Legislature(2017 - 2018)BARNES 124

05/15/2017 08:00 AM COMMUNITY & REGIONAL AFFAIRS

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Audio Topic
08:12:14 AM Start
08:13:10 AM HB156
10:12:45 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 156 MUNI TAX EXEMPTION: ECON DEVEL PROPERTY TELECONFERENCED
Moved CSHB 156(CRA) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                                                                                                                                
         HB 156-MUNI TAX EXEMPTION: ECON DEVEL PROPERTY                                                                     
                                                                                                                                
[Contains discussion of HB 148 and SB 100.]                                                                                     
                                                                                                                                
8:13:10 AM                                                                                                                    
                                                                                                                                
CO-CHAIR FANSLER announced that the  only order of business would                                                               
be  HOUSE BILL  NO.  156, "An  Act relating  to  a municipal  tax                                                               
exemption or deferral for economic development property."                                                                       
                                                                                                                                
8:14:07 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PARISH  moved  to   adopt  a  proposed  committee                                                               
substitute (CS) for HB  156, Version 30-LS0602\U, Wallace/Shutts,                                                               
5/13/17,  as a  working  document.   [There  being no  objection,                                                               
Version U was before the committee.]                                                                                            
                                                                                                                                
8:14:36 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  PARISH   explained  that  Version  U   would  amend  AS                                                               
29.45.050(m),  as  follows:   broaden  the  language of  optional                                                               
municipal  property  tax   exemptions  for  economic  development                                                               
properties;   allow  municipalities   to  provide   property  tax                                                               
incentive  for a  specified period  rather than  five years  at a                                                               
time; broaden the  factors by which a property  would qualify for                                                               
a tax incentive "from having  to meet all three factors currently                                                               
in the  statute to  any of  four significantly  broader factors";                                                               
protect  municipalities that  are school  districts by  setting a                                                               
floor at the 2.65 mils set  out in the education funding formula;                                                               
grandfathering  ordinances  in  effect before  January  1,  2017,                                                               
which  are limited  to five  years  under existing  law; and  not                                                               
allowing a  municipality to accept economic  development property                                                               
from the  tax rate  applied for  a service  area controlled  by a                                                               
board that set its own rates.                                                                                                   
                                                                                                                                
8:16:27 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  noted  that  HB  156  had  been  in  the                                                               
committee's possession  for a couple  months, and he  inquired as                                                               
to the reason the committee was just now addressing it.                                                                         
                                                                                                                                
8:16:43 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH answered that often  language of one bill will be                                                               
"amended onto  bills" that are  further along in  the legislative                                                               
process.  He  said that is what happened to  HB 156, the language                                                               
of  which he  indicated was  incorporated into  SB 100,  which is                                                               
related to municipal  ability to set liens.  He  said HB 156 also                                                               
was  "amended  onto" HB  148,  which  relates  to the  powers  of                                                               
second-class  boroughs   to  provide  emergency  services.     He                                                               
indicated that both  he and Co-Chair Fansler decided  it would be                                                               
best to "revisit the modified  language - the language as amended                                                               
- for the purpose of public discussion."                                                                                        
                                                                                                                                
REPRESENTATIVE  SADDLER  asked,  "Had  this  language  ever  been                                                               
considered earlier in the session?"                                                                                             
                                                                                                                                
CO-CHAIR PARISH offered his understanding that it had not.                                                                      
                                                                                                                                
CO-CHAIR FANSLER, in  response to the same  question, offered his                                                               
understanding that the answer was no.                                                                                           
                                                                                                                                
CO-CHAIR  PARISH   amended  his  original  response   by  saying,                                                               
"Actually,  I  believe  it  was  taken  up  in  the  House  Rules                                                               
[Standing] Committee."                                                                                                          
                                                                                                                                
8:19:01 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  FANSLER  reopened  public  testimony  [which  had  been                                                               
closed on 3/28/17].                                                                                                             
                                                                                                                                
8:19:26 AM                                                                                                                    
                                                                                                                                
SCOTT  BRANDT-ERICHSEN,  Attorney,   Ketchikan  Gateway  Borough,                                                               
commented that  the exemption that  HB 156 addresses is  one that                                                               
the  Ketchikan Gateway  Borough has  used in  the past  and is  a                                                               
helpful economic development tool.                                                                                              
                                                                                                                                
8:20:07 AM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease at 8:20 a.m.                                                                                 
                                                                                                                                
[Between this at-ease  and the next, there was a  brief period on                                                               
the  record  during  which Co-Chair  Fansler  asked  Mr.  Brandt-                                                               
Erichsen to state his affiliation for the record.]                                                                              
                                                                                                                                
8:21:10 AM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 8:21 a.m. to 8:22 a.m.                                                                       
                                                                                                                                
8:22:38 AM                                                                                                                    
                                                                                                                                
CO-CHAIR FANSELER ascertained that no one else wished to                                                                        
testify.  [Public testimony was not officially closed.]                                                                         
                                                                                                                                
8:22:58 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WESTLAKE moved to adopt Conceptual Amendment 1 to                                                                
HB 156, which read as follows:                                                                                                  
                                                                                                                                
     Page 1, lines 1 - 2:                                                                                                       
          Delete "a municipal tax exemption or deferral for                                                                   
     economic development property"                                                                                           
          Insert   "municipal   property   tax   exemptions;                                                                  
     extending   a   mandatory  exemption   from   municipal                                                                  
     property  taxes  for  certain   assets  of  the  Alaska                                                                  
     Industrial  Development   and  Export   Authority;  and                                                                  
     providing  for  an  effective   date  by  amending  the                                                                  
     effective  dates  of  sec.  2, ch.  10,  SLA  2010,  as                                                                  
     amended by  sec. 4, ch. 61,  SLA 2012, and sec.  2, ch.                                                                  
     71, SLA 2010, as amended by sec. 5, ch. 61, SLA 2012"                                                                    
                                                                                                                                
