Legislature(2005 - 2006)CAPITOL 124

04/26/2005 08:00 AM COMMUNITY & REGIONAL AFFAIRS


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08:12:20 AM Start
08:13:26 AM HB217
08:40:08 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 217 FULL & TRUE VALUE OF TAXABLE MUNI PROP. TELECONFERENCED
Moved Out of Committee
Bills Previously Heard/Scheduled
HB 217-FULL & TRUE VALUE OF TAXABLE MUNI PROP.                                                                                
                                                                                                                                
CO-CHAIR THOMAS announced  that the only order  of business would                                                               
be HOUSE BILL  NO. 217, "An Act relating to  the determination of                                                               
full and  true value of  taxable municipal property  for purposes                                                               
of   calculating  funding   for  education   and  certain   other                                                               
programs."                                                                                                                      
                                                                                                                                
8:13:26 AM                                                                                                                    
                                                                                                                                
PETE FELLMAN,  Staff to Representative John  Harris, Alaska State                                                               
Legislature, explained  that HB 217  embodies a concept  that has                                                               
been  around for  some  time  in that  it  wouldn't tax  pipeline                                                               
properties.  However, in the past  the concept was buried in more                                                               
complex legislation.   This legislation provides  opportunity and                                                               
choice to  communities wishing to organize  local governments and                                                               
form  boroughs.   This  legislation  would  allow communities  to                                                               
exclude a  pipeline from property  taxes while also not  having a                                                               
property tax,  which would reduce  the 4 mill requirement  to pay                                                               
for schools.                                                                                                                    
                                                                                                                                
8:16:11 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN related  his understanding  that currently                                                               
unorganized areas  of the state  include [pipeline]  property for                                                               
the  local  4  mill  tax  that is  used  for  education  funding.                                                               
Therefore,  if the  4 mill  tax is  eliminated as  [is an  option                                                               
under HB 217], then that money would not go toward education.                                                                   
                                                                                                                                
8:16:53 AM                                                                                                                    
                                                                                                                                
STEVE VAN  SANT, State Assessor, Division  of Community Advocacy,                                                               
Department  of   Commerce,  Community,  &   Economic  Development                                                               
(DCCED),  explained that  currently in  the Delta  Junction area,                                                               
for example, there  is no borough and thus the  pipeline value is                                                               
not included  in the value  given for  Delta Junction.   If Delta                                                               
Junction were  to form a borough,  the oil and gas  properties in                                                               
the area would amount to $200  million and thus would be included                                                               
in  the full  value and  considered when  [calculating the  local                                                               
contribution]  for  education.    However, the  problem  is  that                                                               
currently  the  state  collects  20  mills on  all  oil  and  gas                                                               
properties, and  therefore the aforementioned $200  million would                                                               
be subject  to that 20 mills.   If that $200  million is included                                                               
in the  full value for the  borough, the borough would  almost be                                                               
required to  levy a property  tax in order  to obtain the  4 mill                                                               
equivalency.  Therefore,  the impetus behind HB 217  is such that                                                               
if a municipality doesn't levy a  property tax, then the value of                                                               
the oil and  gas property won't be included in  the full value of                                                               
the  municipality  and thus  it  wouldn't  be  forced to  levy  a                                                               
property tax.   If  the municipality decided  to levy  a property                                                               
tax, the property tax would  be levied against the local property                                                               
as well as against  the oil and gas property.   At that time, the                                                               
value  of the  oil  and gas  property would  be  included in  the                                                               
municipality's full value.                                                                                                      
                                                                                                                                
8:18:59 AM                                                                                                                    
                                                                                                                                
CO-CHAIR THOMAS  questioned why an  area with a gas  line running                                                               
through  it  would form  a  borough  and  not  want to  tax  that                                                               
property and have a high property tax exemption.                                                                                
                                                                                                                                
MR. VAN  SANT said  that it's a  choice that can  be made  at the                                                               
local level.  The impetus behind HB  217 is to not force the area                                                               
to levy a property tax when it doesn't want to do so.                                                                           
                                                                                                                                
