Legislature(1999 - 2000)
02/09/2000 01:35 PM Senate CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 242-PIPELINE PROP TAX USED FOR REV. SHRING
SENATOR DAVE DONLEY, sponsor of SB 242, explained communities
statewide are faced with the possibility that the pending property
tax limitation initiative may pass this year. The initiative will
have drastic effects on what local governments can collect as
property taxes and it will reduce the current 30 mill limit to 10
mill the State imposes on communities. SB 242 addresses the impact
of the initiative and it would go into effect if the initiative
passes.
The initiative limits what local governments can collect for
property taxes; it has no impact on the existing State oil & gas
property tax. The State has a 20 mill cap and a provision allowing
it to only collect the difference between 20 mills and what local
governments collect. Currently, of $240 million in oil & gas
property taxes collected statewide, the State only gets $23 million
because the local communities are capturing that money.
If the initiative passes, the ability of communities to capture
that money would decrease and the State's share would increase. A
provision in the initiative allows communities to continue to
retire existed bonded debt. Communities can exceed the 10 mill cap
for existing debt, but they can't incur additional debt until the
mill rate is below 10 mills or less.
Next year, the State will receive an extra $5-8 million because the
local communities' debt will begin to retire so the State's share
will increase. The State may receive $130 million each year in the
far future.
SB 242 dedicates the money the State will receive from oil & gas
property tax to the existing municipal assistance formula. SB 242
will utilize the new revenue the State is receiving to help
communities that would be hard hit by the initiative. This is a
step to mitigate the impacts.
Number 407
CHAIRMAN KELLY asked about the legality of the contingent effective
date and whether Senator Donley requested a legal opinion about the
language.
SENATOR DONLEY said the drafters did not express concern about it.
He will request a specific opinion from the drafter on the
language.
SENATOR MACKIE asked why it will take an initiative.
SENATOR DONLEY stated the affect of the initiative, if it passes,
is that it will generate additional revenue for the State. If it
doesn't pass, the status quo remains, and the local communities
will continue to collect the revenue from oil & gas property. SB
242 is not going to hurt existing communities. If they are hurt by
the initiative, it will help mitigate the effects by taking the
additional money the State would get if the initiative passes and
give it to the communities.
SENATOR MACKIE asked if SB 242 will try to mitigate an unintended
consequence.
SENATOR DONLEY stated that it may be an intended consequence if the
backers of the initiative think the city should not have that
money. The initiative will hit some cities harder than others. SB
242 is not a full fix to that problem.
SENATOR MACKIE asked what kind of affect it will have on the North
Slope Borough (NSB), Valdez or some other communities.
SENATOR DONLEY said those communities will be hit hardest by the 10
mill cap because they are at the 20 mill level and they will no
longer be able to capture the value of all property, including oil
& gas. Because the NSB has such a high level of bonded debt, the
immediate impacts will be delayed until it starts to pay off the
debt, then the impact will be very significant. The communities
that will be hit hardest by the initiative are the ones that don't
have bonded debt and are exempt. The ones that have bonded debt
along the pipeline corridor are eventually going to be hit the
hardest.
Number 445
SENATOR MACKIE asked if the money goes back to where it was
collected or whether it will be distributed throughout the
municipalities.
SENATOR DONLEY stated the revenue from the oil & gas property tax
is designated to fund the current municipal formula. It goes out
to communities statewide under that formula.
SENATOR PHILLIPS asked why the State doesn't just let them have
what is requested in the initiative.
SENATOR DONLEY said the initiative doesn't address the existing oil
& gas property tax. The State doesn't get that money now because
local communities are getting it. This is a way to partially
mitigate the impacts without creating new local taxes.
SENATOR HOFFMAN said SB 242 should be held off to see if the
initiative passes and, if the voters implement the tax cap, then
the options should be weighed.
Number 475
SENATOR DONLEY said that is a point to consider. The State should
also see what the affects of inaction are. The State will get
additional revenue if the initiative passes, but there would be no
plan to mitigate the effects on communities.
SENATOR MACKIE asked if this is another way to cut $8 million out
of municipal assistance because they have a new revenue source.
SENATOR PHILLIPS suggested passing a 10 mill limit and taking the
initiative off the ballot so the legislature could write something
that is workable.
SENATOR DONLEY said SB 242 will not go into effect unless the
initiative passes. It would have no impact on any community if it
doesn't pass. It is a way of mitigating the effects if it does
pass with money the State wouldn't normally get.
CHAIRMAN KELLY said if the initiative doesn't pass, it is back to
the status quo. If the initiative passes and SB 242 passes, then
the additional money that is coming from the pipeline communities
would go into a statewide pool to be redistributed through revenue
sharing statewide.
SENATOR MACKIE asked if that will require a constitutional
amendment.
SENATOR DONLEY stated it is just like issues that suggested to the
legislature that this issue should be the source of funding.