     Page 1, following line 3:                                                                                                  
          Insert a new bill section to read:                                                                                    
        "* Section 1. AS 29.45.030(a) is amended to read:                                                                   
          (a)  The following property is exempt from                                                                            
     general taxation:                                                                                                          
               (1)  municipal property, including property                                                                      
     held by  a public corporation of  a municipality, state                                                                    
     property,  property of  the  University  of Alaska,  or                                                                    
     land that  is in  the trust  established by  the Alaska                                                                    
     Mental  Health Enabling  Act of  1956, P.L.  84-830, 70                                                                    
     Stat. 709, except that                                                                                                     
               (A)  a private leasehold, contract, or other                                                                     
     interest in  the property is  taxable to the  extent of                                                                    
     the  interest;  however,  an  interest  created  by  an                                                                
     operating agreement  or [A] nonexclusive  use agreement                                                                
     between  the Alaska  Industrial Development  and Export                                                                    
     Authority  and a  shipyard  operator or  a  user of  an                                                                
     integrated  transportation and  port  facility, if  the                                                                
     shipyard   or   integrated  transportation   and   port                                                                
     facility  is  owned  by  the  authority  and  initially                                                                
     placed in  service before  January 1, 1999,  is taxable                                                                    
     only to  the extent  of, and  for the  value associated                                                                    
     with,  those  specific  improvements used  for  lodging                                                                    
     purposes;                                                                                                                  
               (B)   notwithstanding any other  provision of                                                                    
     law, property  acquired by  an agency,  corporation, or                                                                    
     other entity  of the state through  foreclosure or deed                                                                    
     in lieu  of foreclosure  and retained as  an investment                                                                    
     of a  state entity  is taxable; this  subparagraph does                                                                    
     not apply to federal land  granted to the University of                                                                    
     Alaska  under AS 14.40.380  or 14.40.390,  or to  other                                                                    
     land granted to the university  by the state to replace                                                                    
     land  that  had  been  granted  under  AS 14.40.380  or                                                                    
     14.40.390,  or to  land conveyed  by the  state to  the                                                                    
     university under AS 14.40.365;                                                                                             
               (C)  an ownership  interest of a municipality                                                                    
     in  real  property  located  outside  the  municipality                                                                    
     acquired  after   December 31,  1990,  is   taxable  by                                                                    
     another municipality;  however, a  borough may  not tax                                                                    
     an  interest in  real property  located in  the borough                                                                    
     and owned by a city in that borough;                                                                                       
               (2)     household   furniture  and   personal                                                                    
     effects of members of a household;                                                                                         
               (3)  property  used exclusively for nonprofit                                                                    
     religious,    charitable,   cemetery,    hospital,   or                                                                    
     educational purposes;                                                                                                      
               (4)   property of a  nonbusiness organization                                                                    
     composed entirely  of persons with  90 days or  more of                                                                    
     active  service  in  the armed  forces  of  the  United                                                                    
     States whose conditions of  service and separation were                                                                    
     other  than   dishonorable,  or  the  property   of  an                                                                    
     auxiliary of that organization;                                                                                            
               (5)  money on deposit;                                                                                           
               (6)   the real property of  certain residents                                                                    
     of  the  state  to  the   extent  and  subject  to  the                                                                    
     conditions provided in (e) of this section;                                                                                
               (7)   real  property or  an interest  in real                                                                    
     property that is                                                                                                           
               (A)   exempt  from taxation  under 43  U.S.C.                                                                    
     1620(d),  as amended  or under  43  U.S.C. 1636(d),  as                                                                    
     amended; or                                                                                                                
               (B)     acquired   from  a   municipality  in                                                                    
     exchange for  land that is  exempt from  taxation under                                                                    
     (A) of  this paragraph,  and is  not developed  or made                                                                    
     subject to a lease;                                                                                                        
               (8)   property  of  a political  subdivision,                                                                    
     agency,  corporation, or  other  entity  of the  United                                                                    
     States to  the extent  required by federal  law; except                                                                    
     that a  private leasehold, contract, or  other interest                                                                    
     in  the  property is  taxable  to  the extent  of  that                                                                    
     interest unless  the property is located  on a military                                                                    
     base  or  installation  and the  property  interest  is                                                                    
     created under  10 U.S.C. 2871 -  2885 (Military Housing                                                                    
     Privatization  Initiative),  if   [PROVIDED  THAT]  the                                                                
     leaseholder enters into an agreement  to make a payment                                                                    
     in lieu of taxes to  the political subdivision that has                                                                    
     taxing authority;                                                                                                          
               (9)  natural resources in place including                                                                        
     coal, ore  bodies, mineral  deposits, and  other proven                                                                    
     and unproven  deposits of valuable materials  laid down                                                                    
     by  natural processes,  unharvested aquatic  plants and                                                                    
     animals, and timber;                                                                                                       
               (10)  property not exempt under (3) of this                                                                      
     subsection that                                                                                                            
               (A)  is owned by a private, nonprofit                                                                            
     college or university that is  accredited by a regional                                                                    
     or  national  accrediting   agency  recognized  by  the                                                                    
     Council  for  Higher  Education  Accreditation  or  the                                                                    
     United States Department of Education, or both; and                                                                        
               (B)  was subject to a private leasehold,                                                                         
     contract,  or  other  private  interest  on  January 1,                                                                    
     2010,  except that  a holder  of  a private  leasehold,                                                                    
     contract, or  other interest in  the property  shall be                                                                    
     taxed to the extent of that interest."                                                                                     
                                                                                                                                
     Page 1, line 4:                                                                                                            
          Delete "Section 1"                                                                                                  
          Insert "Sec. 2"                                                                                                     
                                                                                                                                
     Page 3, following line 8:                                                                                                  
     Insert new bill sections to read:                                                                                          
        "*  Sec.  3. The  uncodified  law  of the  State  of                                                                
     Alaska is amended by adding a new section to read:                                                                         
          REVISOR'S INSTRUCTION. When implementing secs. 2                                                                      
     and 3, ch. 10, SLA 2010,  and sec. 2, ch. 71, SLA 2010,                                                                    
     the  legislature   does  not   intend  to   retain  the                                                                    
     amendments  to AS 29.45.030(a)(1)  made  by  sec. 1  of                                                                    
     this Act,  but does intend  to retain the  amendment to                                                                    
     AS 29.45.030(a)(8) made by sec. 1 of this Act.                                                                             
        * Sec.  4. Section 8,  ch. 10, SLA 2010,  as amended                                                                  
     by sec. 4, ch. 61, SLA 2012, is amended to read:                                                                           
          Sec. 8. Section 2, ch. 10, SLA 2010, takes effect                                                                   
     November 30, 2027 [2017].                                                                                            
        * Sec. 5.  Section 10, ch. 71, SLA  2010, as amended                                                                  
     by sec. 5, ch. 61, SLA 2012, is amended to read:                                                                           
     Sec.  10. Section  2, ch.  71, SLA  2010, takes  effect                                                                    
     November 30, 2027 [2017]."                                                                                             
                                                                                                                                
REPRESENTATIVE TALERICO objected for the purpose of discussion.                                                                 
                                                                                                                                
REPRESENTATIVE WESTLAKE  pointed out that Conceptual  Amendment 1                                                               
had been  drafted to align  with the  original bill version.   He                                                               
deferred to his staff for explanation.                                                                                          
                                                                                                                                
8:23:42 AM                                                                                                                    
                                                                                                                                
JESSE LOGAN,  Staff, Representative  Dean Westlake,  Alaska State                                                               
Legislature,  explained that  Conceptual  Amendment  1 would  not                                                               
change any  language in the  bill; it  would add new  sections to                                                               
extend  the  November  2017  sunset  on  mandatory  property  tax                                                               
exemptions  for certain  assets  owned by  the Alaska  Industrial                                                               
Development and  Export Authority (AIDEA)  to 2027, and  it would                                                               
extend  the  tax  exemption  to  interest  created  by  operating                                                               
agreements  or nonexclusive  use agreements  between AIDEA  and a                                                               
shipyard or  integrated transportation  and port  facility that's                                                               
owned by  AIDEA.  Mr. Logan  stated that the second  change is in                                                               
response  to [Resolution  No. 2692],  from the  Ketchikan Gateway                                                               
Borough,  supporting the  extension  of the  tax  exemption.   He                                                               
remarked that there had been confusion  in the past as to whether                                                               
[the  Ketchikan shipyard]  was eligible  for the  tax exemptions,                                                               
but Conceptual Amendment 1 would clarify that.                                                                                  
                                                                                                                                
8:25:57 AM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease at 8:26 a.m.                                                                                 
                                                                                                                                
8:26:26 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  FANSLER   emphasized  that  because  [Version   U]  "is                                                               
currently being rolled into SB  100," it is imperative to clarify                                                               
that any changes  being made in the House  Community and Regional                                                               
Affairs  Standing Committee  will also  need to  be presented  as                                                               
amendments during the upcoming House  floor session scheduled for                                                               
10 a.m.                                                                                                                         
                                                                                                                                
8:27:18 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER   requested  an   at-ease  to   read  the                                                               
aforementioned letter from the Ketchikan Gateway Borough.                                                                       
                                                                                                                                
8:27:22 AM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 8:27 a.m. to 8:36 a.m.                                                                       
                                                                                                                                
8:36:04 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SADDLER  directed   attention   to  [the   fifth                                                               
"whereas"  paragraph] at  the bottom  of  the first  page of  the                                                               
aforementioned  resolution, and  he asked  for an  explanation of                                                               
"the reversionary,  private, leasehold interest in  the Ketchikan                                                               
shipyard."                                                                                                                      
                                                                                                                                
8:36:53 AM                                                                                                                    
                                                                                                                                
MR. LOGAN deferred to Mr. Brandt-Erichsen.                                                                                      
                                                                                                                                