8:19:39 AM                                                                                                                    
                                                                                                                                
CO-CHAIR THOMAS inquired  as to the amount of  the exemption that                                                               
a borough can give to its property owners.                                                                                      
                                                                                                                                
MR.  VAN SANT  answered that  the  maximum amount  a borough  can                                                               
exempt for any  individual for property tax is  $20,000 under the                                                               
optional  residential exemption.   However,  senior citizens  are                                                               
exempt from  property tax in  the amount of  up to $150,000.   He                                                               
explained  that  the  $20,000  that can  be  exempted  under  the                                                               
optional residential exemption is added  back into the full value                                                               
and  thus   is  included  in   the  community's   school  funding                                                               
contribution.                                                                                                                   
                                                                                                                                
8:20:30 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  referred to  the language  in HB  217 that                                                               
refers to detached property.                                                                                                    
                                                                                                                                
MR. VAN  SANT explained  that the  detachment language  refers to                                                               
the detachment  of an area  from a municipality.   If an  area is                                                               
allowed to remove  itself from the borough  boundaries, the value                                                               
will  be excluded  for two  years prior  to [detachment]  because                                                               
that value, not the current value, is used for school funding.                                                                  
                                                                                                                                
REPRESENTATIVE LEDOUX  asked if detachment is  similar to reverse                                                               
annexation.                                                                                                                     
                                                                                                                                
MR.  VAN SANT  said that's  one way  to look  at it.   Detachment                                                               
basically allows an area to withdraw  from a borough.  He said he                                                               
couldn't think of an area that has actually detached.                                                                           
                                                                                                                                
REPRESENTATIVE LEDOUX  inquired as  to the motivation  behind the                                                               
detachment language in HB 217.                                                                                                  
                                                                                                                                
MR.  VAN  SANT pointed  out  that  there  is the  possibility  of                                                               
detachment,  and therefore  the department  wants to  ensure that                                                               
when  there  is  a  detachment "we're  dealing  with  apples  and                                                               
apples."   He  explained, "In  other  words, ...  the full  value                                                               
borough  that  the  borough  has to  consider  for  local  school                                                               
contribution  would  be the  value  two  years ago,  not  today's                                                               
value.  So, we want to make  sure we ... remove those values from                                                               
that borough."                                                                                                                  
                                                                                                                                
8:23:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NEUMAN  inquired as  to whether the  pipeline that                                                               
travels through unorganized  areas is included in  the full value                                                               
of  that area.   He  asked if  there is  a 4  mill tax  that goes                                                               
toward schools.                                                                                                                 
                                                                                                                                
MR. VAN  SANT replied no,  and specified  that [the value  of the                                                               
pipeline going through  an unorganized area] is  not connected to                                                               
any  municipality   unless  [the  pipeline]  runs   through  city                                                               
boundaries.    However,  there  are  no  city  boundaries  within                                                               
unorganized areas.   Mr. Van  Sant pointed out that  the pipeline                                                               
from Prudhoe Bay to Valdez  primarily passes through boroughs and                                                               
the unorganized borough.  Any  portion of the unorganized borough                                                               
through which it travels is  not considered in any municipality's                                                               
full value for local contribution to schools.                                                                                   
                                                                                                                                
REPRESENTATIVE  NEUMAN  surmised  then  that  by  [providing  the                                                               
option]  to  take [the  pipeline's  value]  out doesn't  decrease                                                               
local contributions into the school foundation formula.                                                                         
                                                                                                                                
MR. VAN SANT agreed.                                                                                                            
                                                                                                                                
8:24:41 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  posed a situation in  which an unorganized                                                               
area  with  a pipeline  passing  through  it  wants to  become  a                                                               
borough,  although  it's concerned  [with  doing  so] because  it                                                               
doesn't want to levy a property tax.   She asked if a solution to                                                               
this problem  would be to  increase the amount of  exemption from                                                               
which a borough could exempt local property owners.                                                                             
                                                                                                                                
