Legislature(2005 - 2006)SENATE FINANCE 532
01/17/2006 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB217 | |
| SB55 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| SB 55 | |||
| HB 217 | |||
HOUSE BILL NO. 217(title am)
"An Act relating to the determination of full and true value
of taxable municipal property for purposes of providing
planning assistance to the Department of Education and Early
Development and the legislature, calculating funding for
education, calculating school district participating shares
for school construction grants, and calculating tax resource
equalization payments and excluding from that determination
the value of property in certain areas detached from a
municipality and the value of certain property involved with
oil and gas that is not taxed by a municipality."
This was the first hearing for this bill in the Senate Finance
Committee.
REPRESENTATIVE JOHN HARRIS, Sponsor of the bill, testified this
bill is an effort to allow for unorganized areas of the state to
become organized. He spoke of Co-Chair Wilken's efforts in this
endeavor.
Representative Harris explained this bill would allow the residents
of an unorganized area in which the Alyeska TransAlaska Pipeline
crosses, to form a borough and provide school funding but not
impose property taxes. This would exempt the new borough from the
requirement that a minimum of four mils be levied on all privately
owned property within its boundaries. The intent is for the Delta
area to incorporate.
Representative Harris stressed he opposed mandatory incorporation.
PETE FELLMAN, staff to Representative Harris, remarked that this
bill is about "choice". It would provide an exemption of oil and
gas properties when the State assessor determines the overall value
of the borough. The borough would be allowed to fund its local
contribution for education through sources other than property
taxes, such as a sales tax, or a utility tax.
9:08:36 AM
Senator Bunde assumed that revenues generated by the borough would
be substantially higher if property taxes were collected on the
pipeline.
9:08:55 AM
Mr. Fellman affirmed.
9:08:59 AM
Senator Bunde surmised that without property taxes, the local
contribution to schools would likely be "token".
9:09:06 AM
Mr. Fellman agreed. The amount would be "relative to what school
districts and the borough chose to pay". The local government would
have the option of operating schools with the amount it could
generate in the equivalent of four mils property tax, if it deemed
the amount was sufficient. He noted that the revenues from a
property tax on the pipeline that would otherwise be appropriated
to the borough would be retained by the State.
9:09:39 AM
Representative Harris stated that a significant portion of the
privately owned land in the Delta region is agricultural and has a
low value. Although revenue would be generated from the property
housing the pipeline, other property owners would be levied a
minimum of four mils as well. These residents would therefore not
likely vote in favor of implementation of a property tax. This
legislation would provide a mechanism for a community to form a
borough without the imposition of a property tax. He preferred a
property tax himself because it would generate significant funds
from the pipeline for school operations.
9:11:10 AM
Senator Bunde acknowledged the realism that many communities would
resist borough formation to avoid paying a property tax. He asked
if other sufficient tax revenue sources would be locally available
to fund education.
9:11:52 AM
Representative Harris replied that the residents would "reach an
agreement" with the Pogo Mine located in the area and would also
need to implement other forms of taxation, such as on tourism
activities. As reflected in the charter application to the Local
Boundary Commission these concepts have been investigated.
Officials at the Pogo Mine do not support having the mine be the
sole source of revenue for the borough. Taxes collected from the
company should not be so onerous as to hamper operations.
9:12:37 AM
Senator Bunde commented he empathized with the operators of the
Pogo Mine, as "some in the state are getting tired of being the
sole source of income for some organized areas."
9:12:48 AM
Senator Dyson requested a summary of the foreseen impact of this
legislation on State funding.
9:13:27 AM
Representative Harris explained that if a local community in which
the pipeline traverses within its boundaries imposes a property
tax, the pipeline property could be taxed at the same rate as other
private property would be taxed. The State collects a property tax
of 20 mils for all pipeline property in Alaska and transfers to the
local government, funds in the amount of the mil rate levied by
that government for the portion of property located within the
borough boundaries. The State retains the full amount for areas in
which a local government does not impose a property tax.
