Legislature(2009 - 2010)BELTZ 105 (TSBldg)

02/05/2010 08:00 AM Senate EDUCATION

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08:02:08 AM Start
08:02:44 AM SB236
09:06:42 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Bills Previously Heard/Scheduled
        SB 236-TAX CREDITS FOR EDUCATIONAL CONTRIBUTIONS                                                                    
8:02:44 AM                                                                                                                    
CO-CHAIR MEYER announced consideration of SB 236.                                                                               
CO-CHAIR THOMAS moved to adopt  the proposed committee substitute                                                               
(CS) to SB  236, labeled 26-LS1191\P, as the  working document of                                                               
the committee.  There being  no objection,  version P  was before                                                               
the committee.                                                                                                                  
8:03:46 AM                                                                                                                    
JOMO  STEWART,  staff  to Senator  Meyer,  provided  a  sectional                                                               
analysis of CSSB  236. He said it does not  represent a change in                                                               
policy; it is  an expansion of the existing  policy regarding tax                                                               
credits for educational purposes.                                                                                               
The  title   was  amended  to  read   "educational  purposes  and                                                               
facilities" to better  reflect the intent of  the committee. That                                                               
change is consistent throughout the CS.                                                                                         
He explained  that Section  1 requires that  the director  of the                                                               
Division of  Insurance make an  annual report to  the legislature                                                               
regarding  the  functioning of  the  expanded  system. Section  2                                                               
creates a sunset  for the new regime and  amends existing statute                                                               
to  allow   tax  credits  to  state-owned   vocational  education                                                               
courses, programs and facilities, and  adds language to allow tax                                                               
credits  on contributions  for facilities  for Alaska  non-profit                                                               
public or private two-year and four-year colleges.                                                                              
The expansion of  the existing regime occurs in  section 3, which                                                               
amends existing  statute to  create a 50  percent tax  credit for                                                               
contributions above $200,000. He  referred members to the printed                                                               
PowerPoint presentation that was included in their packets.                                                                     
SENATOR OLSON joined the meeting.                                                                                               
MR.  STEWART  continued; CSSB  236  impacts  seven different  tax                                                               
types within Alaska  Code. Five of these are  administered by the                                                               
Department of Revenue (DOR): oil  and gas property taxes, oil and                                                               
gas  production taxes,  corporate  income  taxes, mining  license                                                               
taxes,  and  a  couple  of   fisheries  taxes.  The  Division  of                                                               
Insurance, Department  of Commerce (DCCED), has  health insurance                                                               
providers'  taxes and  provides  tax breaks  for those  insurance                                                               
providers for educational purposes.                                                                                             
Under  current law,  he explained,  a contributor  receives a  50                                                               
percent  tax credit  for the  first  $100,000 and  a 100  percent                                                               
credit for  the next  $100,000; no  additional credits  are given                                                               
for  amounts above  $200,000.  For  example, if  an  oil and  gas                                                               
company  called  "Alasko"  made a  contribution  of  $500,000  to                                                               
Alaska University, it  would receive a 50 percent  credit for the                                                               
first  $100,000 and  100 percent  credit for  the next  $100,000,                                                               
resulting in a total tax  credit of $150,000. Also under existing                                                               
statute, the  earned credits  can be  divided to  impact multiple                                                               
tax  types or  obligations  that contributor  might have.  Alasko                                                               
could divide that  $150,000 tax credit into thirds and  use it to                                                               
offset  $50,000  in production  taxes,  $50,000  of its  property                                                               
taxes and $50,000 of its corporate income taxes.                                                                                
MR. STEWART said CSSB 236 amends  that by removing the cap on tax                                                               
credits, so on a $500,000  contribution Alasko would receive a 50                                                               
percent credit  on the  first $100,000, a  100 percent  credit on                                                               
the next $100,000  and a 50 percent tax credit  for the remaining                                                               
$300,000, for  a total tax  credit of $300,000. The  other change                                                               
made by  the CS is that  contributors can no longer  divide their                                                               
earned tax credit;  credits earned for a  single contribution can                                                               
only be applied to a single tax.                                                                                                
8:11:18 AM                                                                                                                    
SENATOR  HUGGINS  asked  if  it might  be  more  advantageous  to                                                               
sweeten the pot for contributions of $1 million or more.                                                                        
MR.  STEWART  responded  that  he also  questioned  why  the  100                                                               
percent tax credit  should be set between  $100,000 and $200,000.                                                               
The  University  explained that  the  majority  of their  private                                                               
donations fall in  that range and they want  to encourage private                                                               
