Legislature(2011 - 2012)HOUSE FINANCE 519

02/22/2012 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
Moved CSHB 216(FIN) Out of Committee
Scheduled But Not Heard
Moved CSHB 264(CRA) Out of Committee
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 279(FIN) Out of Committee
HOUSE BILL NO. 264                                                                                                            
     "An  Act  allowing  a deferral  of  municipal  property                                                                    
     taxes on  the increase  in the  value of  real property                                                                    
     attributable  to  subdivision  of  that  property;  and                                                                    
     providing for an effective date."                                                                                          
2:57:06 PM                                                                                                                    
REPRESENTATIVE CATHY  MUNOZ, SPONSOR, explained that  HB 264                                                                    
would  give   municipalities  the   option  to   provide  an                                                                    
incentive to  develop land for  housing by deferring  for up                                                                    
to five  years a property  tax increase directly  related to                                                                    
the subdivision  of a piece  of property into three  or more                                                                    
lots. She elaborated  that there was a limited  land base in                                                                    
Juneau,    which   resulted    in   limited    new   housing                                                                    
opportunities. She detailed that  when a developer purchased                                                                    
a piece  of land and  began the subdivision process  as soon                                                                    
as  the  surveying  and planning  paperwork  was  filed  the                                                                    
property was  reassessed at a  rate that could be  between 5                                                                    
and 10  times the  predevelopment cost  before any  work had                                                                    
occurred on  the property. She  stressed that the  issue was                                                                    
an incredible disadvantage and  disincentive for new housing                                                                    
development  especially in  communities  faced with  limited                                                                    
housing opportunities.                                                                                                          
Representative Munoz  continued to explain  the legislation.                                                                    
The  bill would  provide municipalities  the flexibility  to                                                                    
defer  increases in  property  taxes  on subdivided  parcels                                                                    
until a  lot was sold  or until a residential  or commercial                                                                    
building  was  constructed on  a  plot  of land.  The  local                                                                    
government would  be allowed to  adopt an  optional deferral                                                                    
for all  or a portion  of the subdivided property  and could                                                                    
decide   the  terms   of  paying   the  tax   deferral.  She                                                                    
communicated  that supporters  of  the legislation  believed                                                                    
that it would provide  an incentive for developing privately                                                                    
owned  property by  holding taxes  at  the undeveloped  land                                                                    
value   until  improvements   occurred  that   led  to   the                                                                    
development or  sale of the  parcel. The land would  then be                                                                    
more  valuable and  capable of  generating more  revenue for                                                                    
the local community.                                                                                                            
Representative  Munoz delineated  that  the  purpose of  the                                                                    
bill  was to  encourage  land development  and more  housing                                                                    
opportunities and to let local  governments decide whether a                                                                    
property tax  deferral would benefit the  community. She was                                                                    
sensitive to  the concerns  of local  municipalities related                                                                    
to  exemption legislation  and the  passing  on of  unfunded                                                                    
liabilities to cities; the bill  would not impose the burden                                                                    
on  local municipalities.  The  sponsor  had worked  closely                                                                    
with the  Alaska Municipal League (AML).  She expounded that                                                                    
the  deferral was  optional and  that  property taxes  would                                                                    
ultimately be due  when the property was  sold or developed.                                                                    
She  informed   the  committee  that  the   assistant  state                                                                    
assessor and others were available to testify.                                                                                  
Co-Chair  Stoltze appreciated  the process  that had  led to                                                                    
the bill.  He had been  slightly disappointed that  the bill                                                                    
only  included a  deferral, but  he understood  that it  had                                                                    
been crafted carefully.                                                                                                         
3:01:18 PM                                                                                                                    
Vice-chair  Fairclough  MOVED  CSHB 264(CRA)  as  a  working                                                                    
document before the committee.                                                                                                  
BILL  ROTECKI, MEMBER,  KETCHIKAN GATEWAY  BOROUGH ASSEMBLY,                                                                    
spoke in support  of the legislation. He  discussed that the                                                                    
issue had come up as a  suggestion when the borough had done                                                                    
an  economic development  survey that  included the  housing                                                                    
industry.  He explained  that local  builders would  be more                                                                    
inclined to  subdivide parcels before selling  them if taxes                                                                    
could be deferred  for five years or until  the property was                                                                    
