Legislature(2011 - 2012)BARNES 124
02/14/2012 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB264 | |
| HB312 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 264 | TELECONFERENCED | |
| *+ | HB 312 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 264-MUNI PROPERTY TAX DEFERRAL: SUBDIVISIONS
8:03:48 AM
CHAIR MUNOZ announced that the first order of business would be
HOUSE BILL NO. 264, "An Act allowing a deferral of municipal
property taxes on the increase in the value of real property
attributable to subdivision of that property; and providing for
an effective date."
8:03:52 AM
CHRISTOPHER CLARK, Staff, Representative Munoz, Alaska State
Legislature, speaking on behalf of the sponsor, Representative
Munoz, paraphrased from the following sponsor statement
[original punctuation provided]:
Passage of House Bill 264 will give municipalities the
option to provide an incentive to develop land for
housing by deferring for up to five years a property
tax increase associated with subdividing a piece of
property into three or more parcels.
The measure would give municipalities the flexibility
to defer increases in property taxes on subdivided
parcels until a lot is sold or a city grants a
building permit for that piece of property. It would
allow a local government to adopt the optional
deferral for all or a portion of a subdivided portion.
It would let a municipality decide the terms of paying
the tax deferral and when those payments would be due.
Supporters of this measure say it would remove a
disincentive for developing privately owned property
by holding taxes at the undeveloped land value until
improvements occur that lead to a parcel's being
developed and sold - thus becoming more valuable and
capable of generating more revenues for local
governments that choose to exercise this option.
The purpose of the bill is to encourage land
development for more housing and let local governments
decide whether a property tax deferral will benefit
them.
MR. CLARK then noted his appreciation for how this legislation
was drafted. Section 1 creates the proposed tax deferral and
when it would expire. The property tax deferral could last up
to five years, but would end for a particular parcel after it's
sold or the municipality grants a building permit for it. He
noted that there will be an amendment to address the fact that
not all boroughs in Alaska issue building permits. He then
pointed out that HB 264 provides for an effective date of July
1, 2012.
8:07:13 AM
REPRESENTATIVE FOSTER asked if this proposed property tax
deferral is primarily for residential property versus commercial
property.
MR. CLARK answered that although it could be either, the
sponsor's intent is to focus on residential property.
8:07:54 AM
REPRESENTATIVE FOSTER inquired as to whether there is a tracking
mechanism to ensure the first five years of the property tax are
deferred correctly to taxes. He then mentioned the time value
of money and questioned whether that has been taken into
account.
MR. CLARK responded that in some ways how to defer and implement
the property tax deferral is being left to the municipalities.
The local government of Juneau seemed to be receptive to that
flexibility.
8:08:58 AM
REPRESENTATIVE GARDNER pointed out that backup material in the
committee packet speaks to the need for residential housing and
the need to make it easier [to develop], but there is no such
documentation for commercial properties.
CHAIR MUNOZ related that commercial property is a broad
application that includes commercial rentals, homes that could
be rented, and subdivisions that are mixed/multiple use.
8:09:59 AM
ALAN WILSON, Chair, Juneau Affordable Housing Commission, noting
that he is also a builder in Juneau, informed the committee that
the Juneau Affordable Housing Commission was formed in 2007 to
address the tight housing situation in Juneau. The Juneau
Assembly established the group for three years, during which the
commission was then changed to be an ongoing commission. Mr.
Wilson emphasized that housing is a complex problem, and thus
the commission has reviewed the issue from various angles with
some success. The commission has reviewed how to motivate the
private sector while acknowledging the land costs, development
costs, and construction costs all of which amount to the cost of
a house. In 2010, the Juneau Affordable Housing Commission's
analysis found the need for 343 housing units in Juneau to reach
a 5 percent vacancy rate. The aforementioned breaks down to 205
single family homes with an entry level price of about $250,000
as well as 138 multi-unit residences. Mr. Wilson pointed out
that providing municipalities the ability to defer the costs of
land from the front of the project to the end of the project can
make a substantial difference. He told the committee that tools
such as the proposed deferral are used in various parts of the
country, albeit in different ways. In the five years working
with the Juneau Affordable Housing Commission, Mr. Wilson said
that HB 264 is the first private sector based proposal. He
indicated that nonprofit developers are good at utilizing cheap
money while the private sector is not. He characterized HB 264
as a major step for obtaining affordable housing in Juneau.