8:12:30 AM                                                                                                                    
SENATOR  HUGGINS  said that  every  dollar  received from  donors                                                               
saves the  state money, so  it doesn't seem reasonable  to reduce                                                               
the tax incentives for larger donations.                                                                                        
8:13:15 AM                                                                                                                    
CO-CHAIR  MEYER said  when they  wrote this  bill they  basically                                                               
just expanded  the ranges and took  the cap off. They  thought it                                                               
would be best  to let the Finance Committee define  the levels of                                                               
tax  credit and  whether or  not  there should  be a  cap on  the                                                               
amount of credit allowed per contribution.                                                                                      
8:14:31 AM                                                                                                                    
SENATOR HUGGINS  stated that the  Education Committee  should ask                                                               
for some of  that information and develop a package  that is much                                                               
more  deliverable and  less  likely  to get  bogged  down in  the                                                               
Finance Committee.                                                                                                              
8:14:53 AM                                                                                                                    
CO-CHAIR MEYER agreed  that the more the  Education Committee can                                                               
do, the better,  and said they will be  hearing further testimony                                                               
in today's meeting.                                                                                                             
8:15:08 AM                                                                                                                    
MR.  STEWART said  the staff  has been  working with  this for  a                                                               
couple  of  weeks  and  discussed a  number  of  those  financial                                                               
issues,  but felt  their time  would  be better  spent on  policy                                                               
questions.  They put  in some  of  the sideboards  they felt  the                                                               
committee would want, including  annual reporting by the Director                                                               
of Insurance and the Commissioner  of Revenue, and added a sunset                                                               
date of  January 4,  2014 to  review the  impacts under  this new                                                               
MR. STEWART said  there is language in the  existing statute that                                                               
speaks  to  colleges  "accredited  by  a  regional  accreditation                                                               
association"  and  suggested  that  the  committee  may  want  to                                                               
include that accreditation language in  the newly written bits of                                                               
statute  that refer  to "a  facility  by a  non-profit public  or                                                               
private Alaska two or four-year college."                                                                                       
SENATOR STEVENS  commented that he  agrees with  Senator Huggins;                                                               
the  Education Committee  needs to  set the  parameters and  send                                                               
them forward to Finance.                                                                                                        
8:17:22 AM                                                                                                                    
SENATOR  STEVENS questioned  who  decides  how contributions  are                                                               
MR. STEWART answered that the  contributor can request that money                                                               
be used  for a  specific purpose, but  he believes  the receiving                                                               
entity,  the  University  or   the  school  district,  ultimately                                                               
decides whether to use the money for that purpose.                                                                              
8:18:27 AM                                                                                                                    
SENATOR   OLSON   asked  if   Mr.   Stewart   knows  what   other                                                               
organizations are recipients of donations at that level.                                                                        
MR. STEWART  replied that local vocational  educational programs,                                                               
individual  schools,  or  Alaska   Pacific  University  could  be                                                               
8:19:46 AM                                                                                                                    
SENATOR OLSON  asked what provisions  have been made  for private                                                               
8:20:10 AM                                                                                                                    
MR.  STEWART  said  the  Department  of  Revenue  may  have  more                                                               
information on that.                                                                                                            
SENATOR HUGGINS wondered if donations  to Job Corps, which trains                                                               
students across the state, would be eligible.                                                                                   
CO-CHAIR MEYER  said he would  like the Department of  Revenue to                                                               
address that question.                                                                                                          
MR.  STEWART said  the capacity  seems to  exist, even  under the                                                               
current statute, which reads "an  Alaska university foundation or                                                               
by a nonprofit, public or private."                                                                                             
8:21:27 AM                                                                                                                    
SENATOR  STEVENS stated  it  is important  for  the committee  to                                                               
specify that only institutions accredited  by one of the national                                                               
organizations are eligible.                                                                                                     
8:21:53 AM                                                                                                                    
MURRAY  RICHMOND, staff  to Senator  Thomas,  confirmed that  Job                                                               
Corps  is  not  an  accredited   institution  and  would  not  be                                                               
