HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT April 17, 1997 3:10 p.m. MEMBERS PRESENT Representative Jerry Sanders, Chairman Representative Mark Hodgins Representative Ivan Ivan Representative William K. ("Bill") Williams Representative Alan Austerman Representative J. Allen Kemplen Representative Ethan Berkowitz MEMBERS ABSENT All members present COMMITTEE CALENDAR * HOUSE BILL NO. 220 "An Act relating to the new business incentive program." - MOVED CSHB 220(ECD) OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 220 SHORT TITLE: NEW BUSINESS INCENTIVE PROGRAM SPONSOR(S): REPRESENTATIVE(S) SANDERS, Barnes, Austerman, Dyson JRN-DATE JRN-PG ACTION 04/01/97 897 (H) READ THE FIRST TIME - REFERRAL(S) 04/01/97 898 (H) ECD, FINANCE 04/03/97 979 (H) COSPONSOR(S): DYSON 04/17/97 (H) ECD AT 3:00 PM CAPITOL 17 WITNESS REGISTER JEANNE LOVELL, Legislative Assistant to Representative Jerry Sanders Alaska State Legislature Capitol Building, Room 414 Juneau, Alaska 99801 Telephone: (907) 465-4945 POSITION STATEMENT: Presented sponsor statement for HB 220. TOM LAWSON, Juneau Section Chief Juneau Office Division of Trade and Development Department of Commerce and Economic Development P.O. Box 110804 Juneau, Alaska 99811-0804 Telephone: (907) 465-2017 POSITION STATEMENT: Provided department's position and answered questions regarding HB 220. GREG WOLF, Vice President Anchorage Economic Development Corporation 550 West Seventh Avenue, Suite 1400 Anchorage, Alaska 99501 Telephone: (907) 258-3700 POSITION STATEMENT: Testified in support of HB 220. PATRICIA M. DeMARCO, Ph.D., President Anchorage Economic Development Corporation 550 West Seventh Avenue, Suite 1400 Anchorage, Alaska 99501 Telephone: (907) 258-3700 POSITION STATEMENT: Testified in support of HB 220. DONNA TOLLMAN Copper Valley Economic Development Council P.O. Box 9 Glennallen, Alaska 99588 Telephone: (907) 822-5001 POSITION STATEMENT: Testified in support of HB 220. KATELYN MARKLEY Alaska Industrial Development and Export Authority 480 West Tudor Anchorage, Alaska 99503 Telephone: (907) 269-3000 POSITION STATEMENT: Testified on HB 220. ACTION NARRATIVE TAPE 97-2, SIDE A Number 0001 CHAIRMAN JERRY SANDERS called the House Special Committee on Economic Development meeting to order at 3:10 p.m. Members present at the call to order were Representatives Sanders, Hodgins, Ivan and Kemplen. Representatives Berkowitz, Williams and Austerman arrived at 3:15 p.m., 3:16 p.m. and 3:25 p.m., respectively. HB 220 - NEW BUSINESS INCENTIVE PROGRAM Number 0016 CHAIRMAN SANDERS announced the committee would hear House Bill No. 220, "An Act relating to the new business incentive program." Number 0070 JEANNE LOVELL, Legislative Assistant to Representative Jerry Sanders, read the sponsor statement into the record: "The New Business Incentive Program is an economic development grant program targeted toward companies locating or expanding into new manufacturing businesses in Alaska. The focus of the program is substantially on business that attracts high-value, year-round jobs. At present, the program is limited to business under consideration for financing through Alaska Industrial Development and Export Authority, more commonly known as AIDEA. The grant program would be limited to reimbursement of defined portions of relocation costs, site development costs, special employee training not covered by other programs, and special analyses of sites in Alaska. The program is limited to $3 million annually, from funds generated by AIDEA. Administered by the Department of Commerce and Economic Development, allocations may be made each year to fund the program. Unencumbered funds will revert to the general fund. "This program is essential for three reasons: "1. Interest in freight flights has increased. There is a window of opportunity for Alaska to capitalize on the combination of location and expansion of existing cargo transfer capabilities. We need Alaska-produced cargo in planes departing from this state. "2. Manufacturing comprises only 6.2 percent of the Alaska economy. Of the $140 million paid in corporate taxes, $110 million were paid by 11 corporations. The top four were oil companies. Companies who qualify to take advantage of this program will be of size and stature to be significant contributors to the corporate tax base within a few years of beginning operations in Alaska. New revenues will flow into the state through existing mechanisms within three to five years. "3. Many Alaskan manufacturers with more than 20 employees hire approximately 60 percent of their work force from out of the state. Alaska needs to establish and expand existing businesses that provide year-round jobs that pay well and add value to the economy. Companies benefitting from this incentive program will create jobs for Alaskans, jobs from which our children's children will benefit. "The New Business Incentive Program allows Alaska to capitalize on its location and natural resources to enter high-value, expanding global markets. This program will add dollars to our economy." Number 0337 CHAIRMAN SANDERS emphasized that HB 220 is a statewide bill; it could easily apply to timber operations or gold mining, for example. Number 0392 TOM LAWSON, Juneau Section Chief, Juneau Office, Division of Trade and