Legislature(2007 - 2008)BARNES 124
05/03/2007 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
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| Start | |
| HB199 | |
| HB60 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 199 | TELECONFERENCED | |
| += | HB 60 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 199-MUNICIPAL PROPERTY TAX EXEMPTION 8:07:02 AM CO-CHAIR FAIRCLOUGH announced that the first order of business would be HOUSE BILL NO. 199, "An Act relating to an optional exemption from municipal property taxes for residential property." 8:07:28 AM REPRESENTATIVE SCOTT KAWASAKI, Alaska State Legislature, sponsor, explained that HB 199 changes one number dealing with local municipalities in Title 29. He highlighted rising property taxes, adding that the property tax caps in place in many municipalities do very little to offset rising taxes. One way to address high property taxes is to offset them with an exemption. In 2005 [Fairbanks] voters voted to increase the tax exemption to $20,000, which is the maximum level state law allows. This legislation, HB 199, would increase the property tax exemption to up to $100,000. He acknowledged that there is a proposed committee substitute (CS) that would increase the property tax exemption to up to [$50,000]. Representative Kawasaki said that he favors any increase in the amount of the exemption. A residential property tax exemption is fair, he opined. He explained that if [a community] is up against a tax or revenue cap and the same level of funding is desired every year and the community exempts properties, then the mill rate has to increase in order to recoup the cost of the exemptions. He opined that a residential property tax exemption is fair because those who are hit the hardest and need the exemption the most will keep their money in town. This legislation and its companion in the Senate are supported by the Alaska Municipal League. Representative Kawasaki informed the committee that HB 199 has received wide support. In fact, he said that he hasn't heard any opposition to the legislation. 8:11:15 AM CO-CHAIR LEDOUX inquired as to how the $100,000 exemption was determined. REPRESENTATIVE KAWASAKI said he believes, upon review of rising property taxes, that the $100,000 exemption is fair based on the level at which home values are rising. He related his belief that the $100,000 exemption would keep pace with inflation. CO-CHAIR LEDOUX asked if the sponsor has discussed HB 199 with those in the business community. REPRESENTATIVE KAWASAKI pointed out that HB 199 is similar to 2003 legislation that passed both the House and the Senate. At that time there was very little opposition. Although the business community hasn't come out in opposition to HB 199, he related his belief that the burden will be shifted to higher valued homes, those [assessed] above the $400,000 mark. This is good legislation because those who need the money the most will benefit from the exemption while large box stores, he assumed, would experience an increase in their taxes and bottom lines. 8:15:06 AM REPRESENTATIVE KAWASAKI, in response to Representative Neuman, clarified that HB 199 proposes an optional exemption that provides second class boroughs and cities another tool. This legislation sets the limit at $100,000. If a city decides to utilize the exemption, the mill rate could rise to that point or it doesn't have to increase the mill rate. 8:16:36 AM CO-CHAIR FAIRCLOUGH explained that when a community values its property, there are residential, industrial, and commercial components. This proposal shifts the cost burden such that all residents could see a credit that reduces taxes, but doesn't increase the mill rate because it shifts to the commercial component in that it increases the amount the commercial component is taxed. 8:17:31 AM REPRESENTATIVE NEUMAN surmised that the credit is paid by someone else. He asked Representative Kawasaki if he expects the City of Fairbanks to reduce residents' taxes by $100,000. REPRESENTATIVE KAWASAKI directed attention to the committee packet, which includes resolutions requesting exemptions of up to $100,000. Representative Kawasaki explained that a $100,000 decrease in valuation at 15 mills would be a $1,500 exemption a year. 8:19:15 AM CO-CHAIR LEDOUX inquired as to how HB 199 would impact leased property. She further inquired as to whether an individual operating a small business out of his/her home would be considered residential or commercial property. REPRESENTATIVE KAWASAKI pointed out that state law merely says that a municipality can exempt or partially exempt residential property. Therefore, he surmised that it depends upon how the local municipality decides to address the exemption. 