Legislature(2009 - 2010)BELTZ 105 (TSBldg)

02/12/2010 08:00 AM Senate EDUCATION

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SB 209 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
<Above Item Removed from Agenda>
Moved CSSB 236(EDC) Out of Committee
          SB 236-TAX CREDITS FOR EDUCATIONAL CONTRIBUTIONS                                                                  
8:03:47 AM                                                                                                                    
CO-CHAIR MEYER announced consideration of SB 236.                                                                               
SENATOR HUGGINS joined the committee.                                                                                           
CO-CHAIR  THOMAS moved  to adopt  the draft  committee substitute                                                               
(CS) to SB  236, labeled 26-LS1191\W, as the  working document of                                                               
the committee.  There being  no objection,  version W  was before                                                               
the committee.                                                                                                                  
8:04:54 AM                                                                                                                    
JOMO  STEWART,  aide  to  Co-Chair   Meyer,  walked  through  the                                                               
differences between the original bill version and the CS.                                                                       
   - The first change is in the title. The original bill spoke                                                                  
     of  tax credits  for  cash contributions  by taxpayers  "for                                                               
     certain  educational purposes  and college  facilities"; the                                                               
     CS  deletes   the  word  "college",   so  it   simply  reads                                                               
     "educational   purposes   and  facilities",   allowing   for                                                               
     facilities both  collegiate and  non-collegiate, as  long as                                                               
     they are for educational purposes.                                                                                         
   - A new Section 1 was added, which provides for an annual                                                                    
     report by the director of  the Division of Insurance. As the                                                               
     committee discussed  on Monday, SB  236 impacts a  number of                                                               
     different tax  brackets and different sections  of law being                                                               
     operated  by two  separate  departments:  the Department  of                                                               
     Commerce,  Community   and  Economic   Development  (DCCED),                                                               
     Division of Insurance, and the Department of Revenue (DOR).                                                                
   - Section 2 includes three major changes. Page 2, line 27,                                                                   
     adds the authorization for tax  credits for secondary school                                                               
     programs  "and facilities".  Line  28  adds "for  vocational                                                               
     education courses, programs and  facilities" operated by the                                                               
     state.  Lines 30  through  31 insert  a  new paragraph  that                                                               
     reads  "(4)  for  a  facility  by  a  nonprofit,  public  or                                                               
     private, Alaska two-year or  four-year college accredited by                                                               
     a regional accreditation association."                                                                                     
   - In Section 3 and throughout the bill, the drafter has                                                                      
     written the  old language into  the new statute in  order to                                                               
     avoid the risk  posed by the sunset date. The  addition of a                                                               
     sunset date in  this section of the  previous version caused                                                               
     some people  concern that if  they sunset the  whole program                                                               
     and it  is not  reauthorized, they could  lose not  only the                                                               
     new sections and credits, but  the credits that have been in                                                               
     existence  for  20  years.  It  now says  that  if  the  new                                                               
     language is not reauthorized,  the statute simply reverts to                                                               
     the old language.                                                                                                          
   - Section 5 speaks to giving tax credits for amounts in                                                                      
     excess  of  $200,000.  In current  statute,  anything  above                                                               
     $200,000  is  essentially  ignored; paragraph  (2)  of  this                                                               
     section  of the  CS provides  for  a 50  percent credit  for                                                               
     contributions above $200,000.                                                                                              
   - A new Section 6 begins on page 4, which addresses the cap                                                                  
     on  tax  credits.  The   committee  initially  pondered  the                                                               
     addition of a specific  dollar limit, but conversations with                                                               
     the Department of  Revenue and others made clear  that it is                                                               
     virtually impossible  to set that  kind of hard,  fixed cap.                                                               
     Instead,  they  raised the  existing  cap  from the  current                                                               
     $150,000 to $25 million.  Legislative Affairs Legal Services                                                               
     recommended that  the phrase,  "the basis  for a  credit" be                                                               
     included  on  page 4,  line  5,  because they  believe  that                                                               
     existing statute  is not clear as  to whether the cap  is on                                                               
     contributions or  on credits; this phrase  attempts to clean                                                               
     up  the  language  to  make   it  clear  that  credits,  not                                                               
     contributions, are being capped at $25 million.                                                                            
   - Section 7 is a restatement of statute for the reversion.                                                                   
   - Section 8 adds a new subsection (f) in AS 21.89.070, which                                                                 
     says  that  credits under  this  section  may not  reduce  a                                                               
     person's tax  liability below  zero in  any given  tax year,                                                               
     and unused credits  or portions of credits may  not be sold,                                                               
     traded, transferred or rolled over into subsequent years.                                                                  
8:09:21 AM                                                                                                                    
   - Section 9 at the bottom of page 4 and continuing at the top                                                                
     of page 5 is a restatement  of the basis for credits and the                                                               
     cap of $25 million.                                                                                                        
   - Sections 49, 50 and 51 make the reversion operational.                                                                     
     These provide that  if the new language  is not reauthorized                                                               