9:14:34 AM
Senator Dyson understood that if the newly organized borough
imposed a property tax of 20 mils for the privately owned land
within its boundaries, the State would receive none of the revenues
it currently generates from the pipeline property in that area.
Conversely, the amount of funding the State contributes to local
education in that borough would be reduced. However, the loss of
revenues would be considerably larger than the reduction in
education funding. He asked if the sponsor had considered the
trade-offs.
9:15:34 AM
Representative Harris responded that if the Delta region formed a
borough and levied a 20-mil property tax, it would generate
significantly more revenue than required to fund schools. A concern
of local residents is a potential loss of control in the event that
a government entity was created and the taxes it imposed were too
high. This is a particular concern in relation to agricultural
properties.
Harris pointed out that the City of Valdez collects a rate of 20
mils on all private property. The residents of Delta do not favor
this for their community.
9:16:59 AM
Senator Dyson asked the amount the State currently appropriates to
Delta area schools.
9:17:07 AM
Mr. Fellman did not have the exact amount. He noted that school
districts request funds from the legislature and the legislature
determines the amount to appropriate.
9:17:36 AM
Senator Dyson asked the amount of lost revenue to the State if a
borough formed and levied taxes on the pipeline.
9:17:53 AM
Representative Harris deferred to the Department of Commerce,
Community and Economic Development. He reiterated that the State
currently generates more funds from this area than the proposed
borough would require for its operations. He noted that in a local
government that imposed four mils the State would continue to
receive 16 mils.
9:18:45 AM
Co-Chair Wilken reported that the State appropriates approximately
$8.9 million annually for education purposes to the Delta/Greely
Rural Education Attendance Area (REAA).
Co-Chair Wilken furthered that the 20-mil rate collected for the
pipeline in that area equals approximately $3.8 million.
9:19:45 AM
Co-Chair Wilken referenced a spreadsheet titled, "Upper Tanana
Borough Valuation Summary Page" [copy on file] that details the
estimated values of the Delta/Greely REAA and the Alaska Gateway
REAA, in the Tok area.
9:20:07 AM
STEVE VAN SANT, State Assessor, Division of Community Advocacy,
Department of Commerce, Community and Economic Development,
testified via teleconference from Anchorage that the total value of
the Delta area is $501,578,000. Of that amount $182,078,000 is in
local property, and $125 million is the estimated value of the Pogo
Mine, which is 50 percent complete. The pipeline value is $194.5
million. If the proposed borough levied a property tax of the
minimum allowable four mils, it would generate approximately
$800,000. A levy of 20 mils would generate almost $4 million. The
local funding requirement for education would be $2.3 million
including revenues from the pipeline and $1.2 million without the
inclusion of the pipeline.
9:21:53 AM
Co-Chair Green asked if the witness had other information to share
with the Committee pertaining to this issue.
9:21:59 AM
Mr. Van Sant stated that the Department supports this bill as an
incentive for borough formation. A borough formed under this
provision would have no negative fiscal impact to the State. If the
borough imposed a property tax, State revenues would be reduced.
9:22:28 AM
Co-Chair Green asked if a community elsewhere in the state could
misuse the provisions of this legislation.
9:22:39 AM
Mr. Van Sant was not aware of any opportunity for this to occur.
The provisions are specific to only three regions.
9:22:52 AM
PETE HALLGREN, City Administrator, City of Delta Junction,
testified via teleconference from Delta Junction that he
collaborated with the state assessor on this mater for one and one-
half years. He stressed that a formal petition for borough
formation has been submitted and is under review by the Department
of Commerce, Community and Economic Development. The area includes
two large commercial stakeholders: the pipeline and the Pogo Mine.
Current statute requires that a borough formed in an area in which
the pipeline traverses impose a minimum of a four-mil rate property
tax.
