Legislature(2021 - 2022)BELTZ 105 (TSBldg)
02/03/2022 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB127 | |
| SB13 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 127 | TELECONFERENCED | |
| += | SB 13 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 13-OIL AND GAS PROPERTY TAX
3:36:00 PM
CHAIR HUGHES reconvened the meeting and announced the
consideration of SENATE BILL NO. 13 "An Act relating to oil and
gas exploration, production, and pipeline transportation
property taxes; and providing for an effective date."
3:37:20 PM
SENATOR TOM BEGICH, Alaska State Legislature, Juneau, Alaska,
sponsor of SB 13, stated he presented this bill to the committee
last year and this presentation will focus on context which
shifted over the past year and the history of the bill.
SENATOR BEGICH highlighted the following about SB 13:
- The current statutory mill rate for oil & gas property tax is
approximately 2 percent or 20 mills. The state reserves up to
ten mills, and municipalities reserve up to ten mills.
- SB 13 proposes this tax increase by ten mills, for a mill rate
of 30 mills. Revenue reserved for the state would increase to 20
mills, and revenue reserved for municipalities would remain
steady at ten mills.
- Legislative Finance estimates approximately $217 million in
new revenue in the first year. Over time it would average around
$221 million. That's additional resources inclusive of offsets
for credits claimed against taxes.
SENATOR BEGICH distinguished between designation of funds and
dedication of funds. Under state law, the legislature may not
dedicate funds. SB 13 specifically designates funds, an
extremely appealing component of the bill, to ensure stability
across each of the following three areas:
1) SB 13 proposes to deposit half the funds into the Alaska
Capital Income Fund, so the state can continue to meet deferred
maintenance and capital construction needs. Recall that recently
the legislature did not do a reverse sweep, so this fund was
swept and drained to zero.
2) Twenty-five percent would reimburse municipalities for
revenue losses incurred due to senior real property tax
exemptions. The legislature gave the exemption to seniors as a
reward. Over two decades ago, the legislature agreed to
reimburse cities for lost revenue. The legislature has a
contractual, statutory agreement to reimburse municipalities for
this exemption. SB 13 would ensure the legislature fulfills its
obligation to reimburse municipalities for this long-sought-
after back payment to communities.
3:40:43 PM
3) The Higher Education Investment Fund would receive twenty-
five percent to increase the state's investment commitment to
education in the state.
SENATOR BEGICH summarized the merits of SB 13:
- The bill proposes to decrease municipal property taxes by
reimbursing communities for the senior property tax exemption.
- The bill proposes maintaining a stream of income to deal with
capital infrastructure.
- This bill proposes to increase investment in education and the
states future.
SENATOR BEGICH addressed the issue of letters the committee
received that assert SB 13 lacked policy goals. He stated, to
the contrary, SB 13 proposes two policy goals:
First, the sustainability policy goal outlined above; and
Second, policy goals as outlined in the Fiscal Policy Working
Group (FPWG) plan (32nd Legislature, Final Report).
3:42:03 PM
At ease.
3:42:26 PM
CHAIR HUGHES reconvened the meeting.
3:42:28 PM
SENATOR BEGICH resumed explaining the policy goals of the FPWG.
The work of the FPWG was a laborious, nonpartisan effort to lay
the framework for solutions to the state's fiscal dilemma. The
FPWG plan represented the efforts of both House and Senate
majority and minority caucuses. He expressed his belief that the
plan goals were laudable.
SENATOR BEGICH listed eight of the solution elements identified
in the FPWG plan:
1) A constitutional single-account permanent fund structure with
draws limited by a percent of market value (POMV).
2) Constitutional certainty for the dividend.
3) A new POMV-based formula.
4) A healthy capital budget. SB 13 addresses this issue by
creating a sustainable stream of capital income fund.
5) New revenues. SB 13 addresses this issue by providing a new
revenue stream.
6) Budget reductions.
7) Spending limits.
8) Ensures a transition period.
