Legislature(2013 - 2014)BARNES 124
04/01/2014 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB379 | |
| HB238 | |
| HB317 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 379 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 238 | TELECONFERENCED | |
| += | HB 317 | TELECONFERENCED | |
HB 379-OIL & GAS PROPERTY TAX
8:08:34 AM
CO-CHAIR LEDOUX announced that the first order of business would
be HOUSE BILL NO. 379, "An Act relating to the limitation on the
value of property taxable by a municipality; and providing for
an effective date."
8:08:57 AM
CO-CHAIR NAGEAK introduced HB 379, which is sponsored by the
House Community and Regional Affairs Standing Committee of which
he is a co-chair. He said the North Slope Borough is seeking a
legislative change that will provide more flexibility in
managing its own budget, while providing a sliding scale for
municipalities to lower taxes on oil and gas properties. He
summarized the history of the North Slope Borough. Beginning in
the late 1960s oil was discovered in Prudhoe Bay, and his people
were excited, but also apprehensive, because if anything
happened in areas of traditional hunting and gathering, it would
have tremendous impact on the people and their way of life, so,
initially, residents were against development in that area. He
recalled coming home from serving in the Army in 1972 and seeing
a completely different world. "It is an opportunity for our
people to move forward; to build things; but first we had to
form some sort of instrument to help us do that." He noted that
the leaders, like Eben Hobson, Jake Adams, and others, started
the land claims and the formation of the borough. The people
were uneasy, he said, but over the years they came to believe
that the oil industry and the people's way of life, including
the animals and the environment, can coexist. "That was a new
thing for us; we've seen the oil industry be a good neighbor in
the State of Alaska," he said, but it was not always like that.
CO-CHAIR NAGEAK said that when the borough was being formed,
there was considerable anxiety from the industry and the state,
and he recalled hearing that the Inupiaq were ignorant and could
not govern a municipality. They were told that they were not
far from the Stone Age and the area was so vast and there were
no family ties within the area. But for a millennia, his people
lived and traveled together, and he pointed out that his
grandfather was an Inupiaq missionary with a parish that went
from Barrow to Kaktovik and to the Canadian border. He has
relatives everywhere: Point Hope, Kotzebue, Anaktuvuk Pass,
Wiseman, and maybe even in Russia, he noted. Inupiaq and other
Alaska Natives have always had a form of government, but they
were characterized as ignorant and unable to run their own
affairs, and if they had a borough and money started coming in,
they would "go crazy and spend everything on frivolous things."
8:16:32 AM
CO-CHAIR NAGEAK said, "The reality is another story." His
people organized and became a home rule government in a fashion
like no other, and "from the get-go they knew what they were
doing." He spoke of the charter of the North Slope Borough: to
take care of the land, give everyone a say, and consider the
wildlife, and it was written by young men chosen by Eben Hobson.
To this day, it is one of best charters in the state-it even has
a department of wildlife management, he said, because it is
important to have viable animal populations. He noted that he
was the director of that department for about six years. He
asked, "What has happened since 1972?" He recalled waking up
some mornings, freezing-cold, and heading to the warmth of the
school mechanical room to wash up before walking in the front
door of school. Today, there are beautiful schools, airports,
runways, roads (although still dusty and filled with potholes),
clinics, and an educational system that is equal to anywhere in
the state. Co-Chair Nageak attributed it all to what the North
Slope Borough has provided. He repeated that the state and the
oil industry were against forming the borough, and so the state
sued the people of the North Slope, because "they didn't trust
us." The borough has been very successful and he is proud. He
has been an assessor and a mayor, and he recalled that at the
age of 24 he was talking with oil industry people about billions
of dollars. "We didn't back down. We got the valuation that we
thought was enough for the North Slope," he said.
8:23:41 AM
CO-CHAIR NAGEAK said, "Forty-some years later, we're in the same
dang boat." He said HB 379 would amend "the way the valuation
is." The same people who sued the people of the North Slope are
keeping the borough from making the desired changes. One
accusation is that the borough would make Alaska lose money, he
said. Since the borough was formed, it has operated on an 18.5
mill rate, although it is allowed a 20 mill rate, and "we didn't
use it all because we're good people," he said. The 1.5 mill is
$30 million annually, and it goes to the State of Alaska. The
state has benefitted from the borough, and since it was formed,
the borough has given the state $1.2 billion, and "that's being
a good steward," he said.
8:27:50 AM
JOHN BITNEY, State Government Liaison, North Slope Borough,
noted the importance of knowing the history in terms of "where
did this come from and why are we talking about it." Under
current law, the state assesses a property tax on oil and gas
properties at 20 mills, and the municipalities have authority to
set a tax rate that can capture some of that, up to 20 mills.
