Legislature(2011 - 2012)BARNES 124


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            HB  40-MUNICIPAL PROPERTY TAX EXEMPTION                                                                         
8:21:56 AM                                                                                                                    
CHAIR MUNOZ announced  that the final order of  business would be                                                               
HOUSE  BILL NO.  40, "An  Act relating  to an  optional exemption                                                               
from municipal property taxes for residential property."                                                                        
8:22:05 AM                                                                                                                    
REPRESENTATIVE   SCOTT   KAWASAKI,  Alaska   State   Legislature,                                                               
speaking as  one of the joint  prime sponsors of HB  40, reminded                                                               
the committee  that currently Alaskans  face some of  the highest                                                               
costs  of  energy.   A  recent  Fairbanks  cost of  living  index                                                               
relates particularly high utility costs,  at 211 percent when all                                                               
other  communities are  considered at  a median  of 100  percent.                                                               
Anchorage is  at 98.2 percent.   Furthermore, colder  winters, as                                                               
is  the case  this year,  increase the  burden.   By exempting  a                                                               
higher amount  of property taxes,  the burden on families  can be                                                               
offset   immediately   and    allow   more   income/spending   in                                                               
communities.   He  related that  years of  studies indicate  that                                                               
property  owners of  homes in  the $400,000-$500,000  range would                                                               
benefit   the  most   from  this   proposed  $100,000   municipal                                                               
exemption.  He noted that the  average home price in Fairbanks is                                                               
approximately  $225,000.   An additional  benefit of  HB 40  is a                                                               
boost  in  home sales  that  may  be  lagging across  the  state.                                                               
Representative Kawasaki  then related that inflation  was a large                                                               
impetus in the  introduction of HB 40 as the  purchasing power of                                                               
the  existing  $20,000 exemption  has  eroded  to about  $16,000.                                                               
With regard to  why the state is getting involved  in an optional                                                               
municipal  tax   exemption,  the   state  statute   outlines  how                                                               
municipalities   and  local   governments  manage   their  taxing                                                               
authority.  This legislation, he  emphasized, doesn't mandate any                                                               
changes at  the local  level rather  it's permissive  language to                                                               
allow individual  communities, boroughs,  and cities  to increase                                                               
the  municipal  property  tax exemption  to  the  level  desired.                                                               
Representative Kawasaki  noted that  in 2004 the  Fairbanks North                                                               
Star  Borough  passed  similar  legislation  that  increased  the                                                               
exemption rate to $20,000 as soon as the statute was changed.                                                                   
8:27:18 AM                                                                                                                    
REPRESENTATIVE PETE PETERSEN,  Alaska State Legislature, speaking                                                               
as one of the joint prime  sponsors of HB 40, began by suggesting                                                               
that  the  legislation  would  allow  municipalities  to  provide                                                               
property tax  relief for  homeowners.  He  noted that  during his                                                               
door-to-door visits  one of the  most frequent comments  from his                                                               
constituents is  the need to  lower property taxes.    Therefore,                                                               
he  opined that  property  tax  relief would  be  popular in  his                                                               
district and in most of the state.   He related that he has heard                                                               
from assembly  members who  would like  to provide  more property                                                               
tax relief.   This legislation  would increase the  authority for                                                               
municipalities  to  provide  property tax  relief  to  homeowners                                                               
while  not  requiring  it.     He  reminded  the  committee  that                                                               
municipalities  have many  different service  areas with  varying                                                               
tax  rates.    For  example,   Anchorage  has  56  different  tax                                                               
districts.   Therefore, he  said he  would provide  examples with                                                               
average tax data  for 2011 from the Alaska Tax  Table 2011, which                                                               
was prepared by the Department  of Commerce, Community & Economic                                                               
Development  (DCCED).     For  a   home  assessed   at  $250,000,                                                               
increasing the  exemption to $100,000  would save a  homeowner in                                                               
Juneau  $949.50; in  Kodiak $1,150.20;  in Nome  $900; in  Nenana                                                               
$1,080.00; in Municipality Anchorage  - Muldoon, Government Hill,                                                               
Downtown, Midtown - $1,393.20; in Eagle River area $1,377.00.                                                                   