SENATOR BEGICH stated SB 13 attempts to incorporate solution
elements of the FPWG. He described the bill as an arrow in the
fiscal solution quiver. He stressed that success is dependent on
bringing forth ideas that incorporate FPWG elements, without
which a comprehensive solution will be hard to find.
3:44:09 PM
SENATOR BEGICH explained that Alaska's history with fluctuating
petroleum prices and the need to act influenced bringing SB 13
forward:
First, during a series of conversations, the Alaska Oil and Gas
Association (AOGA) reiterated that a revenue solution based on
the instability of oil prices would probably never be
satisfactory. The industry has requested fiscal certainty. Real
estate and its valuation over time offer greater certainty in
predicting revenue than revenue based on oil prices.
SENATOR BEGICH stated a year ago, the industry testified the low
price of oil would damage the industry. That testimony has
changed since last year. Now the price of oil is too high. He is
unsure which is true. He is sure that Alaskans cannot make up
revenue shortfalls themselves, but that is what the state has
done. The fiscal burden has transferred to residents every
single day. The state has reduced the permanent fund dividend
(PFD) arbitrarily and has not reimbursed municipalities for
senior property tax exemptions in two decades. The industry
needs to be at the table to do its part. He repeatedly asked for
proposals and solutions from the petroleum community and
received none. The industry requested fiscal certainty and SB 13
proposes to satisfy the request with this revenue approach.
Second, and more importantly, the legislature must act. The
reason for putting bills forward is not necessarily to see one
pass and he doubts SB 13 will pass. Without ideas on the table,
there is nothing to discuss. For this reason, he put forward
constitutional amendments, revenue ideas, and this bill. SB 13
deserves full consideration. It deserves to advance to the next
committee of referral. It deserves to count as part of the total
package in the finance committee. He thanked the chair for the
opportunity to dialogue and present the bill. He stated that he
would not take offense if this bill failed to advance.
3:46:44 PM
CHAIR HUGHES asked Ms. Colbert to present the sectional analysis
for SB 13.
3:47:01 PM
MERCEDES COLBERT, Staff, Senator Tom Begich, Alaska State
Legislature, Anchorage, Alaska, read the sectional analysis for
SB 13 on behalf of the sponsor.
[Original punctuation provided.]
Senate Bill 13
Oil and Gas Property Tax
Sectional Analysis
Senate Bill 13
Version: 32-LS0147\B
Section 1.
Amends AS 43.56.010(a) to include a new subsection (2)
that increases the maximum mill rate an additional 10
mills. This only applies to taxable property as
defined under AS 43.56.210.
Section 2.
Amends AS 43.56.010(d) with conforming language. This
clarifies the municipal property tax under (a)(1) of
the bill can only be credited to the taxpayer.
Section 3.
The estimated balance of the taxes collected under
Section 1 of this bill may be appropriated by the
legislature as follows:
1. 50 percent to the Alaska Capital Income Fund;
2. 25 percent to reimburse municipalities for real
property tax revenue lost due to the Senior
Citizen / Disabled Veteran Property Tax Exemption
provided under AS 29.45.090(g); and
3. 25 percent to the Alaska Higher Education
Investment Fund.
Section 4.
Establishes an effective date of January 1, 2022.
MS. COLBERT stated that this bill was drafted last year, so the
effective date needs to be updated before the bill is reported
from committee.
3:49:10 PM
SENATOR D. WILSON requested clarification about the $275 million
which SB 13 expects to net [according to the sponsor statement].
He asked whether the intent was to offset the Unrestricted
General Fund (UGF), and what the UGF would save if this bill
passed into law.
SENATOR BEGICH answered the bill could offset UGF if the Senate
Finance Committee desired. SB 13 would provide certainty for
capital construction needs, which means the legislature could
project funding availability. Right now, the capital budget
expends a certain amount towards deferred maintenance so that
those dollars would be offset and freed by this bill. The
legislature cannot dedicate funds, so the designation of funds
proposed by SB 13 would always remain discretionary; however, SB
13 intends to offset and free some UGF.