The North Slope taxes 18.5 mills, which leaves 1.5 mills to the
state, he explained. He said the North Slope Borough is trying
to amend a formula that was crafted in the early 1970s in state
law that puts a cap on what a municipality, with oil and gas
property, can use from those revenues for its operations budget.
He said the formula essentially caps the amount of oil and gas
property tax revenue that can be used for an operating budget.
This is not a bill to raise taxes, but rather to raise the cap
that limits what municipalities can use for their operations
budget, he clarified.
8:30:48 AM
CO-CHAIR LEDOUX asked if all municipalities have the cap.
MR. BITNEY said the cap is a general law of applicability that
applies to all oil and gas properties, and there are different
formulas that a municipality can choose. He stated that the law
applies to all, but there are two municipalities where the oil
and gas revenues are the most significant form of income, by
far, and that is the North Slope Borough and the City of Valdez.
8:32:26 AM
CO-CHAIR LEDOUX inquired as to why the state should even care
how a municipality spends its funds.
MR. BITNEY answered that "somebody did care," and "that is the
frustration that brings us here today." He said that when the
state was beginning to develop its gas and oil resources, a
limitation was placed in statute.
REPRESENTATIVE FOSTER requested an explanation of how [the
statute] works.
8:33:39 AM
MR. BITNEY pointed to a 2013 annual report produced by the state
assessor called, "Alaska Taxable," and he said there is a good
explanation of the formula on page 34. It shows two formulas,
and one sets the operating cap (which is the focus of HB 379),
and there is also the actual tax rate, he said. The formula
takes the average per capita of the full value of the
municipality, multiplies it by 225 percent, and then multiplies
that by the population, and the product is the operating cap.
In 2013 it was $174.6 million. "Once you have that number
calculated by the state assessor's office, you then move down to
the formation of the borough's budget and the actual tax levy
amount that the borough puts in place," he explained. The
borough sets that $174.6 million as the operating budget, and
that works out to be 9.08 mills of tax. He said that the
borough taxes at 18.5 mills, so the difference between that and
the 9.08 mills of property tax equals what the borough is
allowed to use for the debt service for its capital needs. Over
all of these years, the North Slope Borough has built up its
infrastructure to a point where it does not need the debt
service amount, he stated. What it needs is flexibility to
spend more on operations to maintain the existing facilities.
It is an inefficient system to try and pay for things with debt,
considering its interest charges and issuance costs, he added.
He said that HB 379 changes the formula for the operations cap
by increasing the 225 percent multiplier.
8:37:41 AM
CO-CHAIR LEDOUX asked about eliminating the formula altogether.
"Why does anybody have to regulate ... how much they can spend
for this and how much they can spend for that?" She suggested
that the borough be allowed to tax at 20 percent and leave it at
that.
REPRESENTATIVE FOSTER said that is a great idea.
MR. BITNEY said what he wants to emphasize is that it is the
borough's full intent to stay at 18.5 mills.
8:39:34 AM
REPRESENTATIVE FOSTER asked if there was a number, or a cut off
on the sliding scale, that the borough would prefer. He asked
if the borough would like to make that decision each year and
what they wanted the legislature to do.
MR. BITNEY said it is a sliding scale in HB 379. The intent was
to alleviate concerns that, if a formula were eliminated, it
would leave unlimited headroom for taxes to go up, and "we have
tried to craft something here that shows that that's not our
intention." That is why it is crafted as a sliding scale. In
fact, if [the tax] goes above 19 mills there will be no benefit
of an increased multiplier, but if [the tax] goes below 18.5
mills, there would be a higher multiplier than what is being
proposed for the borough. He said there may be an incentive to
lower taxes, which would remit more of that revenue to the
state. In essence, by lowering taxes there is a gain in
flexibility with the higher multiplier, he explained. At a 300
percent multiplier within the 18 mill range, there will be about
$50 to $55 million of flexibility for the borough. This is an
annual exercise of the mayor and the assembly, but in looking at
the history of budgets and taxation, 18.5 is a steady number by
the borough. He added that state law requires that the mill
rate apply equally to all taxpayers, so anyone raising taxes
will have to face the local constituency.
8:42:40 AM
REPRESENTATIVE FOSTER surmised that the borough does not intend
to increase the 18.5 mill rate, because the state has a concern
that an increase would leave the state with less [money]. If
the borough decreases that rate, the state would get more
[money], because "if you go down to 18, well now the state picks
up 2 mills instead of 1.5, so that's better for the state, but
the intent, though, is maybe to stay at 18.5 or go lower, and
however that sliding scale within how the borough wants to spend
that money, part of it goes to debt, part of it goes to
operations-I'm totally fine with that."
