SB 159 NEW BUSINESS INCENTIVE PROGRAM CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 1:39 p.m. and announced SB 159 to be up for consideration. MR. JORDAN KOKO, Intern to Senator Pearce, sponsor, said she introduced this as a program that would encourage economic development in the State of Alaska, especially in industries that are unrepresented. This program would be used under the Alaska Industrial Development and Export Authority and will be used to allocate funds every year to help develop certain programs in the State. There is a need to generate cargo and cargo capabilities, including capitalizing on Alaska's locational advantages in transferring cargo and encouraging that sort of development. This would hopefully diversify Alaska's corporate tax base and encourage more manufacturing in the State through other sorts of development than oil. This would also encourage high value jobs that encourage full time employment in the State. MS. PATTY DEMARCO, President, Anchorage Economic Development Corporation, said she does accept the amendment offered by CHAIRMAN LEMAN. The dollar amount up to or not to exceed $3 million would be no deterrent to the bill. This legislation is a way to establish net new jobs in Alaska for manufacturing and other value added kinds of activities. It doesn't require any expansion of existing government staff and will be a divided responsibility among the private sector proponent and the municipality that will be host to the business, and hopefully the State of Alaska as well. She said this is a bill that is a catalyst for action and it's a way to give us a broader base for future growth of our economy. There are a number of safeguards drafted into this legislation. MS. DEMARCO said that there are 32 programs in other states that compete with us for the same businesses. Statements from Federal Express and Alyeska Alloys give the committee an idea of the implications this program would have on the future growth of these companies. SENATOR HOFFMAN asked how she thought this would help rural areas of the State. MS. DEMARCO replied that they are hopeful that by having a way for broad areas of the State to attract a business in the form of making land available and helping to support infrastructure development. MR. MIKE BRADY said this program allows infrastructure to be created which is not necessarily economically viable without it. He explained that Alaska, when viewed in the context of being the cheapest place possible in which to establish a business, comes out less favorable than a lot of other areas. This program would allow the State to make up that difference for a period of time in order to allow a business decision to be made that would be favorable to the business position. Development in Anchorage is very expensive. They have to move a lot of dirt and there is no value in moving it until there is a facility there. MR. SCOTT THOMPSON , CEO, Alaska Power Systems, said they are currently in the middle of a project that's rather unique. Through the Alaska Science and Technology Foundation they have developed a power generation operating system that's being looked at throughout the world for reduction in power cost in a deregulation environment. They've got about 70 people employed in Anchorage now and they are looking for a place to assemble this product. It's basically a microprocessor board which is a value added product that has an operating system or firmware and software added to it after the board is assembled. This is what Federal Express and UPS needs to anchor a transportation area. MR. THOMPSON said one of the problems they have found, and has been pointed out to them by Emerson, is that they do not have an economic development partnership program with industry. Most countries in the world today actually have a development infrastructure program which basically offsets the cost for industry to develop products within their country. These countries, such as Ireland and Malaysia, actually host large companies to do assembly of product. The development money that is put forth puts the infrastructure in and the return to the country or state is the jobs that are guaranteed over a certain period of time. Emerson has indicated to them on their 40,000 unit order per year, that they don't care where they build the system. They just don't want to pay any extra for it. This forces them to look off-shore to build the hardware. Once the hardware has been established, for instance in Mexico or Malaysia, it makes the most sense to move all of the software and firmware jobs to where the hardware is being developed. It's easier to move management to where the hardware core is. The problem with developing this concept here is that there's absolutely no infrastructure to build the facilities to move the dirt, to get the people from the lower 48, if they are qualified to do board assembly. He said there is a great logistics organization here which has to do with the northern polar route for Federal Express and UPS, but there's no infrastructure to provide this. He said these are good paying jobs like $80,000 - $130,000. Most of the assembly process is all automated along with the handling and shipping. MR. THOMPSON said that in Kodiak, for instance, it would make sense for Tyson to do value added breading of fish sticks. Number 190 MS. DONNA TOLLMAN, Glennallen, supported SB 159 and said they just had a meeting where a large representation from Cordova talked about value added and the cost of site development in rural communities and the difficulty they are having in coming up with higher value jobs. In dealing with welfare to work issues, their residents are finding it difficult to see the value in coming off of welfare when the jobs they can get are for less money. She said they have been approached by a number of businesses and the first question they are asked is what sort of business incentive program they have. She said they welcome the opportunity to compete with other states. Number 237 MS. KATELYN OBNER-MARKLEY, Alaska Industrial Development and Export Authority, supported SB 159. They believe it is a very good concept and there are specific things that need to be put in in terms of objective standards. CHAIRMAN LEMAN asked her if she had suggestions for objective standards. She said she would provide that to the committee. MR. GREG WOLF , AEDC, said he spends a good part of his time talking to companies about establishing new businesses in the Anchorage area in the area of distribution, manufacturing, and final assembly which aren't very well represented now. He said that it is inevitable that the question of community incentives is raised. It's the way the game is played; it's a competitive world. This program is a way of leveling the playing field and pointed out that they are talking with large companies and small, alike. MR. TOM LAWSON, Department of Commerce and Economic Development, said they supported this bill; however, they are concerned about where the money comes from. He had one technical point in Section 45.81.010 (a)(3) to clarify if a local government doesn't have the resources to provide any financial backing and supports the bill, that they don't have to put up money. He thought this bill worked great for the urban areas, but in other areas, like Glennallen and Copper River Valley, there aren't any local governments at all. He thought it shouldn't be limited to just cash from local governments, but to include land and property tax abatement. CHAIRMAN LEMAN asked if he had seen the proposed amendments. MR. LAWSON replied he had and supported both of them. CHAIRMAN LEMAN said in the second amendment he was trying to create flexibility within the department so they may put in the grant terms a repayment plan, if that were to be appropriate. MS. DEMARCO added that she supported them also. CHAIRMAN LEMAN said he would set aside SB 159 and work on it until another meeting.