Development, Department of Commerce and Economic Development (DCED), came forward to testify. He said the DCED likes the bill and the idea behind it, although they are concerned about where the money will come from. They understand that the DCED's roll would be operating the grant program after AIDEA signs off on the eligibility of the grant applicant and sets the level of funding for the grant. MR. LAWSON referred to page 2, line 6, and advised he was offering an amendment to clarify that this is a statewide bill. It clarifies that incentives other than money can be offered, such as land, a tax abatement or a resolution in support. This makes it more flexible for smaller or rural communities that may be unable to provide financial support to a business. Number 0550 REPRESENTATIVE MARK HODGINS asked whether there was any legislation or rule limiting involvement of any particular business. MR. LAWSON replied that as far as he knows, there is no limitation on how many different state grant programs a business might be involved in. Number 0624 REPRESENTATIVE HODGINS asked how long the process would take from initial application to receiving the grant. He noted that many grant revolving loan funds are tedious to use. MR. LAWSON said that is hard to answer. The DCED will get involved once AIDEA has signed off; it is a two-part process. He believes once it is passed to the DCED, it will take less than 30 days, as the department's job is mainly to process it, without doing formal eligibility review. Number 0668 REPRESENTATIVE HODGINS commented that it makes no difference how big the pot is if not a dime hits the streets. He said he sometimes gets frustrated about the difference between what is available and what is actually practical. Number 0718 REPRESENTATIVE J. ALLEN KEMPLEN asked who in the department would make the decision for granting the money. MR. LAWSON referred to page 2, lines 13 through 17. He said as he understands it, once AIDEA has stated that the grant applicant is eligible and forwarded the name to the DCED, the department would process the grant if there is money in the fund. CHAIRMAN SANDERS concurred. Number 0772 REPRESENTATIVE KEMPLEN asked whether one applicant can apply for all $3 million. MR. LAWSON said that was the question he had. Referring to page 2, line 16, he said it appears that AIDEA sets the level of the grant. With that understood, unless a maximum amount per grant is set in the bill, he would guess that AIDEA could give out all $3 million. Mr. Lawson stated, "I'm just here to say that I think the bill is great." He noted that other people present had worked on the bill. Number 0838 REPRESENTATIVE KEMPLEN asked who would evaluate grants in terms of their effectiveness and to ensure that organizations receiving grants had used the money wisely. MR. LAWSON said he understood that would be the DCED. REPRESENTATIVE KEMPLEN asked whether the DCED already had a process. MR. LAWSON replied that the department had operated, for 17 years, an economic development matching grant program. They monitor and process grants, including measuring the success of projects. Number 0886 REPRESENTATIVE IVAN IVAN made a motion to adopt Amendment 1, which had been presented by Mr. Lawson. He asked Mr. Lawson to explain it. Amendment 1 read: Page 2, line 6 (3) if [IS] located within a municipality, the municipality [THAT] has provided [FINANCIAL] support to the business in a form [AND IN AN AMOUNT] acceptable to the department. Number 0929 MR. LAWSON explained that a business outside an organized local government should also be eligible to obtain a grant. This language says that if the business is located within a municipality, the municipality has provided some form of support, which does not need to be financial. The reason is that smaller or more rural communities may not be able to offer financial support but may certainly be in favor of the business. REPRESENTATIVE IVAN said he supports the amendment, as it expands the opportunity to the rest of the state. Number 0997 CHAIRMAN SANDERS asked if there was any objection to the amendment. There being none, Amendment 1 was adopted. Number 1040 GREG WOLF, Vice President, Anchorage Economic Development Corporation, testified via teleconference in support of HB 220. A great part of his work involves interacting with companies in Alaska, the Lower 48 and abroad, which are actively evaluating locating a business in Alaska. Communities elsewhere often have existing, fairly aggressive incentive programs in place, which Alaska lacks. He emphasized that this competitive situation is international in scope. Mr. Wolf believes this legislation helps to level the playing field. He noted that it is not limited to large companies. Number 1176 PATRICIA M. DeMARCO, Ph.D., President, Anchorage Economic Development Corporation, came forward to testify in support of HB 220. She described it as an additional tool in the kit available to AIDEA and explained, "We've put precautions and provisions in the bill that will secure the aid that we provide to a company so that it does benefit Alaska. There are provisions that money be repaid or returned if the company does not stay for five years or more. It is tied to the number of jobs created or into definitive kinds of businesses. We're looking at value-added