8:30:11 AM                                                                                                                    
REPRESENTATIVE GARDNER  surmised that  if the  proposed ordinance                                                               
in HB 40 passed, municipalities  would have to cut other services                                                               
or find  other sources  to fund  it.  She  asked if  the sponsors                                                               
anticipated the funds would come from revenue sharing.                                                                          
REPRESENTATIVE  KAWASAKI again  reminded the  committee that  the                                                               
proposed  tax  exemption  is  optional.    As  a  member  of  the                                                               
Fairbanks  City Council  for six  years, he  recalled discussions                                                               
regarding  property tax  relief  to the  average  family.   There                                                               
aren't many options.   He told the committee that  in Fairbanks a                                                               
home  assessed  at   $400,000-$500,000  would  likely  experience                                                               
benefit [from the proposed tax  exemption].  He acknowledged that                                                               
if  the  mill  rate  was   increased,  there  would  be  property                                                               
taxpayers who  would pay more.   Still, he characterized it  as a                                                               
win-win situation because the money  saved from the tax exemption                                                               
would stay  in the community  and help generate a  better economy                                                               
in the community.   He confirmed that Wal-Mart would  have to pay                                                               
a  slightly  larger tax  if  the  mill  rate was  increased,  but                                                               
countered that  Wal-Mart would be  a beneficiary of  the benefits                                                               
middle  income  homeowners  would receive.    Furthermore,  small                                                               
businesses would likely experience a huge impact, he opined.                                                                    
REPRESENTATIVE PETERSEN  added that most often  all the take-home                                                               
income of  the middle class is  allocated to bills and  have very                                                               
little discretionary income.   Therefore, lowering property taxes                                                               
would  provide  more discretionary  income  to  spend within  the                                                               
community, which  would create  an economic  boost that  may even                                                               
create jobs.                                                                                                                    
8:33:36 AM                                                                                                                    
REPRESENTATIVE  AUSTERMAN  related  his  understanding  that  the                                                               
objective of  HB 40 is to  save citizens' money.   However, every                                                               
municipality has  the ability  to increase  or decrease  its mill                                                               
rate to effectuate the same  benefit across the board rather than                                                               
selecting individuals  that may obtain an  exemption.  Therefore,                                                               
he  questioned  why there  should  be  a blanket  exemption  when                                                               
municipalities already have  the ability to do what  they need to                                                               
do for their citizens.                                                                                                          
REPRESENTATIVE KAWASAKI  agreed that municipalities  could reduce                                                               
their mill rate,  but it has a different effect.   Property taxes                                                               
have to be leveled equally;  there can't be differential property                                                               
taxes per  statute.  For  example, when  a mill rate  is reduced,                                                               
it's  being reduced  for  a  residential home  as  well as  large                                                               
commercial buildings such as Wal-Mart.   Therefore, he questioned                                                               
whether that's  the type of  policy desired.  He  also questioned                                                               
who would be the beneficiary of [reducing the mill rate].                                                                       
REPRESENTATIVE PETERSEN reiterated that HB 40 is optional.                                                                      
8:35:55 AM                                                                                                                    
REPRESENTATIVE SADDLER asked whether  municipalities have come to                                                               
the  sponsors seeking  ways  in which  to  decrease property  tax                                                               
revenues,  which  he  characterized   as  counterintuitive.    He                                                               
further asked who is requesting HB 40.                                                                                          
REPRESENTATIVE  KAWASAKI,   recalling  being  a  member   of  the                                                               
Fairbanks  City  Council and  looking  for  options for  property                                                               
taxpayers, said HB 40 is one  of the best options to ensure funds                                                               
are returned  to families.   He reminded  the committee  that the                                                               
Fairbanks  North  Star  Borough has  petitioned  the  legislature                                                               
numerous times  for this  proposal.   In fact,  at one  point the                                                               
proposal advanced  all the way  to the Senate  Finance Committee,                                                               
where the proposal was eventually  eliminated.  At this point the                                                               
Fairbanks  North  Star  Borough  has  spent  funds  to  place  an                                                               