8:20:47 AM STEVE VAN SANT, State Assessor, Division of Community Advocacy, Department of Commerce, Community, & Economic Development, returning to Representative Neuman's earlier question, said that if a municipality provides an exemption on residential property, the mill rate will have to increase. Although there will be a decrease in the taxes of residential property owners, the taxes will be shifted to nonresidential property such as commercial, industrial, vacant land, and perhaps in some case to oil and gas property. The increase in mill rate will vary depending upon the exemption. Mr. Van Sant highlighted that in most municipalities, only owner-occupied residences receive the exemption. He then pointed out that the committee should have a fiscal note from the Department of Revenue illustrating a drop in state revenues in the amount of $1-$1.5 million for an exemption of up to $50,000. He estimated that the loss in state revenues for an exemption of up to $100,000 should be in the range of $2-$2.5 million. 8:22:41 AM CO-CHAIR LEDOUX inquired as to how a single-family resident in which there is a business is taxed. MR. VAN SANT answered that if it's owner-occupied, the [municipality] will probably give a partial exemption such that the exemption only applies to the residence. 8:23:13 AM CO-CHAIR LEDOUX inquired as to why HB 199 would result in a decrease in state revenues since it provides an exemption for a municipal property tax. MR. VAN SANT explained that in the North Slope area, Fairbanks, Valdez, and Kenai there are state oil and gas properties on which the state levies a 20 mill tax from which the municipal tax is deducted. For example, if in Fairbanks the mill rate is 15, the state would receive 5 mills of the oil and gas property and the borough 15 mills. If the mill rate increases to 17, the extra 2 mills will be applied to the oil and gas properties, which will be deducted from the state's share of the 20 mills. 8:24:21 AM REPRESENTATIVE NEUMAN inquired as to how much this proposed exemption would impact the state's general fund. MR. VAN SANT specified that when a similar proposal was brought up a few years ago with an exemption of up to $50,000, the estimated cost to the state's general fund was about $1.6 million. 8:24:46 AM CO-CHAIR FAIRCLOUGH said that after discussions with Mr. Van Sant regarding the drop in state revenue, she decided to put forth the proposed CS with an exemption of up to $50,000. Co- Chair Fairclough related that the local option aspect of this is more palatable to her. She then inquired, "Is there a nexus point between ... the cost shift from residential property owners to the taxation of commercial and industrial property in a different way? And is there a tipping point?" MR. VAN SANT highlighted that the growth percentage of residential property has out paced that of commercial property. Therefore, there has been an abnormal increase in values of residential property in comparison to commercial property. The main thrust of legislation such as HB 199 is to slow that growth for residential property. Furthermore, it all depends upon how the municipalities implement it. At a $50,000 exemption, those properties in the $400,000 range will see an increase in taxes paid, depending upon how much the mill rate is increased in order to make up the loss the municipality realizes. CO-CHAIR FAIRCLOUGH further clarified her question. She pointed out that large stores, such as Fred Meyer, do use facilities and municipal services in a manner different than a residential property owner. The industrial/commercial community have a greater use of the system that [all property owners] are trying to pay for equally. She asked if there's a point at which the shift [in taxes] is unfair. MR. VAN SANT reminded the committee that the largest component of any mill rate is the school budget, which typically accounts for 70-80 percent of the total mill rate. He said that he hasn't done a study on [such a tax shift]. 8:29:27 AM WOLFGANG FALKE began by characterizing the City of Fairbanks as a glorified service area that isn't taking care of education since it's a borough function. Mr. Falke opined that it doesn't matter whether there's a sales tax or a property tax because if there's a sales tax, the property tax will decrease. He further opined that Fairbanksans are proud of not paying a sales tax and thus don't seem to mind paying more in property tax. The businesses are writing off their [property] tax as a business expense, and therefore that property tax is reflected in the price. If the property tax decreased, the consumer pays less but has to pay a sales tax, which generates additional administrative costs. Mr. Falke said that he's opposed to any tax that creates more administrative costs. He then opined that citizens should receive an exemption rather than having an exemption in the form of a sales tax and a decrease in property tax because citizens would ultimately pay the property tax twice. They would pay the property tax to the city and indirectly at the store. He then highlighted Article X of the Alaska State Constitution, which specifies that the state should provide for maximum local self government. Therefore, the exemption should be in place without any limit and thus he suggested deletion of the last sentence of HB 199. He concluded by stating that HB 199 provides a little break from the double taxation he explained earlier. 