SB 116-EDUCATION TAX CREDITS;SUNSET;REPEALS  2:25:33 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of SB 116. 2:26:01 PM SENATOR JOHN COGHILL, Alaska State Legislature, Juneau, Alaska, sponsor of SB 116, stated that this is a tax credit bill and an effort to get industry and educational programs to work together. The legislation does two primary things. It extends the effective date of the repeal of the education tax credits to January 1, 2025, and it ensures that the existing credits will maintain until January 1, 2025 instead of narrowing in scope on January 1, 2021. 2:28:53 PM CHAD HUTCHINSON, Staff, Senator John Coghill, Alaska State Legislature, Juneau, Alaska, introduced SB 116 speaking to the following sponsor statement: This bill does the following: 1. Extends the effective date for the repeal of the education tax credits from December 31, 2018 to January 1, 2025. 2. Ensures that the credits that exist in statute today, will maintain until January 1, 2025 (instead of narrowing in scope and decreasing in value on January 1, 2021). Education tax credits encourage private businesses to make charitable contributions to certain educational institutions and programs in Alaska, including contributions to the University of Alaska. In total, eligible recipient entities include: non-profit, public or private accredited Alaska two-year or four- year colleges; non-profit elementary or secondary schools and school districts; state operated vocational education and training schools; non-profit regional vocational training centers; apprenticeship programs; Alaska Native cultural programs; the Alaska higher education investment fund; and postsecondary institutions providing dual-credit courses. The credits are non-transferable and non-refundable and can be used against the following taxes: corporate income tax; fisheries business tax/fisheries resource landing tax; insurance premium tax/title insurance premium tax; mining license tax; oil and gas production tax; and the oil and gas property tax. Currently, the credit provision allows for 50 percent of the annual contributions up to $100,000, 100 percent of the next $200,000, and 50 percent of annual contributions beyond $300,000. The total credit per taxpayer, across all tax types, may not exceed $5 million [per year]. Historically, well over two dozen companies have used this benefit. The contributions are good for the companies, and good for the recipient institutions. Passage of SB 116 is a great benefit for Alaska. MR. HUTCHINSON said a recent example of the credit provision being used to fill a specific need is the UAF engineering building that received private contributions from BP, ConocoPhillips, and Usibelli. This potentially increases the opportunity for future engineers which helps the Alaska workforce, the mining community and the state. He advised that the Department of Revenue (DOR) submitted a zero fiscal note. MR. HUTCHINSON provided an overview of the sectional analysis for SB 116. Section 1 has legislative findings and intent. It clarifies that the legislature is extending the effective date for the repeal of the education tax credits from December 31, 2018 to January 1, 2025. It also ensures that the education tax credits in statute today will be carried forward to January 1, 2025. Currently the credits are on course to decline in dollar value and narrow in scope on January 1, 2021, even if the effective date of repeal was extended to 2025. Section 2 is the nuts and bolts of the bill. It repeals multiple statutory provisions pursuant to legislative drafting guidelines. The full sectional talks about each statute twice to show what happens with the 2021 reduction if there is no legislative action. Section 3 repeals the narrowing of scope that is anticipated to occur in 2021. SENATOR GARDNER asked him to talk about the statutes that were expected to drop out with the narrowing of scope but will not under this provision. MR. HUTCHINSON explained that in 2010 the maximum cap for the tax credit increased from [$150,000] to $5 million. In 2011 and 2014 the entities to which industry can contribute and receive a tax credit was expanded to include facilities, Native cultural programs, and the Coastal America Partnership. Without this legislation those broader beneficiaries go away, and the contributing party will no longer receive a credit for those contributions. SENATOR MICCICHE asked why there is a change in revenue before 2021 if the narrowing occurs after that time. MR. HUTCHINSON deferred to the Department of Revenue. 2:36:35 PM KEN ALPER, Director, Tax Division, Department of Revenue (DOR), said Mr. Hutchinson explained that the program is set to sunset on December 31, 2018. If no bill passes, the tax credit would be zero beginning January 2019. Because there have been multiple changes to the statute in the last six or so years, there is a lot of overlap in language and effective dates, he said. The narrowing of scope although it takes place in 2021 would be sort of moot if the underlying program wasn't extended because there would be nothing for which the scope would reduce. He clarified that while the cost of administering the program is zero, the fiscal note reflects a reduction in revenue that is tied to the extension of the program. The calculation is the average amount of the tax credit claimed for the last three years projected forward for future years. The donor subtracts the contribution from their taxes and DOR sees it in the form of reduced revenue. SENATOR GARDNER commented that it's a nice deal for the donor. They receive a charitable credit on their federal taxes and a reduction on their tax bill to the state. Hopefully they'll also get a workforce that's trained in a relevant area. MR. ALPER said he couldn't speak to the federal tax impact but that's his expectation. SENATOR MEYER asked if DOR knows the total contributions and which organization has contributed the bulk thus far. MR. ALPER said the analysis section of the fiscal note identifies the amount of credit claimed to average $6.84 million. The donations leading to that credit are between $10 million and $11 million per year. The rate at which the credit is applied is currently $250,000 of the first $300,000 of a donation. DOR's experience is that a lot of the donations come in at that rate because the company receives the maximum benefit. SENATOR MEYER asked which recipient receives the bulk of the donations. MR. ALPER said the University of Alaska is the largest recipient and about 40 percent is going to vocational education organizations. 