SB 159 NEW BUSINESS INCENTIVE PROGRAM  VICE CHAIRMAN MACKIE called the Senate Labor and Commerce Committee meeting to order at 11:55 a.m. and announced SB 159 to be up for consideration. MR. JORDAN KOKO , Intern to Senator Pearce, sponsor, said this legislation intended to bring high value jobs and new manufacturing into Alaska working with the Alaska Industrial Development and Export Authority (AIDEA). The program will be limited to certain defined costs up to $3 million annually in funds generated by AIDEA. The program will target three essential functions: generating cargo, generating additional revenues and diversity in our corporate tax base, and maintaining and generating more high value jobs and full time employment opportunities for Alaskans. VICE CHAIRMAN MACKIE asked if he knew of any opposition to the legislation. MR. KOKO replied that AIDEA has some suggestions which are in a letter to the committee. He said that Senator Pearce supports the amendments proposed by Senator Leman. Number 45 MR. KEITH LAUFER , AIDEA, said they agree with the purpose and intent of the bill and support it. Business incentives are important tools to encourage businesses to locate here. MR. LAUFER said they have a couple of concerns that are mentioned in their letter. Briefly, AIDEA believes this program should grant specific regulatory authorization to the Department of Commerce to promulgate regulations which will define objective standards or requirements, because for this type of program to be truly effective, businesses have to be able to look at the program and properly handicap what value that brings to them. Secondly, they think that the regulatory authority granted to the Department of Commerce should give them the flexibility to make standards that are effective and target specific industries that would be advantageous for the State to attract. Finally, because of AIDEA's role in this process, they should be given objective standards to judge the various proposals on. MR. LAUFER said he thought the bill needed to better clarify the roll of AIDEA and the DCED. AIDEA has not been a grant making agency and it's important to their primary mission of economic development that they not be a grant making agency. The financial markets understand this as their roll. Another issue is that AIDEA financing has specific requirements that not all businesses will be attracted to. Not all projects necessarily qualify for AIDEA financing and this might limit the program. On the other hand, businesses that would not otherwise seek financing from AIDEA because they don't need it would now be encouraged to do so if it's the only way they can receive a business incentive grant. This would put AIDEA in the position of competing with private financing entities which they have traditionally avoided. The bill as currently drafted references the AIDEA dividend 44.88.088 as a source for the fund. Under their statutory dividend program which the legislature passed last year, that program requires an annual appropriation in order to transfer the funds to the State. So the language in the bill would not be effective to actually fund the program and they believe actually creates some confusion as to how the AIDEA dividend is to work and how funding to this program actually occurs. CHAIRMAN LEMAN arrived at the meeting and assumed the chair and welcomed Ms. Patty DeMarco to testify. Number 228 MS. PATTY DEMARCO, President, Anchorage Economic Development Corporation, said she thought AIDEA's comments would expedite the smooth functioning of this program. She said we suffer from the lack of a program like this compared to other states with whom we compete on a daily basis. CHAIRMAN LEMAN asked if she thought any other amendments were needed to make it work. She answered that she thought their concerns should be addressed expeditiously. They are anxious that the bill be workable and adjustments be made to it. SENATOR KELLY asked how this program would interface with the old Bidco program. MS. DEMARCO replied that that program is a function of the Science and Technology Foundation and is designed for start up business development activities focusing on technology and entrepreneurial initiative. It presumes a viable, sound, private sector investor making a business decision to operate in Alaska for value added manufacturing opportunities. It is reimbursement of expenses that they have to make and have to document having made. It is not a grant out in terms of dollars on the table as an incentive. SENATOR KELLY asked why they call it in Section 45.80.10.20 eligibility for grants and where does it say to pay back. MS. DEMARCO replied on page 2, line 20. SENATOR KELLY said he was concerned about line 29, "reimbursement for." He wasn't sure we should be in the business of granting feasibility studies if we are talking about existing businesses. That should be their responsibility. Most