Legislature(1999 - 2000)
02/25/1999 08:03 AM House CRA
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 76 - MUNICIPAL TAXES ON DETERIORATED PROPERTY CO-CHAIRMAN HARRIS announced the first order of business before the committee would be HOUSE BILL NO. 76, "An Act relating to an exemption from and deferral of payment on municipal taxes on deteriorated property; and providing for an effective date." CO-CHAIRMAN HALCRO, Sponsor of HB 76, stated that HB 76 makes technical changes to HB 399 which was passed last year. HB 399 authorized municipal governments to exempt or defer municipal property taxes on deteriorated property in the hope that developers would redevelop deteriorated properties into productive properties ultimately placed on the tax rolls. Co-Chairman Halcro explained that HB 76 clarifies the following areas: whether a municipality may either partially or totally exempt a property from property taxes; provide an exemption that may begin any time on or before substantial rehabilitation begins; and prohibit an exemption and deferral of property taxes from being in effect simultaneously. CO-CHAIRMAN HALCRO noted that Representative Dyson had signed on as a co-sponsor of HB 76. The legislation has also been introduced in the Senate. The packet includes letters of support from the Anchorage Assembly, the Downtown Partnership, and the United Brotherhood of Carpenters and Joiners of America Local Union 1281. The intent of HB 399 was to allow municipalities to renovate or encourage development of dilapidated properties. One much discussed such property is the McKay Building. The packet includes photos of the proposed renovation of the McKay Building(ph). Number 0337 REPRESENTATIVE JOULE noted that when HB 399 left Senate Rules last year, the language "totally" was deleted. He asked if Co-Chairman Halcro knew why "totally" was deleted. CO-CHAIRMAN HALCRO pointed out that the committee packet contains testimony from Attorney Margaret Rawitz, who helped draft HB 76. There is confusion as to why "totally" was deleted. If a developer is allowed to have a total exemption or deferral of property taxes, then the developer does not pay taxes on the dilapidated property while doing rehabilitation. CO-CHAIRMAN HARRIS asked if the exemption would exempt the building or would it include the property as well. CO-CHAIRMAN HALCRO said that the exemption would apply to the land as well as the building. Number 490 REPRESENTATIVE MURKOWSKI referred to the inserted language "beginning on or any time" which she understood from Ms. Rawitz's letter that the language was inserted in order to provide the municipality flexibility. Does this language provide the municipality the option to grant a referral three years after the beginning of renovation? CO-CHAIRMAN HALCRO explained that most municipalities are required to begin tax referrals/exemptions on the first day of the year. If the rehabilitation does not begin until June, six months is lost. This language provides the municipality with the flexibility to begin the tax deferral any time during the calendar year. REPRESENTATIVE MURKOWSKI believed that the language left it very open. The language does not limit the referral/exemption to any time in that given tax year. CO-CHAIRMAN HALCRO referred to Ms. Rawitz's testimony which says, "The new language would allow a municipality to delay the exemption and/or deferral until the renovation work has been substantially completed." He noted that there is a tremendous amount of local control in this area. The technical changes in HB 76 would allow the municipality the flexibility, but approval at the city council or assembly level would be necessary. REPRESENTATIVE MURKOWSKI expressed the need to make Ms. Rawitz's comments clear in the language of the legislation. Representative Murkowski understood that this is an option given to the municipalities, but she expressed concern that this language is an open-ended provision. CO-CHAIRMAN HALCRO referred to page 1, lines 8 through 10 which reads: "A municipality may by ordinance permit deferral of payment of taxes on all or some types of deteriorated property for up to five years beginning on or any time after the day substantial rehabilitation, renovation, or replacement of any structure on the property begins." Co-Chairman Halcro said although the state statute may be open-ended, the municipalities are the local control in this case. Number 0876 MARC MARLOW, Marlow Development Corporation, informed the committee that last year HB 399 received 11-0 resolutional support from the Anchorage Assembly, passed the House of Representatives 40-0, passed the Senate 19-0, and subsequently the Governor signed it into law. The Anchorage Assembly passed an ordinance amending Municipal Code to reflect HB 399. Mr. Marlow explained that the municipal attorney requested clarification of some points which resulted in HB 76. Mr. Marlow noted that he originally requested that HB 76 be considered due to his opinion that Alaska has buildings that are deteriorating and aging. This law, which many states have in order to facilitate redevelopment of areas that would not otherwise be redeveloped, is patterned after a Pennsylvania law. The McKay Building is an example of the benefit of passing HB 76. Mr. Marlow acknowledged that it could be some time before this law would be utilized again since there are not a tremendous amount of older buildings, but dealing with just the McKay Building would be worth the effort. With regards to the McKay Building, the design is finished, the plans have been turned into building safety, the building permit number has been assigned to the project, and the plan review should require eight to