SENATE COMMUNITY & REGIONAL AFFAIRS COMMITTEE January 29, 1997 1:35 p.m. MEMBERS PRESENT Senator Jerry Mackie, Chairman Senator Gary Wilken, Vice Chairman Senator Dave Donley Senator Randy Phillips MEMBERS ABSENT Senator Lyman Hoffman COMMITTEE CALENDAR SENATE BILL NO. 52 "An Act establishing additional tax credits against the fisheries business tax; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 52 - No previous action to record. WITNESS REGISTER Dave Gray, Staff to Senator Mackie State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Presented sponsor statement on SB 52 Doug Donegan, Vice President Trident Seafoods 5011 Jewel Lane, #203 Anchorage, AK 99502 POSITION STATEMENT: Testified in support of SB 52 Debra Vogt, Deputy Commissioner Department of Revenue P.O. Box 110405 Juneau, AK 99801-0405 POSITION STATEMENT: Administration neutral on SB 52 at this time Rick Lauber Pacific Seafood Processors Association 321 Highland Drive Juneau, AK 99801 POSITION STATEMENT: Association has not established a position on SB 52 ACTION NARRATIVE TAPE 97-3, SIDE A Number 001 SB 52 FISHERIES BUSINESS TAX CREDITS  CHAIRMAN MACKIE called the Senate Community & Regional Affairs Committee meeting to order at 1:35 p.m. He noted the presence of Senator Wilken, Senator Donley and Senator Phillips, as well as noting that Senator Hoffman was out of town. CHAIRMAN MACKIE brought SB 52, sponsored by Senators Mackie, Torgerson, Taylor and Leman, before the committee as the only order of business. DAVE GRAY , staff to Senator Mackie, read the following sponsor statement into the record: "I introduced SB 52 to help bring some economic stability and growth to Alaska's commercial fisheries industry. I think the best way to do this is through development incentives that increase operational efficiencies, improve product quality, or bring new products to market. The incentives are business tax credits, up to 50 percent of a company's tax liability, for any capital investments in shore based facilities that achieve these goals. "Alaska's fishery resources provide nearly 70,000 jobs in the private sector, far more than any other industry. These are fishermen, processors and the processing labor force. For most of the state's coastal and river communities, commercial fishing is the dominant economic activity that sustains the community. Thus, when markets deteriorate and fish prices fall, as has happened with salmon, the effects can be immediate, wide spread, and devastating. "SB 52 is modeled after a similar program that was in effect from 1986 to 1991. This program was largely responsible for large investments in processing quality control in facilities throughout the state. It is also credited with stimulating Alaskan participation and expansion into the harvesting, processing, and marketing of new bottom fisheries. "The Alaskan fisheries industry needs a boost to improve the marketability of its traditional fishery products and to introduce new, value added products that appeal to consumers worldwide. This will require large investments in new and better equipment. I feel that the tax incentive program is the way to accomplish these improvements in the most direct and efficient manner. The benefits will accrue to both resident commercial fishermen as well as the processing labor force through increased fishing opportunities and increased processing jobs." Mr. Gray noted the members' packets contained a sectional analysis, a fiscal note from the Department of Revenue, as well as an analysis that was prepared when the previous fisheries tax credit program was in effect indicating some of the impact of the program, which was generally acknowledged as beneficial to the fishing industry. CHAIRMAN MACKIE stated that this program was not something new he's dreamed up -- it was a program that was in effect and had real good results in terms of economics for the fishing industry in the past. He added that he doesn't think it could come at a better time than right now. Number 090 DOUG DONEGAN , Vice President of Trident Seafoods, a company which has extensive operations throughout Alaska, informed the committee there were some other people from the industry who wanted to attend the meeting, but they were participating in the salmon summit at Centennial Hall. Mr. Donegan said the commercial seafood industry is in serious trouble. Alaskans who fish for a living are receiving historically low prices for their catch as a result of a worldwide glut of salmon -- a product of consistently high quality available year round that competes head on with Alaska's wild stock. He believes the Alaskan product can compete in this arena because of its flavor and texture that make it a superior product. Mr. Donegan acknowledged that the industry needs help in fighting back, and he thinks SB 52 is an excellent step in that process. The bill provides the incentive to financially strap processors to produce a better product more economically, as well as encouraging smaller operations to experiment with new products. Mr. Donegan voiced his strong support for SB 52, which, he said, is a concept that worked in the past. Number 122 CHAIRMAN MACKIE asked how many plants Trident Seafoods has in operation. MR. DONEGAN responded they have 11 plants in various locations throughout the state, as well as five large platform floating processors which generally operate within a half mile of shore. He also related Trident Seafoods employs up to 3,000 people, but a seasonally adjusted full-time equivalent is approximately 1,280 people. CHAIRMAN MACKIE requested that Mr. Donegan provide a letter explaining what Trident did with the program the last time it was in effect and how it benefited them in upgrading the quality of their product. Number 145 SENATOR WILKEN inquired what the dollar effect would be of a 50 percent tax credit to Trident Seafoods for 1998. MR. DONEGAN responded that Trident Seafoods' total tax liability to the