MR. VAN SANT pointed out  that any increased exemption shifts the                                                               
tax burden from one category to  another.  In the situation posed                                                               
by  Representative LeDoux,  the increased  exemption would  shift                                                               
the tax  burden from the  residential and commercial owners  to a                                                               
third party  such as the  pipeline.   The state only  receives 20                                                               
mills from  that [pipeline] property  and that's all that  can be                                                               
levied  against that  property.   However, any  time an  optional                                                               
exemption is  exercised, those values  are still included  in the                                                               
full  value,  which  reflects  the total  taxable  value  of  the                                                               
borough.   Therefore, any optional  exemption is added  back into                                                               
the  true  and  full  value  and subject  to  the  4  mill  local                                                               
contribution.                                                                                                                   
                                                                                                                                
8:26:48 AM                                                                                                                    
                                                                                                                                
CO-CHAIR OLSON  inquired as to  what the language  "certain other                                                               
programs" refers to in the title of HB 217.                                                                                     
                                                                                                                                
MR. VAN SANT  explained that in the past the  full value has been                                                               
used  in  the  calculation  of   revenue  sharing.    Often,  the                                                               
measurement of wealth  is used in different  state share programs                                                               
for  grants, and  therefore he  characterized  [the reference  to                                                               
"certain other programs"] as a catchall.                                                                                        
                                                                                                                                
8:28:13 AM                                                                                                                    
                                                                                                                                
MIKE   SCHULTZ,  Chairman,   Charter  Commission,   informed  the                                                               
committee  that the  Charter Commission  is charged  with writing                                                               
the charter  for the future  borough in  Delta Junction.   At the                                                               
moment the Charter  Commission is wrestling with  the funding and                                                               
proposed  tax  structure of  the  proposed  borough; the  4  mill                                                               
equivalence  comes into  play with  that.   Since the  feeling is                                                               
that the Delta Junction community  won't accept a borough charter                                                               
with a  property tax, a  taxing structure without a  property tax                                                               
has been designed.  Part of  the aforementioned is to exclude the                                                               
value of  the oil and gas  properties in the borough  area, which                                                               
is what HB 217 allows.                                                                                                          
                                                                                                                                
8:30:03 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN inquired  as to  how  an area  can form  a                                                               
borough without property taxes.                                                                                                 
                                                                                                                                
MR. SCHULTZ  explained that  the taxing structure  to be  used in                                                               
the proposed  borough consists of  the following:  3  percent tax                                                               
on the fuel; 10  percent tax on power sold in  the borough; and a                                                               
2 percent severance tax on the gold of Pogo Mine.                                                                               
                                                                                                                                
REPRESENTATIVE  NEUMAN  related that  the  Mat-Su  Borough has  a                                                               
fairly high  property tax with  an exemption for  personal taxes.                                                               
He asked if  Mr. Schultz foresaw property taxes  coming into play                                                               
for the proposed borough.                                                                                                       
                                                                                                                                
MR.  SCHULTZ characterized  the  aforementioned  as a  discussion                                                               
[that would occur]  in 15-20 years.  He said  he couldn't predict                                                               
that far  out into  the future, but  suggested that  the proposed                                                               
borough is tied to the life of the Pogo Mine.                                                                                   
                                                                                                                                
8:32:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX inquired as to  the number of boroughs that                                                               
finance themselves with funds other than property taxes.                                                                        
                                                                                                                                
MR. VAN SANT replied that currently  12 of the 16 boroughs in the                                                               
state  levy a  property  tax.   The  other  four boroughs  derive                                                               
revenue through something other than property tax.                                                                              
                                                                                                                                