8:37:20 AM                                                                                                                    
                                                                                                                                
MR.  BRANDT-ERICHSEN stated  that AIDEA's  ownership interest  in                                                               
the  property is  tax  exempt, but  with  other state  tax-exempt                                                               
property,  wherein someone  is either  leasing  or operating  the                                                               
property, there is  a possessory interest that can  be valued and                                                               
have a tax levied based upon  that value.  He concluded, "So, the                                                               
private  possessory interest  in the  shipyard or  in the  Delong                                                               
Mountain  [Transportation]  Facility  is ...  the  interest  that                                                               
would either be taxable or exempt."                                                                                             
                                                                                                                                
REPRESENTATIVE  SADDLER asked  for  confirmation  that AIDEA  may                                                               
provide financing for  a shipyard or road system,  but the actual                                                               
lessor will  bring its  own money and  make its  own investments;                                                               
therefore, the  property obtained through AIDEA  financing is tax                                                               
exempt,  but the  property the  lessor "brings  to it"  should be                                                               
taxable.                                                                                                                        
                                                                                                                                
MR. BRANDT-ERICHSEN  stated that the arrangements  are not always                                                               
situations in which the private  entity brings a certain quantity                                                               
of  funds and  AIDE  provides  the financing.    He  said of  the                                                               
approximately seven AIDEA projects around  the state, there are a                                                               
couple that  are direct leases,  for example, the  FedEx aircraft                                                               
maintenance hangar in Anchorage.  He continued:                                                                                 
                                                                                                                                
     AIDEA provided  financing, but the tenant  - the lessee                                                                    
     - has a  possessory interest in the  lease, and they're                                                                    
     operating  in their  own business  interest.   ... They                                                                    
     may  bring  ...  certain   equipment  there  and  AIDEA                                                                    
     provided certain financing for  construction of ... the                                                                    
     hangar,  but   it's  more  of   a  landlord/tenant-type                                                                    
     relationship.                                                                                                              
                                                                                                                                
MR. BRANDT-ERICHSEN said the situations  with the Delong Mountain                                                               
Transportation  Facility  and  the  Ketchikan  shipyard  are  not                                                               
leases - they are operator agreements  - and the operator did not                                                               
finance  the construction  of the  facility.   The money  for the                                                               
construction  of the  facility, he  noted, was  largely AIDEA  or                                                               
federal  government  or state  government  money  - not  private.                                                               
Notwithstanding that, he  stated that there is  about $1 million-                                                               
worth  of equipment  that  the private  operator  has brought  on                                                               
site,  and that  property is  taxed.   He added,  "That privately                                                               
owned property would not be changed by the amendment language."                                                                 
                                                                                                                                
REPRESENTATIVE  SADDLER  summarized that  in  broad  terms:   the                                                               
property obtained through AIDEA is  tax exempt, while property or                                                               
interest that the private lease holder brings to it is not.                                                                     
                                                                                                                                
MR. BRANDT-ERICHSEN  responded that  in general that  is correct.                                                               
He said  if the  private party  is the owner  of the  property or                                                               
asset, then  "that's going  to be taxable  ... regardless  of the                                                               
proposed language."   He said  Conceptual Amendment 1  deals with                                                               
the situation  in which AIDEA is  the owner of the  property; the                                                               
operator has only  the rights to operate it for  a defined period                                                               
of time - no ownership interest.                                                                                                
                                                                                                                                
REPRESENTATIVE  SADDLER asked,  "So, ...  possessory interest  is                                                               
just what you own, right?"                                                                                                      
                                                                                                                                
MR. BRANDT-ERICHSEN  said the  best example  is in  considering a                                                               
car rental.   A person  rents the car;  the car company  owns the                                                               
car;  the  renter pays  taxes  based  on the  limited  possessory                                                               
interest -  the time renting  the vehicle.   In this  analogy, he                                                               
explained, the car company would  be AIDEA, whose interest is tax                                                               
exempt, but  the person's  time using  AIDEA's property  would be                                                               
taxable.                                                                                                                        
                                                                                                                                
REPRESENTATIVE SADDLER concluded  that it is possible  to tax the                                                               
possessory interest  even though  the person being  taxed doesn't                                                               
actually own it.                                                                                                                
                                                                                                                                
MR. BRANDT-ERICHSEN answered  yes.  He said there  are factors to                                                               
determine what the  value of the taxable  possessory interest is,                                                               
and that  will vary according to  the rights the person  has, the                                                               
duration [of  possession], and  whatever other  limitations there                                                               
may be on the use of the property.                                                                                              
                                                                                                                                
REPRESENTATIVE SADDLER stated:                                                                                                  
                                                                                                                                
     So, it sounds  like if AIDEA has  provided financing to                                                                    
     allow  the   (indisc.  --   rustling  papers)   to  use                                                                    
     property, under  ... [Version  U], that  property would                                                                    
     ...  not  be  taxable; and  heretofore,  the  Ketchikan                                                                    
     [Gateway] Borough  has assumed  that that  property was                                                                    
     taxable.  Is that correct?                                                                                                 
                                                                                                                                
MR.  BRANDT-ERICHSEN  responded  no.     He  explained  that  the                                                               
shipyard  property  in Ketchikan  has  been  operating since  the                                                               
1980s  and, under  AIDEA ownership,  since  1997.   From 1997  to                                                               
2011, the Ketchikan  Gateway Borough treated the  property as 100                                                               
percent exempt, that  the possessory interest of  Alaska Ship and                                                               
Drydock was exempt from taxation.   In 2011, a different assessor                                                               
determined that even  though the property qualified  for the same                                                               
mandatory exemption  as the Delong  Mountain Facility,  it should                                                               
be  treated  as an  optional  exemption.    He  said there  is  a                                                               
separate  statute that  allows communities  to optionally  exempt                                                               
the private  leaseholder possessory  interest in  AIDEA property.                                                               
He continued as follows:                                                                                                        
                                                                                                                                
     We ended up  having litigation with the  state over the                                                                    
     issue  of  whether  it  was  a  mandatory  or  optional                                                                    
     exemption,  and   that  case  was  resolved   with  the                                                                    
     valuation  of  the property  being  set  lower and  the                                                                    
     borough reserving  the right to  renew the case  if the                                                                    
     exemption ... did not end  up being codified in statute                                                                    
     when  the  Delong   Mountain  Facility  exemption  gets                                                                    
     extended - if in fact it gets extended.                                                                                    
                                                                                                                                
8:46:21 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER asked how  much possessory interest exists                                                               
that  may be  subject to  taxation under  the aforementioned  law                                                               
suit.                                                                                                                           
                                                                                                                                
MR. BRANDT-ERICHSEN  answered that part  of the dispute  that the                                                               
borough  had  with  the State  Assessor's  Office  regarding  the                                                               
shipyard property  was related to tax  years 2015 and 2016.   The                                                               
state assessor asserted that the  shipyard property was worth, in                                                               
total,  approximately  $74  million.    Additionally,  there  was                                                               
approximately $1.5 million in property,  privately owned by Vigor                                                               
Industrial LLC  ("Vigor"), which  was, and  still is,  treated as                                                               
taxable.    Regarding  the  $74  million,  he  said  the  borough                                                               
asserted that  the valuation of  the possessory interested  was a                                                               
lot less, only about $20  million.  Further, the borough asserted                                                               
that because the shipyard facility  in Ketchikan was "in the same                                                               
scenario as the  Delong Mountain Facility," it was  entitled to a                                                               
mandatory  exemption from  property taxes.   Mr.  Brandt-Erichsen                                                               
said the case  was resolved with the valuation  of the possessory                                                               
interest being set for 2015  at approximately $29 million and for                                                               
2017 at about $27 million.   He said as the duration remaining on                                                               
the lease becomes less, that  value will likely continue to drop,                                                               
because the period of time will be shorter.                                                                                     
                                                                                                                                
