HOUSE STATE AFFAIRS STANDING COMMITTEE January 23, 1997 8:03 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative Ethan Berkowitz Representative Fred Dyson Representative Kim Elton Representative Mark Hodgins Representative Al Vezey MEMBERS ABSENT Representative Ivan Ivan COMMITTEE CALENDAR INTRODUCTION/ORGANIZATION * HOUSE BILL NO. 21 "An Act establishing the Alaska public broadcasting trust fund as a trust fund of the state, and providing for its administration; relating to credits against certain taxes for contributions to the Alaska public broadcasting trust fund; increasing the amounts that may be claimed as credits against certain state taxes, and precluding claims of the contributions as both credits and deductions against the taxes; and terminating the credits authorized by this Act at the end of five years; and providing for an effective date." - MOVED HB 21 OUT OF COMMITTEE * HOUSE BILL NO. 20 "An Act relating to dog mushers' contests." - MOVED HB 20 OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 21 SHORT TITLE: TAX CREDIT: GIFTS TO PUBLIC BROADCASTING SPONSOR(S): REPRESENTATIVE(S) IVAN, Grussendorf JRN-DATE JRN-PG ACTION 01/13/97 32 (H) PREFILE RELEASED 1/3/97 01/13/97 32 (H) READ THE FIRST TIME - REFERRAL(S) 01/13/97 33 (H) STATE AFFAIRS, FINANCE 01/23/97 (H) STA AT 8:00 AM CAPITOL 102 BILL: HB 20 SHORT TITLE: DOG MUSHING CONTESTS SPONSOR(S): REPRESENTATIVE(S) IVAN JRN-DATE JRN-PG ACTION 01/13/97 32 (H) PREFILE RELEASED 1/3/97 01/13/97 32 (H) READ THE FIRST TIME - REFERRAL(S) 01/13/97 32 (H) STATE AFFAIRS, FINANCE 01/23/97 (H) STA AT 8:00 AM CAPITOL 102 WITNESS REGISTER THOMAS W. WRIGHT, Legislative Assistant to Representative Ivan Ivan Alaska State Legislature Capitol Building, Room 418 Juneau, Alaska 99801 Telephone: (907) 465-3882 POSITION STATEMENT: Provided sponsor statement on HB 20 and HB 21. ALISON ELGEE, Deputy Commissioner Office of the Commissioner Department of Administration P.O. Box 110200 Juneau, Alaska 99811-0200 Telephone: (907) 465-2200 POSITION STATEMENT: Provided testimony on HB 21. BOB BARTHOLOMEW, Deputy Director Income and Excise Audit Division; and Legislative Liaison Department of Revenue P.O. Box 110420 Juneau, Alaska 99811-0420 Telephone: (907) 465-4773 POSITION STATEMENT: Provided testimony on HB 21. JON NEWSTROM, Affiliate Coast Alaska P.O. Box 22596 Juneau, Alaska 99802 Telephone: (907) 463-6411 POSITION STATEMENT: Provided testimony in support of HB 21. DENNIS POSHARD, Director Central Office Charitable Gaming Division Department of Revenue P.O. Box 110440 Juneau, Alaska 99811-0440 Telephone: (907) 465-2229 POSITION STATEMENT: Provided testimony on HB 20. ACTION NARRATIVE TAPE 97-1, SIDE A Number 0001 The House State Affairs Standing Committee was called to order by Chair Jeannette James at 8:03 a.m. Members present at the call to order were Representatives James, Berkowitz, Hodgins and Vezey. Members absent were Dyson, Elton and Ivan. CHAIR JAMES announced Representative Ivan Ivan was excused from today's meeting due to an illness. INTRODUCTION/ORGANIZATION Number 0070 CHAIR JAMES announced the first order of business was an introduction and overview of the guidelines of the House State Affairs Committee meetings. The following guidelines were explained: "1. I start the meetings ON TIME, as long as there are four of us present. So please be here at 8:00 a.m. on Tuesdays and Thursdays, and 10:00 a.m. whenever we schedule a meeting for Saturday. "2. If you know you will be absent or late, please inform our office so I can announce FOR THE RECORD that you are excused. "3. Please be aware of the microphones on the table in front of you and keep extraneous noise from interfering with them. These microphones serve three purposes: the committee secretary transcribes minutes from tape recordings made through them; teleconference participants listen as well as speak through them; and the audio portion of television is covered through them. They are very sensitive microphones and will magnify whispering, paper shuffling, and other distracting noises! "4. Your committee packet on each bill will be available at noon the day prior to its scheduled hearing in the file cabinet in this committee room. "5. Generally, this will be the order of business on each bill, subject to change by the Chair: "Testimony by the bill sponsor, followed by questions from the committee. "Testimony by the Administration followed by questions from the committee. "Testimony from the public (including teleconferenced testimony) followed by