sold.  He  relayed  that  Ketchikan  would  face  a  housing                                                                    
shortage if the  local shipyard was awarded  the contract to                                                                    
build  new  state ferries  or  if  new mining  opportunities                                                                    
arose.  He  elaborated that  building  housing  to meet  the                                                                    
needs  of any  of  the possibilities  would  take time.  The                                                                    
borough did not want individuals  moving to the community to                                                                    
have  to commute  from another  location  due to  a lack  of                                                                    
housing options.  He opined that  under the  legislation the                                                                    
municipality  would most  likely gain  rather than  lose. He                                                                    
furthered  that the  community could  not  lose tax  revenue                                                                    
that  it did  not already  have,  but the  revenue would  be                                                                    
generated if the subdivision of property occurred.                                                                              
3:04:30 PM                                                                                                                    
ALAN   WILSON,    CHAIRMAN,   JUNEAU    AFFORDABLE   HOUSING                                                                    
COMMISSION,  voiced support  for the  bill. He  relayed that                                                                    
the Juneau  Assembly had  established the  Juneau Affordable                                                                    
Housing Commission in 2007 to  address local housing issues.                                                                    
The  commission  had  worked  on  multiple  items  including                                                                    
comprehensive planned issues,  density overlays, free gravel                                                                    
for  site  improvement,  and  other.  He  relayed  that  the                                                                    
commission had  looked at tools  utilized by  communities in                                                                    
the Lower  48 that allowed  them to  develop a region  or to                                                                    
target specific  types of housing; the  deferral of property                                                                    
taxes  had  been  a  strategy  used  by  other  communities.                                                                    
Carrying  costs over  time was  a burden  to developers  and                                                                    
could result in a loss of property.                                                                                             
Mr. Wilson  communicated that HB  264 was the first  tool in                                                                    
the toolbox that private  developers could utilize directly.                                                                    
The  commission  viewed  the tax  deferral  as  an  economic                                                                    
development tool  versus a  housing tool;  however, anything                                                                    
that would  help address Juneau's housing  vacancy rate that                                                                    
was currently less than 1 percent would be beneficial.                                                                          
Co-Chair Stoltze thought  the problem was about  a cash flow                                                                    
issue;  builders did  not  want  to put  out  cash prior  to                                                                    
making money. Mr. Wilson replied in the affirmative.                                                                            
Vice-chair  Fairclough  asked  whether  the  commission  had                                                                    
asked the city  assessor's office why the  price of property                                                                    
was  increased  immediately  after  it  was  subdivided  and                                                                    
whether it would consider stair-stepping the tax increase.                                                                      
Mr. Wilson answered that the  commission had asked the local                                                                    
assessor why tax  costs could not be  deferred. The response                                                                    
had been that  according to state statute  all property must                                                                    
be valued fairly. He explained  that a ten acre parcel could                                                                    
be valued  below a one  acre parcel,  but once the  ten acre                                                                    
property was  subdivided the value  and desirability  of the                                                                    
parcels increased.                                                                                                              
Co-Chair Stoltze  noted that there  were a number  of strong                                                                    
state assessor laws. Mr. Wilson agreed.                                                                                         
3:09:09 PM                                                                                                                    
JOHN   HARRINGTON,   MEMBER,  KETCHIKAN   GATEWAY   BOROUGH,                                                                    
PLANNING  COMMISSION   AND  ECONOMIC   DEVELOPMENT  ADVISORY                                                                    
COMMITTEE,  spoke in  favor of  the legislation.  He relayed                                                                    
that  the entities  had interviewed  local business  sectors                                                                    
who had  been developing economic development  action plans.                                                                    
The borough assembly had  adopted approximately one-third of                                                                    
the plans,  one of which  was the same  proposal encompassed                                                                    
in the  bill. The assembly  had been told that  the proposal                                                                    
was   not   legal   under  current   law;   therefore,   the                                                                    
introduction of the bill had received broad support.                                                                            
Co-Chair  Stoltze asked  whether  the  borough had  separate                                                                    
property tax levies from the  Cities of Ketchikan or Saxman.                                                                    
Mr. Harrington replied in the negative.                                                                                         
Vice-chair   Fairclough   believed  that   the   legislation                                                                    
impacted several  groups including the homebuilders  and the                                                                    
homeowners.  She surmised  that  the homeowner  would pay  a                                                                    
smaller  amount  of  taxes depending  on  how  quickly  they                                                                    