eligible.  Tax  credits  are allowed  only  on  contributions  to                                                               
regionally accredited institutions, public or private.                                                                          
MR. STEWART commented that it is  within the state's power to set                                                               
up some kind of certification  program to accommodate those other                                                               
good organizations, entities,  and purposes it would  like to see                                                               
benefit from donations.                                                                                                         
8:22:56 AM                                                                                                                    
JOHANNA  BALES,  Deputy  Director, Tax  Division,  Department  of                                                               
Revenue  (DOR),   Anchorage,  Alaska,  said  the   department  is                                                               
concerned that, although  it may not be expected  that tax payers                                                               
will donate to  the point that it erodes revenue,  without a cap,                                                               
the potential is there. If a  company made a $50 million donation                                                               
to  construct  a two  or  four-year  college, for  example,  that                                                               
donation would result in approximately  $25 million credit to the                                                               
She  confirmed  that Job  Corps  could  not  be a  recipient  for                                                               
credits  under  this  program.  She also  pointed  out  that  the                                                               
language  specifically states  "for  a facility  by a  non-profit                                                               
public or  private," so it  looks like  that is to  construct new                                                               
8:25:15 AM                                                                                                                    
CO-CHAIR MEYER  thanked her and  agreed that  they need a  cap to                                                               
limit  exposure  and  risk  to  the state.  He  asked  how  often                                                               
donations have reached the current cap.                                                                                         
8:25:40 AM                                                                                                                    
MS.  BALES  said  only  a  limited  number  of  tax  payers  take                                                               
advantage of the  current credit; about 11 of  the state's 15,000                                                               
corporate income tax  payers have contributed on  a regular basis                                                               
and taken the credit against their corporate income taxes.                                                                      
8:26:29 AM                                                                                                                    
SENATOR STEVENS said he wonders  how other states handle this. He                                                               
understands the risk  to state, but thinks there  are some pretty                                                               
exciting  possibilities. If  the University  needs a  new science                                                               
building, and a  corporation wants to pay half of  the cost, that                                                               
might be a  good way to expand the University  facilities at less                                                               
cost to the state.                                                                                                              
8:27:26 AM                                                                                                                    
CO-CHAIR MEYER  acknowledged his  point and said  that is  why he                                                               
thinks the  cap should  be dealt with  in the  Finance Committee;                                                               
they may  want some of  that money to  go to roads  or elementary                                                               
schools instead of putting all of it into a university building.                                                                
8:27:57 AM                                                                                                                    
CO-CHAIR MEYER  thanked Ms. Bales  and asked  her to stay  on the                                                               
line in case the committee members have additional questions.                                                                   
8:28:23 AM                                                                                                                    
JAMES  R JOHNSEN,  Senior Vice  President, Administration,  Doyon                                                               
Limited,  Fairbanks,  Alaska,  said  Doyon is  an  Alaska  Native                                                               
Corporation that  operates in  11 states  across the  country and                                                               
state wide. He  is here on behalf  of Doyon and all  of the other                                                               
regional Alaska Native  corporations (ANC), who last  year sent a                                                               
list of  priorities to the  University for  educational programs,                                                               
facilities,  and curriculum.  This tax  credit issue  was in  the                                                               
high-priority category.  There is  broad support from  the Native                                                               
corporations and among private sector business interests.                                                                       
DR.  JOHNSEN continued;  at Doyon  they look  to the  future, and                                                               
their future growth  is going to depend  largely upon investments                                                               
in  two areas:  natural resource  development and  human resource                                                               
development. During the past summer,  Doyon and its partners were                                                               
encouraged  to invest  in  gas exploration  in  the Nenana  Basin                                                               
under the state's  current oil and gas tax  credit program, which                                                               
provides a  50 percent tax  credit for that investment.  They are                                                               
turning  that  credit right  back  around  to invest  in  further                                                               
exploration work this winter in  Stevens Villages, so the state's                                                               
policy  for  encouraging  exploration  through a  tax  credit  is                                                               
working.  However, if  Doyon or  some other  corporation were  to                                                               
invest $15  million in a research  facility, it would get  only a                                                               
$150,000 tax credit, or 1  percent. From a financial perspective,                                                               
that just  doesn't provide much  encouragement to  invest heavily                                                               
in   workforce   development,   in   research,   in   much-needed                                                               