business feasibility studies result in no action. MS. DEMARCO clarified that this is the reimbursement after they have made a decision to come here and were particularly targeting this for things that would require special design considerations for Alaskan conditions. They find that a number of companies come to look at Alaska and their normal mode of operation is in some tropical environment where the design constraints of Alaskan conditions do not apply. They wanted to find a way to bridge that obstacle. CHAIRMAN LEMAN asked if she had a problem with limiting that to feasibility market studies that are specifically directed toward unique Alaskan conditions. MS. DEMARCO said she would have no problem. CHAIRMAN LEMAN asked if anyone objected to that. MR. KOKO said he didn't think Senator Pearce would object. SENATOR MACKIE said he supported this legislation, but also didn't understand why they are doing feasibility studies. He was concerned that people would just come up to check Alaska out if we were paying for the studies. CHAIRMAN LEMAN explained that they would not be eligible to receive the grant until after they had made their decision to make the investment and it would be as reimbursement. MS. DEMARCO reiterated that they wouldn't receive the grant unless they had come up. SENATOR KELLY asked what if there was more than one business that wanted to do this and they all invest expecting to get reimbursed and the money is not there, because someone else already got it that particular year. He thought they might come in for a one line change to increase $3 million and then the State would be in the business of buying jobs. SENATOR KELLY said that he had been reading that states are backing away from these excessive incentive type programs because they are being found to be counterproductive. MS. DEMARCO said she is aware of that, but she thought we were a far cry from that issue at this time. Especially since manufacturing is a very small part of the Alaskan economy and we are trying to broaden our economic base. SENATOR MACKIE asked if the sponsor would object to removing the feasibility study reimbursement. MR. KOKO said he would have to ask her, but he thought it could be addressed in the Finance Committee. SENATOR MACKIE asked staff to let Senator Pearce know that he has that concern about feasibility. CHAIRMAN LEMAN said he would like to have a conceptual amendment addressing the Alaskan conditions to at least limit what feasibility studies they are talking about. He added that Ms. Pam LaBolle, State Chamber of Commerce, left a note in support of the concept of this bill. He noted that there were three amendments in their packets. SENATOR MACKIE moved to adopt amendment #1. There were no objections and it was so ordered. SENATOR MACKIE moved to adopt amendment #2. There were no objections and it was so ordered. SENATOR MACKIE moved to adopt amendment #3. There were no objections and it was so ordered. SENATOR MACKIE moved to adopt conceptual amendment #4 dealing with Alaskan conditions. There were no objections and it was so ordered. SENATOR KELLY said he was going to show some reluctance on this legislation. Not because he didn't support the goal of increased manufacturing in Alaska, but because once we start down this road, we'll never get back in a position where we're not subsidizing private industry to come to Alaska in an era of declining State revenues. He thought that eventually no one would come to Alaska unless they got this grant. He questioned whether some of these endeavors would be worth $3 million to the State. He said a lot of states give credit on income tax for an incentive. He wouldn't object to that, but the problem we have is that most of our businesses don't pay income tax. We only get $140 million per year in corporate taxes and $110 million of that was paid by 11 corporations. So most businesses in Alaska are either businesses with no personal income tax or they are sub S corporations where they don't have to pay State income tax. He questioned whether in 1997 the State of Alaska ought to be giving $3 million to everyone we hope moves in here to create some new business. He thought the pressure would be that no one would come here without demanding a piece of this program. SENATOR KELLY said he supported the bill, but he has reservations about how it is structured. CHAIRMAN LEMAN concurred with Senator Kelly and wanted the Finance Committee to consider other possibilities, like tax credits, other than cash disbursements. He thought this would be a tough item to fund and it could create some bad appearances. It also creates almost an expectation by some. CHAIRMAN LEMAN asked if the committee wanted to work on it more before reporting it. He announced an at ease from 12:25 - 12:27 p.m. He said that there were sufficient concerns expressed by committee members who would like to see the CS back before them.