8:33:35 AM                                                                                                                    
                                                                                                                                
PETE  HALLGREN,  City  Administrator,  City  of  Delta  Junction,                                                               
explained that the  City of Delta Junction would  dissolve at the                                                               
same time the  proposed borough came into  existence.  Therefore,                                                               
there  wouldn't  be duplicate  local  government.   Boroughs,  he                                                               
said, use a variety of taxes  to meet their local situation.  The                                                               
$200  million  worth  of   Trans-Alaska  Pipeline  System  (TAPS)                                                               
pipeline inside the proposed Deltana  Borough would result in the                                                               
[proposed borough]  having to come  up with $800,000 in  taxes to                                                               
pay  that  portion  of  the  value  toward  the  area's  schools.                                                               
Currently, the state receives about  $4 million from the pipeline                                                               
that  traverses  through  the   proposed  Deltana  Borough.    He                                                               
explained  that the  proposed  borough would  have  to take  that                                                               
$800,000 from the  money going to the state's general  fund.  Mr.                                                               
Hallgren clarified that taxation  on TAPS wouldn't change, merely                                                               
where the  money goes  would.   He opined that  the desire  is to                                                               
develop a tax  situation that better meets the needs  of the area                                                               
and its  people.   However, the current  law forces  the proposed                                                               
borough to  have a property  tax.  If  HB 217 were  passed, local                                                               
people in the proposed borough  would have the opportunity to not                                                               
have  an  initial  property  tax   and  thus  the  aforementioned                                                               
$800,000 wouldn't  have to be  taken from the state  general fund                                                               
to give it to the schools.   Ms. Hallgren said that he didn't see                                                               
a downside to this legislation.                                                                                                 
                                                                                                                                
8:35:43 AM                                                                                                                    
                                                                                                                                
CO-CHAIR THOMAS inquired as to  where a borough's payment in lieu                                                               
of  taxes  would go.    He  related  his understanding  that  any                                                               
revenue from the pipeline would be waived to pay for education.                                                                 
                                                                                                                                
MR.  VAN SANT  agreed, and  added that  under the  aforementioned                                                               
scenario the payment in lieu of taxes would go to the borough.                                                                  
                                                                                                                                
CO-CHAIR THOMAS said he thought the  payment in lieu of taxes was                                                               
to help with education.                                                                                                         
                                                                                                                                
MR. VAN  SANT specified that  boroughs receive a portion  of that                                                               
payment in  lieu of  tax.   He deferred  to Bill  Rolfzen, DCCED,                                                               
regarding the payment in lieu of taxes.                                                                                         
                                                                                                                                
MR. HALLGREN interjected that he  has spoken with Mr. Rolfzen for                                                               
a number  of years  because the City  of Delta  Junction receives                                                               
payment  in lieu  of taxes  through the  state program.   If  the                                                               
proposed borough  were to form,  the borough would get  the money                                                               
albeit slightly  less than  the City  of Delta  Junction receives                                                               
now.  The  amount of payment in lieu of  taxes for Delta Junction                                                               
is about $467,000,  which would decrease to $380,000  or so under                                                               
the proposed borough.                                                                                                           
                                                                                                                                
8:37:47 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   NEUMAN  related   his  understanding   that  the                                                               
proposed borough intends  to tax power use.   Therefore, he asked                                                               
if  areas [in  the  proposed borough]  are  receiving power  cost                                                               
equalization (PCE)  funds from  the state.   He further  asked if                                                               
those taxes would be levied against the PCE funds.                                                                              
                                                                                                                                
MR.  HALLGREN answered  that currently  in  the proposed  Deltana                                                               
area no one receives PCE funds.                                                                                                 
                                                                                                                                
8:39:04 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  THOMAS,   upon  determining   there  were   no  further                                                               
questions  or individuals  who wanted  to testify,  closed public                                                               
testimony.                                                                                                                      
                                                                                                                                
8:39:16 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN commented  that  initially  he had  doubts                                                               
about  HB 217.   However,  upon understanding  that the  $841,000                                                               
won't go  into the  general fund  but rather  be placed  in local                                                               
funds, he said he would support passage of HB 217.                                                                              
                                                                                                                                
8:40:08 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  moved to  report HB  217 out  of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.  There being no objection, it was so ordered.                                                                            

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