SENATOR BEGICH stated that in terms of the senior property tax
exemption, money would go right back out as a relief to
communities. The state could lower property taxes in several
other ways and through other legislation, but SB 13 would have
the direct effect of reducing property taxes.
SENATOR BEGICH stated that three or four years ago, this body
took a POMV approach to the Alaska Higher Education Trust Fund
so that the fund produced income. This means that the Alaska
Higher Education Trust Fund would potentially offset UGF because
SB 13 would boost the amount of money available to it. The bill
would not necessarily provide $272 million direct revenue,
though the Finance Committee could choose to set it up that way.
3:51:19 PM
SENATOR MYERS commented that the oil production tax swings
wildly with oil prices, whereas property tax is more stable. He
noted that home valuations had fluctuated a fair amount and
wondered if oil and gas property taxes had fluctuated similarly.
He asked whether swings had been factored into the
aforementioned numbers.
SENATOR BEGICH answered yes. There is always fluctuation.
Property taxes are more stable at the state level than at the
local assessment level. In Anchorage, residential property went
up quite a bit. Oddly enough, most Anchorage commercial property
assessments went down this year. Residential and commercial
property present quite different scenarios. State property tax
holders have access to a robust appeals process; the industry
uses it often to appeal high assessments. The appeals process
holds the system accountable. He acknowledged that property
valuation shifts will always pose a problem; however, this is a
more stable way of taxing additional revenue generated from the
industry. It is more stable than betting on whether the price of
oil will be higher or lower.
SENATOR BEGICH stated that in the last year and a half, the
state saw that the price of oil oscillated from minus $5 per
barrel one day to $90 plus per barrel today. One factor the
state can rely on is that oil prices will always be a poor way
to identify a taxation basis and will always be volatile. He
concluded that SB 13 might offer a better taxation basis.
3:53:57 PM
CHAIR HUGHES asked how SB 13 would affect property values based
on historical assessment fluctuations.
3:54:23 PM
COLLEEN GLOVER, Director, Tax Division, Department of Revenue,
Anchorage, Alaska, replied that the division could not speculate
on future assessments because each valuation involves unique
variables. The division is working on 2022 assessments now, so
the total assessed property values are not yet available.
Variables that affect assessments are inflation, changes in
facilities, capital investments, new facilities, and
decommissioned facilities. The Revenue Sources Book shows
revenue has been fairly stable over the past few years, but that
does not necessarily indicate a continued future trend.
CHAIR HUGHES clarified that her question pertained to the past
to the present. She restated the question, asking whether oil
and gas property values have historically been linked to oil
production and oil price fluctuations or whether values have
been fairly stable.
MS. GLOVER answered that assessments have changed over time. The
Revenue Sources Book indicates property tax collection has
increased over time on the North Slope and in Cook Inlet due to
increased infrastructure. The basis for oil and gas property tax
is the existence of installations like production facilities and
pipelines. Increased production resulted in new infrastructure
and new infrastructure resulted in a new tax base. The tax base
has changed over time, and the value of those assets has
changed.
3:57:10 PM
CHAIR HUGHES summarized that assessments typically increase over
time with growth and new infrastructure. She sought confirmation
that the oil and gas property tax fluctuations are less dramatic
than the production tax fluctuations.
MS. GLOVER responded that was a fair statement. Page 97 of the
2021 Revenue Sources Book indicated from fiscal year 2012 to
2021, property taxes were in the $100 million to the $123
million range. So, property tax has been more stable than the
oil and gas production tax in the recent past.
3:58:03 PM
SENATOR GRAY-JACKSON commented that after working for the
[Anchorage] assembly for 18 years and serving for nine years,
every single year through each legislative program, the
Anchorage Assembly begged the state to reimburse the
municipality for the senior citizens and disabled veterans
unfunded mandate. The Anchorage municipality has not been
reimbursed, going on 27 years or more, for this property tax
exemption. She asked how much money has been lost, in the
municipality of Anchorage alone, due to this unfunded mandate.
