SB 116 WELFARE TO WORK TAX CREDITS CHAIRMAN GREEN brought SB 116 before the committee. JIM NORDLUND , Director, Division of Public Assistance, Department of Health & Social Services, explained the legislation would offer tax credits to Alaskan corporations that hire disadvantaged workers. He said welfare recipients is one of the categories of disadvantaged workers that this legislation would help the most. In order to comply with federal law, there is a need to put approximately 4,000 individuals into a work activity within the next year. SB 116 allows an Alaskan corporation to use as a credit up to 15 percent of an employee's wages or up to $1,000 of wages paid in a year. There is an additional $500 credit if that employer offers training to that recipient. To earn the credit, the employee must be on the job for 180 days or 400 hours. Mr. Nordlund pointed out that they don't need to be consecutive days, taking into account the seasonality of employment in Alaska. It was also pointed out that the Alaska Welfare to Work program mirrors the federal work opportunity tax credit bill. Mr. Nordlund said SB 116 is one of several incentives the Administration is looking at because there are a number of tools they need to have at their disposal to encourage the employer community to hire welfare recipients. Number 510 Responding to an inquiry by Senator Ward, MR. NORDLUND explained that to the extent that an employer takes advantage of this provision and hires a welfare recipient, that welfare recipient is then going to not receive as much money in welfare benefits because of being employed and becoming self-sufficient. There is a cost to the state in the sense that there is a credit that's given to that employer for hiring that recipient, but that would be offset by the dollars that the recipient is earning on the job as opposed to being paid in welfare benefits. CHAIRMAN GREEN asked if this program was reflected in any of the budget proposals. MR. NORDLUND advised that the Governor's budget predicts a $2 million reduction in benefits that takes into consideration a number of different factors, one of which is the possibility of SB 116 passing this Legislature. Number 565 BOB BARTHOLOMEW , Deputy Director, Income & Excise Audit Division, Department of Revenue, speaking to the fiscal note, said the Department of Revenue worked with the Department of Health & Social Services to try to estimate what would be the impact of this legislation. The biggest issue was that not all businesses in Alaska are corporations, so this incentive relates to corporations that are registered to pay taxes in Alaska. They estimate that approximately 880 workers will go work each year, which is a best guess, high end estimate. If that were the case, the fiscal note reflects that corporations would have a $1 million a year reduction in taxes because of hiring employees that are eligible for that program. TAPE 97-15, SIDE B Number 001 Mr. Bartholomew pointed that currently the federal government allows for a federal work opportunity credit, which the state has never adopted in the past. It is just by the event that the state adopted the Federal Internal Revenue Code that it gets their tax credit along with it, so the state has been losing tax revenues every year because of people taking the federal credit and then flowing it to their Alaska return. SB 116 repeals that adoption of the federal tax credit and provides that if Alaska wants a credit, it will adopt its own. Mr. Bartholomew noted there was a lot of discussion amongst the agencies and with individual businesses about how to keep the process simple and keep the paper work down. As there is currently a federal program that employers use, those requirements have been adopted, so there is no new paper work or new Alaska guidelines. Number 546 JOSEPH FREIDMAN , testifying from Anchorage, said he was representing the Trade Dollar Exchange in Anchorage, which is a program created by private industry to assist small Alaskan businesses with programs such as the Alaska Welfare to Work program. It provides the opportunity for a lot of these people who must go to work at a minimum of 20 hours a week an opportunity to go into a small business where the business owner will provide the role modeling and the mentorship to make the transition successful. Mr. Freidman said their program is very dynamic in the way that it activates the community and presents a forum for the low income people to actually work together to help each other. He said to provide the successful transition for these people, he thinks it is small business that can do it and private industry needs to take the lead. He suggested providing a disregard for trade dollars that these people earn so as not to reduce their cash benefits and deter them from going to work. Number 496 COMMISSIONER WILLIAM HENSLEY , Department of Commerce & Economic Development, testifying from Anchorage, said he has spent a great deal of time in the last few weeks working with the Department of Labor and the Department of Health & Social Services on this issue of welfare to work, and he believes it is a problem that business and industry is going to have to help government with. He has also talked with a number of businesses in the private sector and they are universally supportive of working with the state on this subject, but he believes small business is the real key to putting these people to work. He said if these people are given the proper support systems and if they stay on the job, they have an opportunity to become productive. Number 465 There being no further testimony on SB 116, CHAIRMAN GREEN stated the bill would be held and scheduled for another meeting.