REPRESENTATIVE  SADDLER   offered  his  understanding   that  Mr.                                                               
Brandt-Erichsen  was saying  that it  will be  necessary for  the                                                               
exemption to be  clarified in statute in order  for the exemption                                                               
of property taxes to be maintained.                                                                                             
                                                                                                                                
MR. BRANDT-ERICHSEN responded that there  are two things going on                                                               
here:  one  is extending the mandatory exemption  that applies to                                                               
the  Delong   Mountain  facility   and  the   Ketchikan  shipyard                                                               
facility; two is  clarifying the language to  avoid another fight                                                               
with  the  state  over  whether   the  two  facilities  are  both                                                               
facilities owned by AIDEA, operated  under an operating agreement                                                               
and entitled to that exemption.                                                                                                 
                                                                                                                                
8:49:25 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SADDLER   asked   for  confirmation   that   the                                                               
clarification under  statute would  be so  that the  property tax                                                               
exemption will remain - the property is mandatorily exempted.                                                                   
                                                                                                                                
MR. BRANDT-ERICHSEN answered that is correct.                                                                                   
                                                                                                                                
8:49:45 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked Mr. Brandt-Erichsen, "When  did you                                                               
first bring  this issue to the  attention to AIDEA or  any member                                                               
of this committee?"                                                                                                             
                                                                                                                                
MR. BRANDT-ERICHSEN  answered that the Ketchikan  Gateway Borough                                                               
brought  the  issue  of  the treatment  of  the  Delong  Mountain                                                               
Facility   versus  the   Ketchikan  shipyard   facility  to   the                                                               
legislature  in 2010.    At that  time, no  action  was taken  to                                                               
clarify the language, he said.                                                                                                  
                                                                                                                                
REPRESENTATIVE SADDLER  asked Mr.  Brandt-Erichsen when  he first                                                               
realized  it  would   be  impossible  to  "amend   this  bill  to                                                               
accomplish your purpose."                                                                                                       
                                                                                                                                
MR.   BRANDT-ERICHSEN   replied,   "The  borough,   in   adopting                                                               
Resolution [No.] 2692  and forwarding it to  the legislature, was                                                               
seeking  to   have  an  amendment   such  as  this   included  in                                                               
legislation  some time  during the  course of  the session."   In                                                               
terms of HB  156 being scheduled, he said he  heard about it over                                                               
the weekend.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER remarked  that  the borough's  resolution                                                               
was  signed on  February  6, 2017,  but  Mr. Brandt-Erichsen  had                                                               
heard  just  this  weekend  about  the  legislature's  intent  to                                                               
schedule   the  meeting   to  "accomplish   the  goals   of  this                                                               
resolution."                                                                                                                    
                                                                                                                                
MR.  BRANDT-ERICHSEN answered  that  he had  been  aware of  "the                                                               
language of  the amendment to  accomplish the goal" for  a couple                                                               
of  months,  and  there  is similar  language  in  the  borough's                                                               
resolution.  He clarified that what  he became aware of just this                                                               
weekend was "the hearing on HB 156  and the fact that it might be                                                               
considered in  this hearing today."   In response to  a follow-up                                                               
question, he  said he did  not personally have a  discussion with                                                               
any member of  the House Community and  Regional Affairs Standing                                                               
Committee regarding  the plan to  offer an amendment  in response                                                               
to  the borough's  resolution.   He  said the  borough engages  a                                                               
lobbyist who works in Juneau,  and he has had communications with                                                               
that lobbyist  over the last week.   He said the  lobbyist's name                                                               
is Ray Matiashowski.                                                                                                            
                                                                                                                                
REPRESENTATIVE  SADDLER  said  he  would  like  Mr.  Matiashowski                                                               
available for questioning to discern  "the genesis and providence                                                               
of the resolution and amendment."                                                                                               
                                                                                                                                
8:53:52 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DAN  ORTIZ, Alaska  State Legislature,  noted that                                                               
his district  includes Ketchikan, Alaska.   He said he  was aware                                                               
of the desire of the Ketchikan  Gateway Borough and Vigor to gain                                                               
statutory tax-exempt  status "for this particular  facility."  He                                                               
said it  is an  economic opportunity  for the  entire state.   He                                                               
explained that the facility employs  people from around the state                                                               
who  are trained  in facilities  such as  [the Alaska  Vocational                                                               
Technical Center]  in Seward.   He said the facility  itself does                                                               
much  to provide  repair  and construction  needs  of the  Alaska                                                               
Marine Highway  System (AMHS).   He said AIDEA owns  the property                                                               
as it does a  mining facility in another part of  the state.  The                                                               
logic  is,  "Why would  we  be  taxing a  state-owned  facility?"                                                               
Representative Ortiz  said Conceptual Amendment 1  is a "win-win"                                                               
amendment that  recognizes the contributions  of the  facility in                                                               
support of Alaska's transportation infrastructure.                                                                              
                                                                                                                                
8:56:35 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  reiterated his concern  regarding timing.                                                               
He asked Representative  Ortiz if he knows of anyone  who came to                                                               
any member of  the House Community and  Regional Affairs Standing                                                               
Committee  prior to  the past  weekend  to discuss  the need  for                                                               
Conceptual Amendment 1.                                                                                                         
                                                                                                                                
REPRESENTATIVE ORTIZ said  he is not aware of  any such attempts.                                                               
Notwithstanding that,  he shared his  experience thus far  in the                                                               
legislature has shown that often times  "you have to look for ...                                                               
the  best  opportunity  that  presents itself  to  get  the  goal                                                               
accomplished; and  it just  so happens that  that goal  seemed to                                                               
... become apparent here at the end  of this last week."  He said                                                               
that did  not mean other opportunities  had not been sought.   In                                                               
response to  a follow-up  question, he  said that  until [Friday,                                                               
May  12], he  had not  been aware  that [Conceptual  Amendment 1]                                                               
would  be brought  forward by  the House  Community and  Regional                                                               
Affairs Standing Committee.   He clarified that  he was answering                                                               
as to the specific amendment to the specific bill.                                                                              
                                                                                                                                
8:59:31 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  FANSLER asked  Representative Saddler  to focus  on the                                                               
substance of the  proposed Conceptual Amendment 1.   He explained                                                               
again his understanding  that HB 156 was going to  be rolled into                                                               
SB 100.   He said that as  co-chair of the committee,  he felt it                                                               
proper to vet [HB 156] before the public.                                                                                       
                                                                                                                                
9:00:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  noted that  thus  far  only Mr.  Brandt-                                                               
Erichsen had testified.  He  questioned again why "this is coming                                                               
before us  when the committee's  had this  bill in its  hands for                                                               
two-and-a-half months."                                                                                                         
                                                                                                                                
CO-CHAIR FANSLER reiterated  that HB 156 is being  rolled into SB                                                               
100  and  he  believes  it  is  important  to  vet  the  proposed                                                               
committee substitute in public, which  is what is currently being                                                               
done.                                                                                                                           
                                                                                                                                
REPRESENTATIVE SADDLER said  he looks forward to  "members of the                                                               
public  getting  that  vetting  in front  of  them"  rather  than                                                               
hearing  only  from  the  attorney   for  the  Ketchikan  Gateway                                                               
Borough.                                                                                                                        
                                                                                                                                
CO-CHAIR FANSLER stated,  "That is why we're  having this meeting                                                               
right now."                                                                                                                     
                                                                                                                                
9:01:12 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  PARISH  noted  there  is a  slight  difference  in  the                                                               
language  of Conceptual  Amendment 1  and the  language requested                                                               
through Resolution No. 2692.                                                                                                    
                                                                                                                                
MR. BRANDT-ERICHSEN acknowledged there  is a difference, but said                                                               
the borough  views it as substantively  the same.  He  added that                                                               
the proposed language  of Conceptual Amendment 1  may actually be                                                               
clearer  than that  proposed  in the  borough's  resolution.   In                                                               
response to  a follow-up  question, he said  the $29  million was                                                               
the valuation  for 2015;  the 2017 valuation  of the  interest is                                                               
more in the range of $25 million.                                                                                               
                                                                                                                                