ten weeks in the process. Mr. Marlow expressed appreciation in making these amendments to afford the municipal attorney more comfort with the language. Number 1109 MR. MARLOW explained that the McKay Building could not move forward as a straight business deal without this law. Even with the property tax exemption and deferral, the McKay Building project is having difficulties. This will help the municipality have more funds in the treasury for property taxes long-term. Currently, the McKay Building does not provide any revenue and would cost approximately $3 million of tax payer money to tear down the building. Under this scenario, the McKay Building would create many jobs and in 10 years the municipality would receive approximately $200,000 per year in property taxes. The area surrounding the building would increase in value; this would be the beginning of a renewal on the east end of downtown Anchorage. REPRESENTATIVE MURKOWSKI mentioned her specific interest in the McKay Building since it is a blight in her personal skyline. She asked if the July 1, 1999 effective date of HB 76 would affect the development process. Number 1221 MR. MARLOW replied no. He explained that the property tax exemption and deferral that any municipality may pass does not go into effect until there is performance. This prevents municipalities from extending property tax exemptions and deferrals on property that is never renovated. Mr. Marlow said that the performance on the McKay Building would not be completed until well into 2000. MR. MARLOW said that it does not matter when the exemption and deferral begin. The language was inserted to allow the exemption and deferral to begin the next tax year after completion of the project, after the performance was accomplished. Mr. Marlow pointed out that if the exemption and/or deferral began three years after the completion of the project, the property would be paying property taxes in between. MR. MARLOW, in further response to Representative Murkowski, reiterated that the redevelopment design for the McKay Building is complete and has been turned into Building Safety in Anchorage and that process would take approximately eight weeks. The financing vehicle is in the third phase of a four phase period of consideration which would not be completed any earlier than 60 days from now. Mr. Marlow hoped the renovation would be started in July or early August and would require approximately 11 months to complete. By the summer of 2000, people should be able to move into a safe and renovated McKay Building. MR. MARLOW informed the committee that last year a market study by a Seattle research firm concluded that the McKay Building's 123 unit apartments would be filled within four months of its completion. The target market for these apartments is anyone, but Mr. Marlow believed that it would be appealing to the young, 20 something person, who works downtown. The marketing will take place in the newspaper and the Internet. In response to Co-Chairman Harris, Mr. Marlow felt the McKay Building would be renamed. Number 1475 STEVE VAN SANT, State Assessor, Department of Community & Regional Affairs, testified via teleconference from Anchorage. He noted that he did not have a chance to testify on HB 399 last year and had not talked with Representative Halcro about HB 76, but had discussed SB 54 with Senator Kelly. Mr. Van Sant directed the committee to the language on page 1, lines 9-10 which Co-Chairman Halcro said was intended to allow the exemption to begin any time during the year. To date, all exemptions in Alaska begin the first day of the tax year, January 1, and the supreme court has ruled on that matter. Therefore, Mr. Van Sant expressed concern with allowing partial year exemptions. With regard to the McKay Building, Mr. Van Sant would recommend to Anchorage that the exemption begin January 1 which seemed to be what Mr. Marlow indicated. MR. VAN SANT referred to page 1, lines 13-14 which does not indicate that the municipality may collect interest on deferred taxes. Currently, only one statute allows deferment of taxes which is the agricultural exemption and deferment. The agricultural exemption and deferment allows the municipality to collect deferred taxes with interest at eight percent. Mr. Van Sant suggested language specifying that the municipality would not lose interest on deferred taxes should be added. He believed it would be almost administratively impossible to as lines 13-14 say, "if ownership of only part of the property is transferred, all tax payments attributable to that part are immediately due ...." If ownership is transferred, Mr. Van Sant wanted all deferred tax payments to be due and payable at that time, including the eight percent interest. Mr. Van Sant noted that as a state assessor he is typically opposed to exemptions and deferments. However, in the case of the McKay Building, Mr. Van Sant applauded Mr. Marlow's plans and reluctantly backed down from his usual stance understanding this would be for the good of the community and would like for the project to move forward. Number 1689 CO-CHAIRMAN HARRIS asked if Mr. Van Sant suggested on page 1, line 13 after "immediately due" insert "interest". MR. VAN SANT clarified that on page 1, line 13 delete "only" and insert "any" and on line 14 after "payments" insert "including interest at eight percent" and delete "to that part". On page 2, line 1 delete "attributable to that part". In further response to Co-Chairman Harris, Mr. Van Sant explained that eight percent interest is desirable because that is consistent with the statutes for agricultural deferments. Number 1800 MR. MARLOW agreed with Mr. Van Sant that once the property is