SENATOR BEGICH referred to the publication titled Alaska Taxable
2021 from the Office of the State Assessor.
MS. COLBERT said Table 9B, Senior Citizen and Disabled Veteran
Program Summary, Fiscal Year 2021 / Tax Year 2020, contains data
for lost revenue. For this past fiscal year, the total tax
amount exempt for the Municipality of Anchorage was just over
$41.1 million. She pointed out that Table 9B lists all the
municipalities affected and the amount of revenue lost by the
unfunded mandate. She deferred to the Alaska Municipal League to
speak to the history of the property tax exemption.
3:59:57 PM
SENATOR BEGICH reinforced the division's comments on petroleum
property tax, stating three factors are at play:
1) Appreciation. Taxes based on property are nowhere as volatile
as taxes based on the price of oil. He cited the 2020 Revenue
Sources Book, which reflected a tax revenue of $111 million in
FY12 and $99 million in FY13. In 2014, the state set the rates,
which resulted in the greatest fluctuation at $128 million.
Thereafter, revenue fluctuated between $128 and $119, which is
the present year's property tax value.
2) Valuation. This has fluctuated to some degree over the years.
3) Predictability. A company knows which installations are under
construction and that installation investments will incur new
property tax. The industry has indicated that if tax rates are
higher, it considers profit return before making investments,
just like any investment.
SENATOR BEGICH stated that property taxes are significantly more
predictable because a company is able to estimate the taxes and
factor the costs into an investment model. It's not a surprise
to a company when its property taxes increase after
infrastructure is added; the tax increase would be expected and
would not come as a shock. It was a choice with known costs.
This difference between property-based and price-based taxes is
important.
SENATOR BEGICH explained that a company does not necessarily
control the price of oil, nor does the company necessarily
control whether or not there is a war in Ukraine. Yet, factors
out of the company's control could significantly drive the price
of oil up, just like independent operators in Texas or the
Balkan oil fields could drive the price of oil down. On the
other hand, oil companies control property taxes far more
independently. So, these companies have a play in investment
decisions because the tax is more predictable.
4:01:53 PM
CHAIR HUGHES acknowledged the point was valid. She asked whether
Senator Gray-Jackson had follow-up comments or questions.
4:02:12 PM
SENATOR GRAY-JACKSON answered that she would get the information
later to share the numbers with constituents in Anchorage.
4:02:24 PM
CHAIR HUGHES said she appreciated that Senator Begich included
figures from the Fall 2020 Revenue Sources Book to illustrate
the predictability of oil and gas property taxes. She emphasized
that the state certainty is important and relevant to private
sector fiscal certainty. Rather than the phrase "don't come to
us for taxes," it is time the industry joined the conversation
with constructive ideas to achieve fiscal certainty.
CHAIR HUGHES expressed her belief that the concept for a
balanced budget has been to grab from a big cookie jar labeled
PFD for the past seven years. The legislature has demonstrated
this approach does not work, and it is not a viable way forward.
The state needs all the pieces fitting together to form a
comprehensive package, and to this end, the FPWG spent hundreds
of hours finding solutions. The FPWG ran the gamut from some of
the most conservative to some of the most progressive or liberal
legislators. Surprisingly, where the group differed most was not
the PFD, the group pretty much settled on a 50/50 draw, but on
revenue streams and spending reductions. Therein lies the
struggle.
4:04:16 PM
CHAIR HUGHES expressed appreciation for the oil industry. She
was aware and mindful of these facts: the state had just come
through a pandemic, the oil industry lost 3,000 jobs between
2020 and 2021, and the administration changed course a bit on
resource development. These facts are all concerning. Right now,
oil is the biggest industry and revenue producer in the state.
