Legislature(2001 - 2002)
03/22/2001 09:11 AM Senate FIN
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* first hearing in first committee of referral
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CS FOR SENATE BILL NO. 48(CRA)
"An Act relating to the determination of full and true value of
taxable municipal property for purposes of calculating funding for
education and certain other programs, to incorporation of third
class boroughs, to incorporation of certain boroughs in the
unorganized borough and annexation of portions of the unorganized
borough to boroughs and unified municipalities, and to the
formation of separate unorganized boroughs; and providing for an
effective date."
Senator Wilken, Sponsor, referred to some handouts that were
presented to the Committee. He spoke to the handouts entitled "The
Need to Reform State Laws Concerning Borough Incorporation and
Annexation" by the State of Alaska Local Boundary Commission (LBC)
and "Background on Boroughs in Alaska" by the Department of
Community and Economic Development and the "Equity in Education
Funding Act." He summarized that SB 48 simply asked the question
"can you help." He pointed out that 92 percent of Alaskans pay for
education and 8 percent do not pay anything for education. He
noted that those 8 percent command 21 percent of the education
budget. He explained that SB 48 simply looked in an organized and
professional manner at those places that do not and asked "can you
help?" He indicated that 84 percent of Alaska is in boroughs that
they did not vote for, 4 percent of Alaska is in boroughs that were
voted for and the rest is in unorganized Alaska.
Senator Wilken further reported that Alaska is the only state in
the union that has unorganized areas. The Constitution of the
State of Alaska envisioned, back in the early 1960s, how Alaska
should be organized as it matured and developed over time. He said
that SB 48 would leave existing law in place, but provided another
method for organizing Alaska. Under the current system the
petition is filed and it goes through public hearings and the Local
Boundary Commission goes over the areas affected and receives all
sorts of input and develops what amounts to a structure for
organization. Next, it would be voted on and brought before the
legislature, which would have to take action within a certain
timeframe to deny the vote. He pointed out that SB 48 suggested a
different way. He explained that the process does not start at the
local level, but rather at the departmental level and they nominate
each year areas of the unincorporated Alaska that they feel may
have the capacity to organize and support government. The Local
Boundary Commission has the charge to go to those areas and
validate that nomination and the Local Boundary Commission would
make a decision and come before the legislature. He summarized
that in simple terms there would be two changes: one, the process
starts at the departmental level; and two, the provision for a
public vote is not in SB 48. He noted that existing law still
would stay in place for those that want to voluntarily organize.
Senator Wilken referred the book entitled "The Need to Reform State
Laws Concerning Borough Incorporation and Annexation" and indicated
that it was a book that they have come out with every year by law.
He pointed out that it was the basis for SB 48. He said that SB 48
was supported by a 5-0 vote on October 31, 2000. He detailed that
of the unorganized area amounts to 375 square miles, 11 census
areas, 37 of the school districts, 19 regional education attendance
areas, 96 of Alaska's 145 cities and 66 percent of all city
government. He pointed out that there are 11 standards that need
to be met. He pulled out one in particular; "each area (organized
or unorganized) should have a population and area with common
interest." He indicated that the LBC would have to check off each
standard in order for them to come up with a plan to bring to the
legislature. He said that it was the blue print for this
legislation.
Senator Wilken continued, "Founders intended that regions would be
classified as organized boroughs or unorganized boroughs depending
on their readiness and capability for government." He explained
that what SB 48 did was take the 375 thousand square miles of
unorganized area and section it up and asked, "what areas can
help?" He said that the Mandatory Borough Act of 1963 stated, "No
area incorporated as an organized borough shall be deprived of
state services, revenues, or assistance or be otherwise penalized
of incorporation." He suggested that organized Alaska is being
penalized by unorganized Alaska without unorganized Alaska even
asking, "can you help?" First, in his mind what drives the whole
issue [referring to a chart] is that general fund contributions
between the years of FY97 and FY02 that support operation of the
school districts was an average of $124 million out of roughly a
$700 million budget. He said that the legislature needed to ask
the question "is it valid and can those that don't pay today help
pay?" He pointed out that $124 million was going to unorganized
Alaska without any validation of that contribution.