8:43:31 AM
REPRESENTATIVE REINBOLD said she is not sure that she fully
understands the intent of HB 379. She noted that she was part
of an initiative in Anchorage to cap taxes, so she finds this
really, really interesting. "Our operating budgets were getting
out of control-they still are, but at least this helped," she
explained. She said a 9 percent operating budget is impressive,
if that is how much the borough is spending. She said she wants
to ensure that nobody is paying more, even on existing
structures.
MR. BITNEY said that was true.
8:44:21 AM
REPRESENTATIVE REINBOLD surmised that, right now, the
municipality collects 18.5 [mills], but only 9 percent is used
for the operating budget. "It sounds like you think that you
have enough capital projects, so the capital projects are not
going to suffer in this, is that correct?"
MR. BITNEY said that is correct.
8:44:34 AM
REPRESENTATIVE REINBOLD said it is a good example if the borough
is able to keep a low budget and living affordable. The schools
are not going to be impacted; the roads are not going to be
impacted; none of the infrastructure is going to be impacted-"is
that correct?"
MR. BITNEY answered that what is needed is maintenance, so the
impact would be to keep it all in good shape for years to come.
8:45:02 AM
REPRESENTATIVE REINBOLD said she believes that a lot of people
use capital money for maintenance, and she really thinks that
maintenance and improvement should be in the capital budget.
REPRESENTATIVE KITO III declared that he has a conflict because
of a contract with the North Slope Borough on another issue. He
then pointed to the formula in the taxation manual and asked
about the 30 mills identified in the first calculation.
8:46:35 AM
ROB ELKINS, Deputy Director, Administration and Finance, North
Slope Borough, said the first thing that the North Slope Borough
uses is the formula in AS 29.45.080, which allows the borough to
choose between either developing a budget of $1,500 per person
or 225 percent per capita value of assessed property, multiplied
by the borough population. He said that the borough uses the
second figure. It provides an equivalent tax base, so in the
current year, the North Slope Borough has a total assessed tax
base of $17.9 billion, he explained. Because of the calculation
required under AS 29.45.080(c), the borough takes the per capita
average full property tax value, which is $146,000, and
multiplies it by the 225 percent allowed in statute and comes up
with an average modified full value of $330,152. That number is
then multiplied by the population (18,637), which provides an
equivalent tax base. "So rather than being able to tax for
operations that entire $17.9 billion, we have a modified tax
base of $6.153 billion-that number then has a 30 mill limit as
identified under statute, applied to it, which gives, this year,
the North Slope Borough $184 million to use for operations and
leaves a leftover of $146 million for debt service."
8:49:16 AM
REPRESENTATIVE KITO III asked where the 30 mills is in statute.
MR. ELKINS said he will have to get back to the committee.
CO-CHAIR NAGEAK noted his conflict of interest as he is a
resident of the North Slope Borough.
8:50:21 AM
CO-CHAIR LEDOUX said he [and Representative Kito] will be
required to vote, and she opened public testimony.
STEVE VAN SANT, State Assessor, Alaska Department of Commerce,
Community & Economic Development, said that the 30 mill language
is in AS 28.45.090(a), and it restricts the maximum operating
budget to 30 mills or 3 percent.
8:52:27 AM
SCOTT BRANDT-ERICHSEN, Attorney, Ketchikan, said he is only
representing himself and that he worked on a case several years
ago related to the statute being discussed. He originally
believed that HB 379 was special interest legislation to give
the North Slope Borough and Valdez a larger portion of the oil
and gas tax revenues, but after reviewing the bill, he sees it
as an opportunity to fix something that has annoyed him.
Firstly, the fiscal note will likely relate whether the amount
of revenues going to the state will be impacted by HB 379, but
the sections of law that he has had concern with, AS
29.45.080(b), 090(b)(1) and (c)(1), deal with the limit of
$1,500 per capita. He noted that the 2013 "Alaska Taxable
Report," pages 24-25, shows per capita revenues by municipality.
The North Slope Borough is $45,340 per capita and Juneau is
$2,420 per capita, and better than half of the municipalities
are above the $1,500 per capita limit. "I would submit that
that $1,500 a year per capita limit serves no purpose and is
ineffective." He said the state assessor's office has treated
those two limits as disjunctive-meaning that the municipality
only has to comply with one or the other. Since the $1,500
limit has no real meaning, he suggested eliminating it. He said
he also sees a benefit from eliminating both limits altogether.