The industry has provided billions of dollars for schools and
vulnerable populations over the years. The impact needs to be
seriously considered prior to making changes that affect the
industry.
CHAIR HUGHES conversed with the industry about bridging
financial gaps. Gaps can be transitioned in various ways. One
option would be to raise taxes on businesses. Another option
would be to take an actual five percent draw from the balance.
This would not be a POMV draw from the permanent fund but a five
percent draw from the balance, which would be considered
reasonable and in the realm of prudent. Other sovereign wealth
funds take an actual five or six percent draw. The draw could be
based on the current balance, not a draw based on averaging the
past five years. She stated that the summer/fall calculation
indicated the five percent POMV draw was equivalent to a 3.7
percent draw straight off the current balance. A five percent
draw would bridge the financial gap and eliminate the need for
additional tax revenue to provide a 50/50 PFD. She expressed her
belief that voter approval would be a necessary part of the
package. All package pieces must work together; that is, what
works mathematically should be considered, along with whether
there are enough floor votes and enough votes at the ballot box.
4:07:06 PM
CHAIR HUGHES commented that the state was in the middle of the
pandemic last year and was unsure of its duration. Hopefully,
the state has shifted into management mode instead of crisis
mode. The state should continue to examine the effects of the
pandemic on the economy. She reviewed material that indicated
the economic impact and losses from the pandemic proved to be
worse in the oil industry than in the hospitality and tourism
industries. Consider this factor before making changes that
impact the oil industry. To dispel the notion that the industry
pays a pittance of its earnings to the state, ConocoPhillips
reported a $450,000,000 net income, of which $420,000,000 was
paid in taxes as reported in its 2021 Fourth Quarter Alaska
Earnings Review. The state received the bulk, but ConocoPhillips
paid a portion of the $420 million in federal taxes. During that
same period, it invested $284 million in Alaska. Over 14 years,
ConocoPhillips alone contributed $31 billion in revenue to
support the Alaska state government. That is considerable. It is
good for Alaskans to realize just how much the industry pays in
taxes.
CHAIR HUGHES said that University of Alaska Professor Mouhcine
Guetabbi testified before the Judiciary Committee, stating
Alaska is losing about $1 billion in opportunity and capital
investment due to a lack of state certainty. The legislature
ought to pay attention to how the policies made in this building
affect the industry. The legislature ought to pay heed to the
fact that fiscal certainty is important to a strong state
economy and the industry. Additionally, it would make sense for
the industry to step up and work with legislators to pass a
whole package.
CHAIR HUGHES agreed that an expanded mill rate on state property
tax might be better than raising production taxes; however, the
timing is concerning. Although Senator Begich may disagree, the
state's per capita spending is too high. She conceded that
Alaska will always have the highest per capita spending in the
country due to its geographical size, the number of communities
off the road system, and the fact that every community does not
have a police department and never will. However, it is very
much out of sync with the rest of country, and there is room for
improved efficiencies.
CHAIR HUGHES expressed her belief that it is human to protect
one's own and to defend one's staff. She stated that she would
probably do the same. Ultimately, more could be done to root out
waste than a system that necessitates commissioners defend
department budgets at the finance table. Commissioners want
their staff to be able to pay their mortgages and buy groceries
for their families. The legislature needs a better process for
understanding state spending; there is room for improvement. The
state can reduce spending while continuing to have effective
state services. It can be without decimating state services.
4:10:43 PM
SENATOR BEGICH stated that he appreciated the chairs comments
for many reasons:
- He agreed with the importance of intelligent and strategic
cuts. This was part of the FPWG fiscal plan.
- He agreed that accountability was critical and that it was
lacking at present. Chair Hughes and he worked together on an
education bill that was chock-full of accountability measures.
He commended not just the chair's comments regarding
accountability, but the work jointly accomplished on the
education bill's accountability measures.
- He agreed that the industry is disinclined but should be more
inclined to offer ideas. The industry has a hands-off policy,
not participating in taxation debates and revenue and budgetary
issues.