Senator Wilken explained that on the capital budget side between
the years FY92 through FY01 they have spent $197 million on capital
spending in Rural Education Attendance Areas (REAAs). He pointed
out that there is $20 million a year going out for capital spending
without any local contribution. The problem that creates is all
the people in organized Alaska have working people having to pay
four mills to get a nickel of state money. For example, he pointed
out a list of capital improvement projects by the Department of
Education and Early Development where in one instance the City of
Kenai had a project with a total of $550,871 and the people of
Kenai were going to come up with $165,261 and the state would come
up with $385,610, because Kenai is a borough. In another instance
there was an REAA project with a total of $981,237 and the REAA
would come up with $19,625 and the state would come up with
$961,612.
Senator Wilken referred to a chart titled "1998 Per Capita Earnings
From Local Employment" and pointed out that there were only three
of the REAAs that had per capita earnings from local employment
higher than those in ten organized boroughs. He said that at least
it validated the question that there is economy out there. He
noted that they think of the amorphous area as destitute, but it is
not destitute. He referred to a newspaper that was sent to him
dated November 16, Thursday, and there is a real estate
advertisement for homes that are for sale all over close to
$200,000, which tells him two things: one, there is value out
there; two, there are arms-length transactions going on. He noted
that when the home is bought it establishes a value between the
buyer and the seller, which means there is a way to quantify what
goes on in the unorganized area and establish value. He referred
to the next chart titled "REAA Wages and Average Employment
(FY1999)".
SFC 01 # 50, Side B 10:05 AM
Senator Wilken further pointed out that in 1999 in the unorganized
areas 15,848 people made $388 million in earned wages and in 2000
16,257 people made $405 million in earned wages. He said that to
him it begs the question that there is wealth out there and there
is an economy. He reiterated that SB 48 asked the question "can
you help?" and if they can help than they should help like the
people in organized Alaska. He believed that it would be a ten-
year project. He added that it was the job of the legislature not
to focus their resources on the amorphous area known as the
unorganized borough, but rather on targeted areas.
ROBERT KOPCHAK, Director, Planning and Community Development for
the City of Cordova, read the following testimony into the record:
The City of Cordova has been in favor of the formalization of
a borough government for the Prince William Sound and Copper
River region for many years. In the past two decades, at
least four borough studies for the area have been undertaken.
These are in addition to the work done by the Local Boundary
Commission, and represent significant investment by the
community and the state. The Cordova City Council has adopted
a "Borough Priority", and an additional "in house" borough
economics study was completed about four months ago in a
continuing effort to move this governance issue forward.
For our region the borough government concept seems to be
economically desirable, and politically difficult. There are
significant disincentives for the formation of a borough, and
few resources available to provide for the level of financial
analyses and concept promotion needed to gain broad regional
approval. In areas with diverse interests, concentrations of
population, and rich/poor communities, current borough
formation law allows the "haves" to dictate the regional
politics related to borough formation at the expense of the
"have nots". I would offer the following example.
The model boroughs proposed by the LBC for Prince William
Sound (5) and the Copper River Basin (6) would be combined to
reflect a more "ideal" approach to responsive and
representative regional government. Entire drainages
undivided by multiple political/jurisdictional borders provide
for the maximum local participation in decisions that would
affect residents of the region. This borough would encompass
the entire drainage system, reflect the interconnected
dependence on regional resources, and the shared risks from
pollution and catastrophic oil spills that damage subsistence
lifestyles, economies and ecologies Coastal Zone Management,
Platting, and other related land use issues within the
drainage would be consolidated, and communities would share in
the risks and rewards related to resource development and land
use. Drainage boundaries would allow "upriver" residents to
share in the value of fisheries resources exploited by coastal
communities, resources that depend on the upriver areas for
their health and vitality. Coastal communities, and
communities removed from oil transportation corridors and
ports, would share in the value of the business of
transporting oil. Sharing in this value during normal safe
operations would help offset the impacts from inevitable
spills and catastrophic events.
Each community within this region shares a dependence on the
resources supported by the waters of Prince William Sound and
the Copper River/Bering River. Some communities are
completely dependent on the fisheries and subsistence game
found within the region. Over 75 percent of Cordova's economy
is directly tied to the fisheries of PWS, the Copper River and
North Gulf of Alaska. In PWS, Chenega and Tatitlek are 95
percent dependent on true subsistence and commercial fishing.