questions from the committee. "Committee discussion of the bill, followed by voting on whether to move the bill from committee if appropriate. "If we do vote to move a bill out, PLEASE REMEMBER TO SIGN THE COMMITTEE RECOMMENDATION SHEET. "6. When we have disposed of a particular bill, PLEASE leave the notebook on the committee table to be re-used for a new bill. If you want to keep the information, remove it from the notebook first. We have a limited number of notebooks! "7. If you have any questions or concerns, please feel free to contact me or my committee aide, Barbara Cotting. "I am looking forward to a great session working with each of you." Number 0288 CHAIR JAMES announced for the record the arrival of Representatives Kim Elton and Fred Dyson. CHAIR JAMES further explained it was important to remain objective and respectful during the debate amongst the committee members. HB 21 - TAX CREDIT: GIFTS TO PUBLIC BROADCASTING Number 0607 The next order of business to come before the House State Affairs Standing Committee was HB 21, "An Act establishing the Alaska public broadcasting trust fund as a trust fund of the state, and providing for its administration; relating to credits against certain taxes for contributions to the Alaska public broadcasting trust fund; increasing the amounts that may be claimed as credits against certain state taxes, and precluding claims of the contributions as both credits and deductions against the taxes; and terminating the credits authorized by this Act at the end of five years; and providing for an effective date." CHAIR JAMES called on Thomas W. Wright, Legislative Assistant to Representative Ivan Ivan, to present the sponsor statement. THOMAS W. WRIGHT, Legislative Assistant to Representative Ivan Ivan, Alaska State Legislature, explained HB 21 provided an alternative funding source and lessened the general fund demand for public broadcasting. Mr. Wright read the following sponsor statement into the record: "This bill provides a tax credit for cash contributions made to a trust fund for public broadcasting which is established in this legislation. The credit to the public broadcasting trust fund is limited to 50% of $300,000. The tax credit would be applied against a taxpayer's liability under the following tax types: the insurance premium tax (AS 21.09.210), tax on title insurance premiums (AS 21.66.110), corporation income (AS 43.20), oil and gas production (AS 43.55), oil and gas property (AS 43.56) and mining license (AS 43.65). The credit claimed under one of the tax types may not be claimed under another tax type and may not be deducted against a tax imposed under the titles of the tax types previously listed." MR. WRIGHT lastly commented the bill had a sunset date of December 31, 2002. He announced he would be happy to answer any questions from the committee members, and explained members of the administration were here to answer any questions concerning the bill as well. Number 0739 REPRESENTATIVE ETHAN BERKOWITZ asked Mr. Wright if there was a reason why HB 21 was limited to the mentioned tax types? Number 0749 MR. WRIGHT replied it was limited to those tax types because they were the only ones in statute right now. He explained there were fishery taxes and fishery landing taxes, however, they were shared with municipalities using a 50/50 split. This split created confusion, therefore, they were left from the bill. Number 0794 REPRESENTATIVE BERKOWITZ stated he was personally concerned about the fishery taxes. He further asked Mr. Wright what level of revenues generated were expected for public broadcasting as a result of this bill? Number 0807 MR. WRIGHT replied, according to the Department of Revenue, $650,000 to $1,300,000 would be generated. That was a rough estimate, however. Number 0820 REPRESENTATIVE BERKOWITZ asked Mr. Wright, if the estimated generated funds mentioned were a total figure, or an annual figure? Number 0827 MR. WRIGHT replied, "Annual." Number 0835 REPRESENTATIVE KIM ELTON wondered if the tax credits could be stacked. He asked Mr. Wright if one tax credit could exclude another? Number 0866 MR. WRIGHT replied, "Yes." It was possible to stack a tax credit, according to the Department of Revenue. Number 0898 ALISON ELGEE, Deputy Commissioner, Office of the Commissioner, Department of Administration, was the next person to testify before the House State Affairs Standing Committee. She stated the Administration supported HB 21. She explained the money generated from the bill would go to the