CO-CHAIR PARISH responded as follows:                                                                                           
                                                                                                                                
     It's  my  understanding  that under  the  language,  as                                                                    
     amended,   the  interest   created   by  an   operating                                                                    
     agreement would be  tax exempt - or  not taxable except                                                                    
     to the extent that  it's associated with those specific                                                                    
     improvements  used for  lodging purposes.   Would  that                                                                    
     result in  a change  in the  total interest  taxable by                                                                    
     the Ketchikan Gateway Borough?                                                                                             
                                                                                                                                
MR.  BRANDT-ERICHSEN answered  that  it would,  but he  explained                                                               
that it would  not result in a change in  revenue to the borough.                                                               
He said the  borough currently has adopted  an ordinance allowing                                                               
for an  optional exemption for  the value  of that property.   He                                                               
added:                                                                                                                          
                                                                                                                                
     And what that means is:   For example, for the purposes                                                                    
     of the  school contributions,  the borough  still makes                                                                    
     those payments.   With a mandatory  exemption, we would                                                                    
     not make those payments.   And the value of that amount                                                                    
     is approximately $70,000 a year.                                                                                           
                                                                                                                                
CO-CHAIR PARISH  asked for  confirmation that  there would  be "a                                                               
shift of $70,000 from ... the city to the state."                                                                               
                                                                                                                                
MR. BRANDT-ERICHSEN answered yes, from the borough to the state.                                                                
                                                                                                                                
CO-CHAIR PARISH added, "Because  the exemption would be mandatory                                                               
instead of  optional, as  it is presently  by ordinance,  is that                                                               
right?"                                                                                                                         
                                                                                                                                
MR. BRANDT-ERICHSEN answered that is correct.                                                                                   
                                                                                                                                
CO-CHAIR  PARISH asked  what the  effect on  the bottom  line for                                                               
Vigor would be.                                                                                                                 
                                                                                                                                
MR. BRANDT-ERICHSEN  differed to Doug  Ward, the director  of the                                                               
shipyard.    He  reviewed  that  both  the  [borough]  and  state                                                               
assessors  had treated  the property  as if  it were  mandatorily                                                               
exempt, up  until 2011.   Once the state assessor  began treating                                                               
it as optionally  exempt and there was a  cost penalty associated                                                               
with it, the Ketchikan Assembly  discussed requiring some sort of                                                               
payment   in  taxes.     He   said  the   operating  margin   and                                                               
profitability of  the shipyard is  such that if it  were required                                                               
to pay payment in lieu of taxes  (PILT) in the full amount of the                                                               
local  tax levies,  then it  could  impact the  viability of  the                                                               
shipyard.                                                                                                                       
                                                                                                                                
9:07:08 AM                                                                                                                    
                                                                                                                                
DOUG WARD, Director of  Shipyard Development, Ketchikan shipyard,                                                               
noted that  he has held  his position for  the last 25  years; he                                                               
was  previously  employed  by  Alaska Ship  and  Drydock;  he  is                                                               
currently employed  by Vigor.   In response to  Co-Chair Parish's                                                               
question,  he stated  that only  in the  last two  years has  the                                                               
Ketchikan  shipyard   approached  marginal  profitability.     He                                                               
stressed  the  importance  of   profitability,  since  under  its                                                               
operating  agreement,   [Vigor]  participates  in   both  revenue                                                               
sharing and profit sharing with AIDEA.   The payments to AIDEA go                                                               
into  an AIDEA-held,  dedicated  repair and  replacement fund  in                                                               
order to maintain the state asset,  he said, and that ensures the                                                               
long-term  maintenance of  the state  asset.   He said,  "Any tax                                                               
payments that would be related  to our possessory interest in the                                                               
operating agreement  would diminish our profitability  and impact                                                               
... our ability  to maintain a competitive  position when seeking                                                               
new  ship constructions  and ship  repair contracts  in an  open,                                                               
competitive basis."   He added,  "The final impact of  that could                                                               
be  a reduced  volume of  production work  at the  shipyard, with                                                               
reduced  employment and  increased competitive  disadvantages for                                                               
future ship repair and ship building contracts."                                                                                
                                                                                                                                
CO-CHAIR PARISH  asked how much money  is going to AIDEA  and how                                                               
much is going to the repair and maintenance fund.                                                                               
                                                                                                                                
MR. WARD  answered between [$50,000  and $75,000].  He  stated it                                                               
was  approximately [$65,000]  last year  in combined  revenue and                                                               
profit sharing, and  the projection for this year  is roughly the                                                               
same.                                                                                                                           
                                                                                                                                
9:11:46 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ORTIZ  stated   appreciation  for  the  questions                                                               
brought forward.   He  said the  bottom line  is the  question of                                                               
whether Conceptual Amendment 1 is  in the best interest of Alaska                                                               
and the  AIDEA-owned facility.   He opined that  it is.   He said                                                               
the profit margins Vigor works under  are narrow.  Vigor has been                                                               
awarded the bid to construct the two  new AMHS ferries.  It was a                                                               
competitive  bid, and  Vigor is  on schedule  to "perform  to the                                                               
parameters  of that  particular  bid."   He  emphasized that  the                                                               
profit that  Vigor would make  for those two ferries  is minimal.                                                               
He said the intent [of Conceptual  Amendment 1] is to "create the                                                               
best possible environment"  for Vigor to continue  to operate the                                                               
facility,  employ people  from around  the state,  and facilitate                                                               
marine transportation infrastructure.                                                                                           
                                                                                                                                
9:14:46 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked Mr. Ward  to confirm that  if Vigor                                                               
had to  pay property tax  to the Ketchikan [Gateway]  Borough, it                                                               
would cost  [the shipyard]  an additional  $50,000 to  75,000 per                                                               
year.                                                                                                                           
                                                                                                                                
MR. WARD answered about $70,000 a year.                                                                                         
                                                                                                                                
REPRESENTATIVE SADDLER, regarding  the shipyard having approached                                                               
profitability in only the last  couple years, asked about startup                                                               
costs and  whether the shipyard  is on a trajectory  plan towards                                                               
profitability  or   operating  at  a  standard   level  only  now                                                               
occasionally achieving profitability.                                                                                           
                                                                                                                                
MR. WARD  answered the former.   He added that new  contracts are                                                               
being actively taken, both in new  ship fabrication as well as in                                                               
ship repair.   He  said the shipyard's  customers in  ship repair                                                               
include the  U.S. Coast  Guard (USCG),  the National  Oceanic and                                                               
Atmospheric  Administration   (NOAA),  federal   agencies,  state                                                               
agencies,  the Alaska  Department  of Fish  &  Game (ADF&G),  the                                                               
Alaska Department of  Public Safety (DPS), and a  large number of                                                               
publicly  owned   clients,  including  the  Inner   Island  Ferry                                                               
Authority.    He said  the  shipyard  is  looking to  expand  its                                                               
activities in  the fish  harvesting market,  as well  as "general                                                               
heavy  manufacturing   for  manufactured  and   fabricated  metal                                                               
products being  imported to  Alaska."   He concluded,  "So, we're                                                               
definitely looking  forward to expanding the  business, expanding                                                               
our  employment,  as well  as  increasing  the marine  industrial                                                               
support sector of the state of Alaska."                                                                                         
                                                                                                                                
REPRESENTATIVE SADDLER expressed his  support for the creation of                                                               
manufacturing and  seafaring jobs  in the coastal  communities of                                                               
Southeast  Alaska.   He asked  Mr. Ward  to confirm  that if  the                                                               
property  tax  exemption were  to  be  made mandatory,  then  the                                                               
shipyard might  lose $70,000 a  year, but the business  would not                                                               
be killed  in a year,  because the shipyard could  probably "grow                                                               
enough to accommodate that loss."                                                                                               
                                                                                                                                
MR. WARD  replied that  he would  not conjecture  as to  what the                                                               
future could bring.  Notwithstanding that, he stated:                                                                           
                                                                                                                                