A better limitation on the levy of taxes would be what the local
community would be willing to pay, he opined. From a public
policy standpoint, both the 225 percent limit and the $1,500
limit should be eliminated for all municipalities and then
decided by voters.
8:57:08 AM
ANGELA RODEL, Commissioner, Alaska Department of Revenue, said
she would like to give the state's perspective on oil and gas
property tax. It is important to know that the tax is a
mechanism for Alaska to receive revenue from areas that greatly
benefit from oil development and to allow the money to spread to
other parts of the state. Additionally, oil and gas property
tax affects Alaska's oil production tax calculations, "so when
you take off limitations on oil and gas property tax, that's a
deduction on the oil production tax, which feeds 90 percent of
the state budget." She said the state is supportive of the
borough's need for more funds to its operating budget, and the
bill before the committee has created a mechanism that allows
the borough to adjust mill rates to account for more operating
budget revenue if needed, but "we have a $10 million potential
negative affect, and that's simply to recognize the fact that if
the borough does in fact ... raise its tax rate and take the
full 20 mills, the state would have an impact of about $10
million as opposed to $30 million, which you heard
Representative Nageak speak to earlier." She noted that there
is no reason to believe that the borough will do that.
8:59:19 AM
CO-CHAIR LEDOUX asked if the borough could do that now-increase
the tax rate from 18.5 mills to 20 mills.
COMMISSIONER RODEL said, "They could increase it and it would
have an impact of $30 million; the reason they don't is because
they haven't-and they don't intend to-and they're fully using
their operating budget now, and I think that's the beauty of the
creation of the sliding scale is that it does minimize the
impact on the state at this time."
8:59:59 AM
REPRESENTATIVE FOSTER spoke to the sponsor statement, which says
that the municipality would gain more flexibility by lowering
the taxes, and lowering the taxes appears to increase the
multiplier. The goal is to be able to spend more on operations,
and, right now, the borough is being restricted by the formula.
"I was a little bit concerned when I saw the $10 million here
because I thought it's not the intent of the borough, I guess,
to increase their mill rate."
COMMISSIONER RODEL agreed. That is her understanding. "We try
to make a point to outline the impacts for you so that you
understand when you're making decisions about the bill."
9:01:18 AM
REPRESENTATIVE HERRON noted that Commissioner Rodel called it
"the beauty of the sliding scale," and he asked if the scale
could be modified to be more advantageous for the state.
COMMISSIONER RODEL said the state worked hard to find a
mechanism that did not impact the state, but [the statute]
applies to any municipality with oil and gas property tax. To
have zero impact on the state would force municipalities with
higher mill rates to cut them, she explained. "We think the
sliding scale is as neutral as we're going to be able to get,"
she added.
9:02:32 AM
REPRESENTATIVE KITO III asked why a limit was placed on
operating funds originally.
COMMISSIONER RODEL said she does not know, but she knows there
is the 30 mill rate that applies to all municipalities, and this
multiplier was to equalize property values with areas without
oil and gas property tax.
9:03:30 AM
MATT FONDER, Director, Tax Division, Alaska Department of
Revenue, said he believes that is the basic premise [of the
statute], but he does not have the exact legislative intent.
The statutes are about 40 years old, he noted.
CO-CHAIR NAGEAK said it has been more than 40 years, and the
borough has never gone above 18.5 mills. It never will because
people understand that "we have to be good stewards of not only
our municipality, but we need to be good citizens of the state."
Being good citizens means sharing some of the wealth-"we could
go all the way to 20; we could have, but we choose not to and we
will continue to choose not to," he stated.
9:05:25 AM
CO-CHAIR LEDOUX closed public testimony. She said HB 379 is
good legislation, but if she had drafted it, she may have
eliminated the entirety of the formula, but she does not want to
slow the bill down to do that.
REPRESENTATIVE HERRON moved to report HB 379 out of committee
with individual recommendations and the accompanying fiscal
note. There being no objection, it was so ordered.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 379.pdf |
HCRA 4/1/2014 8:00:00 AM |
HB 379 |
| HB 379 Sponsor Statement.pdf |
HCRA 4/1/2014 8:00:00 AM |
HB 379 |
| HB 379 Sectional Analysis.pdf |
HCRA 4/1/2014 8:00:00 AM |
HB 379 |
| HB 379 Letter of Support.pdf |
HCRA 4/1/2014 8:00:00 AM |
HB 379 |
| HB 379 13 Tax.pdf |
HCRA 4/1/2014 8:00:00 AM |
HB 379 |
| HB 238 ver N.pdf |
HCRA 4/1/2014 8:00:00 AM |
HB 238 |