     it will be  repealed on a certain date and  will revert back                                                               
     to the old language.                                                                                                       
8:10:09 AM                                                                                                                    
CO-CHAIR MEYER added that another  concern about including a firm                                                               
sunset date  in the  bill is  that some  persons or  entities may                                                               
want to  spread their contributions  over a several years,  and a                                                               
sunset date could discourage them from doing that.                                                                              
SENATOR STEVENS said he thinks this  is a step forward. If a very                                                               
big corporation  wanted to  build a new  science building  on the                                                               
University of Alaska  Fairbanks campus, the limit  on tax credits                                                               
for their contribution might discourage them from doing so.                                                                     
CO-CHAIR  MEYER confirmed  that this  allows donors  up to  a $25                                                               
million  tax credit,  which  translates to  about  a $50  million                                                               
donation, for every year that they donate.                                                                                      
8:12:09 AM                                                                                                                    
SENATOR  HUGGINS  referred  to the  requirements  for  qualifying                                                               
contributions   on   page   2,   Section   2,   which   specifies                                                               
contributions to  Alaska two  and four-year  accredited colleges.                                                               
He asked if any training programs  that are not state operated or                                                               
are less than 2 years should be eligible for the program.                                                                       
MURRAY  RICHMOND,  aide  to  Senator Thomas,  said  a  number  of                                                               
vocational schools are federally  run through different programs;                                                               
a  lot of  them  are related  to the  AGIA  program and  training                                                               
people for  the workforce. Under  the current  legislation, these                                                               
programs are  not eligible.  It would take  a major  reworking of                                                               
these  statutes to  include them,  because they  are not  locally                                                               
accredited, and some of them do not offer certificates.                                                                         
SENATOR HUGGINS said he is willing  to bet some of those that are                                                               
not federal and are less than two years should be included.                                                                     
8:14:38 AM                                                                                                                    
MR. STEWART commented that the  two-year or four-year requirement                                                               
refers to colleges.                                                                                                             
SENATOR HUGGINS pointed  out that the problem on line  29 is that                                                               
it  says "state-operated",  which narrows  the category.  He said                                                               
there should  be a provision  to allow tax credits  for donations                                                               
to a training facility that is not operated by the state.                                                                       
8:15:31 AM                                                                                                                    
MR. MURRAY said  an institution would have to be  a non-profit to                                                               
do that. If  a private company set up a  training center to train                                                               
people  for welding  or  something  like that,  it  would not  be                                                               
eligible for the tax credit.                                                                                                    
SENATOR HUGGINS  pointed out that non-profit  institutions can be                                                               
eligible even though they are not state-operated.                                                                               
MR. STEWART said this  discussion really surrounds accreditation,                                                               
which  is  a way  to  ensure  that  the  donations are  going  to                                                               
reputable  organizations that  will  provide a  certain level  of                                                               
training expertise.  He opined that  the potential for  a sizable                                                               
tax  credit may  incentivize  some training  programs  to seek  a                                                               
certification or accreditation.                                                                                                 
8:17:36 AM                                                                                                                    
SENATOR HUGGINS asked if VA accreditation qualifies.                                                                            
MR. STEWART noted that the committee  has the power to strike the                                                               
words "state-operated"  and insert "certified by  the state", but                                                               
then the state would have to  set up some kind of a certification                                                               
SENATOR  HUGGINS  asked how  the  legislature  came up  with  the                                                               
breakdown for  tax credits,  which puts the  "sweet spot"  of 100                                                               
percent in the  middle. If the idea is  to encourage contributors                                                               
to give more, he said, that does not seem to be a good idea.                                                                    
8:19:12 AM                                                                                                                    
CO-CHAIR MEYER conceded that is a difficult point.                                                                              
SENATOR  HUGGINS suggested  that raising  the 100-percent  credit                                                               
level   to  greater   than   $200,000   might  encourage   larger                                                               
CO-CHAIR  MEYER said  they  believed the  larger  credit at  that                                                               
level might  bring in a  greater number of contributions  in that                                                               
MR.  STEWART added  that what  was  previously the  high end  has                                                               
become the sweet  spot. In the original statute,  the 100 percent                                                               
credit kicked in from $100,000  to $200,000 and was simply capped                                                               
at $200,000. The  CS does encourage donations in  the $100,000 to                                                               
$200,000  range,  which are  more  likely  to come  from  private                                                               
donors or family trusts.                                                                                                        
SENATOR HUGGINS  suggested they  think about  raising the  cap to                                                               
$250,000  or  $300,000. That  wouldn't  push  people out  of  the                                                               
circle; it would just encourage them to give more.                                                                              
8:20:54 AM                                                                                                                    
SENATOR  STEVENS observed  that  obtaining  accreditation is  not                                                               