- One of the merits of SB 13 is that it would generate revenue
with direction, not revenue that would just be deposited into
the UGF.
- He agreed that the industry suffered economically from the
pandemic but pointed out that property owners also suffered.
Many Alaskans, not just those in the industry, suffered from
property tax issues and high assessments. This is especially
true in Anchorage today and over the years. Many of those owners
need property tax relief, so in a way, SB 13 would almost be
like a relief package.
- Finally, the ConocoPhillips 2021 Fourth Quarter press release
indicated that ConocoPhillips provided tax and royalty resources
of $31 billion, but it also netted $22 billion. ConocoPhillips
netted $22 billion, not grossed but netted. He emphasized that
Alaskans own these high-value resources. ConocoPhillips extracts
these precious resources and with its first-rate business
acumen, earns itself significant amounts of money. The
relationship between ConocoPhillips and Alaska is symbiotic and
a slight reduction in net revenue would provide for Alaskan
citizens, be a good investment, and create a better environment
for ConocoPhillips' employees living in Alaska.
4:14:09 PM
CHAIR HUGHES responded that most Alaskans earn more than they
pay in taxes, so it is impressive that ConocoPhillips netted $22
billion and paid $31 billion.
CHAIR HUGHES clarified previous comments about a five percent
draw:
First, a five percent draw would not be ongoing; it would be
short-term only.
Second, there is a pervasive narrative surrounding the five
percent draw. The narrative suggests it will be detrimental to
the health of the permanent fund to take a penny more than five
percent. Consequently, it would be bad for future generations of
Alaskans. She expressed her belief this narrative is false
because there are years the permanent fund gets $120 - $140
billion, and the draw would satisfy the needs of the operating
budget, the capital budget, and the PFD. The draw could be a
financially viable, safe option for a couple of years. It is not
true that a five percent draw is a terrible option and that it
will hurt your great-grandchildren.
4:16:13 PM
NILS ANDREASSEN, Executive Director, Alaska Municipal League,
Juneau, Alaska, presented historical property valuation and tax
data related to SB 13. As a membership organization, the Alaska
Municipal League (AML) responds to the interests of 165 local
governments. AML has not taken a position on this bill. Of the
165 local governments that AML serves, 24 have a property tax,
including all the boroughs except the Aleutians East Borough,
Denali Borough, Northwest Arctic Borough and Lake and Peninsula
Borough. Those rely on fish taxes, bed tax and a payment in lieu
of tax formula. Nine of the 15 home rule and first-class cities
within the Unorganized Borough have a property tax as well.
MR. ANDREASSEN noted the 24 local governments with a property
tax all have required minimum contributions to their municipal
school districts. This is a state mandate for all boroughs, home
rule and first-class cities outside the organized borough.
4:18:04 PM
MR. ANDREASSEN stated, by statute, seven of those 24 local
governments have property within their jurisdiction considered
petroleum property. Last year, the total assessed value of this
property was about $25.9 billion. The seven local governments
apply their property tax, the same property tax that is applied
to all within their jurisdiction, to petroleum property. The
state's take is the difference between the local tax and the
state's property tax. Oil and gas property extends into the
Unorganized Borough (valued at approximately $3.1 billion) and
the state's take on that is 100 percent or the full 20 mills.
MR. ANDREASSEN noted that the local property tax has applied
since 1997, but the mill rate has fallen for local governments
an average of 1.6375 mills by jurisdiction. That means the
state's take has increased over that period, and overall
property taxes have stayed stable, so the decrease is meaningful
for property owners.
4:20:51 PM
MR. ANDREASSEN said that though AML cannot speak to industry
decision making, it is worth noting that AML has passed these
resolutions:
One resolution supports resource and economic development. Local
governments have partnered with local economic actors, so there
are strong arguments for maintaining the property tax as it
applies to oil and gas property within municipal boundaries. The
arguments include the ability of those local governments to pay
for: debt obligations; construction and maintenance of schools
on behalf of the state; state-managed pension system
contributions; contributions to public education; investments
and roads; port and harbor maintenance; police departments;
emergency medical services (EMS); search and rescue; and health
care. All the property tax collected at the local level goes
into those local investments on which residents depend.