facilities,  and  in the  partnership  between  business and  the                                                               
state  that  they  see  long-term as  critical  for  the  state's                                                               
8:31:53 AM                                                                                                                    
He said they support the bill  as written, to have a rather broad                                                               
scope, including  vocational and  technical programs.  While most                                                               
jobs certainly  require postsecondary education, only  75 percent                                                               
of   the  jobs   in  Alaska   and  across   the  nation   require                                                               
baccalaureate degrees, so they  strongly encourage vocational and                                                               
technical programs.                                                                                                             
8:32:54 AM                                                                                                                    
DR. JOHNSEN  commented that  the use  of the money  has to  be by                                                               
agreement.  The University  of Alaska  Foundation,  which is  the                                                               
formal recipient of  donations, has guidelines, and  the Board of                                                               
Regents  has policies  with respect  to how  gifts are  used, but                                                               
ultimately it is about a partnership for the long-term.                                                                         
8:33:49 AM                                                                                                                    
SENATOR STEVENS wondered if Doyon  saw an issue that affected its                                                               
membership, such  as graduation rates  in rural Alaska,  could it                                                               
or would it try to work toward improvements for those members.                                                                  
DR.  JOHNSEN  responded  that  Doyon  could  certainly  work  for                                                               
student  support programs  and  student services,  but he  thinks                                                               
there  would be  a legal  issue  with running  money through  the                                                               
University  that was  directed solely  to Doyon  shareholders. In                                                               
addition  to making  donations,  Doyon, the  other Alaska  Native                                                               
corporations,  and many  private companies  provide scholarships;                                                               
those they can  target. Doyon spends over $1 million  per year on                                                               
its foundation and scholarships. This  is an additional tool that                                                               
can certainly help Doyon's shareholders,  but its priority is the                                                               
state of Alaska.                                                                                                                
8:36:22 AM                                                                                                                    
SENATOR  OLSON  asked   Dr.  Johnsen  whether  he   sees  SB  236                                                               
significantly increasing  the amount of contributions  from Doyon                                                               
and similar corporations to institutions of higher learning.                                                                    
8:37:06 AM                                                                                                                    
DR. JOHNSEN replied that workforce  development is a key issue to                                                               
them, and he knows this  would encourage them to collaborate more                                                               
and invest  more in  education. He said  they also  recognize the                                                               
enormous  commercial  potential  of  the research  done  in  this                                                               
8:38:23 AM                                                                                                                    
CO-CHAIR THOMAS asked  if Dr. Johnsen would  anticipate a quicker                                                               
response from  the University to  some areas of  interest because                                                               
they are receiving private money.                                                                                               
8:39:18 AM                                                                                                                    
DR.  JOHNSEN said  he  thinks this  would  enable "jump  starts,"                                                               
bringing  in  some  private-sector  funding to  partner  up  with                                                               
people at  the University.  He does not  think the  University is                                                               
hesitant or  resistant; the regular budgetary  process just takes                                                               
longer  and  is  a bit  more  of  a  challenge  due to  the  many                                                               
competing demands in such an institution.                                                                                       
8:40:08 AM                                                                                                                    
SENATOR HUGGINS  observed that the  conversation has  been around                                                               
universities, but  there is a  secondary school provision  in the                                                               
bill also.  He asked how  Dr. Johnsen  thinks this will  work for                                                               
secondary schools.                                                                                                              
DR. JOHNSEN  said vocational and technical  programs are provided                                                               
for now;  he will be meeting  with people from the  Galina School                                                               
District  next week  to  talk  about a  project  to provide  some                                                               
private-sector  support.  Programs  that  help  postsecondary  or                                                               
higher  education programs  reach  out to  students in  secondary                                                               
schools would  be a  high priority.  He referred  to the  list of                                                               
priorities that  the native corporations  sent to  the University                                                               
back in August,  and said that outreach programs  are included in                                                               
the top  category. They  see these programs  as a  very important                                                               
link to  employment in Alaska,  with Alaskan companies.  Too many                                                               
of  the   state's  bright  students  don't   see  the  employment                                                               
opportunities here in the state.                                                                                                