easy  to do;  it is  a very  high standard.  He stressed  that he                                                               
wants  to  be  sure  they  are talking  about  a  major  regional                                                               
accreditation society  that has  real meaning  behind it  and are                                                               
not creating some kind of diploma mill.                                                                                         
8:22:10 AM                                                                                                                    
DIANE   BARRANS,  Executive   Director,   Alaska  Commission   on                                                               
Postsecondary  Education,  Juneau,  Alaska, agreed  with  Senator                                                               
Stevens,  but   pointed  out   that  regional   accreditation  is                                                               
typically  available only  to public  or  non-profit colleges.  A                                                               
number  of national  accreditation associations  are approved  by                                                               
the U.S. Secretary  of Education for the  purposes of recognizing                                                               
a  school  to  participate  in   the  Title  IV  federal  student                                                               
financial   aid,  and   that  standard   is  generally   seen  as                                                               
acceptable.  She explained  that  national accreditation  usually                                                               
allows a school  to issue diplomas and  terminal degrees, meaning                                                               
that  the credits  earned there  won't  transfer to  a public  or                                                               
private four-year institution for  the purposes of transcripting.                                                               
Short  of  accreditation,  she said,  the  Alaska  Commission  on                                                               
Postsecondary  Education  has  statutory authority  to  authorize                                                               
institutions  to   operate  in  Alaska  and   to  exempt  certain                                                               
institutions   from   authorization.  Exempt   institutions   are                                                               
basically  those offering  short courses  that don't  necessarily                                                               
offer a  vocational certificate  of any  kind and  some religious                                                               
institutions that offer only religious  awards leading to service                                                               
within a particular church.                                                                                                     
8:24:23 AM                                                                                                                    
SENATOR STEVENS asked  Ms. Barrans if she thinks  this bill opens                                                               
up the possibility of diploma mills.                                                                                            
MS.  BARRANS  answered  no.  To  Senator  Huggins  question,  she                                                               
remarked  that  even  an  institution  that  seeks  accreditation                                                               
through one of the national  organizations recognized by the U.S.                                                               
Secretary of Education would not qualify under this standard.                                                                   
8:25:01 AM                                                                                                                    
SENATOR HUGGINS said,  as Ms. Barrens just pointed  out, a number                                                               
of training sites are accredited  by some mechanism and should be                                                               
considered,  not  just excluded  by  overly  narrow language.  He                                                               
asked for Ms. Barrans' recommendation.                                                                                          
8:25:31 AM                                                                                                                    
MS. BARRANS  said she does not  have an opinion on  what types of                                                               
institutions the legislature might want  to grant tax credits to,                                                               
but conceded  that some institutions  have other than  a regional                                                               
accreditation  and  offer  a  quality  education  that  leads  to                                                               
placement in a field or career.                                                                                                 
8:26:11 AM                                                                                                                    
CO-CHAIR MEYER said as he  remembers it, their discussion on this                                                               
issue  was that  they  want a  standard in  place  to ensure  the                                                               
quality of  those institutions eligible  to receive  tax credits,                                                               
so whether this is the right standard is up to the committee.                                                                   
8:26:42 AM                                                                                                                    
SENATOR STEVENS  ventured that if  a trucking  association wanted                                                               
to establish  a training program  for some type  of certification                                                               
for  truckers,  it  could  work with  Seward  Skill  Center,  the                                                               
University, or Alaska Pacific University.                                                                                       
8:27:14 AM                                                                                                                    
CO-CHAIR  MEYER   agreed  that   accreditation  would   give  the                                                               
legislature some assurance of quality.                                                                                          
SENATOR HUGGINS  recommended that  they consult with  some donors                                                               
on the benefits of adjusting the numbers.                                                                                       
CO-CHAIR MEYER  asked Senator  Huggins if he  would like  to have                                                               
some more time to work with donors to find that magic number.                                                                   
8:27:53 AM                                                                                                                    
SENATOR  HUGGINS  proposed  conceptual   Amendment  1  to  strike                                                               
"$200,000" on page 3, line 21, and insert "$300,000".                                                                           
8:28:47 AM                                                                                                                    
CO-CHAIR MEYER objected for purposes of discussion.                                                                             
SENATOR  DAVIS asked  that Co-Chair  Meyer's staff  speak to  the                                                               
8:29:23 AM                                                                                                                    
MR. STEWART  said he  thinks it  still meets  the intent.  He had                                                               
some concern about changing too  many of the percentages however,                                                               
because of the Department of  Revenue's concern that more credits                                                               
at higher values present greater risk to the treasury.                                                                          
8:30:48 AM                                                                                                                    
MR. RICHMOND reminded the members that  this is a new program and                                                               
studying  past behavior  won't  necessarily  predict what  donors                                                               
will  do  with   the  new  tax  credits.   The  annual  reporting                                                               