Another resolution opposes any changes to the current system.
The resolution opposes preemption of local taxation that would
impact economic activity within their jurisdiction. The extended
state tax, proposed by SB 13, would not negatively impact the
rates of local governments nor is there any direct impact to how
local governments currently approach their taxation. The impacts
to local governments would be felt to the extent that SB 13
might negatively impact investment decisions by property owners;
just like a property tax increase anywhere else, a tax increase
anywhere else might affect investment decisions.
4:21:53 PM
MR. ANDREASSEN stated that AML has a long-standing position that
the state should fulfill its statutory responsibilities by
appropriating the funds necessary to reimburse municipalities
for the state's mandatory property tax exemptions. Local
governments had seen applications for the state exemption
increase by 20,000 since 2010. In 2011, there were 28,000
applications, and in 2021 almost 47,000, nearly doubling the
number of applications by residents applying for this exemption.
The tax amount exempted increased by $40,000,000 in that same
period. There was a question earlier about how this affected the
municipality of Anchorage. He said that he cannot speak directly
to that jurisdiction, but the exemption has almost doubled for
all the jurisdictions that collect that tax.
MR. ANDREASSEN stated that Alaska Taxable 2021 identifies the
value of "total exempt taxes" as slightly over $95,000,000. To
some extent, that is a reduction of $95,000,000 available to
fund local government obligations. More importantly, taxpayers
are probably making up the difference. He reiterated that in
2021, slightly over $95,000,000 was the amount the state was
statutorily required to reimburse local governments; however,
the state has not funded this reimbursement since 1997.
MR. ANDREASSEN listed which communities are most affected by the
exemption according to Alaska Taxable. The top five local
governments impacted by the exemption are Wrangell, Nenana,
Petersburg, Haines, and the Mat-Su borough. For all five, the
percentage of real property exempted is above ten percent. Of
the total value of property in these jurisdictions, local
governments apply the exemption to more than ten percent. It's
important to understand that an exemption does not mean a
reduced tax rate or a total amount of tax. The same needs exist
within local governments, and they have the same obligations to
residents. With regard to mandatory property tax exemptions the
state has not reimbursed, it shifts the burden from one group of
taxpayers to another.
MR. ANDREASSEN explained that the distributional impacts of the
mandatory senior tax exemption might be felt more severely
amongst residents, even though companies pay the largest amount
of taxes in many jurisdictions. Interestingly, mandatory
exemptions at the state level also reduce the full value
determination, which affects the required local contribution.
The amount that some local governments are required to pay into
the state's public education system is affected. The state's
senior property tax exemption reduces the required local
contribution by $17,000,000. Local governments are contributing
well beyond the required local contribution, but there's
definitely a connection between exemptions and available
funding. When the state does not reimburse municipalities for
property tax exemptions, the lost resource limits choices at the
local level. AML members have passed a resolution in support of
the state fully funding this mandatory exemption.
4:25:21 PM
SENATOR MYERS asked whether 25 percent of the new property tax,
proposed by SB 13, would be sufficient to satisfy the full
property tax exemption obligation as it stands right now.
MR. ANDREASSEN answered yes. The value of the exemption totals
$95 million. So, if this bill were to generate $275 million that
would more than reimburse the exemption.
4:26:32 PM
SENATOR GRAY-JACKSON asked if $95 million represents this past
year's statutorily required reimbursement amount for the senior
property tax exemption.
MR. ANDREASSEN nodded, confirming that $95 million was the
total exempt taxes" for one year.
CHAIR HUGHES clarified that Mr. Andreassen nodded his head yes
in response to Senator Gray-Jackson's question.
MR. ANDREASSEN added that the "total exempt taxes" since 1997 is
in the billions of dollars.