Mr. Hallgren relayed that the supporters of the petition contend
that a property tax would reduce revenue to the State and that more
than four-mils would be required because of the operating costs
involved with administration of the tax. He estimated the rate
would be five to eight mils. Therefore, the reduction in revenue to
the State would be greater than the amount the borough would
contribute to education.
Mr. Hallgren informed that the borough commission entered into a
payment in lieu of taxes (PILT) agreement with the Pogo Mine to
collect from the mine an amount equal to a ten-mil valuation of the
mine.
Mr. Hallgren continued as follows.
That would bring us in the money necessary on Pogo to
contribute toward the local school contribution. So it's not a
token local tax if we take out the tax here if you pass this
bill. We're still paying the four mils on all the private
taxable property in the borough plus the Pogo value, which is
probably going to be well in excess of $200 million as of this
point per year. So with the Pogo PILT agreement, the second
thing we need to do is figure out how to handle the $200
million value in tax. Without a property tax on the current
statute, the local citizens would have to pull that money out
of their own pockets to contribute to the school district
because the State's currently getting all 20 mils from the tax
value.
9:27:26 AM
Co-Chair Wilken understood that $1.2 million would be garnered from
the Pogo Mine to essentially fund the local contribution to
education. Any additional services the borough provides, such as
platting and animal control, would be funded from others means,
such as a sales tax or a utility tax.
9:28:32 AM
Mr. Hallgren affirmed and told of a proposed fuel tax and a
proposed power tax, neither of which would "target" the Pogo Mine.
9:28:55 AM
Co-Chair Wilken applauded Mr. Van Sant's efforts to establish the
value of the REAA. The previous valuation was made before the
construction of a prison, the Pogo Mine and other developments.
Co-Chair Wilken divided 963, the number of residents, into the
total value of the region of $501 million and calculated the
capacity to support local government and schools at $520,000 per
resident. The average amount of organized boroughs is $99,000;
Anchorage is $82,000 and Fairbanks is $71,000. The Delta/Greely
area would be the second highest in the State next to the North
Slope Borough.
Co-Chair Wilken expressed frustration that residents of some areas
are "not stepping up and carrying their weight" in funding
education. He warned that if the vote to incorporate into an
organized borough were to fail, a "full blast attempt" would be
made for a mandatory formation. This could result in a borough that
the Delta area residents may not have chosen. Local residents
should contribute to the betterment of their schools. Not all
unorganized areas are unable to make this contribution.
9:32:15 AM
Co-Chair Wilken supported this bill, noting he had offered an
amendment to legislation considered during a previous session that
would have provided the same option as this bill. Four organized
boroughs fund its government with revenue from sources other than
property taxes.
9:32:52 AM
Senator Bunde listed the combined earned income of residents of
unorganized areas in 2004 as $504 million. He asked the earned
income of the residents of the Delta region.
9:33:24 AM
Co-Chair Wilken stated he would provide this information. He noted
that the $504 million was earned by approximately 18,000 wage
earners.
9:33:47 AM
Senator Bunde noted other pending legislation he sponsored that
would require residents of unorganized areas to pay for schools by
other means if they chose not to organize.
9:34:07 AM
Senator Bunde noted that the contribution to the local schools
would be paid almost entirely by the Pogo Mine. Mine operations are
finite. He asked the plan for school funding after the mining
operations cease.
9:34:42 AM
Representative Harris reported that the projected life of the mine
is approximately 20 years. He did not know the community's plan for
generating revenue after the mine closure. The concern is with the
formation of a government entity that over-taxes. Stipulations must
be made to prevent this. He would oppose the over-taxation of any
private sector entity.
9:35:46 AM
Senator Olson remarked that the title of the bill is broad enough
to allow insertion of other provisions relating to boroughs. He
asked how such additions could affect boroughs that are already
organized.
