Legislature(2001 - 2002)
03/15/2001 08:10 AM CRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 156-MUNICIPAL DEBT FOR DEVELOPMENT PROJECTS CO-CHAIR MEYER announced that the first order of business would be HOUSE BILL NO. 156, "An Act relating to municipal debt for development and redevelopment projects." Number 0190 REPRESENTATIVE LESIL McGUIRE, Alaska State Legislature, testified as the sponsor of HB 156. She explained that "Title 29 authorizes municipalities to create redevelopment agencies for the purpose of developing and redeveloping land." This specific statute encourages development and redevelopment. She related her understanding that this statute has been dormant for a number of years, which is, in part, due to the "cloud" in the current language. The problematic language is the following: "but only if additional security in the form of a letter of credit or equal security is also pledged". She noted that Mr. Klinkner, an attorney who specializes in bonds, is online. REPRESENTATIVE McGUIRE informed the committee that the bond underwriters already go through a process that determines what security is required with respect to the issuance of bonds. The [type of security required] is largely determined by the market at that time. She pointed out that a letter would not be required in every case. Therefore, HB 156 would remove the "cloud" from the language and place the power [in regard to security] in the hands of the bond underwriters. She noted that the concept of tax increment financing is used in many other states. She informed the committee that her sponsor statement and letters of support are included in the packet. Number 0513 REPRESENTATIVE KERTTULA related her understanding that this would only happen in certain areas. REPRESENTATIVE McGUIRE replied yes and clarified that it is a local control mechanism. REPRESENTATIVE KERTTULA also related her understanding that this has always been allowed, although additional security was required. REPRESENTATIVE McGUIRE replied yes. REPRESENTATIVE KERTTULA asked if there is any danger in not requiring the additional security. REPRESENTATIVE McGUIRE noted that she had asked that question. She related her understanding that the process of bond underwriting must occur before the issuance of any bond. Therefore, the bond underwriters will review the method of security that is in place. She said that requiring 100 percent "securitization" is not reasonable and is not required or done in most cases. She pointed out, "The sideboards are there through the process and through the market." Number 0653 REPRESENTATIVE HALCRO mentioned that two years ago the legislature passed investment tax credits for municipalities that redevelop dilapidated properties. He inquired as to how HB 156 would work with that investment tax credit. He also asked if there was any possibility that the two would come into conflict. REPRESENTATIVE McGUIRE said that she was not familiar with the specifics of that bill and statute. She related her belief that the concepts are separate; however, she could envision a situation that would result in overlap. Representative McGuire indicated that one [tax increment] deals with the initial tax implications while the other deals with the later tax implications. REPRESENTATIVE SCALZI read the language from Section 1(b) regarding the definition of "tax increment." He posed a situation in which the property value decreased and the increment would go down. He was unsure how a negative [amount] could be attributed to a payment. REPRESENTATIVE McGUIRE deferred to Mr. Klinkner. However, she pointed out that typically this would refer to development and redevelopment, which increases the value of the property. Number 0891 REPRESENTATIVE MURKOWSKI referred to the sponsor statement, which says, "Removing the existing language will remove a potential cloud on the tax increment bond issue." However, Representative Murkowski said she believes that keeping the language in doesn't cloud the issue but rather adds an, essentially, unnecessary requirement because an appropriate form of security already has to be established. REPRESENTATIVE McGUIRE said that she had a conversation with Mike Scott, General Manager, Municipal Light & Power, who remarked that this language has placed a cloud on financing. This language is unclear to bond underwriters and seems to require 100 percent "securitization." She agreed that Representative Murkowski is correct in that [HB 156] removes an unnecessary and somewhat arbitrary requirement. Representative McGuire informed the committee that there have been attempts to use this language for its intended purpose, but the current language is problematic. Furthermore, Mr. Scott has told her that the language is clear and thus [the bond underwriters] can't just make the decision. REPRESENTATIVE MURKOWSKI reiterated that the current statutory language is very clear. REPRESENTATIVE McGUIRE mentioned that she believes there have been attempts to interpret the language otherwise. This legislation attempts to broaden this and place the power in the hands [of the bond underwriters]. Number 1160 TOM KLINKNER, Attorney, Birch, Horton, Bittner, and Cherot, testified via teleconference. He informed the committee that he has been working with the Anchorage Downtown Partnership and the Municipality of Anchorage on various means of financing downtown development projects. During that process this statute came to his attention. He also informed the committee that he was involved in the drafting of [AS 29] some 10 or 15 years ago. Originally, the statute was designed to provide a state block that would mesh with a federal tax code provision that allows the issuance of tax exempt bonds for redevelopment projects. These projects are mainly projects that are governmentally owned. MR. KLINKNER turned to the earlier question regarding this legislation's relationship with the tax relief for rehabilitating properties. Mr. Klinkner said that although the two are separate, they are complimentary. He explained that the tax credit/relief is aimed at privately-owned property while this statute is aimed at financing governmentally-owned property that would support private development. MR. KLINKNER agreed with Representative McGuire's explanation. He said: The amendment proposed here is to delete language in the statute that adds a requirement above and beyond what is required, simply for the issuance of the bonds or to meet the federal tax exemption criteria. It has two ... adverse effects. One is: it imposes, arbitrarily, and in each case the requirement for additional security, which may not be necessary in the judgment of the market in a particular financing. And second, because of the reference to "or equal security" in the statute it imposes an ambiguity as to what constitutes equal security and if the letter of credit isn't desirable what alternatives would be permitted to meet the statutory requirements. MR. KLINKNER