requirement in  this bill will  allow them to review  the program                                                               
in three  years and adjust  the numbers  if they haven't  hit the                                                               
sweet spot by the time the bill is up for revision.                                                                             
8:31:17 AM                                                                                                                    
SENATOR  HUGGINS asserted  that they  are here  because they  are                                                               
trying to  raise the limits and  this is one area  where they can                                                               
do that.                                                                                                                        
8:31:35 AM                                                                                                                    
CO-CHAIR MEYER said  he thinks $300,000 is fine;  as Mr. Richmond                                                               
mentioned,  they will  get annual  reviews and  can adjust  it if                                                               
they  need to.  He agreed  that  this should  encourage even  the                                                               
smaller donors to give a little more.                                                                                           
CO-CHAIR MEYER removed his objection to Amendment 1.                                                                            
8:32:35 AM                                                                                                                    
CO-CHAIR  MEYER  asked  if  there are  other  objections  to  the                                                               
8:32:50 AM                                                                                                                    
GINGER  BLAISEDELL, Legislative  Liaison, Department  of Revenue,                                                               
Juneau, Alaska, clarified that "100  percent of the next $100,000                                                               
of contributions"  on page  3, line  20, needs  to be  changed to                                                               
read "the next  $200,000", so there isn't any  confusion with the                                                               
$300,000 on line 21.                                                                                                            
SENATOR HUGGINS confirmed that she is correct.                                                                                  
CO-CHAIR MEYER announced that, without  objection, Amendment 1 is                                                               
SENATOR STEVENS  asked for a  review of the  sunset, particularly                                                               
the 20-year span of time for investment.                                                                                        
MR. RICHMOND explained that the  tax credits will reduce revenues                                                               
to  the  state,   and  the  sunset  gives   the  legislature  the                                                               
opportunity to review what effect that  has had on the budget. If                                                               
it has  had a  negative effect,  they can revert  to what  was in                                                               
place before SB 236.                                                                                                            
SENATOR  STEVENS reiterated  that someone  referred to  a 20-year                                                               
period and asked where that comes in.                                                                                           
MR. STEWART said  that was his comment; the  existing statute has                                                               
been in place for  20 years. He added that the  last line on page                                                               
17 states  that if  everyone is comfortable  that the  program is                                                               
working  well at  the higher  values, they  will simply  push the                                                               
2014 date back.                                                                                                                 
CO-CHAIR THOMAS stated his concern  about allowing the program to                                                               
sunset. Worst case,  he said, he wants the statute  to go back to                                                               
the way it is now.                                                                                                              
8:35:54 AM                                                                                                                    
SENATOR  HUGGINS said  they don't  have a  philosophical umbrella                                                               
under  which   to  operate  with   regard  to  tax   credits.  He                                                               
recommended that they have a  consulting review to shape what tax                                                               
credits  will be  provided  by  the state  of  Alaska in  various                                                               
CO-CHAIR MEYER said  Senator Huggins has a very  good point; they                                                               
don't know  what the impact of  all of these tax  credits will be                                                               
until they see what legislation gets passed.                                                                                    
8:37:04 AM                                                                                                                    
SENATOR STEVENS  asked if anyone  from the University  has spoken                                                               
to this.                                                                                                                        
CO-CHAIR MEYER  said he does not  recall who spoke for  them, but                                                               
they are very supportive.                                                                                                       
MR.  STEWART  advised  that Mary  Rutherford,  President  of  the                                                               
University of Alaska Foundation, spoke for the University.                                                                      
CO-CHAIR  THOMAS  asked  if  the amendment  that  was  just  made                                                               
affects all of the areas in the bill that now refer to $150,000.                                                                
MR. STEWART said it does.                                                                                                       
SENATOR HUGGINS  thought they should align  this opportunity with                                                               
the governor's scholarship bill.                                                                                                
8:38:42 AM                                                                                                                    
MR. STEWART  responded that existing statute  allows corporations                                                               
to donate to  or create endowments, so any one  of them could set                                                               
up an endowment  to give out scholarships in  conjunction with or                                                               
parallel to the governor's scholarship program.                                                                                 
SENATOR HUGGINS  asked if  they would  be precluded  from getting                                                               
tax credits.                                                                                                                    
MR.  STEWART said  no, they  would  receive tax  credits and  are                                                               
actually eligible to do so under existing statutes.                                                                             
8:39:10 AM                                                                                                                    
CO-CHAIR THOMAS moved to report the CS for SB 236, labeled 26-                                                                  
LS1191\W,   as   amended,    from   committee   with   individual                                                               
recommendations  and  attached  fiscal note(s).  There  being  no                                                               
objection, CSSB 236(EDC) moved from the committee.                                                                              

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