8:35:05 AM LISA PEGER noted her agreement with Mr. Falke that there shouldn't be an upper limit on this exemption because it should be [left up to] local control. She suggested that instead of having an upper limit, the $100,000 could be inflation-proofed by the annual average statewide property assessment increase. Ms. Peger opined that she likes HB 199 as it is. She then highlighted the continuing financial hardships the average middle class citizen faces. Ms. Peger charged that politicians have created inflation by always increasing government wages annually by 3 percent. She then turned to the proposal for a 2 percent cap, which she characterized as not a good idea as it's artificial, cumbersome, and creates false evaluations. This legislation is perfect because it allows locals to craft exactly what they need and vote on it. She informed the committee that one problem is related to the growth percentage. She explained that in certain cities there isn't enough housing for the influx of military. In Fairbanks, for example, the military [housing] allotment has been increased to $2,050. Therefore, the average person isn't chosen for rentals because the rents increase to the military limit. Ms. Peger, drawing upon her experiences as a landlord, related that the situation has resulted in families trying to live in efficiencies. The demand for housing makes the valuations real and true. She informed the committee that in Fairbanks houses are basically traded 800 times a year. However, there are only about 50 trades a year for commercial property and thus they don't experience the same inflationary pressure of residential property. This is unfair because business, commercial, and raw land property valuations aren't properly taxed. Ms. Peger said HB 199 would shift about 1-5 mills [in tax burden] to raw land. 8:43:32 AM CO-CHAIR FAIRCLOUGH related her understanding that politicians' wages for Anchorage and the state have been frozen for over a decade. 8:45:20 AM SHANE HORAN, Assessor, Kenai Peninsula Borough, provided the following testimony: On behalf of the administration, we do not support this bill. The mayor believes that if House Bill 199 becomes law, it will put undue pressure on the assembly to pass an unfunded exemption. Currently, the Kenai Peninsula Borough does offer a flat $20,000 residential exemption for residential properties that are owned and occupied as one's primary residence and permanent place of abode. Additionally, according to Kenai Peninsula Borough, one must occupy his/her home for at least 183 days per year for which the exemption is sought. The language of this bill merely states "a municipality may exclude or exempt or partially exempt residential property from taxation by ordinance ratified by the voters at an election." I hope your intent is that it would apply to a home owned and occupied as one's primary residence and permanent place of abode. Currently, the assessed value of home owner-occupied primary residences and permanent places of abode that are exempt based on the $20,000 residential exemption in the Kenai Peninsula Borough amounts to about $185 million in assessed value or approximately $2.2 million in taxes being exempted or shifted elsewhere. For example, to vacant lots, non owner-occupied homes, industrial, commercial, and our oil and gas properties. At [the] $50,000 exemption, the assessed value exempted would approximate $452 million or about $5.4 million in taxes exempted or shifted elsewhere. Lastly, this additional available exemption would place political pressure on our municipality to go before the voters at a time when budgets are attempting to be managed with all due care and with all due fiscal responsibility. So, with that, thank you Madame Chair for your consideration. 8:47:41 AM CO-CHAIR LEDOUX opined that usually the municipalities encourage the legislature not to establish unfunded mandates and to maintain local control. Therefore, she expressed confusion with Mr. Horan's testimony. Furthermore, she recalled that Kenai provides a 100 percent senior exemption, which is beyond what the state mandates. MR. HORAN confirmed that Kenai does provide a 100 percent exemption for seniors. However, he informed the committee that the assembly is currently working to cap its senior exemption at $300,000. He related his understanding that the mayor of Kenai merely wanted to relate that this legislation places another pressure to pass an ordinance and place it before the people even though it's an optional exemption. CO-CHAIR LEDOUX related her understanding from a recent Anchorage Daily News article that Kenai is contemplating placing the senior property