Number 500
MR. KEVIN RITCHIE, Alaska Municipal League (AML) and Conference of
Mayors, stated the tax cap and revenue sharing are key issues for
the State. AML has not taken a position on SB 242, it is working
with the State assessor and the municipalities to try and gauge the
issues.
If the tax cap passes, the Municipality of Anchorage will lose $73
million in revenue out of the current $230 million in tax revenue.
If the initiative does pass, it will add $125 million to the
State's fiscal gap. Those funds need to be found somewhere else
for schools, public safety and other services provided by
municipalities. When the public understands about the tax cap, the
initiative will not pass.
CHAIRMAN KELLY asked Mr. Ritchie if he has seen polling data about
the initiative passing.
MR. RITCHIE replied yes. The polls from Anchorage showed 50
percent opposed, 41 percent in favor, and 9 percent uncommitted on
the initiative. A large group of people that it would impact have
children and it will hurt education. The pressure would be strong
for the State to re-examine all tax exemptions. The public
understands that property taxes fund schools, police, and other
services.
SENATOR PHILLIPS asked who the Municipality was polling. Senator
Phillips talked about an initiative in the State of Washington. He
stated that the State should just pass legislation limiting the cap
at 10 mills, and work with it from there.
Number 549
MR. RITCHIE said the municipalities understand that it is a threat
to a revenue source and they will take very serious steps. AML is
working with different groups who don't like the initiative. One
concern is to make everyone aware of the impacts of the initiative.
CHAIRMAN KELLY asked if Mr. Ritchie heard about a potential lawsuit
questioning the constitutionality of the initiative.
MR. RITCHIE said putting it on the ballot and the constitutionality
of the initiative are two separate issues. It is possible that
lawsuits will be filed if the initiative passes.
CHAIRMAN KELLY asked about lawsuits being filed prior to the
initiative going on the ballot.
MR. RITCHIE replied he is not aware of any.
Number 574
SENATOR MACKIE asked what the impacts from the initiative are going
to be on the municipalities.
MR. RITCHIE stated that Anchorage expects to lose $73 million
immediately; the impacts of that are going to be huge. The total
bonded debt of municipalities for the entire state amounts to $1.4
billion. The public doesn't realize part of the problem is the
assessment cap.
TAPE 00-01, SIDE B
MR. RITCHIE discussed the impacts to Sitka. No matter how much the
value of the property increases, the property tax increase is
restricted to two percent. Property value is set at the true
market value when the property is sold. This creates a significant
disincentive for buying, selling, or building new homes.
SENATOR MACKIE asked if there is a constitutional question about
that.
MR. RITCHIE said it is a Proposition 13, just like California's.
It is not in violation of the U.S. Constitution.
Number 570
SENATOR MACKIE asked if AML was worried about people coming out of
the woodwork to vote because they will be paying less in property
taxes.
MR. RITCHIE said the public understands what local governments
produce. Parallels can be drawn, and the public can see if it
loses that funding, it loses libraries, teachers, and police.
SENATOR PHILLIPS cited statistics from his district from an annual
questionnaire.
MR. RITCHIE said AML will work hard to explain the impacts to the
public. Mr. Ritchie referred to a survey taken by Senator Pearce.
Number 522
SENATOR MACKIE explained if people think they will pay less in
property taxes, they will vote for the initiative.
CHAIRMAN KELLY asked, with a 10 mill cap, what community will lose
revenue that will be shared in different districts.
SENATOR DONLEY said different communities lose different amounts
depending on the number of years estimated and depending on the
existing debt accumulated by communities. It will be
disproportionate in the beginning. Eventually the communities with
oil & gas properties will lose access to wealth they currently
have: NSB, Fairbanks, and Valdez. SB 242 will not hurt those
communities if the initiative doesn't pass, it will help them if it
does pass because it gives back revenue that they will lose.
Number 498
SENATOR MACKIE asked if downsizing municipalities is an option.
MR. RITCHIE said currently AML doesn't have a position on that.
CHAIRMAN KELLY asked if it is too early for NSB, Fairbanks, and
Valdez to oppose the bill.
SENATOR DONLEY stated the bill doesn't hurt those communities, it
will return money to them they would lose if nothing happens.
SENATOR MACKIE asked how the bill returns a portion of the money
back to those communities.
Number 482
SENATOR DONLEY said this is money the State doesn't have and
wouldn't get unless the initiative passes. If the initiative
passes, the extra money that would have gone to the communities
will go to the State. It seems reasonable to send the money back
to the communities.
SENATOR HOFFMAN said if the public sees the money returning to the
communities, it will be more likely to vote for a tax cap.
SENATOR MACKIE moved SB 242 out of committee with individual
recommendations. There being no objection, the motion carried.
CHAIRMAN KELLY adjourned the meeting at 2:49 p.m.#
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