trust. Therefore, the principle of the trust would be maintained. The Administration would only spend the earnings on the trust. The bill specified what the trust income could be used for by the Administration. She cited inflation proofing as an example. She further explained for clarification that $1,000,000 that went into the trust would generate only $50,000 as an expenditure, for example. Therefore, the bill would not be an immediate solution to the financing problems for the public broadcasting system. Number 0975 REPRESENTATIVE MARK HODGINS asked Ms. Elgee what the time schedule would be for more money to be available? Number 0982 MS. ELGEE replied the department would hope to see the fund build over the next five years as the tax credits were in place. She explained the funds potential was based on current corporate contributions to the public broadcasting system statewide. The larger the fund the larger the income account. The present general fund support for grants to public broadcasting was close to $4 million. Number 1029 REPRESENTATIVE HODGINS asked Ms. Elgee what would be the department's target for a level of funds? Number 1036 MS. ELGEE repled she could not answer Representative Hodgins' question. She stated a concerted fund raising effort would be needed to realize the benefits of the trust, however. Number 1053 REPRESENTATIVE ELTON asked Ms. Elgee if the trust fund would harm other fund raising efforts? Number 1079 MS. ELGEE replied that was a concern of the department. However, many of the corporate sponsorships that the current stations received were for underwriting. The administration would hope that that funding would continue. The contributions that the bill required were specifically for the trust that would be managed by the commission. Number 1096 REPRESENTATIVE ELTON asked Ms. Elgee, how much would it cost to underwrite a program such as the fish report? Number 1111 MS. ELGEE replied she did not know. However, there were individuals in the audience that could answer that question. Number 1127 REPRESENTATIVE AL VEZEY stated he found Section 2 of the bill confusing. He asked for clarification. CHAIR JAMES called on Bob Bartholomew, Department of Revenue, to answer Representative Vezey's question. BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division; and Legislative Liaison, Department of Revenue, explained Section 2 amended the insurance premium tax. Currently, there was an education credit for 50 percent of the first $100,000, and 100 percent of the second $100,000. The new language on line 25, page 2, for the public broadcasting trust fund was 50 percent of the first $300,000. Therefore, if a corporation gave $10,000, it would receive a 50 percent credit, for example. Number 1229 REPRESENTATIVE VEZEY asked Mr. Bartholomew if subsection (i) (a) on page 2, referred to public broadcasting? MR. BARTHOLOMEW replied only subparagraph (2) on page 2, referred to public broadcasting. Subparagraph (1) on page 2, referred to higher education. Number 1261 REPRESENTATIVE VEZEY asked if there was a minimum? MR. BARTHOLOMEW responded there was not a minimum. He gave the example of a $10,000 contribution to illustrate it would be subject to the same 50 percent credit as a larger contribution would be. Number 1292 JOHN NEWSTROM, Affiliate, Coast Alaska, was the next person to testify before the House State Affairs Standing Committee. He explained his organization supported HB 21 because it provided another form of fund raising for the public broadcasting system using a non-governmental source. The fish report he explained would cost about $2,000 to $5,000 per year to answer Representative Elton's question. It depended on the production cost, however. He further explained that a contribution to the trust did not trigger an announcement on public broadcasting compared to a direct contribution to the programming mandated by federal law. There was the possibility of announcing that the funding came from the trust fund and list the contributors, however. He was concerned because they were different types of announcements and it would be up to the discretion of whoever distributed the money from the trust. He reiterated HB 21 created another tool for public broadcasting to raise money that would push the industry forward. He alleged between $30 million to $50 million would keep public broadcasting off state money and maintain its programming statewide. Number 1488 CHAIR JAMES stated $50 million in an endowment would be $25 million less taxes collected by the