tax exemption before the voters. She suggested that perhaps coupling this proposed ordinance with a reduction in the senior exemption could result in a successful vote. MR. HORAN acknowledged that [the proposed ordinance] may help. He then informed the committee that 60 percent of Kenai's general revenues are collected from property tax and about 20 percent from sales tax. Kenai is attempting to find a balance by reducing the mill rate and increasing the sales tax. 8:50:24 AM REPRESENTATIVE CISSNA noted her agreement with the sponsor that in a state with so many differing communities, an array of options should be offered. Therefore, she questioned whether Kenai may need options some time in the future. MR. HORAN related his belief that Kenai would like simplicity and less options because [more] options increase administrative pressure and public frustration. 8:52:43 AM MARTY MCGEE, Assessor, Municipality of Anchorage, speaking on behalf of the mayor, announced that he doesn't oppose HB 199. He noted appreciation that what HB 199 proposes is a local option and a public process related to changing the limits on the amount of the exemption. Mr. McGee echoed earlier testimony that any change to a tax exemption is redistribution of the tax and thus other taxpayers will pay more when another group of taxpayers is given an exemption. 8:54:03 AM LUKE HOPKINS, Member, Fairbanks North Star Borough Assembly, Fairbanks North Star Borough, related the assembly's support of HB 199, which he characterized as another tool for municipalities. Furthermore, it provides many levels for public input at the local level. The passage of this legislation could provide some homeowners with some relief from increasing property assessments and energy costs. Mr. Hopkins further related that earlier this year the Fairbanks North Star Borough Assembly supported, by resolution, a request for a $50,000 exemption. 8:55:50 AM JAVEN OSE related his opinion that HB 199 basically shifts the tax burden and creates a situation of hate amongst [those who receive the exemption and those upon whom the tax burden was shifted]. Therefore, he suggested that perhaps the exemption could be forgive. Mr. Ose recalled the last 50 years, and inquired as to how many instances of waste there have been. In conclusion, Mr. Ose stated his opposition to HB 199 because it shifts the balance of payment from one party to another. 8:59:28 AM TAMMIE WILSON began by relating her support for HB 199. Ms. Wilson then informed the committee that the mill rate in Fairbanks has lowered every year since the $20,000 exemption was established. However, she acknowledged that when there is a shift such as this, someone pays somewhere along the line. She then highlighted the local control aspect of HB 199, and pointed out that [the exemption in Fairbanks] is 20 percent of the assessed value or $20,000, whichever is lower. Furthermore, the $20,000 exemption isn't [utilized] in road service areas and thus the exemption doesn't place the fire and road services in detriment. She opined that the conflict is caused by not being able to tax/appraise commercial property differently. She echoed earlier comments regarding the stress created by the demand for military housing. She related that most [residential] property values have increased more than 10-20 percent [in Fairbanks]. Ms. Wilson acknowledged the desire to have large box stores pay more, but she cautioned the committee because small businesses do get caught up in this as well. However, she pointed out that most small business owners own homes and would hopefully be helped by this proposed exemption in that realm. 9:03:37 AM CO-CHAIR FAIRCLOUGH, upon determining no one else wished to testify, closed public testimony. She then noted that a CS was prepared so that the committee could consider the exemption at the $50,000 level as well. She reviewed questions and suggestions related to HB 199 and suggested that the committee consider those and any possible amendments. 9:05:03 AM REPRESENTATIVE KAWASAKI, utilizing a pictorial, related that if the assessments decrease due to a higher portion being exempted, then the mill rates would have to increase in order to maintain the same level of revenue. The aforementioned would impact communities such as Fairbanks that are at the revenue cap. Communities that raise more than the cap would probably decide whether to increase the mill rate or not. In fact, the City of Fairbanks went through a mill rate reduction last year, although they could raise more since its not at the cap. Representative Kawasaki said he found it bizarre that Kenai wouldn't want a local option and the local community could determine how to specify the type of property. He noted that not every community has a property tax. In closing, Representative Kawasaki expressed his desire to work with the Chair to make HB 199 better legislation.
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