initiative regarding the proposal on  the ballot.  He related his                                                               
belief  that  the  initiative  will  be  on  the  August  ballot.                                                               
Therefore, there  has been a  call from  some folks to  have this                                                               
option so that their taxes can be managed at a local level.                                                                     
8:38:00 AM                                                                                                                    
REPRESENTATIVE  KAWASAKI, in  further response  to Representative                                                               
Saddler,  clarified that  as a  local city  council member,  many                                                               
options were tried  and one option was to  decrease services that                                                               
[were returned] once municipal revenue sharing was reinstated.                                                                  
REPRESENTATIVE  SADDLER  acknowledged  that  individual  property                                                               
owners  would certainly  like to  pay less  property tax,  but he                                                               
suspected that municipalities wouldn't  want to lose funding from                                                               
property taxes to run their services.                                                                                           
8:38:53 AM                                                                                                                    
CHAIR MUNOZ expressed concern with  HB 40 regarding the impact it                                                               
would have on  local school funding in terms  of the requirements                                                               
for  local  contributions.    She   asked  if  the  sponsors  had                                                               
considered what  the state  would have to  cover to  maintain the                                                               
true and full  value calculation [for education  funding] for the                                                               
Fairbanks  North  Star  Borough  were   the  proposal  in  HB  40                                                               
implemented in the borough.                                                                                                     
REPRESENTATIVE KAWASAKI replied no,  but added that this proposal                                                               
was a request from the  Fairbanks North Star Borough.  Therefore,                                                               
he assumed  that the  Fairbanks North  Star Borough  Assembly has                                                               
somewhat  committed  in the  future  that  it would  cover  those                                                               
education  expenses.    In  further   response  to  Chair  Munoz,                                                               
Representative  Kawasaki related  that the  Fairbanks North  Star                                                               
Borough School  District recently announced  that it has  about a                                                               
$9  million deficit,  assuming the  borough  didn't increase  any                                                               
payments to  the school district.   He related  his understanding                                                               
that an increase  in payments to the school district  is still an                                                               
option until the April meetings.                                                                                                
8:40:10 AM                                                                                                                    
REPRESENTATIVE  GARDNER  related  her understanding  that  HB  40                                                               
doesn't reduce  property tax  income to  a community,  but rather                                                               
shifts it.   Therefore,  the benefit would  be greatest  to those                                                               
whose property is  worth less.  "It's shifting the  tax burden to                                                               
raise the same amount of money," she concluded.                                                                                 
REPRESENTATIVE KAWASAKI  agreed that's  one way to  view it.   He                                                               
then said that a borough also  has the option to not increase the                                                               
property  tax mill  rate; the  Fairbanks North  Star Borough  has                                                               
room within its mill rate to increase or decrease it.                                                                           
8:41:10 AM                                                                                                                    
REPRESENTATIVE FOSTER  opined that a  reduction in the  mill rate                                                               
would benefit  the homeowner with  a home that's worth  more, say                                                               
$1 million.   He related  his assumption  that HB 40  attempts to                                                               
make  the  situation  more  advantageous  for  the  middle  class                                                               
individual with a home worth say, $200,000.                                                                                     
REPRESENTATIVE KAWASAKI  clarified that  the sponsors  don't want                                                               
to establish  the mill rate by  statute, but want to  provide the                                                               
proposed exemption  as an  option.  If  the Fairbanks  North Star                                                               
Borough  had to  raise its  mill rate  to recoup  the revenue  it                                                               
lost, an individual with a home  assessed at $500,000 would be at                                                               
a break  even.  Again, it's  left to the local  municipalities to                                                               
make these decisions.                                                                                                           
8:43:50 AM                                                                                                                    
REPRESENTATIVE  FOSTER  recalled  a comment  that  adopting  this                                                               
proposed statute  creates an  expectation that  it will  occur at                                                               
some point,  while at  the same  time there is  a deficit  in the                                                               