state. She explained she supported HB 21, but she was concerned about the net benefit to public broadcasting versus the net reduction in the general fund income. This caused her some distress. Number 1542 MR. NEWSTROM replied he understood the concerns of Representative James. It was important, however, to understand that public broadcasting was not looking for a replacement for state funds now, but rather for a supplement. It was understood that if the earnings of the trust fund were at a certain level, the general fund allocation would be reduced by the corresponding amount. Furthermore, the issue of the tax credit and how it affected the general fund was an interesting policy question. He stated he would be happy to work with anyone that was interested in further examining that issue. Number 1608 REPRESENTATIVE FRED DYSON asked Mr. Newstrom why the language in the bill required the money to go into an endowment rather than a direct annual contribution? Number 1619 MR. NEWSTROM stated there was interest expressed to allow a tax credit for direct annual contributions. A direct annual contribution, however, was very short sighted. A fund on the other hand created a future of stability and security. Number 1671 REPRESENTATIVE DYSON stated it was a painless contribution. The money otherwise that would have gone to the state coffers for taxes would go to the trust. Number 1691 MR. NEWSTROM replied it was 50 percent painless. Number 1725 CHAIR JAMES stated the figures right now were only estimates. There was no way to determine exactly how much money would be contributed. She expressed her support for the public broadcasting system and was not opposed to having "people pay for what they play." She was concerned, however, about the money that would be taken from the general fund as a result of the tax credits. She supported moving the bill forward in the committee process, nevertheless. Number 1874 REPRESENTATIVE DYSON expressed his support of the public broadcasting system. He stated the founding father of the United States really only wanted a government that the people were able to pay for. He was concerned about establishing an independent funding source that was not sensitive to the willingness of the people to pay for what they wanted. That was the best control the citizens had, he commented. Number 1953 REPRESENTATIVE BERKOWITZ stated he respected the "slippery slope" argument of Representative Dyson. It was important, however, to respect the discretion of the companies and the people of the state to make their own donations. Therefore, any measure that allowed a choice was good for business and for the state. Number 1983 REPRESENTATIVE ELTON explained the other side of Representative Dyson's argument was that the bill empowered a tax payer. The only tax payers right now were the corporate citizens, and the bill allowed the corporate citizens to direct their spending. The bill was, therefore, an empowering method. He further commented that it was difficult to predict the future level of contributions. The bill did have a sunset date which allowed for further review in the future. Number 2052 REPRESENTATIVE DYSON replied that once the contributions were made to the foundation, the corporate control was gone. The control resided with the commissioners and not the contributors. Number 2100 REPRESENTATIVE HODGINS stated his only concern was that the legislature would have to contribute to the general fund the amount that the general government increased. He supported the bill, but reiterated his concern of fewer dollars going into the general fund. Number 2141 CHAIR JAMES explained the legislature established the tax credit and rates that the corporations contributed to the state. She called it an "end-run" around the public process. She believed that this was the first endowment established of many worthy causes yet to come forward. The Alaska State Constitution did not allow for a dedicated fund without an amendment, but it did allow for an endowment which circumvented the legislature. She wondered in the future what would be left for the legislature. Number 2244 REPRESENTATIVE BERKOWITZ stated there had been a call for a smaller and smarter government. This was one way to reach that goal. Number 2254 REPRESENTATIVE ELTON said he disagreed with Chair James that the legislature would loose a certain amount of control. He cited the children's trust whereby the legislature did not relinquish its control but rather exercised its control. The bill did not bind a future