     The 30-year operating agreement,  which we entered into                                                                    
     with AIDEA, recognized  the competitive difficulties of                                                                    
     establishing a  viable shipyard enterprise in  a remote                                                                    
     and isolated location like Ketchikan.   When we started                                                                    
     this  project, our  first year  under  Alaska Ship  and                                                                    
     Drydock was in 1994; our  development plan at that time                                                                    
     was  to add  a small  lift to  service the  local seine                                                                    
     fleet.   With collapse  of the  timber industry  in the                                                                    
     mid-1990s,  both the  Ketchikan  [Gateway] Borough  and                                                                    
     the State  of Alaska  came to  Alaska Ship  and Drydock                                                                    
     and asked  if we could  create a development  plan that                                                                    
     would   ...  [ensure]   long-time   liability  of   the                                                                    
     Ketchikan shipyard.   That plan  is referred to  as the                                                                    
     1999  Shipyard   Development  Plan,   and  as   far  as                                                                    
     profitability, the operating  agreement recognized that                                                                    
     profitability  in  the  early  years was  going  to  be                                                                    
     difficult, and ... to establish  not only a skilled and                                                                    
     competitive  Alaskan workforce,  but [also]  to develop                                                                    
     all  of  the   required  infrastructure  for  long-term                                                                    
     viability,  was going  to be  a long-term  proposition.                                                                    
     And it  was for  that reason  that the  AIDEA operating                                                                    
     agreement is for a 30-year term, beginning in 2005.                                                                        
                                                                                                                                
9:20:30 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  how the  proposed  tax  exemption                                                               
would affect transfer of payments from the borough to the state.                                                                
                                                                                                                                
MR.  WARD answered  that the  operating agreement  refers to  the                                                               
establishment  of a  repair  and replacement  fund  at a  minimum                                                               
level of  approximately $1.6 million.   He said the fund  will be                                                               
managed  by  AIDEA for  long-term  maintenance  of the  (indisc.)                                                               
asset.   He  explained that  once  the fund  reaches the  minimum                                                               
required  balance,  AIDEA  has the  option  of  participating  in                                                               
revenue  sharing with  the municipality,  borough, and  Ketchikan                                                               
Public Utilities, "in part for  repayment for financial incentive                                                               
that they  have provided  locally through  the tax  exemption and                                                               
competitive power rates."  He said  the other option AIDEA has is                                                               
to direct the  excess funds to participate in  revenue sharing to                                                               
the state  general fund.   Mr.  Ward stated,  "Should we  have to                                                               
make  payments  on our  possessory  interest,  that would  reduce                                                               
revenue streams  to the  AIDEA R&R  funds and  potentially reduce                                                               
funds that  can be distributed  to either the state  general fund                                                               
or  to  the  municipalities  of   Ketchikan."    In  response  to                                                               
Representative  Saddler, he  suggested  further  detail could  be                                                               
provided by representatives of AIDEA.                                                                                           
                                                                                                                                
REPRESENTATIVE SADDLER  said it sounds  like there is  "an excess                                                               
with state finances," which he said he appreciates.                                                                             
                                                                                                                                
9:24:20 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER asked if low bidding is a trend.                                                                        
                                                                                                                                
9:25:11 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ORTIZ deferred  to Mr. Ward, but  said in general,                                                               
because of  the "tightness of  capital budgets" and  overall lack                                                               
of state revenue,  he does not see "a very  robust capital budget                                                               
moving forward from  the State of Alaska."  As  a result, he said                                                               
he  predicts  an  increasingly   tough  environment  for  private                                                               
industry when finding projects.                                                                                                 
                                                                                                                                
9:26:55 AM                                                                                                                    
                                                                                                                                
MR. WARD,  in response  to Representative  Rauscher's restatement                                                               
of   the  question,   reviewed   that   the  Ketchikan   shipyard                                                               
participates  in  two  activities:   new  ship  construction  and                                                               
marine vessel repair, maintenance, and  conversion.  The new ship                                                               
construction  market  is  cyclical,   and  in  general  the  U.S.                                                               
shipbuilding  industry in  major regions  is heavily  affected by                                                               
federal oil  and gas policies  that are set, especially  in terms                                                               
of exploration,  drilling, and transportation,  as well  as other                                                               
national and international forces that  drive the demand for ship                                                               
building.   He  indicated that  those on  the commercial  side of                                                               
ship  building are  "price takers,  with  respect to  competitive                                                               
bids."   In  terms of  the  ship maintenance  and conversion,  he                                                               
said, "These  vessels represent near-to-market  opportunities, in                                                               
which  we can  be, to  some extent,  price makers."   He  further                                                               
explained, "Because  of our geographic  proximity to  the vessels                                                               
that  work  in  Alaska,  we're able  to  enjoy  some  competitive                                                               
advantage  to that  geographic proximity."   Mr.  Ward said  with                                                               
respect to public vessels and  the [Alaska] Marine Highway System                                                               
in  particular, "we  have to  be competitive  in our  maintenance                                                               
work  for  any  public-owned  assets or  they  go  elsewhere  for                                                               
maintenance."                                                                                                                   
                                                                                                                                
MR.  WARD stated  that the  trend is  going to  be for  continued                                                               
cyclical  demand  for  both  repair and  ship  fabrication.    He                                                               
reiterated that economic factors affect repair.  He continued:                                                                  
                                                                                                                                
     To   put   this   into  perspective:      Through   our                                                                    
     public/private  partnership,   which  has   been  noted                                                                    
     nationally   as  an   extremely  successful   model  of                                                                    
     public/private  partnering,  Alaska  now has  a  world-                                                                    
     class facility that is probably  90 percent complete of                                                                    
     its development  plan.   We have a  young and  ... very                                                                    
     talented Alaska resident workforce  that is, every day,                                                                    
     learning  new  innovations  and how  to  do  this  work                                                                    
     faster, cheaper, and better.   So, we are approaching a                                                                    
     world class Alaska resident workforce.   With those two                                                                    
     assets  in  hand, we  look  forward  to increasing  our                                                                    
     competitive  advantages,   decreasing  our  competitive                                                                    
     disadvantages, and growing  a marine industrial support                                                                    
     sector in the state of Alaska.                                                                                             
                                                                                                                                
REPRESENTATIVE  RAUSCHER   directed  attention  to   language  in                                                               
Conceptual  Amendment  1,  [which   is  found  under  Section  1,                                                               
subsection (a),  paragraph (1), subparagraph (C)],  which read as                                                               
follows:                                                                                                                        
                                                                                                                                
                         (C) an ownership interest of a                                                                         
     municipality  in  real  property  located  outside  the                                                                    
     municipality  acquired  after  December  31,  1990,  is                                                                    
     taxable  by another  municipality;  however, a  borough                                                                    
     may not  tax an  interest in  real property  located in                                                                    
     the borough and owned by a city in that borough;                                                                           
                                                                                                                                
REPRESENTATIVE   RAUSCHER   asked   for   further   clarification                                                               
regarding that language.                                                                                                        
                                                                                                                                
9:32:37 AM                                                                                                                    
                                                                                                                                
MR. LOGAN explained  that that language is  currently in statute;                                                               
it is not being changed.                                                                                                        
                                                                                                                                
REPRESENTATIVE  RAUSCHER  said he  would  like  to know  what  it                                                               
means.                                                                                                                          
                                                                                                                                
9:33:02 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WESTLAKE  echoed  Mr. Logan's  previous  response                                                               
that the language  already exists in statute;  therefore, "we had                                                               
nothing to  do with  it."  He  indicated that  initial discussion                                                               
had been in regard to the sunset clause.                                                                                        
                                                                                                                                
9:34:10 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH noted that there  were two individuals from AIDEA                                                               
and  one  from  the  Municipality   of  Anchorage  available  for                                                               
questions, and  he said  he would  like to  hear from  them their                                                               
opinion of Conceptual Amendment 1.                                                                                              
                                                                                                                                
