CS FOR HOUSE BILL NO. 306(FIN) "An Act relating to the review 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 the insurance tax education credit, the income tax education credit, the veteran employment tax credit, the oil or gas producer education credit, the property tax education credit, the mining business education credit, the fisheries business education credit, the fisheries business tax credit for scholarship contributions, the fisheries business salmon product development tax credit, the fisheries business salmon utilization tax credit, the fisheries business landing tax credit for scholarship contributions, the fisheries resource landing tax credit for the fisheries resource harvested under the community development quota, the fisheries resource landing tax education credit, and the film production tax credit; and providing for an effective date." 4:38:20 PM Vice-Chair Fairclough MOVEDMOVED to ADOPT the proposed committee substitute for HB 306, Work Draft 28-LS1396\K (Nauman, 4/19/14)) as a working document. There being NO OBJECTION, it was so ordered. SUZANNE ARMSTRONG, STAFF, SENATOR KEVIN MEYER, walked through the changes in the new version of the bill. She stated that there were two different sets of changes in the document. She announced that she would discuss the substantive changes, and Mr. Anderson would discuss the sections pertaining to the transition language. The first change was on Section 5, which was a new section. It proposed to delete language that pertained to construction of a public facility under AS 37.05.315(b). She stated that not all grants to municipalities were for the construction of a public facility, so the section updated the statute to more accurately reflect the practice of grants to municipalities, which ranged from road construction; water and waste water systems; public buildings; and equipment purchases. Another change was in Section 6, which pertained to grants to named recipients AS 37.05.316, and was a new section to the bill. It proposed to add a new subsection that provided that grants to named recipients lapse of substantial ongoing work on the project had not begun within five years after the effective date of the appropriation or allocation. It was the same standard that was used under grants to municipalities, so it was meant to draw a parallel between the two standards. She furthered that Department of Commerce, Community and Economic Development (DCCED) used the same standard in practice when administering grants to named recipients, although it was not codified in law. Another changed occurred in Section 7, which was a new section to the legislation. 4:44:40 PM Ms. Armstrong looked at Section 9, which proposed to delete a reference that was no longer necessary in statute. She announced that the CS did not delete the International Airports Construction Fund. Section 10 was included in HB 306, but there were some proposed changes. She stated that Section 10 pertained to unexpended balances of appropriations for capital projects. Under AS 37.25.020, it stipulated that an appropriation for a capital project was valid for the life of the project, and the unexpended balance shall be carried forward to subsequent fiscal years. The legislation proposed to amend the statute to include the same language that if substantial ongoing work on the project had begun within five years after the effective date of the appropriation. There had been an examination of prior year capital appropriations, and felt that she could have examined more appropriations if given more time. She had identified capital projects that were complete, but had not been closed out, and estimated balances remained. She was able to work with the departments to identify the funds, and reappropriate the funds to FY 15 priorities. Under the Executive Budget Act, it was loosely required that the executive branch provide a capital appropriation status report (CASR) annually. The information in the CASR could be helpful to the legislature when they considered capital programs for state agencies. 4:48:31 PM Ms. Armstrong related that the next change was found on Section 17, which proposed to repeal four sections of law that established capital projects funds that were no longer utilized for accounting purposed by Department of Transportation and Public Facilities (DOT/PF) and the Office of Management and Budget (OMB). Co-Chair Meyer felt that the changes in the bill were technical and for "clean up purposes." Senator Dunleavy asked how the tax credits that were outlined in other legislation would fit into the bill. He wondered if those credits would be reviewed before they were enacted. Co-Chair Meyer deferred to Mr. Anderson. Vice-Chair Fairclough wondered if there was a fiscal note to account for the additional reporting requirements. Ms. Armstrong replied that there was not an updated fiscal note from the two departments as it pertained to the administration of grants to the municipalities, named recipients, and unincorporated communities. She explained that the bill focused on current processes and procedures that DCCED, but were not codified. She felt that the other fiscal impact would be through OMB in quickly preparing the CASR. Vice-Chair Fairclough observed that the CASR would already be used for best business practices. BRODIE ANDERSON, STAFF, REPRESENTATIVE STEVE THOMPSON, stated that there were some necessary technical changes in the CS, in order to ensure that the legislation was constitutional. He looked at Session Law. He remarked that some of the effective dates were not outlined in statute, but were outlined in Session Law. He stated that the drafters added some sections of the bill to address the Session Law. He looked at Section 22, in which Session Law that impacted the film tax credit. Vice-Chair Fairclough announced that Section 22 was on page 9. Mr. Anderson agreed, and stated that Section 22 was on page 9, line 18. 