Although the shipment and loading of oil is a huge part of
the regional economy, few of the benefits of the dollars
generated by this part of the regions economy are shared
outside Valdez and the support service communities located
adjacent to the pipeline. It is interesting to note that
"down stream" communities most likely to be damaged by oil
spills enjoy virtually none of the economic benefits from oil
transportation and shipment. A break in the pipeline at a
river crossing has the potential of devastating salmon
production on the Copper River, impacting subsistence and
commercial fishing communities, both upriver and coastal, for
generations. These communities receive no benefits from the
shipment of oil across lands and waters put at risk. It is
unconscionable that a community at slight financial risk to
oil spill damage has a reserve account in excess of
$70,000,000 from regional oil transportation revenues, while
neighboring villages and communities whose economies and
subsistence lifestyles were damaged by and are still at risk
to spills struggle.
Most communities in this region do not contribute to the local
cost of education, and facilities and programs suffer from
limited budgets spent on duplicate administration. It is
interesting to note that in a recent evaluation of school
students ability to take the standardized graduation tests, it
was in communities with the greatest tax base/student ratios
that students performed best. Revenues produced from modest
borough taxes would easily pay the cost of a consolidated
regional education program and still allow for local education
control. In the region, the benefits of modest tax programs
in an expanded regional base are significant. After paying
the costs of Borough government administration, regional
education costs, and platting/coastal zone management,
sufficient revenues would remain to provide $100,000 in
revenue sharing to each community, and a per capita share of
any revenue surplus. This would be after a $450,000 deposit
to a Borough Reserve account. For the Prince William
Sound/Copper River Region, a borough makes financial sense
from an education and a revenue sharing standpoint. Why isn't
there a borough?
The ineffectiveness of the voluntary incorporation provisions
of the 1961 law is evident in the fact that only 4 percent of
Alaskans live in boroughs that were formed in a truly
voluntary manner. That is contrasted to 82.6 percent of
Alaskans who live in boroughs that were formed under the 1963
mandate drafted by Representative Rader. It must also be
recognized that most of the boroughs that formed voluntarily
had extraordinary resources that make boroughs particularly
attractive. The North Slope accounts for 25 percent of the
residents of Alaska that have formed voluntary boroughs, and
their tax base is an enviable $1,550,950 per capita.
If we look at the "ability to pay" as it relates to existing
and proposed boroughs, we note that 10 of the 12 areas in the
"unorganized borough" have a larger per capita income than the
Mat-Su, which was compelled to form a borough through
legislative action. Of the "Top Ten" areas on the state per
capita income list, it is notable that #6(the Cordova/Valdez
census area) is the only non-borough area.
The difficulty in using local initiative to form a borough
results from decades of incrementally expanding disincentives
to borough formation. An unfair burden is placed on
communities with the fewest assets. To even begin the borough
process they must pursue complicated, difficult and costly
processes. The resources simply are not there.
Boroughs empower regional populations and enable them to
provide for their own interests. With a modification in the
borough formation process that removes some of the burdens to
formation, additional boroughs will follow.
KEVIN WARING, Chairman, Local Boundary Commission, read the
following testimony into the record:
Chairman Donley, Chairman Kelly, and members of the Committee,
thank you for this opportunity to testify on behalf of the
Local Boundary Commission on Senate Bill 48. One of the
duties of the Local Boundary Commission under the Alaska
Constitution and under state law is the duty to review and
approve or disapprove all proposed city and borough
incorporations and boundary changes. The Commission would play
a central role in implementation of SB 48. My purpose today
is to explain how the Commission views this bill, and its
responsibilities under the bill.
First, some history on the origin of SB 48. Over the past
year, the Commission has worked to develop a new legislative
approach to borough incorporation in the unorganized borough.
We held several work sessions to study the issues and to work
on draft legislation. In October, the Commission voted
unanimously to approve a draft bill, and to make it available
for legislative consideration. Our goal was to put forward
for legislative and public discussion a fresh approach to
incorporation of new borough governments that was uniformly
fair, accountable, and within the framework of existing law.
The Commission believes that the legislation that Senator
Wilken and the co-sponsors have introduced as SB 48 meets
those goals.
As background for the proposed legislation, the Commission also
prepared and provided to committee members:
• a position paper on "The Need to Reform State Laws
Concerning Borough Incorporation and Annexation";
• a factual booklet that provides background on boroughs in
Alaska; and
• a four-page handout that summarizes key points about the
Commission's proposal and how it fits into existing law.
SB 48 as amended has eight sections. My remarks focus on
Section 4, which authorizes a new method for borough
incorporations and annexations in unorganized areas. I will
talk about the new method proposed for borough incorporations.
The method proposed for annexations of unorganized areas to
existing boroughs works similarly.