education funding.   He inquired  as to what tools  are available                                                               
to  the  City  of  Nome  to backfill  a  loss  in  funds  besides                                                               
adjusting the mill rate and increasing the sales tax.                                                                           
REPRESENTATIVE  KAWASAKI reiterated  that HB  40 merely  provides                                                               
another  option.   Currently, a  community that  wants to  exempt                                                               
more   property  taxes   can't  do   so.     Basically,  it's   a                                                               
philosophical  decision  regarding  whether to  place  a  $20,000                                                               
limit on  the exemption or  leave it  to the community  to decide                                                               
the amount of the exemption up to $100,000.                                                                                     
8:45:49 AM                                                                                                                    
REPRESENTATIVE AUSTERMAN  requested examples  of how  the $20,000                                                               
exemption is being used across the state currently.                                                                             
REPRESENTATIVE  KAWASAKI  explained  that   within  the  City  of                                                               
Fairbanks a homeowner with a  home worth $120,000 would pay taxes                                                               
on the $100,000  times the mill rate.   If the proposal  in HB 40                                                               
is adopted,  the homeowner would be  taxed on the $20,000.   This                                                               
legislation  provides the  option of  an exemption  that may  not                                                               
exceed  $100,000.     In   further  response   to  Representative                                                               
Austerman, Representative  Kawasaki clarified that  the exemption                                                               
would  only  be applicable  to  primary  residences.   Therefore,                                                               
businesses  wouldn't  be  able  to  apply  for  this  residential                                                               
REPRESENTATIVE  PETERSEN stated  that  the  exemption would  work                                                               
like a standard  deduction.  In Anchorage,  residents are allowed                                                               
the $20,000  exemption, and thus  paperwork has to be  filed with                                                               
the municipality to specify the  address of the property to which                                                               
to apply the $20,000 exemption.   The exemption can only be taken                                                               
on  one   property.    In  further   response  to  Representative                                                               
Austerman, Representative Petersen related  his belief that every                                                               
residential owner in Anchorage receives a $20,000 exemption.                                                                    
REPRESENTATIVE  SADDLER  interjected  his understanding  that  in                                                               
Anchorage the exemption isn't automatic, one must apply for it.                                                                 
8:48:43 AM                                                                                                                    
REPRESENTATIVE GARDNER inquired as  to when the $20,000 exemption                                                               
was  enacted.    She  then  inquired  as  to  the  proportion  of                                                               
communities in Alaska  that avail themselves of  the full $20,000                                                               
REPRESENTATIVE KAWASAKI  recalled that this law  was last changed                                                               
in 2004,  but deferred to  Mr. Van  Sant regarding the  number of                                                               
communities in Alaska  that take advantage of  the entire $20,000                                                               
8:50:18 AM                                                                                                                    
STEVE  VAN  SANT,  State  Assessor,  Division  of  Community  and                                                               
Regional Affairs,  Department of  Commerce, Community  & Economic                                                               
Development,   informed   the   committee  that   currently   six                                                               
municipalities  in  the  state  take  advantage  of  the  $20,000                                                               
residential exemption.  Those six  communities are the following:                                                               
Anchorage,  Bristol  Bay,  Fairbanks,  Kenai,  North  Slope,  and                                                               
Valdez.   However, only the  North Slope, Bristol Bay,  and Kenai                                                               
take the  full $20,000.   Anchorage has a 10  percent residential                                                               
exemption up to  $20,000; Fairbanks has a  20 percent residential                                                               
exemption up to $20,000; and  Valdez has a 30 percent residential                                                               
exemption up to $20,000.                                                                                                        
8:51:34 AM                                                                                                                    
REPRESENTATIVE GARDNER commented that  it seems the concern about                                                               
municipalities being  pressured to enact  the full amount  of the                                                               
exemption seems  not to  be well founded,  as illustrated  by the                                                               
aforementioned examples with the current exemption.                                                                             
[HB 40 was held over.]                                                                                                          

Document Name Date/Time Subjects
HB40 sponsor statement.pdf HCRA 3/1/2012 8:00:00 AM
HB 40
HB040-DCCED-DCRA-02-24-12.pdf HCRA 3/1/2012 8:00:00 AM
HB 40
HB40 AML Comments.pdf HCRA 3/1/2012 8:00:00 AM
HB 40
HB40 support material_AK Taxable 2011.pdf HCRA 3/1/2012 8:00:00 AM
HB 40
HB 219 AFCA Support 2-27-12.pdf HCRA 3/1/2012 8:00:00 AM
HB 219
HB 219 Question Responses.pdf HCRA 3/1/2012 8:00:00 AM
HB 219