8:14:34 AM
REPRESENTATIVE AUSTERMAN asked if a municipality's ability to
divide into service districts is presumed, although it isn't
specifically spoken to in HB 264.
MR. WILSON said that in discussions with Juneau's planning and
revenue departments, those sorts of concepts were discussed.
The sentiment was that there was enough flexibility to
accomplish such. The discussions progressed to the extent that
there was the belief that incentives could be given to targeted
sectors.
8:15:32 AM
CHAIR MUNOZ requested a real example of development seeking to
subdivide a parcel into six to eight lots and the carrying cost
with additional taxation after development.
MR. WILSON deferred that question to others present.
8:16:07 AM
REPRESENTATIVE CISSNA highlighted the varying situations in
Alaska and inquired as to how many communities Mr. Wilson would
estimate the proposal in HB 264 would work.
MR. WILSON informed the committee that since the introduction of
HB 264, he has been surprised with how many communities have
expressed interest. In fact, after presenting this proposal to
the Alaska Homebuilder's Association about a month ago, he was
further surprised to hear Interior builders expressing interest,
particularly in terms of commercial land. He opined that it's a
larger need than is known. Mr. Wilson told the committee that
the deferral of municipal property taxes is a common, often-used
tool in the Lower 48. He characterized HB 264 as an economic
stimulus.
8:18:38 AM
REPRESENTATIVE CISSNA expressed the need to keep a log of this
process because it may be applied in other locales that haven't
been developed or have had federal housing development.
MR. WILSON confirmed that the commission keeps good records and
it has been at the forefront of developing new tools. While
some concepts may be new to Juneau, they're not always new
elsewhere.
8:20:52 AM
DARRELL BOURNE, President, Interior Alaska Building Association,
said that as a 30-year building contractor in Fairbanks, he
supports HB 264. He told the committee he is a partner in a 52-
acre subdivision that sits on a paved road that is a 10-minute
drive from Fairbanks and for which all the roads and most of the
power were completed five years ago. There are 18 river lots on
which he wants to build homes for package sales. In 2007, 10
lots were subdivided on a cross street that travels through the
subdivision. The intention was to build on those 10 lots and
subdivide 10 more lots in order not to pay the high tax on the
individual divided lots. However, due to the downturn in the
economy in the last five years only three houses have been sold
and six lots for which he has to pay full borough taxes remain.
Mr. Bourne told the committee that there are the following two
types of buyers. Most homebuyers are on a fixed and limited
income and want a nice home, but aren't very particular in terms
of the location of the home. There are also homebuyers who want
to live in a particular location, such as the Chena River, and
have the money to make it happen. He related that in the last
five years, he has missed five sales because he hasn't had a
river lot available. Mr. Bourne said that he can't afford to
subdivide the river lots and pay the taxes on them because if
they didn't sell for some time, it would cost too much. If the
borough adopted this amendment as proposed, he could move
forward easily to provide more saleable home lot packages on the
river. He told the committee that if HB 264 passed, he was
confident he and his partner would subdivide eight or more lots
on the river and accommodate people who are waiting. The
aforementioned would be a great economic boost to his business
and eventually place more homes in the borough's tax base. In
conclusion, Mr. Bourne encouraged the passage of HB 264.
8:24:45 AM
REPRESENTATIVE GARDNER inquired as to the residential housing
vacancy rate in Fairbanks, Alaska.
MR. BOURNE responded that he didn't know.
8:25:05 AM
DAVE HANNA related his support for HB 264. He then informed the
committee that it can be a fairly lengthy process to bring
online a new subdivision, particularly in an area where
available land is lacking and land costs are high. Once land is
obtained, a jurisdictional determination, which requires a
botanist, regarding how much of the property is wetland is
performed. Afterwards, the U.S. Corps of Engineers has to
approve the jurisdictional determination. Also, geologists have
to be hired to perform a topographical survey and sometimes a
traffic study is necessary. Moreover, engineering is often
involved. Mr. Hanna related that often it takes one to two
years before one is even ready to apply for a permit to develop
a subdivision. During this time, a developer has spent lots of
money, sometimes hundreds of thousands of dollars. Even after
applying for a permit, there can be lots of review.