8:43:35 AM                                                                                                                    
SENATOR  STEVENS  asked  whether  the  accreditation  requirement                                                               
would cause any problems.                                                                                                       
DR. JOHNSEN  answered that  Doyon is  looking only  at accredited                                                               
institutions at this time.                                                                                                      
8:44:09 AM                                                                                                                    
SENATOR  OLSON  asked  whether  it would  make  a  difference  in                                                               
Doyon's contributions  if the committee  were to expand  the bill                                                               
to include non-accredited institutions.                                                                                         
DR. JOHNSEN  said he supposed it  could; they would like  to rely                                                               
on the  certification of educational quality  represented by that                                                               
SENATOR OLSON  asked if  there are any  provisions for  a student                                                               
who,  for example,  goes to  flight  school and  receives an  APC                                                               
license, which is a valuable commodity in rural Alaska.                                                                         
DR. JOHNSEN  said he does  not believe so,  but will check  on it                                                               
and get back to the committee.                                                                                                  
8:45:53 AM                                                                                                                    
CO-CHAIR MEYER confirmed  that the current intent of  the bill is                                                               
to limit it to accredited institutions.                                                                                         
8:46:53 AM                                                                                                                    
MARY   RUTHERFORD,   Associate   Vice   President,   Development,                                                               
University   of   Alaska,   Fairbanks,  Alaska,   expressed   the                                                               
University  Foundation's support  for SB  236. The  Alaska Higher                                                               
Education Tax Credit has been a  good tool to help the University                                                               
expand  the  base  of  private  corporate  support  and,  as  the                                                               
committee  was   just  discussing,   private  funds   enable  the                                                               
University  to  be  more   entrepreneurial  than  do  traditional                                                               
methods of acquiring  resources. The most obvious  example is the                                                               
expansion   of   the  nursing   program,   which   was  done   in                                                               
collaboration  with  many  of  the hospitals  in  the  state,  to                                                               
increase the number of nurses and space in the nursing program.                                                                 
8:48:14 AM                                                                                                                    
CO-CHAIR  MEYER asked  if  Ms.  Rutherford has  ever  run into  a                                                               
situation when a donor wanted to  make a large contribution for a                                                               
specific  program  or  project  that  wasn't  in  line  with  the                                                               
University's needs or in their best interests.                                                                                  
MS. RUTHERFORD  said negotiation  is sometimes necessary,  and it                                                               
can be difficult to reach  that delicate balance that is mutually                                                               
satisfactory.  However, she  pointed  out that  things that  come                                                               
into the University  Foundation are charitable gifts;  there is a                                                               
distinction between a  gift and an outright grant  or a contract.                                                               
These  donations must  meet the  standard for  a charitable  gift                                                               
according to  IRS guidelines, which  means the  University agrees                                                               
to the  purpose and  the donor relinquishes  all control  over it                                                               
when the gift is made.                                                                                                          
8:50:10 AM                                                                                                                    
SENATOR STEVENS  asked whether  the University  could accommodate                                                               
it  if, for  example, "Alasko"  wanted to  finance a  summer camp                                                               
offering  remedial education  in  math and  English  and have  it                                                               
named the "Alasko Summer Camp".                                                                                                 
8:51:02 AM                                                                                                                    
MR. RUTHERFORD said "absolutely;" they  would work with the donor                                                               
on that.                                                                                                                        
8:51:38 AM                                                                                                                    
JIM   DODSON,  President/CEO,   Fairbanks  Economic   Development                                                               
Corporation,  Fairbanks,  Alaska, said  he  supports  SB 236.  He                                                               
believed it  would create jobs  by leveraging private  money with                                                               
state money,  provide a new  funding source for  higher education                                                               
institutions,  and   help  diversify  Alaska's   economy  through                                                               
research,  innovation, and  job  training.  He cited  initiatives                                                               
like  the   Arctic  Innovation  Competition,   Alaska  Technology                                                               
Business Accelerator, and the Economic  Opportunity Task Force as                                                               
good  examples   of  economic  activities  generated   by  higher                                                               
education institutions from business funding sources.                                                                           
8:54:16 AM                                                                                                                    
CO-CHAIR MEYER closed public testimony.                                                                                         