transferred, the deferred portion of the taxes should be paid. However, the interest on this type of exemption or deferral was specifically avoided. Mr. Marlow explained, "When a person applies for and receives a farm deferral, what they are saying is: I have a piece of property that in the open market place might be worth many, many more dollars than than what I'm using it for. And so, I want that, you know, it might be assessed at a value that's much higher than its use as a farm. And so, a person applies for the farm deferral and the taxes back seven years are counted at the lower rate, but the interest that -- the interest accrues so that when that farmer decides I'm going to sell my property now on the open market place and collect all this money that I wasn't paying taxes for here; kind of recompensates the municipality for the taxes that they weren't paying on a higher value back seven years." In this case, Mr. Marlow explained this addresses property that without this incentive would have no hope of being renovated. Such a property would then be placed back in the market place and made taxable at its highest value. Mr. Marlow emphasized that applying interest to a deferred portion would be a disincentive to those goals. REPRESENTATIVE MURKOWSKI asked if the issue regarding interest had surfaced during prior discussions. MR. MARLOW could not testify if the issue of interest publicly surfaced in the past. Certainly, the issue of interest was considered during the creation of the legislation. Interest was specifically avoided with respect to the deferred portion. Number 1992 CO-CHAIRMAN HARRIS restated Mr. Van Sant's point that state statute only allows tax deferrals to begin January 1 which would seem to be at odds with the language on page 1, line 9. Co-Chairman Harris asked if Mr. Marlow would have a problem with including language indicating the deferral would begin at the beginning of the tax year. MR. MARLOW believed that the language in HB 76 was used in order to allow the municipality to begin the deferral and/or exemption the following tax year after performance to be compliant with state law. Mr. Marlow did not recall any discussion or intent to allow the exemption in July or August. Mr. Marlow said that whatever would be necessary to ensure clarity on that issue would be fine. CO-CHAIRMAN HALCRO noted that Ms. Rawitz drafted an ordinance for the Municipality of Anchorage which created a tax exemption and deferral program. Co-Chairman Halcro read the following from Ms. Rawitz's testimony: "Since most municipalities would prefer to (or are required to) begin a period of exemption or deferral on the first day of the tax year, it is appropriate to permit an exemption to begin at any time on or after the beginning of renovation, since renovation is not likely to begin on the first day of the tax year." CO-CHAIRMAN HARRIS inquired as to the legality of the language. MR. MARLOW said that he believed that was the intent. MR. VAN SANT stated that he was comfortable with the language, as long as the record reflects that the intent of the committee was not to change the manner in which exemptions are attached as of January 1. From working with the municipality and its attorney on this ordinance, the day Mr. Marlow broke ground would be the day the exemption would begin. Mr. Van Sant further understood the intent was to have a delay of a year until more substantial completion was accomplished which is what Mr. Van Sant understood the reasoning to be for this language. Number 2182 MR. MARLOW agreed. The exemption should not be initiated until the performance or substantial completion has been accomplished and the next tax year begins. Mr. Marlow agreed with Mr. Van Sant's assessment of the intent of the language regarding the beginning of the exemption or deferral. CO-CHAIRMAN HALCRO said that HB 76 is a win-win situation for all communities. Co-Chairman Halcro used the McKay Building project as an example of how this legislation would be beneficial. This legislation would allow a developer to invest money in the McKay Building which once on the property tax rolls would reduce everyone's property taxes in Anchorage, employ people, and create a foundation in the neighborhood. Co-Chairman Halcro said he would appreciate support on HB 76. Number 2310 REPRESENTATIVE DYSON moved to report HB 76 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered. The committee took a brief at-ease from 8:37 a.m. to 8:40 a.m. REPRESENTATIVE MURKOWSKI moved that the committee rescind its action on HB 76 for the purposes of an amendment. There being no objection, HB 76 was before the committee. Number 2350 REPRESENTATIVE MURKOWSKI moved the committee adopt the following amendment: Page 1, line 13 Delete "only" Insert "any" Page 1, line 14 Delete "to that part" Page 2, line 1 After "due", delete "and the deferral attributable to that part ends." Therefore, the language on page 1, lines 13-14 would read: "if ownership of any part of the property is transferred, all tax payments attributable are immediately due." CO-CHAIRMAN HALCRO pointed out that deleting "to that part" would mean that the taxes would be due on the whole property not just the sole portion. REPRESENTATIVE MURKOWSKI understood from Mr. Marlow's testimony that if any part of the ownership was transferred, at that time any deferred taxes would be due. MR. MARLOW indicated that was correct. CO-CHAIRMAN HARRIS asked if there was objection to the amendment. There being no objection, the amendment was adopted. Number 2490 REPRESENTATIVE DYSON moved to report CSHB 76(CRA) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered.
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