Furthermore, adjacent landowners can bring up concerns that
delay the process. Mr. Hanna highlighted that the land is being
developed because there is demand/need for it, but time passes
during the aforementioned processes. Once the permit is
received and the plat is recorded, the property taxes increase.
Unfortunately, what frequently happens is that during the time
in which it took to complete the process for development, the
market disappears; as was exemplified by Mr. Bourne's situation.
Not only is someone in this situation paying interest on money
that might have been borrowed, but he/she is paying increased
property taxes on lots that can't be sold. He mentioned that
for some such a situation doubles the carrying costs. He then
directed the committee's attention to a document entitled
"Ramifications of Proposed Tax Legislation" that provides a
rough example of what results under the existing tax structures
and what could result if taxes on newly developed lots were
abated. Mr. Hanna related his observation that there was only
one letter in opposition to HB 264, which was from the Alaska
Municipal League (AML). The letter from AML related that the
developer could just elect to wait to develop property until
[there is demand]. Waiting until the demand is present isn't an
option for developers because by the time the subdivision is
online, the demand may very well be gone. Therefore, there
needs to be additional incentives so that developers begin the
process prior to the demand/need. There has been a lot of
support for the proposal in HB 264, including from the Juneau
Assembly. In conclusion, Mr. Hanna urged the committee to
strongly consider approving HB 264 because there is a need in
many of Alaska's small communities.
8:31:23 AM
REPRESENTATIVE CISSNA related that in Anchorage she has seen
large developments constructed without considering the larger
picture and planning for it. With regard to river front
property, she surmised that one would want to maintain some
sense of the environment prior to construction, such as with
public spaces, in order to keep the value high. He inquired as
to whether there is a manner in which to integrate planning in a
way that is supportive of people being able to develop land in a
quality fashion without going broke.
MR. HANNA stated that the aforementioned is exactly what HB 264
can help address because it provides broad flexibility to
municipalities in terms of how it's applied. In many
municipalities down South, similar tax incentives are used to
encourage in-field development, planned unit development, or
larger park spaces. This legislation, he opined, would provide
municipalities a tool to have development occur in their area as
they see fit.
8:34:17 AM
REPRESENTATIVE FOSTER, referring to the document entitled
"Ramifications of Proposed Tax Legislation" provided by Mr.
Hanna, inquired as to the number of lots upon which the example
is based.
MR. HANNA answered that the example used an average of 56 lots.
The example illustrates how bringing property online sooner
provides a net revenue increase for the municipalities. He
characterized HB 264 as a stimulus for increased cash flow to
municipalities.
CHAIR MUNOZ, in response to Representative Foster, explained
that AML isn't present today, but was invited and aware of the
meeting. She offered to ensure that AML is present at the next
meeting on HB 264.
8:36:17 AM
DAVID OWENS, Legislative Chair, Alaska State Homebuilders
Association, related support for HB 264, which he opined is a
great option for municipalities and developers. He further
opined that [Alaska's] economy needs to be stimulated and do so
in as innovative a manner as possible. This legislation is a
step in the right direction.
8:37:23 AM
FRED MARINO (PH), D.J.G. Development, stated that real estate is
a commodity and should be treated like other commodities, and
thus shouldn't be taxed until it's sold. He opined that no
matter the location in Alaska, the development process would be
assisted by the proposal embodied in HB 264.
8:38:27 AM
REPRESENTATIVE GARDNER pointed out that in Anchorage there is an
inventory tax that's payable annually. Although she didn't know
the rate, she knew it has to reach a certain threshold.
MR. MARINO highlighted that Anchorage's inventory tax isn't 100
percent on value, whereas these real estate taxes are 100
percent on value. He then suggested that [developers] would be
willing to invest in commercial or residential property
development, if they knew for five years they would have the
opportunity to fluctuate with the economy and build housing
without additional taxes.