purchased  a lot  on  a subdivided  property  and created  a                                                                    
different type  of ownership from  one where liens  would be                                                                    
placed on  each lot based on  tax deferred by the  year. She                                                                    
provided  a scenario  in which  a ten  acre lot  was divided                                                                    
into 10  parcels; only  one of  the lots  sold in  the first                                                                    
year.  She asked  whether under  the scenario  the homeowner                                                                    
would only be responsible for  one year of deferred taxes in                                                                    
their purchase price.                                                                                                           
Mr. Harrington replied in the affirmative.                                                                                      
Vice-chair   Fairclough   had   concerns   about   how   the                                                                    
repercussions  of  a  developer  that  went  bankrupt  would                                                                    
impact  homestead  property  owners that  carried  the  note                                                                    
themselves.  In the  event of  the  bankruptcy she  wondered                                                                    
whether  the  homesteader  would   be  responsible  for  any                                                                    
deferred taxes  on the subdivided parcel.  She was concerned                                                                    
that if  a bank was responsible  that it would be  second in                                                                    
line to the government take.                                                                                                    
Mr.  Harrington  replied that  he  was  not the  appropriate                                                                    
person to answer  the question. He added  that the situation                                                                    
in  the   Ketchikan  Gateway  Borough   involved  landowners                                                                    
interested  in subdividing  their  properties. He  explained                                                                    
that  the  typical  situation  involved  remaining  land  on                                                                    
subdivided property that  was developed at a  later time and                                                                    
did  not  match  the  look  of  the  prior  development.  He                                                                    
believed  that  it  made  much   more  sense  to  allow  the                                                                    
landowner  time   to  implement   a  plan  for   the  entire                                                                    
development and to proceed systematically.                                                                                      
3:14:38 PM                                                                                                                    
Vice-chair   Fairclough  agreed,   but  surmised   that  the                                                                    
homeowner could have $10,000 of  additional costs built into                                                                    
a property they  were purchasing depending on  the amount of                                                                    
the  deferred property  tax. She  understood  that the  bill                                                                    
made  the  process easier  for  developers  and that  cities                                                                    
would receive  their share  as well,  but she  had questions                                                                    
remaining related to the homeowner.                                                                                             
Co-Chair  Stoltze noted  that subdivision  costs were  a big                                                                    
revenue generator for the Municipality of Anchorage.                                                                            
3:15:57 PM                                                                                                                    
FRED MORINO, MANAGER,  D.J.G. DEVELOPMENT, JUNEAU, supported                                                                    
the  legislation.  He  believed  the bill  would  provide  a                                                                    
positive   economic   impact   statewide   for   homeowners,                                                                    
municipalities, and developers.                                                                                                 
3:16:37 PM                                                                                                                    
DAVE HANNA,  OWNER, JLC  PROPERTIES, JUNEAU,  voiced support                                                                    
for   the   bill.   He  referred   to   communication   with                                                                    
representatives from  several banks  who saw  the bill  as a                                                                    
great  incentive   for  development.  He  had   worked  with                                                                    
multiple homebuilding associations  including Alaska General                                                                    
Contractors and everyone had been  in favor of the proposal.                                                                    
He addressed that  AML had concerns but  the entity believed                                                                    
that given the bill's  flexibility the proposal was tailored                                                                    
to  suit  every  city's  needs; communities  could  use  the                                                                    
deferral as  a tool to  encourage development. The  bill was                                                                    
more than a  cost saving measure; it could be  used to steer                                                                    
the  desired development.  He detailed  that the  incentives                                                                    
could be  offered to a  developer who was willing  to create                                                                    
the lot sizes the city wanted  or to include features like a                                                                    
bus stop or a park.                                                                                                             
Mr. Hanna believed  the bill would help  developers who were                                                                    
"hanging out to  dry." He explained that  the development of                                                                    
a  subdivision  was  a  drawn  out,  expensive  process.  He                                                                    
communicated  that  people  typically   did  not  enter  the                                                                    
business without a  good incentive and a  healthy demand for                                                                    
lots.  He  pointed  to building  cycles  that  occurred  and                                                                    
relayed that some developers looking  to take advantage of a                                                                    
good  market  were   experiencing  a  significant  financial                                                                    