9:35:39 AM                                                                                                                    
                                                                                                                                
JOHN   SPRINGSTEEN,   Executive   Director,   Alaska   Industrial                                                               
Development   and   Export   Authority   (AIDEA),   stated   that                                                               
[Conceptual  Amendment 1]  would not  have a  material effect  on                                                               
AIDEA.  He offered his view  that that Ketchikan shipyard was "an                                                               
emergency economic  redevelopment project (indisc.)  the downturn                                                               
of Ketchikan's timber industry as  a result of impacts of federal                                                               
regulation.  He continued:                                                                                                      
                                                                                                                                
     Just  in  general,  AIDEA's  mission  is  to  grow  and                                                                    
     diversify  the  economy  by  financing  development  to                                                                    
     facilitate  the  creation  of   jobs  and  revenue  for                                                                    
     Alaskans.   So, with regard to  the Ketchikan shipyard,                                                                    
     AIDEA successfully implemented this mission.                                                                               
                                                                                                                                
MR. SPRINGSTEEN said the  [shipyard] project provided significant                                                               
economic benefit to the community,  both directly and indirectly,                                                               
by  providing  jobs  to  a   struggling  community  through  "the                                                               
redevelopment."                                                                                                                 
                                                                                                                                
9:36:40 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH said he is  not familiar with the Delong Mountain                                                               
Transportation Facility,  and he  inquired, "How analogous  is it                                                               
with the Vigor shipyard?"                                                                                                       
                                                                                                                                
MR. SPRINGSTEEN imparted that  the Delong Mountain Transportation                                                               
System is  the road we  (indisc.) to the Red  Dog Mine.   He said                                                               
the benefit of it is the  creation of new industry where none had                                                               
existed  prior.   He  listed  the  following entities  that  have                                                               
benefited, including the  State of Alaska, AIDEA, and  all on the                                                               
receiving end of  "revenue from the project."   He indicated that                                                               
money circulates through AIDEA and  is contributed, in part, back                                                               
to the state's general fund.                                                                                                    
                                                                                                                                
9:38:07 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH asked  if any language in  Conceptual Amendment 1                                                               
would impair the ability of a municipality to require PILT.                                                                     
                                                                                                                                
MR. SPRINGSTEEN deferred to Mr. Brandt-Erichsen.                                                                                
                                                                                                                                
9:38:46 AM                                                                                                                    
                                                                                                                                
MR.  BRANDT-ERICHSEN said  the amendment  would  have the  Delong                                                               
Mountain Facility  and Ketchikan shipyard facility  be treated as                                                               
fully exempt, similar to the  Healthy Clean Coal Project and some                                                               
other  AIDEA  projects.     In  that  situation,   he  said,  the                                                               
municipality  could   not  require  PILT;  however,   the  entity                                                               
operating the facility could voluntarily  enter into an agreement                                                               
for PILT.                                                                                                                       
                                                                                                                                
CO-CHAIR  PARISH asked  what leverage  a municipality  would have                                                               
available.                                                                                                                      
                                                                                                                                
MR.  BRANDT-ERICHSEN answered  that the  leverage a  municipality                                                               
might  have would  vary by  the  circumstance.   For example,  in                                                               
Ketchikan, the benefits currently  offered the Ketchikan shipyard                                                               
are  voluntary  exemptions from  the  city  and borough  property                                                               
taxes, as  well as a reduced  utilities rate.  He  said there are                                                               
financial benefits that  the shipyard would still  enjoy, even if                                                               
the  property was  mandatorily exempt.    In the  case of  Delong                                                               
Mountain  Facility,  there may  be  any  number of  measures  the                                                               
Northwest  Arctic  Borough may  consider  that  would affect  the                                                               
operation of  the mine there.   They may not be  directly related                                                               
to the imposition  of taxes, but they may  be regulatory measures                                                               
that would  have other impact on  the operating of the  mine that                                                               
could motivate an operator to agree to PILT.                                                                                    
                                                                                                                                
9:41:01 AM                                                                                                                    
                                                                                                                                
MR. LOGAN  said he thinks Mr.  Brandt-Erichsen did a good  job in                                                               
illustrating the complexities within each  taxing regime.  To Co-                                                               
Chair Parish,  he said the  Delong Mountain Facility and  Red Dog                                                               
have been  operating through the  borough for a number  of years,                                                               
while this exemption has existed.                                                                                               
                                                                                                                                
9:41:32 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WESTLAKE  reminded  committee  members  that  the                                                               
Delong Mountain Facility  was started before there  was a borough                                                               
involved, "and it's worked out well."   He said when making these                                                               
considerations, a balance is important to maintain.                                                                             
                                                                                                                                
9:42:15 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SADDLER   asked   Mr.   Springsteen   if   AIDEA                                                               
participates with  any other shipyards  other than  the Ketchikan                                                               
shipyard.                                                                                                                       
                                                                                                                                
MR. SPRINGSTEEN answered no.                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  Mr.  Springsteen if  he  has  any                                                               
concerns  that "this  legislation"  would  be considered  special                                                               
interest legislation if it applies only to one facility.                                                                        
                                                                                                                                
MR. SPRINGSTEEN  offered his  understanding that  "this mandatory                                                               
exemption  would just  bring the  Ketchikan shipyard  into parity                                                               
with the Delong Mountain Transportation System.                                                                                 
                                                                                                                                
REPRESENTATIVE SADDLER asked Mr.  Springsteen, "Are you sure that                                                               
this would not violate the special interest ... prohibitions?"                                                                  
                                                                                                                                
MR. SPRINGSTEEN deferred to Mr. Brandt-Erichsen.                                                                                
                                                                                                                                
REPRESENTATIVE SADDLER then asked  Mr. Springsteen if [Conceptual                                                               
Amendment 1] would have any impact  on the finances of the Delong                                                               
Mountain Transportation  System, the Red Dog  Mine, the Northwest                                                               
Arctic Borough, or the State of Alaska's finances.                                                                              
                                                                                                                                
MR. SPRINGSTEEN  offered his understanding that  the only impacts                                                               
were related  to the school  funding formula; but "that's  out of                                                               
the purview of  AIDEA."  In response to a  follow-up question, he                                                               
referred  to  previous   discussion  regarding  mandatory  versus                                                               
optional  exemption for  property taxes  that would  result in  a                                                               
flow of  approximately $60,000 versus what  the Ketchikan Gateway                                                               
Borough would  bear.  He  welcomed correction from  the Ketchikan                                                               
Gateway  Borough  attorney,  since  "it's a  little  out  of  our                                                               
purview."      In  response   to   a   follow-up  question   from                                                               
Representative Saddler,  he clarified that when  he had mentioned                                                               
school funding,  he was  referring to  both the  Northwest Arctic                                                               
Borough and the Ketchikan Gateway Borough.                                                                                      
                                                                                                                                
REPRESENTATIVE  SADDLER asked  what the  effect would  be on  the                                                               
school funding formula.                                                                                                         
                                                                                                                                
MR. SPRINGSTEEN deferred to Mr. Brandt-Erichsen.                                                                                
                                                                                                                                
9:45:53 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WESTLAKE proffered  that  there has  just been  a                                                               
PILT agreement  "over there."   The  borough funding  formula has                                                               
already  been "written  in and  finalized."   Regarding the  PILT                                                               
agreement,  he said,  "They do  the payments  to the  borough, as                                                               
well as to the borough school district."                                                                                        
                                                                                                                                
9:46:29 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER said he would  like further explanation as                                                               
to how the school funding formula might be affected.                                                                            
                                                                                                                                
MR.  SPRINGSTEEN   offered  his  understanding  that   there  are                                                               
$60,000-$70,000 being funded by the  state versus being funded by                                                               
the borough.                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked Mr. Springsteen to  confirm that he                                                               
is saying  there is no  impact on the Northwest  [Arctic] Borough                                                               
School District.                                                                                                                
                                                                                                                                