9:36:14 AM
Representative Harris assured this bill would have no impact on
existing organized boroughs. Rather it provides another option for
the formation of new boroughs.
9:37:04 AM
Senator Olson clarified that the North Slope Borough would be
unaffected, and this bill could not be amended to insert provisions
that would impact it.
9:37:32 AM
Representative Harris shared that officials of the North Slope
Borough are aware of this legislation and do not object to its
passage. The Borough already has the option to tax the oil
industry.
9:37:53 AM
Senator Olson asked how borough formations would be possible
without a private sector entity operating in the region.
9:38:11 AM
Representative Harris stressed the need to understand the mindset
of Delta area residents. Co-Chair Wilken has tried to educate
legislators and residents of the value of organized boroughs.
However, the residents of this region do not want to pay property
tax and do not want additional government. It is unfair for the
State to contribute all education funding when the community has
the means to contribute as well. This legislation would allow the
new borough to forgo property taxes. If property taxes were levied,
the tax must be fair.
Representative Harris asserted that the House of Representatives
did not intend to insert additional provisions in this bill.
9:40:03 AM
Co-Chair Green noted the bill title of the original version of this
legislation was broader and was amended specifically to prevent
insertion of provisions affecting existing boroughs.
9:40:59 AM
Senator Hoffman understood the current valuation of the Pogo Mine,
which is 50 percent completed, was $125 million. He asked the
projected valuation of the completed facility.
9:41:06 AM
Representative Harris expected an announcement soon of the pouring
of the first gold bar. By the end of this year, the mine should be
in full operation.
9:41:27 AM
Senator Hoffman asked if the full value of the completed mine would
be $250 million.
9:41:37 AM
Mr. Van Sant estimated the completion value would be between $250
and $300 million. A full review would be required to determine the
exact amount.
9:42:10 AM
Senator Stedman quipped, "The only person who likes property taxes
is the king." Like most Alaskans, Senator Stedman pays property
taxes. He spoke of the struggle ongoing since statehood to organize
residents into boroughs. He was willing to be flexible in
accomplishing this to provide more local contribution to schools.
The closure of the mine in 20 years would have a significant impact
on the local economy and he was concerned that the petitioners for
this borough formation did not have a long term plan to address
this. The community of Sitka lost two large commercial enterprises,
which had supported the local structure. Twenty years is a
relatively short period. He asked whether any provisions exist to
address these issues in the event the residents of this proposed
borough attempt to dissolve the local government.
9:44:07 AM
Representative Harris replied that the State has the ability to
mandate that the area remain a borough. He hoped that as
infrastructure is formed, locals would recognize the better
delivery of services and would choose to retain the borough
government. These residents already value the services received
from the State government including Alaska State Troopers and the
snowplowing of roads; however, these residents do not want to pay
for these services. He recommended addressing this issue with "baby
steps."
9:45:52 AM
Senator Stedman commented on the debate about whether the State
should be entitled to the entire 20 mils from property taxes on the
pipeline.
9:47:08 AM
Representative Harris responded that the community of Valdez has
dealt with this issue extensively for many years. The 20-mil
property tax collected by that city on pipeline property comprises
a significant portion of its tax base. This bill addresses a fear
of property taxation, which must be overcome.
9:47:56 AM
Senator Bunde recalled hearings held on another Senate bill he
referred to as providing for a "borough lite". He asked how this
legislation interrelates to that bill and whether the two bills had
any "cross purposes".
9:48:23 AM
Representative Harris did not think so. The other legislation would
provide a different opportunity for borough formation. The two
bills compliment each other.
9:48:40 AM
LAMAR COTTON testified via teleconference from Anchorage that he
was available to respond to questions.
9:49:08 AM
Representative Harris informed that Mr. Cotton was employed by the
City of Delta Junction in the past and could still be in its
employment.
9:49:22 AM
Co-Chair Green ordered the bill HELD in Committee to allow any
additional questions to be brought forward.
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