure in place sends a message out there. He said the U.S. Office of Education has an annual challenge grant that is available and said the state of Alaska has not received it for three years because we don't have the interest or intent out there. He said this fund would resolve that particular issue. Number 1154 REPRESENTATIVE PORTER asked if CSHB 54(HES) gave DOE the ability to utilize the fund for necessary training or would that have to be something that would be added. REPRESENTATIVE KOTT said he believed that the subcommittee addressed this issue. Number 1173 REPRESENTATIVE GREEN said the subcommittee actually found two references; an early reference was of the opinion that no you couldn't and then later there was a legal reference that said yes you can. Ms. Cook said as long as you don't preclude it within the bill itself stating that it cannot be used, then it can be used. Number 1195 REPRESENTATIVE PORTER said the chairman of the committee that has the bill, by the executive branch's policy, is the one who has to order the fiscal notes. He would suggest that if it is the intent to move CSHB 54(HES) today, we move it with a qualification on the fiscal notes, that the chairman be allowed to get fiscal notes from the department reflecting (indisc.--coughing) testimony we've heard which he thought would then be a zero fiscal note for the DOE. Number 1220 REPRESENTATIVE J. ALLEN KEMPLEN said the possibility of allowing community centers, recreational centers to receive or apply for these grants from the education technology fund was discussed at the subcommittee meeting. He asked if there was a discussion with the federal government about this possibility. Number 1248 REPRESENTATIVE KOTT said no, not to that particular issue. Some of these grants do come with strings attached and would prohibit the money from being allocated down to community centers. He said, after giving it some additional thought, it was his opinion that this particular area of appropriating, allocating grant money goes beyond the scope of his intent in CSHB 54(HES). Number 1278 CHAIRMAN BUNDE called an at ease at 4:13 p.m. and the committee meeting resumed at 4:14 p.m. He said he is hesitant to pass CSHB 54(HES) with a fiscal note that is inaccurate. He asked Mr. Smith if he could provide a fiscal note that would be a zero fiscal note. Number 1294 MR. SMITH said his division's fiscal note was zero. He said the other division's fiscal note, the Division of Teaching and Learning Support was originally $120,000. He has discussed this issue with the director of the division. He said as long as DOE knows that administrative costs can come out of the grant or endowment, they could provide a zero fiscal note. Number 1327 CHAIRMAN BUNDE said it is the chair's intent to write a zero fiscal note for the Department of Education including the Division of Teaching and Learning Support and the Division of Libraries, Archives and Museums. Number 1332 REPRESENTATIVE TOM BRICE made a motion to move CSHB 54(HES) with attached zero fiscal note or fiscal note as corrected by this committee. Number 1340 REPRESENTATIVE VEZEY objected to the motion. He said his objection is no comment on the role of technology in our society and in our educational process. He said he has some interest in organizational structure, particularly in business organization, and said he believes that we are going, completely, in the wrong direction. He said the state of Alaska and the United States government have spent considerable time and effort, over the last 200 years in the case of the federal government, creating institutions that can provide public service. He said by trying to create an organization within the state of Alaska, we are creating a government entity that can do, with all the efficiency of government, that which can be currently be done under our non- profit corporation statutes. He said we recognize that our civic organizations provide the community greater efficiency. He said he did not feel that the organization of this fund has been thought out. He said he could not help but think that the idea is to create a bureaucracy that can request more funding. Number 1418 REPRESENTATIVE PORTER said he did not disagree with a lot of what Representative Vezey said. He said he was particularly encouraged by hearing the DOE's comments that if it was necessary to increase the volume of personnel needed to implement, not maintain, they would contract for those kinds of services. He said he would not support CSHB 54(HES) thinking that we would be adding permanent, long-term state employees. He said if it turns out that a year or two down the road that is the case, then he would hope it would be revisited. Number 1446 REPRESENTATIVE DYSON said he felt that making technology available in the education process was inordinately important, but the other problem with the issue is the idea that government can come from the people in the sense of being supported by it, such as trust funds. He said he has a problem with trust funds on the government side of it. He said he would pass CSHB 54(HES) out and would spend time weighing the issues before it was voted on the House floor. A roll call vote was taken on CSHB 54(HES). Representatives Bunde, Green, Porter, Brice, Kemplen and Dyson voted yea. Representative Vezey voted nay. CHAIRMAN BUNDE announced that CSHB 54(HES) was moved with zero fiscal notes from the House Health, Education and Social Services Standing Committee.