8:55:30 AM                                                                                                                    
SENATOR STEVENS asked if these tax  credits would be allowed on a                                                               
contribution used to finance a chair at the University.                                                                         
MS.  BALES  answered  that  the  way  the  statute  is  currently                                                               
written, contributions can be used for that purpose.                                                                            
8:56:41 AM                                                                                                                    
SENATOR HUGGINS said  he would like the Department  of Revenue to                                                               
give  the committee  some guidance  and recommendations  based on                                                               
historical donation levels.                                                                                                     
8:57:50 AM                                                                                                                    
MS. BALES  responded that the  department is concerned  about the                                                               
potential  exposure  that  exists  without  a  cap,  but  is  not                                                               
prepared  to suggest  what the  limit  should be.  She said  this                                                               
credit has  historically been  taken primarily  against corporate                                                               
income taxes.  One thing  the committee might  do is  to restrict                                                               
the use of the credit to only that tax type.                                                                                    
8:59:19 AM                                                                                                                    
CO-CHAIR  MEYER asked  if Conoco  Phillips took  a tax  credit on                                                               
their recent  donation of $20  million to the  Integrated Science                                                               
Center at the University of Alaska Anchorage.                                                                                   
MS. BALES said she cannot  discuss the transactions of a specific                                                               
tax payer,  but in  general, that contribution  could be  used in                                                               
the  calculation of  net income  for federal  tax purposes.  They                                                               
would also  be allowed to deduct  it in the calculation  of their                                                               
corporate income tax.                                                                                                           
She pointed out that, under current  law, if the company used the                                                               
tax credit to the current maximum  of $150,000, it could not also                                                               
use the  contribution as  a deduction  in calculating  its Alaska                                                               
corporate income  tax. Using  the same  scenario under  CSSB 236,                                                               
the company would get a  $10 million credit against the corporate                                                               
income tax or one of its other tax obligations.                                                                                 
9:00:45 AM                                                                                                                    
CO-CHAIR THOMAS  commented that the committee  has discussed both                                                               
individual  and overall  caps, and  asked Ms.  Bales to  let them                                                               
know if the Department of Revenue  has any thoughts on the matter                                                               
as they continue their deliberations.                                                                                           
CO-CHAIR MEYER  added that  the committee  has had  some informal                                                               
discussions on  a cap and,  although they  have not been  able to                                                               
agree, they  were considering an overall  cap in the area  of $50                                                               
million, as well as limiting individual companies.                                                                              
9:01:56 AM                                                                                                                    
SENATOR STEVENS said he understands  the concerns about a cap and                                                               
the  potential  impact on  revenue,  but  he doesn't  think  they                                                               
should  preclude the  opportunity for  those large  donations. He                                                               
reminded them that  there is a three-year sunset in  the bill and                                                               
if  there are  abuses  in  that time,  the  legislature can  make                                                               
changes or refuse to renew it.                                                                                                  
9:02:48 AM                                                                                                                    
SENATOR HUGGINS  noted that the  Veterans Administration  (VA) is                                                               
one  of  the larger  educational  contributors;  as he  recalled,                                                               
accreditation usually  occurs out  of Oklahoma  City, but  in the                                                               
case  of the  VA  it  is under  the  department  of Military  and                                                               
Veterans' Affairs.  He wondered  if that  accreditation qualifies                                                               
it  to receive  donations under  this program.  He also  asked if                                                               
contributions  to   the  governor's  scholarship   program  would                                                               
9:04:09 AM                                                                                                                    
CO-CHAIR  MEYER asked  Senator Huggins  to  clarify his  question                                                               
with regard to the governor's scholarship program.                                                                              
SENATOR  HUGGINS  explained that  he  was  asking if  Doyon,  for                                                               
example, would  get a tax  credit for contributing funds  to help                                                               
finance the governor's scholarship program.                                                                                     
9:04:46 AM                                                                                                                    
MS. BALES was not sure, and suggested the senator ask the                                                                       
Department of Education.                                                                                                        
9:05:12 AM                                                                                                                    
CO-CHAIR MEYER said he would hold SB 236 and bring it back next                                                                 

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