legislature from taking action. He agreed that over time there would be a lot of causes that would want an endowment type of funding source. He reiterated, however, that the legislature would be exercising its control. Number 2338 CHAIR JAMES stated it was a trend that she was cautious about. There were unintended consequences that could not been seen right now. CHAIR JAMES asked the committee members for a motion to move the bill forward. Number 2399 REPRESENTATIVE HODGINS moved that HB 21 move from the House State Affairs Standing Committee with individual recommendations and attached fiscal note(s). REPRESENTATIVE VEZEY objected. A roll call vote was taken. Representatives James, Berkowitz, Elton and Hodgins voted in favor of moving the bill. Representatives Dyson and Vezey voted against moving the bill. House Bill 21 was so moved from the House State Affairs Standing Committee. HB 20 - DOG MUSHING CONTESTS TAPE 97-1, SIDE B Number 0001 The next order of business to come before the House State Affairs Standing Committee was HB 20, "An Act relating to dog mushers' contests." CHAIR JAMES called on Thomas W. Wright, Legislative Assistant to Representative Ivan Ivan, to present the sponsor statement. Number 0023 MR. WRIGHT, Legislative Assistant to Representative Ivan Ivan, Alaska State Capitol, read the following sponsor statement into the record: "House Bill 20 would authorize dog mushers' associations, which run races recognized by the Division of Charitable Gaming, to conduct statewide games of change. The division recognizes those associations which have been in existence for at least three years, have at least 25 Alaskan members and be a not for profit organization. Prizes may be awarded for the closest guesses of at least three elements of uncertainty about a sled dog race that cannot be determined before the start of the race. The intent is to provide a mechanism to assist race organizing committees to become financially self-sufficient. "High profile protests from animal rights activists have caused important corporate sponsors to withdraw financial support. House Bill 20 would create a sweepstakes similar to that currently being used by the Iditarod Race Committee and, hopefully, allow sled dog races which do not have strong financial backing to continue. "House Bill 20 will allow contestants to purchase raffle tickets on which the contestant would guess the checkpoints and finish line arrival times, the temperature when the a particular team crosses the finish line, total number of dogs that finish the race, etc. The dog mushers' association will administer the mushers' contests in conjunction with state regulatory authority." MR. WRIGHT announced Dennis Poshard, Department of Revenue, was present to answer any questions from the committee members regarding the logistics of the bill, and he would be available to answer any questions directly related to the bill. Number 0100 REPRESENTATIVE ELTON asked Mr. Wright if a similar bill was passed last year? Number 0109 MR. WRIGHT replied a similar bill was passed out of the House State Affairs Standing Committee last year. It was, however, stopped in the House Finance Committee. Number 0130 REPRESENTATIVE BERKOWITZ wondered if the list of organizations provided to the committee members was exhaustive. MR. WRIGHT replied it was a list of organizations that were recognized by the Charitable Gaming Division of the Department of Revenue. REPRESENTATIVE BERKOWITZ asked Mr. Wright if it was required that dog mushing organizations register with the Charitable Gaming Division? MR. WRIGHT deferred the question to Dennis Poshard, Department of Revenue. Number 0161 DENNIS POSHARD, Director, Central Office, Charitable Gaming Division, Department of Revenue, replied, "Yes." He explained any organization that wanted to conduct a charitable gaming activity was required to apply for a permit with the division. Number 0177 CHAIR JAMES explained the list provided to the committee members were the organizations that already had a raffle permit with the division. Number 0187 REPRESENTATIVE BERKOWITZ asked Mr. Poshard if a race and bet with a neighbor, for example, fell under the preview of the bill? Number 0192 MR. POSHARD responded it would only fall under the preview of the division if it was a large race. It did not preclude a person from getting together with neighbors for a poker game, for example. That was considered a social activity. Number 0232 CHAIR JAMES commented this statute continued to be revisited. The statute