manufacturing kind of activity that is not currently going on in Alaska. We are not trying to compete with existing businesses, and it is available to businesses that would go into manufacturing or value-added activities that may already be in Alaska. In fact, we would hope to encourage that as an activity that results from this bill." DR. DeMARCO said it is a partnership in the truest sense of the word. Funds would be reimbursed to the private sector applicant, not paid out in advance. Therefore, the issue of performance would be less than when money is given in advance with the hope of something being delivered later. She described it as a catalyst for action that will broaden the economic base of Alaska and as seeds for a harvest that would occur in a relatively short time. "We are looking for a way to have the corporations that will be providing high-value jobs to find a reason to locate in Alaska," she stated. Number 1313 REPRESENTATIVE ETHAN BERKOWITZ referred to page 2, line 2, relating to manufacturing products primarily for export. He asked whether products necessarily must be for export. DR. DeMARCO said the principal thing is that it not compete with people already providing products to the Alaskan market. They are concerned about value come into the economy. One way to do that is to make things in Alaska that are sold out of state, although not necessarily exclusively. Number 1348 REPRESENTATIVE BERKOWITZ said he is sure many goods are imported from elsewhere. DR. DeMARCO replied that she had often pursued that and cited an example. She said the biggest problem has been attracting companies to Alaska that are willing to locate a manufacturing activity in the state. And if they argue that the market is not big enough, there is increasingly a global marketplace that makes that argument irrelevant. Number 1393 REPRESENTATIVE BERKOWITZ suggested the language in the bill would preclude a grant to that type of business, which is primarily for export. DR. DeMARCO replied that basically this was designed to be "primarily not funding a company that would be in competition with an existing Alaskan operation." Number 1421 REPRESENTATIVE HODGINS asked whether the bill is specific to any one business or industry. DR. DeMARCO responded, "We were trying to have it be value-added kinds of businesses, manufacturing, global logistics, those kinds of things, rather than like a Walmart. We were looking at things that would be adding value to the economy, and manufacturing generally captures that concept. It is a very small part of our total economy. If you look at the multipliers for various kinds of economic activity, the multipliers on manufacturing are something in the neighborhood of five to seven, whereas the multipliers on services or trade are something in the neighborhood of two to three. So we're looking at the kind of jobs that have higher value and higher multipliers in our economy as the objective of this bill, because that's the kind of thing we need to `incentivize.' This is not designed to generally `incentivize' business at random in every manifestation thereof. We're trying to focus it on those things that return the highest value to our economy, because there an incentive is justified." Number 1470 REPRESENTATIVE HODGINS asked for verification that this bill is not being brought forward for one specific project or applicant. DR. DeMARCO replied that three or four people have been talking with them seriously about locations in Anchorage. Three people had been in her office in the last week who "are not yet before AIDEA." She said the first thing they ask is: What is your incentive program? Prospects turn up in other locations because someone builds them a factory or already has space available, and she is getting tired of that. She concluded by indicating this bill is relevant to a variety of industries. Number 1510 REPRESENTATIVE ALAN AUSTERMAN cited the example of a satellite- launching business off of Kodiak Island. He said he could envision with this type of program that Bill Gates or somebody could be building satellites in Anchorage, for example. In Kodiak, there is major seafood processing, but secondary value-added processing is done elsewhere. He suggested this could apply to some of those major players moving their plants to Alaska. In addition, in Kodiak there is waste seafood that could be processed. He noted that a community had to get behind this program as well. Number 1603 REPRESENTATIVE KEMPLEN reported that there has been discussion in the Anchorage area of taking advantage of the cargo and air-lift capacity developing there, to encourage movers to build warehouses, repair computers and do other value-added work, for example. He asked if that type of economic activity would qualify. DR. DeMARCO stated that value-added activity to components would apply in a variety of ways, and she indicated her belief that this area is critical. Many cargo airplanes go through Anchorage. She stated, "You've seen what happens in a business situation when people have a reason to move their cargo transfer activity to another location. If they can fly farther before they refuel, they often will. You have to give them a business reason for stopping here. A business reason is stopping to pick up cargo." She said there