2:41:21 PM SENATOR COGHILL said the university is the primary beneficiary when compared to the mining and fishing industries. He reminded the members that a tax credit means some reduction to the state but there's a 50 percent increase of new money that is a positive to the state generally. CHAIR COSTELLO asked what is considered vocational education because she wanted to make sure that programs like Project Lead the Way at Dimond High School and the nursing program at Service High School would qualify to receive contributions under the education tax credit program. These are programs that train young people to have jobs upon graduation. 2:43:24 PM MR. ALPER said job training programs at a public secondary school should qualify but he couldn't make a predetermination on a specific donation. He suggested the committee feel free to clear up any ambiguities it sees in the qualification sections because there are a lot of gray areas. SENATOR MICCICHE referenced the report from DOR that shows the total contributions reported by the different tax types and the total education tax credits claimed. He asked if the list of secondary vocational and "other" entities listed on the second attachment were recipients of the contributions. SENATOR COGHILL suggested that public testimony would be a better measure of advocacy than looking back. 2:45:48 PM CHAIR COSTELLO opened public testimony on SB 116. 2:46:17 PM ROBERT ONDERS, Interim President, Alaska Pacific University, Anchorage, Alaska, said he strongly agrees with the sponsor's initial comments that it's critical that education and industry work together. The education tax credit program is mutually beneficial, and it facilitates the connection between education, research, and workforce development. The resources and partnership generated by the education tax credits support rural and tribal communities in generating community-based research as well as academic curriculum. He encouraged the committee to pass SB 116. 2:47:19 PM SHERI BURRETTA, Board Chair, Chugach Alaska Corporation (CAC), Anchorage, Alaska, said she is speaking in support of SB 116. Chugach Alaska Corporation has been using the education tax credit program since 2011. About one-third of their contributions go to the Alaska Pacific University and the University of Alaska and another third goes to vocational programs such as the Kenai Peninsula Borough School District Project GRAD and to fund cultural camps and education for villages. Using this tool CAC has been able to fund its education endowment to $30 million and generate scholarships of more than $1 million a year. CAC has been focused on collaboration and creating pathways and links (particularly to remote rural villages) to get through high school and access higher education. This has been an excellent link for the corporation and has allowed CAC to work with the university through the Alaska Native Science and Engineering Program (ANSEP) School of Business to integrate Alaska Native history and contemporary Alaska Native corporations to change the perspective about what Alaska Native corporations can do in partnership with the university to develop economic opportunities moving forward. MS. BURRETTA said she became a University of Alaska Regent in 2015 and it's been a challenge that funding has been declining since then. Thus, tools such as the education tax credit are essential to the future of the university. 2:50:10 PM BRAD HARRIS, Professor, Alaska Pacific University, Anchorage, Alaska said he was speaking in support of SB 116 from the perspective of an educator. He teaches fisheries ecology and directs the research laboratory that works closely with the commercial fishing industry as well as state and federal agencies to produce information that is needed to deal with the resource challenges that Alaska faces. He said the education tax credit program is working the way it's designed to work. It is providing opportunities for students in Alaska to receive a high-quality education that is applied directly to the needs of the state. PROFESSOR HARRIS explained that the money he receives from the education tax credit program allows him to recruit excellent students. Some come to Alaska from different places and Alaska benefits from that. Students are also recruited from rural communities that face challenges. Once those students are in the university system they receive support through applied projects and assistantships to help offset their tuition costs. The program also allows him to invest in strategically important research areas. He serves on the Scientific and Statistical Committee of the North Pacific Fisheries Management Council which allows him to connect students to areas of applied research and to develop robust synergistic partnerships. Because of the resources through the education tax credit program and the opportunity to work in ecosystems like the Bering Sea, partners are attracted to UA from universities around the world. Faculty from Cornell University and Northeastern University and researchers from the Smithsonian are working with Alaska students on applied questions, largely facilitated by the education tax credit. Finally, the program is expanding the university's internal research capacity. The opportunity for students to work with these world-class researchers brings them skills and abilities that map through to the careers the students end up taking. He noted his letter in the packets that includes information about students from the fisheries and natural resources program. It demonstrates that students who receive this support end up working for Alaska state agencies, federal agencies, consulting companies, and universities. They are providing benefit back to the state. PROFESSOR HARRIS urged the committee to continue the program in recognition that it provides a level of stability that has become a critical part of the future. 2:54:19 PM SENATOR STEVENS asked how the program is marketed. PROFESSOR HARRIS said the university does what it has to do to see its research programs evolve. His team applies to the North Pacific Research Board, seeks other funds, and talks about ways to leverage the education tax credit program. 2:55:34 PM CHAIR COSTELLO found no further questions or testimony and closed public testimony on SB 116. 2:55:51 PM SENATOR MEYER moved to report SB 116 from committee with individual recommendations and attached fiscal note(s). 2:56:10 PM CHAIR COSTELLO announced that without objection, SB 116 moved from the Senate Labor and Commerce Standing Committee.