listed the contests that were covered and to add a new contest legislation was necessary. Number 0264 MR. WRIGHT explained when the bill was introduced last session it was intended only for Iditarod qualifying races. However, there was such support from the other dog mushing races that it was decided to include them as well. Number 0296 REPRESENTATIVE ELTON asked Mr. Poshard to explain the controls surrounding the proceeds generated from a raffle, for example? Number 0311 MR. POSHARD replied a dog mushing association would first have to meet certain qualifications to receive a permit. It was the responsibility of the association to file on an annual basis a financial statement that listed the gross income from the activity, the prizes awarded, any expenses associated with that activity, the net profits, and how the profits were used. There was a statutory requirement that the association had to spend the profits within one year of earning them. The division checked the reports for accuracy and conducted audits when necessary. Number 0367 REPRESENTATIVE ELTON asked Mr. Poshard if the filings made by the associations were open to the public? Number 0373 MR. POSHARD replied, "Yes." The Department of Law ruled any filing reports were considered public information. Number 0401 REPRESENTATIVE ELTON stated he was concerned that the department would not have the additional resources to conduct more audits because staff was recently lost. Number 0420 MR. POSHARD replied the division received approximately 1,100 reports each year. A substantial portion of those reports were not complicated to audit, however. The remaining reports were primarily from pull tabs and bingo activities requiring more concentrated audit efforts. He reiterated the division did not conduct an audit on every charitable organization that received a permit. An order of priority was established of those associations that the division deemed necessary to audit. The bill addressed only dog mushing associations of which most already filed a financial statement with the division. He did not anticipate an increase in paperwork for the division as a result of the bill. Number 0517 REPRESENTATIVE ELTON asked Mr. Poshard if the proceeds could only be used in the same way that the proceeds for pull tabs could be used? Number 0530 MR. POSHARD replied, "That's correct." He explained there was a statutory requirement that limited the use of net proceeds for every activity that a permit had been issued. Number 0553 REPRESENTATIVE VEZEY asked for clarification regarding the definition of an "element of chance." Number 0580 MR. POSHARD replied the elements of uncertainty were determined by the association conducting the activity. The bill only required three elements of chance. He cited it could be the total number of dogs to cross the finish line, the winning time, or the time of the last place musher, as examples. It could be anything, as long as, three were chosen to determine the winner. Of the three chosen, one would have to be the primary determinant while the remaining two would be the secondary and tertiary determinants. The secondary and tertiary determinants would be used only when necessary to determine a winner. Number 0710 REPRESENTATIVE VEZEY asked Mr. Poshard if "time" was one or two elements of chance? Number 0715 MR. POSHARD replied, "One." Number 0717 REPRESENTATIVE VEZEY stated other testimony indicated time was two elements of chance - hour and minute. He reiterated the elements of chance were vague. He was not sure if it would make any difference, however. Number 0750 CHAIR JAMES called for a motion to pass the bill from the committee. Number 0766 REPRESENTATIVE DYSON moved that HB 20 move from the committee with individual recommendations and attached fiscal note(s). Number 0772 REPRESENTATIVE ELTON objected. He stated he would vote no on this bill because he was concerned about placing a value on the activity of dog mushing over youth baseball, for example. There was a limited amount of money available. He had a difficult time understanding that a dog mushing association could be considered a charitable organization. There was no further discussion so a roll call vote was taken. Representatives James, Berkowitz, Dyson, Hodgins and Vezey voted in favor of the motion. Representative Elton voted against the motion. House Bill 20 was so moved from the House State Affairs Standing Committee. ADJOURNMENT Number 0875 CHAIR JAMES adjourned the House State Affairs Standing Committee meeting at 9:12 a.m.