state is approximately $8 million to $9 million a year, and obviously they couldn't use even a fraction of that on this program. SENATOR WILKEN asked if Trident Seafoods were to take advantage of this program, what specially would they do with that money. MR. DONEGAN said the company hasn't yet had a chance to think about that, but he's certain they would do something. He believes there are a lot of areas that they need to experiment with, but he added that experimentation is risky, it's a difficult process, and there is no assurance of the outcome. However, this sort of incentive lessens the risk of trying something new, and that is the particular appeal of this legislation. CHAIRMAN MACKIE suggested that the line of questioning from Senator Wilken could be included in the information that Mr. Donegan provides to the committee. Number 165 DEBRA VOGT , Deputy Commissioner, Department of Revenue, pointed out that in his State of the State message, Governor Knowles mentioned that he was looking at the idea of providing some sort of incentives such as financial assistance or tax relief to the fisheries businesses. However, he is waiting for the results of the salmon summit before he makes a specific proposal, so at this point, the Administration does not have an official position. Ms. Vogt also pointed out that the department's fiscal note indicates a fiscal impact in FY 98. The bill takes effect July 1, 1997, but the first tax year it effects would be tax year 1998 so it wouldn't have a fiscal effect until FY 99. It is a zero fiscal note in terms of administrative impact, but it does reflect the dollar impact on the general fund. She said the state shares 50 percent of the Fisheries Business Tax revenue with the municipalities so they are already only keeping half of the Fisheries Business Tax revenue, and it would be that half that would be available to take credits against under this legislation. Currently, the state collects in the neighborhood of $38 million in fisheries business taxes, which means the available potential credit would be in the neighborhood of $19 million. It was also noted by Ms. Vogt that amendments were made to the Landing Tax last year in order to provide a system of parody between the Landing Tax and the Fisheries Business Tax. This bill doesn't do that and it is a technical change that the department thinks the Legislature should consider. She added that the department has a number of other more technical issues that came up in their experience with the previous program which she would be happy to discuss with the sponsor or the next committee of referral. CHAIRMAN MACKIE commented that it would not be a problem to work with the department on any technical changes that need to be made. Number 245 RICK LAUBER , representing Pacific Seafood Processors Association, stated the association has not had an opportunity to take a position on SB 52, however, he pointed out that they did support the original program which many companies took advantage of. It played a significant role in the processors being able to bring more product on shore, as well as companies being able to diversify into value added products, and he thinks the same thing would apply now. Mr. Lauber said one of the arguments often made about any tax credit is that a tax credit will be given to someone who would do it anyway, so therefore, they are saving money by taking advantage of the tax credit. In other words, they are doing their expansion on the state's money, not their own money. It was one of the arguments used when the original tax credit program went into effect, but he thinks that even the Department of Revenue was surprised to find that while there were certainly cases of that, in large measure it was a catalyst and used to do things that would not otherwise have been done. Mr. Lauber said at this time he doubts whether there is a single company in the seafood processing industry that is in a position to do any type of innovative processing, construction, new equipment, etc., to take advantage or attempt to expand the markets. But if this tax credit or any tax credit is passed by the Legislature in order to benefit the state of Alaska, he thinks any money used from a tax credit would be money that would not otherwise be spent. Number 307 CHAIRMAN MACKIE said the way the bill is written it is something that needs to be negotiated in advance in terms of what's going to take place with the project, its cost, etc., so it's not just writing a retroactive check back to a processor. He asked Mr. Lauber if he thought processors could work with that sort of scenario. MR. LAUBER didn't see a problem with that, and he pointed out the department used a similar technique in the last tax credit program and established ground rules as to what was allowable under the tax credit. Number 332 SENATOR WILKEN commented that he supports the legislation, but the people of Alaska are being asked to invest some sixty or seventy million dollars over the next five years. He expressed his hope that as this bill goes through the next two committees, those people that may become beneficiaries of this program are to list specific projects which they would be interested in and the return on those projects in order to ensure that the people of Alaska realize that sixty or seventy million dollars back five years from now. CHAIRMAN MACKIE agreed and said he would request those types of information from processors. He added that he knows the legislation will get significant scrutiny in the overall picture of finances when it gets to the Finance Committee. Number 355 CHAIRMAN MACKIE asked for the pleasure of the committee on SB 52. SENATOR DONLEY moved that SB 52 and the accompanying fiscal note, as corrected, be passed out of committee with individual recommendations. Hearing no objection, it was so ordered. There being no further business to come before the committee, the meeting was adjourned at 1:58 p.m.