Section 4 of SB 48 authorizes two new steps in the borough
incorporation process:
· a new first step to initiate a borough incorporation
petition; and
· a new last step to approve a petition.
New First Step: Incorporation by Administrative Petition
Under current law, a petition for borough incorporation can
only be initiated voluntarily by residents of a proposed
borough. Few have volunteered. Only four percent of the
State's residents live in boroughs that were created by local
initiation. Another 83 percent live in boroughs established
by the 1963 Mandatory Borough Act, an extraordinary act of
local government legislation.
Section 4 of SB 48 adds a new option for incorporation by
administrative petition. It directs the Department of
Community and Economic Development to prepare annually a
preliminary list, with supporting analysis, of unorganized
areas that reasonably appear to satisfy existing legislative
standards for borough incorporation. It further directs the
Local Boundary Commission to select from this list areas that
may warrant incorporation, and to instruct the Department of
Community and Economic Development to prepare and file a
petition for incorporation. The Commission would then follow
the process now established in law for public review and local
public hearings on petitions.
New Final Step: Petition Approval
Section 4 also proposes a new final step to approve
incorporation petitions initiated under SB 48. This new step
is modeled on the process for approval of city and borough
annexations established by Alaska's Constitution, which was
overwhelmingly ratified by the voters in 1956.
Briefly, Article X, section 12 of the Alaska Constitution
established a method for approval of municipal boundary
changes without local election. The first legislature put
this process into law. Some annexation proposals, whatever
their merits, are not well-received by affected residents.
Therefore, the Constitution and legislature established a
method by which contested petitions that met standards set out
in law could be approved by the Local Boundary Commission
without a local election, but were subject to legislative
veto. Legislative review annexation has been successfully
used for over 100 city and borough boundary changes since
statehood. Most significant annexations are approved by this
method.
Similar to the existing method for legislative review
annexation, Section 4(c) of SB 48 authorizes the Commission to
approve incorporation petitions that meet the same
incorporation standards that apply to all other boroughs,
without a local election but subject to legislative veto.
Apart from these two new steps for initiating and approving a
borough incorporation or annexation petition, the Commission
would:
· standards for borough incorporation now in law, and
· follow other procedural requirements now in law,
including local public hearings, written decision by the
Commission explaining its decision, and opportunity for
administrative and judicial appeal.
The proposed steps include significant checks and balances.
Before an incorporation could take place under this new
method:
· the Department of Community and Economic Development must
find that a region likely satisfies incorporation
standards;
· the Commission must find that the petition meets all
applicable standards and should be approved on its
merits;
· the Commission's decision is subject to administrative
and judicial review; and
· the Commission's approval is subject to legislative veto.
Concerns Raised in Public Testimony
Next, I want to address three specific concerns that have been
raised in public testimony. A statement of how the Commission
would implement SB 48, if adopted, may help dispel them as
unfounded.
First, there has been concern that the Commission might
approve incorporation of areas that did not have the economic
resources to support borough government. Existing law-AS
29.05.031-already requires a Commission finding that the
economy of any area proposed for incorporation has the human
and financial resources needed to support municipal services.
The Commission's regulations, at 3 AAC 110.055, spell out in
detail the factors on which the Commission must make its
findings. Given the public concern on this topic, the
Commission is working with DCED staff to develop objective
economic benchmarks that a region should meet before it would
be nominated for incorporation.
Second, there has been concern that the Commission might not
hold adequate local public hearings for incorporation
petitions filed under the bill. SB 48 specifically requires
the Commission to hold at least one local public hearing in
each affected region. In practice, the Commission's intent
would be to hold local public hearings at regional centers
and, at minimum, in any community with 400 or more residents
and in every home rule and first class city in the affected
region.
Third, there has been concern that the Commission might move
quickly to approve numerous borough incorporations. In
reality, given the resources and time available to the
Commission and its staff, the Commission could, at most, take
up one or two petitions a year. In our view, implementation
of this law would likely stretch out over many years.
Establishment of borough governments has been a matter of
conflict for as long as Alaska has been a state. With that
contentious history, it is easy to lose sight of the fact that
borough governments have played an enormously positive role in
Alaska's development. For most of the state, boroughs have
been the means to fund and deliver local public services,
accountable to local residents. In local matters, local
government usually governs best. Boroughs have also been our
main tool to influence economic development for community
benefit. For example, it is hard to believe that urban and
rural communities and regions affected by oil pipeline
construction, oil and gas and mining development, management
of forestry and fishing resources, growing energy demands,
growth in tourism, and rapid urbanization would have fared
better without borough government.