is a lot of opportunity for that. Number 1667 CHAIRMAN SANDERS advised that the object of this bill is to bring money in from outside and to leverage that money. Number 1725 DONNA TOLLMAN, Copper Valley Economic Development Council, testified via teleconference from Glennallen in support of HB 220. She described the bill as a breath of fresh air addressing revenue streams into the state. They believe it is relevant to the whole state and the ability of rural communities to provide manufacturing opportunities, and it levels the playing field. They too are continually asked what incentives they provide for businesses, and they see this as a wonderful effort. Number 1776 CHAIRMAN SANDERS offered Amendment 2, 0-LS0868\E.1, Cook, 4/17/97, originally drafted as an amendment to SB 159, which read: Page 1, line 10: Delete "The amount" Insert "Up to $3,000,000 may be" Page 1, line 11: Delete "may equal $3,000,000" CHAIRMAN SANDERS explained this makes the language more clear and is just housekeeping. He asked if there was any objection. There being none, Amendment 2 was adopted. Number 1825 CHAIRMAN SANDERS offered Amendment 3, 0-LS0868\E.2, Cook, 4/17/97, originally drafted as an amendment to SB 159, which read: Page 3, line 9, following "money.": Insert "The terms and conditions may include requirements for the repayment of grant money even though repayment is not required under (a) of this section." Number 1836 REPRESENTATIVE KEMPLEN objected for discussion. CHAIRMAN SANDERS explained that if AIDEA felt that this could be repaid as a loan instead of a grant, this is a mechanism for possible repayment. REPRESENTATIVE KEMPLEN removed his objection. Number 1870 CHAIRMAN SANDERS advised that there being no further objection, Amendment 3 was adopted. Number 1891 REPRESENTATIVE HODGINS made a motion to move HB 220, as amended, from committee with individual recommendations and accompanying fiscal notes. Number 1905 REPRESENTATIVE BERKOWITZ objected for discussion. He said he sat on the commerce and economic development finance subcommittee and watched as they dismantled some good programs that helped build existing industries including tourism and trade. He stated that he was happy to see that they were turning around here and trying to get some manufacturing going. He stated the hope that the legislature would find funding for it. Number 1938 REPRESENTATIVE AUSTERMAN said he had added his name to the bill because he believes it is exactly what legislators need to do to encourage new businesses in the state that have some type of tax base. He stated his strong support for the bill. Number 1970 REPRESENTATIVE KEMPLEN referred to the analysis section of the AIDEA fiscal note, which states in part, "If amendments are made to the Bill so that the requirements to qualify for the incentive and the amount of the incentive are based on objective standards, an additional staff person would not be necessary and the fiscal note would be -0-." He said right now, the DCED is saying they need $74,000 for a staff person to provide oversight of the program and analysis on each applicant. He asked for more information about this comment. Number 2015 MR. LAWSON advised that at a hearing on the similar bill in the Senate Labor and Commerce Committee, someone on teleconference from AIDEA had stated concerns, which Senator Leman had asked them to submit. However, Mr. Lawson did not have those and could not speak to them. MR. LAWSON referred to the fiscal note provided by the DCED. They estimate it would require 20 percent of a staff person's time. Number 2058 KATELYN MARKLEY, Alaska Industrial Development and Export Authority (AIDEA), testified via teleconference from Anchorage. She indicated AIDEA's comments had not yet been provided to Senator Leman, nor could she say what they would recommend. She offered to provide comments within the next couple of days. REPRESENTATIVE KEMPLEN said there are ways, when crafting legislation, to minimize the need for additional money for staff. He suggested that would be appropriate in terms of public policy. CHAIRMAN SANDERS advised that the bill has a referral to the House Finance Committee. He suggested taking up that issue there. REPRESENTATIVE HODGINS said he has no problem with the bill. However, he would like to see a sunset clause. That way, if there was no activity with the program, it would not generate a $75,000- per-year job. He suggested there are several programs that do not produce but that "generate reasons for people to draw wages." Number 2156 REPRESENTATIVE BERKOWITZ indicated when he had suggested sunset clauses in other bills, the response he had received was that the next legislature could pull it if they want to. Number 2167 REPRESENTATIVE IVAN stated his belief that they would not be handing out money to just anybody. There are protection guidelines in the legislation, and he is certain the House Finance Committee will look at financial aspects. Number 2185 REPRESENTATIVE BERKOWITZ withdrew his objection and indicated he would cosponsor the bill. CHAIRMAN SANDERS advised that there being no objection, CSHB 220(ECD) moved from the House Special Committee on Economic Development. ADJOURNMENT CHAIRMAN SANDERS adjourned the meeting of the House Special Committee on Economic Development at 3:48 p.m.