MR.  SPRINGSTEEN  answered that  his  understanding  is that  "it                                                               
would be the ... status quo for the Northwest Arctic Borough."                                                                  
                                                                                                                                
REPRESENTATIVE SADDLER  asked Mr. Brandt-Erichsen  if [Conceptual                                                               
Amendment  1]  would  affect funding  in  the  Ketchikan  Gateway                                                               
Borough School District.                                                                                                        
                                                                                                                                
MR.  BRANDT-ERICHSEN  explained  that "the  2.65  mils  mandatory                                                               
contribution"  would not  change  the amount  of  money that  the                                                               
school district receives;  it would change who is paying  it.  He                                                               
continued:                                                                                                                      
                                                                                                                                
     If  the  increment that  represents  2.65  mils on  the                                                                    
     value  of   the  possessory  interest  in   either  the                                                                    
     shipyard  or the  Delong Mountain  Facility is  paid by                                                                    
     the state,  then the state  is paying it; if  it's paid                                                                    
     by  the  community,  then the  community's  paying  it.                                                                    
     With a  mandatory exemption, then that  amount that ...                                                                    
     relates to  2.65 mils is going  to come out of  ... the                                                                    
     state's  education  contributions.    If  there  is  no                                                                    
     exemption  or   it  is   an  optional   exemption,  the                                                                    
     equivalent of 2.65 mils on  the value of the possessory                                                                    
     interest in either facility would  be paid by the local                                                                    
     government.     And  with  respect  to   the  Ketchikan                                                                    
     shipyard, that 2.65 mils  equates to about $60-$70,000,                                                                    
     at this point in time.                                                                                                     
                                                                                                                                
REPRESENTATIVE SADDLER  surmised that  if Conceptual  Amendment 1                                                               
made the property  tax exemption in the  Northwest Arctic Borough                                                               
for  Delong  Mountain  Facility  and  in  the  Ketchikan  Gateway                                                               
Borough, then it would affect  school foundation funding; as such                                                               
it would affect  the finances of the state;  therefore, he opined                                                               
a fiscal should  be required to ensure the impact  on the state's                                                               
finances would be fully vetted.                                                                                                 
                                                                                                                                
CO-CHAIR FANSLER  said a fiscal  note can be  requested; however,                                                               
he reminded Representative Saddler that  a bill would be heard on                                                               
the House floor today that  "has the committee substitute wrapped                                                               
in  it,"  which  is  why  the committee  is  having  the  current                                                               
hearing.   He  further explained  that [Conceptual  Amendment 1],                                                               
even if adopted, would  not be in SB 100, so it  would need to be                                                               
offered on  the House floor.   He said he would  request a fiscal                                                               
note  if   Representative  Saddler  wished,  but   "really,  this                                                               
amendment  will  be  heard  on   the  floor  at  11  o'clock  ...                                                               
regardless."                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER maintained his request for a fiscal note.                                                                
                                                                                                                                
9:51:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ORTIZ asked  the  committee  to consider  whether                                                               
Conceptual  Amendment  1  is  in  the  interest  of  all  parties                                                               
involved.  He remarked that  when considering the incentives that                                                               
the  state  puts   forward  to  the  oil  and   gas  industry  in                                                               
particular, "the  scale of this  arrangement is less  than minute                                                               
in terms of what it might mean  to the states" - $70,000 of added                                                               
obligation  as  an  incentive  to  [the  Ketchikan  shipyard]  in                                                               
support  of  160 jobs  around  the  state,  as well  as  economic                                                               
diversification and  development.  He  said when the  state looks                                                               
for  what   it  can  do   to  facilitate   economic  opportunity,                                                               
diversification,  and  development,  "this  particular  amendment                                                               
makes darn good sense."                                                                                                         
                                                                                                                                
9:53:10 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TALERICO said he  likes to see statewide municipal                                                               
participation and Title 29 is  all about municipalities; however,                                                               
whenever amendments are discussed that  involve Title 29, he gets                                                               
nervous.                                                                                                                        
                                                                                                                                
9:53:57 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WESTLAKE  acknowledged the concerns  expressed and                                                               
said there is a domino effect  for this type of action.  However,                                                               
he opined that  the end result [of Conceptual  Amendment 1] would                                                               
be a local benefit.                                                                                                             
                                                                                                                                
9:54:59 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER   stated  concern  for   the  legislative                                                               
procedure  in bringing  the amendment  at this  time.   He stated                                                               
opposition to Conceptual Amendment 1.                                                                                           
                                                                                                                                
CO-CHAIR FANSLER restated the purpose  behind today's meeting and                                                               
emphasized  that  in  no  way   was  it  to  accommodate  hearing                                                               
Conceptual Amendment 1,  which had been brought  to his attention                                                               
yesterday,  after  the  meeting  was  called  on  Saturday.    He                                                               
recapped  the  steps  that  were   taken  to  bring  forward  the                                                               
committee substitute for HB 156,  which was then placed within SB                                                               
100.    He  stated  his  belief in  the  importance  of  bringing                                                               
legislation before  the committee, hence the  reason for bringing                                                               
forward  the proposed  committee substitute,  which had  not been                                                               
discussed by the committee prior to today.                                                                                      
                                                                                                                                
CO-CHAIR FANSLER asked, "Is the objection maintained?"                                                                          
                                                                                                                                
REPRESENTATIVE TALERICO answered, "Yes."                                                                                        
                                                                                                                                
9:57:35 AM                                                                                                                    
                                                                                                                                
A roll call vote was  taken.  Representatives Drummond, Westlake,                                                               
Parish, and Fansler  voted in favor of Conceptual  Amendment 1 to                                                               
HB 156.   Representatives Talerico,  Rauscher, and  Saddler voted                                                               
against it.   Therefore, Conceptual Amendment 1 was  adopted by a                                                               
vote of 4-3.                                                                                                                    
                                                                                                                                
9:58:47 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER again  objected to  the late  hearing and                                                               
lack of public testimony.                                                                                                       
                                                                                                                                
9:59:28 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH  moved to report  CSHB 156,  Version 30-LS0602\U,                                                               
Wallace/Shutts,    5/13/17,   as    amended,   with    individual                                                               
recommendations  and  attached  fiscal  notes.   There  being  no                                                               
objection, CSHB 156(CRA) was reported  out of the House Community                                                               
and Regional Affairs Standing Committee.                                                                                        
                                                                                                                                
10:00:26 AM                                                                                                                   
                                                                                                                                
The committee took an at-ease from 10:00 a.m. to 10:02 a.m.                                                                     
                                                                                                                                
10:02:57 AM                                                                                                                   
                                                                                                                                
CO-CHAIR PARISH,  upon the request of  Co-Chair Fansler, restated                                                               
the  motion to  report CSHB  156(STA) from  committee so  that it                                                               
would  reflect  that it  would  be  accompanied by  one  existing                                                               
fiscal  note and  one fiscal  note still  to be  drafted, at  the                                                               
request of Representative Saddler.                                                                                              
                                                                                                                                
CO-CHAIR  FANSLER  ascertained  that   no  one  objected  to  the                                                               
clarified motion; therefore, it was so ordered.                                                                                 

Document Name Date/Time Subjects
HB 156 Addtional Documents MSBTaxExemptionImpact.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156 Addtional Documents Legal Memorandum School Funding Language.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156 Explanation of Changes.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156_CityofSeward Support.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156 Sponsor Statement.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156_AEDC Support.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156 Municipal Tax Exemption Explanation.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156 Legal Memorandum, Municipal Taxation Authority.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156 Fiscal Note CED.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156 Comparison.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156 Addtional DocumentsGuide to AS2945050.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 0156A.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 0156U.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156_CityofSeward Support.pdf HCRA 5/15/2017 8:00:00 AM
HB 156
HB 156 Ammendment 1.pdf HCRA 5/15/2017 8:00:00 AM
HB 156