To sum matters up, the Commission does not view SB 48 as the
second coming of the 1963 Mandatory Borough Act, or any
similar legislation. The Commission is not on a mission to
foster boroughs for the sake of boroughs. Unlike the 1963
Mandatory Borough Act, SB 48 provides for a measured, case-by-
case evaluation of each proposed incorporation. Each petition
will be evaluated on its merits. Proposals that do not meet
statutory standards will not be approved. And, as under
current law, even if a petition meets standards, the
Commission can reject the petition when there are sound
reasons to do so.
In closing, the Commission believes the new incorporation
steps authorized by SB 48 meet its goal for an approach that:
· uniformly implements the standards for borough
incorporation in existing law, but respects the diverse
circumstances in different rural regions;
· provides checks and balances; and
· is modeled on existing law and minimally changes law.
Senator Wilken noted that on page 33 of the handout titled "The
Need to Reform State Laws Concerning Borough Incorporation and
Annexation" there were five members listed from across the state
and four judicial districts and pointed out that they were all
volunteers. He indicated that they presented to him five
amendments and he said that he was okay with three of them. He
supported their effort to make SB 48 better and hoped to bring a CS
to the Committee next time.
Senator Hoffman wondered if any of the members of the Local
Boundary Commission were Alaska Native.
Mr. Waring answered not at this time.
Senator Hoffman stated that the question Senator Wilken asked was
"Can you help?" and the question he had was "Can it hurt", because
he believed that SB 48 was divisive and would further divide urban
and rural Alaska. He said that when they look at the communities
in the unorganized borough 90 to 95 percent of those communities
are predominately Alaska Native. He pointed out that they are
heavily dependent on the subsistence lifestyle. He explained that
just because they own land does not mean that they can pay and if
there was a property tax placed on those people in rural Alaska,
what land that they do have he believed would end up being lost in
foreclosure. They do not have the necessary income to pay. He
asked the representative from the Local Boundary Commission how
many municipalities in Alaska have opted to dissolve and how many
in the past ten years have formed or moved on to first-class cities
in rural Alaska.
Mr. Waring responded that he believed that 3 or 4 municipalities
have dissolved.
Senator Hoffman wondered if that was in the last ten years.
Mr. Waring reiterated approximately 3 or 4. He said that there
have been a number of boroughs formed in the past ten or twelve
years.
Senator Hoffman clarified his point and stated that the direction
of government in rural Alaska was moving away from organization
under state law and moving forward and incorporating under federal
law. He said that to add another layer of government to one that
does not work does not make sense to him. He believed that even
though the thrust behind this was to pay for education this
legislation goes far beyond that. He reiterated that this would
further divide urban and rural Alaska. He noted that federal
receipts presently pay many of the services provided for rural
Alaska. He said that when they look at the health corporations a
substantial portion of those dollars come from federal government
and a very small portion of those dollars are paid for by the
state. The corporations are formed to receive federal dollars in
the unorganized boroughs. He said that if SB 48 passed possibly
one or two boroughs would be formed on an annual basis, but all too
often when something is beneficial to urban Alaska and detrimental
to rural Alaska many financial dollars are spent there. For
example, in the fight for subsistence the Legislative Council spent
several thousand dollars when it was in the interest of urban
Alaska and not in the interest of rural Alaska. He concluded that
the legislation clearly divided urban and rural Alaska. He added
that if they went out and asked whether rural Alaska wanted to move
toward more federal intervention or more state intervention, he
believed that they would want more federal intervention and for
that reason he informed the Committee that he was opposed to SB 48.
Co-Chair Kelly explained that the intent of the bill, as he
understood it, was that if rural Alaska could pay than they should
pay some part of it. He declared that frankly he was getting tired
of comments regarding divisiveness and the rural and urban split.
He pointed out that throughout his time in the legislature he has
seen a lot of dollars going to rural Alaska and rural Alaska seems
to get what they ask for except for maybe on subsistence. He
suggested that Senator Hoffman check the Bill of Rights on that
before he started talking about the rural and urban split.
Senator Wilken associated himself with Co-Chair Kelly's remarks.
Co-Chair Kelly appointed SB 48 to a subcommittee consisting of
Senator Leman, Senator Wilken and Senator Hoffman.
[Heard and Held]
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