4:27:13 PM
CHAIR HUGHES suggested that whenever revenue bills, reductions,
spending cap adjustments, or PFD talks come up, the legislature
ought to start a trend of considering the whole package. It is
critical for the state's future to settle the matter of fiscal
certainty. It is essential for the economy. This problem has the
legislature wrapped around the axel; it has hindered the
legislature's ability to address important policies. She
expressed her appreciation to the committee for the latitude to
veer a little from SB 13 to have a broader discussion about
fiscal policy.
CHAIR HUGHES encouraged those listening, including industries
that might be impacted by a bill like SB 13, to step up and
participate in resolving the fiscal certainty issue. She offered
her understanding that the oil and gas industry policy position
has been "do not tax us and we need fiscal certainty. For 17
years, this has been the industry policy. Yet these companies
continue to be chased for dollars, increasingly by members of
the public. The definition of insanity is doing the same thing
over and over again and expecting a different result. If you've
been doing the same thing for 17 years without results, its
time to make an adjustment. She encouraged the industry to
engage in the conversation. Many of these companies are
headquartered out of state and might be hesitant to get
involved, but this is not a request for the industry to get in
the weeds. This is a request to engage in and work towards
fiscal certainty. The industry will be hounded until there is
state fiscal certainty; that is just the way it works.
Objectives will be achieved by working together, producing a
package, and giving a little bit.
4:29:49 PM
CHAIR HUGHES stated SB 13 will be held in committee.
4:29:57 PM
SENATOR GRAY-JACKSON asked for a description of the assessment
process used by the Department of Revenue (DOR) for petroleum
property.
MS. GLOVER outlined the DOR assessment process:
- It is done annually.
- It is only done for oil and gas property, whether the property
is on state land, municipal land, or an Unorganized Borough.
- Taxpayers file their property statements in accordance with
strict statutory guidelines and deadlines.
- DOR analyzes filed data, reviewing inflation, depreciation,
whether the property has new capital, and other factors.
- The department issues a preliminary assessment. A unique
aspect of this program is that both the local jurisdiction and
the taxpayer can appeal the assessed value. The department has
an appealable position too.
- Appeals go through an internal appeals process and DOR issues
an informal conference decision.
- The taxpayer or the local jurisdiction can appeal the
conference decision.
- The State Assessment Review Board (SARB) hears appeals,
usually in May. SARB decisions may be appealed to the Alaska
Superior Court by all parties.
4:33:08 PM
SENATOR GRAY-JACKSON inquired about the status of the Higher
Education Fund and the Capital Income Fund.
MS. GLOVER replied she did not have that information.
CONOR BELL, Fiscal Analyst, Legislative Finance Division,
Legislative Affairs Agency, Juneau, Alaska, sought assurance
that the question pertained to the Alaska Capital Income Fund
and the Higher Education Fund.
SENATOR GRAY-JACKSON responded yes.
MR. BELL replied that both of those funds are subject to the
sweep. The Division of Finance has yet to determine the size of
that sweep. While those funds are committed to being swept, it
actually has not happened. Funds generated by SB 13 could be
appropriated to the Alaska Capital Income Fund and the Higher
Education Fund. Currently, the legislature must obligate those
funds by the end of the fiscal year, if not, they will be swept
into the general fund. As SB 13 is currently written, the
legislature would need to appropriate the funds by the end of
the fiscal year, if not, the funds would be swept into the
constitutional budget reserve fund.
4:34:43 PM
SENATOR GRAY-JACKSON asked whether any numbers are available
today even though those funds could be swept.
MR. BELL responded that he did not have those numbers offhand
but would provide them after the committee adjourned.
SENATOR GRAY-JACKSON requested Mr. Bell provide the information
to the committee.
CHAIR HUGHES asked Mr. Bell to send the numbers to her office
and they would be distributed to the committee.
[CHAIR HUGHES held SB 13 in committee.]