4:53:24 PM AT EASE 4:53:50 PM RECONVENED Mr. Anderson looked at page 9, line 13, Section 22, and stated that it related to the film tax credit. He stated that Section 23 dealt with the education tax credit session law. He explained that Section 24 related to both the salmon product development tax credit, and the salmon utilization tax credit. He looked at page 10, line 12, which was the session law referencing the salmon production development tax credit and the salmon utilization tax credit. Co-Chair Meyer inquired what line Mr. Anderson was referencing. Mr. Anderson responded that he was looking at line 15. Mr. Anderson continued to discuss the technical changes relating to Session Law. 4:58:14 PM Mr. Anderson stated that there was a component in the film tax credit which related to a prequalified film tax credit. He explained that Department of Revenue (DOR) needed clarification of at one point the credits should be carried forward. It was the intention that the prequalified credits be issued, so the language clarified that the prequalification could be used to claim the tax credit. The final change was on page 11, lines 5 and 6, which was an effective immediate date for the report sections. He clarified that it was in Section 30, line 10, which was an effective date of July 1, 2014. He explained that the capital budget effective dates were the first day of the fiscal year. He stated that line 28, Section 35 was the immediate effective date for the report that would be created for both DOR and Legislative Finance Division (LFD). Senator Dunleavy remarked that there were some tax credits included in legislation that related to the liquid natural gas (LNG) pipeline and education. He wondered how this legislation would impact those credits. Mr. Anderson responded that the education bill held tax credits that impacted corporate income tax; fisheries business tax; fisheries resource landing tax; the mining license tax; and the oil and gas property and production tax. He stated that the passing of the education bill and HB 306 would roll into the 2018 sunset date for education tax credits. 5:02:24 PM Senator Dunleavy noted that the credits would have two years of data to see the outcomes and benefits of the contributions. Mr. Anderson replied in the affirmative. Senator Dunleavy noted that there were tax credits in the gas bill as well and wondered if the amount of time was sufficient. Mr. Anderson responded that HB 306 did not address the oil and gas tax credits. Senator Dunleavy remarked that he was not following the explanation. Co-Chair Meyer wondered what areas were exempt. Mr. Anderson replied that the tax credits that were addressed were education tax credits, film production tax credits, veteran's employment tax credit, salmon utilization tax credit, CDQ tax credit, and the salmon production development tax credit. Senator Dunleavy asked how the tax credits were determined to be included in the legislation. Mr. Anderson replied that in the beginning of the bill's formulation, there had been a bill that exempted any tax credits that were part of Title 38. They had been told that they could not use language that "tied the hands of future legislators." Therefore, they looked at a different way to assign tax credits. 5:06:44 PM Senator Dunleavy surmised that there were recipients of a donation from a company and the companies that were recipients of a tax credit from the state. He noted that the LNG bill had some tax credits for gas and oil companies, but there may be a recipient that would be training in Fairbanks. He wondered how the labor and training tax credits would be impacted by the legislation. Mr. Anderson responded that those proposed tax credits would be listed in the report section, and could be evaluated. He stressed that the bill did not sunset those credits or evaluations. Senator Bishop surmised that the oil and gas production credits that applied to the education and training would be immune from the legislation. Mr. Anderson responded that he would have to examine the specific statute. Senator Bishop surmised that the legislature would review the credit report, and he wondered if there would be a matrix to outline a proper decision. Mr. Anderson responded that DOR must create a report, and there were strict guidelines about the drafting of the report. Then LFD was then obligated to answer the questions within the statute, to analyze the ratios and benefits of the credits, then provide a recommendation. He stated that LFD was required to provide the methodology for the conclusion. Senator Dunleavy wondered if the bill prevented other tax credits from being created by statute. Mr. Anderson replied in the negative. 5:11:38 PM Senator Dunleavy wondered what determined a new tax credit's sunset for review. Mr. Anderson replied that the bill that created the tax credit would include a sunset date, unless it was a component of the listed education tax credit. Ms. Armstrong furthered that often times the legislature would create credits, deductions, or monetary incentives for activity without any comprehensive review of the performance of the credits. She stressed that the focus of the bill was on bringing the evaluations to the legislature's attention and the cumulative impact on the treasury of the state. Senator Bishop surmised that the bill was a cost benefit analysis of each credit. Ms. Armstrong replied in the affirmative, with other capital budget items. Vice-Chair Fairclough directed the committee's attention to the fiscal notes. Vice-Chair Fairclough MOVED to REPORT SCS CSHB 306(FIN) out of committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. SCS CSHB 306(FIN) was REPORTED out of committee with "individual recommendations" and with a previously published zero fiscal note: FN1(CED), a previously published zero fiscal note: FN2(CED), previously published indeterminate fiscal note: FN3(LWD), a previously published zero fiscal note: FN4(DNR), a previously published indeterminate fiscal note: FN5(CED), a previously published fiscal impact note: FN6(LEG), and a previously published fiscal impact note: FN7(REV). 5:17:50 PM RECESSED 7:31:34 PM RECONVENED