8:40:10 AM
MICHAEL SATRE, Chair, Planning & Zoning Commission, City &
Borough of Juneau, clarified that since the entire commission
hasn't taken official action on this proposal, he would speak to
his experiences on the commission over the last seven years.
Juneau and many other communities in Alaska have a need for
affordable housing, which he interpreted to mean there are a
range of options in all housing sectors. Mr. Satre acknowledged
that there is no single solution and that strong economic
drivers, control of energy costs, and a variety of housing types
are needed. Over the years, the Planning & Zoning Commission
has identified the need for the ability to defer taxes on
subdivided land. As has been clearly related, the developers
bear the initial financial burden of developing property. He
recalled observing the rush to subdivide land when housing
markets are good, but by the time the process was complete the
market had changed and developers ended up sitting on large lots
on which the developers were taxed as if the lots were
developed. The aforementioned, he recalled, caused developers
to consolidate the lots and take them off the market, which is
how it remains today. This legislation would address one small
part of the problem and would place control in the hands of the
local boroughs to decide if the proposed deferral would fit
their situation and adapt to current market conditions. In a
case such as Juneau where there is stagnate demand for certain
levels of the housing market and it results in blocking the
development of a wide range of housing options, this deferral
could work nicely. He acknowledged that some would say that HB
264 doesn't go far enough and want to see an exemption to the
property taxes. With regard to the concerns about
commercial/industrial property versus residential property, he
encouraged the committee to take care if it amends the
legislation to differentiate between the two. In Juneau, some
of the commercial property has the option for residential
development, and therefore he wouldn't want to preclude that by
amending the legislation. He noted that sometimes commercial
property is an opportunity for mixed use development, such as
having retail space at the ground level and high density
residential units above. Since industrial property doesn't
generally have a housing [option], [the differentiation] might
be addressed there. Although AML believes that HB 264 creates a
special class of taxpayers, he disagreed and said that it
encourages development. Furthermore, the taxes will be paid,
they will just be deferred. In closing, Mr. Satre urged passage
of HB 264.
8:46:30 AM
REPRESENTATIVE CISSNA recalled when Northern Lights Boulevard
was all cleared and ready for development for 30 years. She
asked if there is a way to complete permitting on a site close
to development, while keeping a moderate amount of flora to
avoid just having fields. She inquired as to how fast units and
buildings can be constructed.
MR. SATRE opined that it's incumbent on everyone to become
involved in comprehensive planning processes so that values they
might have can be incorporated into the local plan. However, he
wasn't sure how that could be integrated into HB 264. Mr. Satre
reminded the committee that the tax deferral is only for five
years. Therefore, it will allow a developer to subdivide,
implement improvements, meet the requirements of the local
subdivision ordinances, and develop the land in a short period
of time as opposed to subdividing it and letting it sit foul for
many years.
8:51:36 AM
BRUCE GRIGGS, Developer, told the committee that he has
developed two subdivisions in the last few years. One was a 27-
lot residential subdivision that went fairly quickly and thus
the property taxes weren't an issue. However, three years ago
he finished a light commercial subdivision and was hit by the
[real estate] crash, which left him still sitting on some of the
lots. The property value of the raw land was roughly $800,000,
which increased four-fold as soon as the land was approved and
plated. The property tax increased from $800 to $3,500 per
month. Although he sold some of the lots, they sold for more
than they were assessed, which resulted in an increase in the
property tax of the other lots. Mr. Griggs then related that he
has a 75-lot subdivision for which he has paid for the
engineering, surveying, and other costs. Although he is ready
to move forward with permitting, he said he is afraid to do so
because it's a larger subdivision and there isn't any tool to
develop smaller portions of it. The current property taxes for
it are roughly $1,000 per month and would likely increase to
about $6,000 a month once it's permitted. Furthermore, he
estimated that it will take about two years to get through [the
permitting] process during which he would face a $6,000 per
month tax bill.
8:55:11 AM
CHAIR MUNOZ announced that HB 264 will be held over.
8:55:29 AM
The committee took an at-ease from 8:55 a.m. to 8:57 a.m.