related his belief that the deletion of this language would leave the decisions to the bond marketplace, which is the appropriate place for these decisions to be made. Number 1375 REPRESENTATIVE MURKOWSKI asked if Mr. Klinkner believes the current language has prevented the use of tax increment financing. MR. KLINKNER replied, "I believe it has." However, he noted that it isn't the only factor determining whether the tax increment financing will work in a specific case. The language is an additional hurtle, which he believes has discouraged use of the statute. Number 1438 MR. KLINKNER, in response to Representative Halcro, said that this [tax increment] would not be available to private investors. The way that the remainder of the statute is structured as well as the way the federal tax exemption provision is structured limits the use [of the tax increment] to publicly-owned property or projects. REPRESENTATIVE HALCRO said, "I'm not quite sure how this ... process is going to play out if it is a publicly funded or if it's a public undertaking, a government undertaking, that's going to support private development." He requested an example of a project for which this would apply. MR. KLINKNER specified that this would apply to new or improved infrastructure that would make an area more attractive for private development. He identified the construction of a public building or facility, such as a convention center, that would encourage private development. He explained that the area that would potentially be subject to the increment would be determined by the local governing body when the financing is approved. Therefore, a line would be drawn around an area, including the publicly-owned property that may be financed with the bonds as well as the surrounding privately-owned property that would increase in value as a result of the public investment. He said, "That's where the increment would come from." REPRESENTATIVE McGUIRE thanked Mr. Klinkner for his time. Number 1620 ANNA FAIRCLOUGH, Member, Anchorage Assembly, informed the committee that she is a representative of the Legislative Body of the Anchorage Assembly. As an assembly member, she noted her [constituent's] support of HB 156. The assembly has not taken a specific position on HB 156, although she was confident that the assembly could pass a specific bill of support. Ms. Fairclough related her appreciation of having the opportunity to have local control and creative financing. This [legislation] is a tool that will allow the Municipality of Anchorage to work well for redevelopment of particular areas in the city. She noted that she does serve on the Convention Center Task Force. In conclusion, Ms. Fairclough said she would appreciate the committee's support of HB 156. REPRESENTATIVE HALCRO recalled that after the passage of the investment tax credit there was debate regarding how to apply some of these tax credits. He mentioned the Mark Marlowe project. He recalled there being a question as to whether [the Mark Marlowe project] was a good use of tax dollars and whether this would shift the tax burden to other taxpayers. Representative Halcro asked if a similar argument could happen with the use of this [tax increment] program. MS. FAIRCLOUGH related her understanding of the Anchorage Convention Center and those involved. She said "they" would use the hotel tax to provide the payment dollars to subsidize the project. Ms. Fairclough emphasized, "We are trying in every way possible, with all tools possible, to have it a zero personal property tax effect in the City of Anchorage." For the record, Ms. Fairclough noted that she was in opposition to the Marlowe project going forward because she wanted to [ensure] that the assembly establish how it would [specify] and apply the law fairly to everyone. REPRESENTATIVE MURKOWSKI reiterated her understanding that this is not a new tool, but rather [the bill] is making it more workable for the municipality. MS. FAIRCLOUGH answered in the affirmative. With this [bill], the convention center will not have to address a larger hurtle. Number 1901 ALAN TESCHE, Member, Anchorage Assembly, testified via teleconference. Mr. Tesche, from the perspective of the district he represents, concurred with Ms. Fairclough's [remarks]. He noted his agreement with Mr. Klinkner that HB 156 would remove a potential obstacle to the use of this financing. He said he believes that the passage of HB 156 will allow this type of financing to be more attractive in the private marketplace. Mr. Tesche pointed out that even with the passage of HB 156, the private bond market will determine the specific terms and conditions regarding how particular projects will be financed through the issuance of these bonds. Therefore, this is in the interest of the public. MR. TESCHE addressed how [HB 156] would work. In downtown Anchorage there are, in his view, a number of properties that are underdeveloped. For example, there are a number of properties around the McKay Building that could be used for much more intensive commercial and residential use. Although such projects require intensive private capital, they also require additional public improvements such as parking garages. Therefore, enactment of HB 156, which would make tax increment financing easier for public projects, would ease the way for public/private partnerships. Mr. Tesche remarked that this is exciting for him in that [HB 156] provides a more attractive financing tool that would benefit communities throughout the state. He informed the committee that the use of tax increment financing is supported by the Anchorage Downtown Partnership, the Legislative Program of the [Anchorage] Municipal Assembly, the Alaska Municipal League, the Anchorage Economic Development Corporation, and Municipal Light & Power. In conclusion, Mr. Teshce urged the committee to support HB 156. Number 2159 REPRESENTATIVE MURKOWSKI remarked that the legislature should do all possible to encourage good financing mechanisms. Furthermore, when obstacles are discovered, the legislature should fix the problem so that it can be used as originally intended. She commented that HB 156 seems to facilitate the use of a good tool and thus she supported Representative McGuire's efforts. REPRESENTATIVE HALCRO associated his comments with those of Representative Murkowski. Representative Halcro noted his support of [HB 156]. REPRESENTATIVE McGUIRE commented that this [legislation allows] local communities and state government to work together. Representative McGuire thanked those involved in this matter. CO-CHAIR MEYER said that in his experience with the assembly, this [bill] will help with the convention center and other public projects. Number 2315 REPRESENTATIVE MURKOWSKI moved to report HB 156 out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, HB 156 was reported from the House Community and Regional Affairs Standing Committee. The committee took a brief at-ease from 9:48 a.m. to 9:50 a.m.