burden because  the subdivision process was  lengthy and the                                                                    
market and  demand fell before  the lots could be  sold. The                                                                    
taxes were a tremendous  disincentive for development and he                                                                    
believed  lessening  the  burden   would  be  good  for  the                                                                    
economy.  He had  submitted  an example  showing  that if  a                                                                    
subdivision  had  been  bought  two years  earlier  than  it                                                                    
normally would have,  it would be a net  revenue increase to                                                                    
the municipality  because taxes  were higher on  houses than                                                                    
on raw land.                                                                                                                    
3:20:48 PM                                                                                                                    
Vice-chair  Fairclough  asked which  financial  institutions                                                                    
had  been  communicated with.  Mr.  Hanna  replied that  the                                                                    
institutions  included  Alaska   Pacific  Bank,  True  North                                                                    
Federal Credit Union, and First Bank in Ketchikan.                                                                              
Co-Chair  Stoltze remarked  there had  been a  large housing                                                                    
development  planned  in  one of  his  precincts  until  the                                                                    
economy had taken a downturn.  He observed that the bill had                                                                    
far reaching impacts.                                                                                                           
Vice-chair Fairclough  was supportive of the  concept before                                                                    
the  committee,   but  she  reiterated  her   concern  about                                                                    
homeowners  in  her  district that  were  dealing  with  the                                                                    
ramifications  of a  bankruptcy. She  believed the  proposal                                                                    
was  an excellent  idea  and that  the  sponsor had  created                                                                    
flexibility  in  the  way  the state  would  pass  the  law;                                                                    
however,  she wanted  a more  detailed understanding  of the                                                                    
bankruptcy process in order for  municipalities to factor it                                                                    
into their implementation of the law.                                                                                           
Mr.  Hanna  relayed that  based  on  conversations with  the                                                                    
state  and  local  assessor's  offices  he  understood  that                                                                    
municipalities could  take a second position  if desired. He                                                                    
elaborated that  the tax  liability by  law could  stay with                                                                    
the owner of record, but  the municipality could also choose                                                                    
to defer  the liability to  prevent it from  transferring to                                                                    
another person in the event of a bankruptcy.                                                                                    
Vice-chair  Fairclough   understood  that   the  flexibility                                                                    
existed,  but  she  guessed that  in  her  municipality  the                                                                    
government would  take its cut  first. She shared  that when                                                                    
the government took  its cut on a  foreclosure or bankruptcy                                                                    
it meant  that the  Anchorage property  tax payers  would be                                                                    
accepting  the  burden  and risk.  She  believed  the  state                                                                    
framework in the bill worked fine,  but the devil was in the                                                                    
details  related to  who the  responsible party  was if  the                                                                    
developer went bankrupt.                                                                                                        
3:24:30 PM                                                                                                                    
Co-Chair Stoltze CLOSED public testimony.                                                                                       
Representative  Munoz read  from a  letter she  had received                                                                    
from Juneau commercial banker Jerry Kromer:                                                                                     
     From a  lending perspective the increased  cash outflow                                                                    
     needed to  carry the property  taxes on the  full final                                                                    
     value of the  lots without being matched  to the timing                                                                    
     of  the cash  inflow  when the  lots  are sold  creates                                                                    
     greater risk to the lender.  Risk is compensated in two                                                                    
     ways:  higher rates  for  borrowing  and/or lower  loan                                                                    
     amounts, each  of which  adds to the  costs to  the end                                                                    
     purchaser of  the lot and higher  housing or commercial                                                                    
     prices without real increased  benefit to the developer                                                                    
     or  to  the  lender.   Through  the  higher  costs  and                                                                    
     reductions  in the  amount  of  development that  could                                                                    
     have been done,  the taxing authority is  in my opinion                                                                    
     getting    less   revenue    through   less    eventual                                                                    
Representative  Wilson   asked  whether  the   tax  deferral                                                                    
stopped  at  the beginning  of  a  housing project  or  upon                                                                    
completion.  Representative  Munoz  answered  that  the  tax                                                                    
liability would be due when  the lot sold within the initial                                                                    
five  year period  or it  would require  the building  to be                                                                    
completed if there was not a building permitting process.                                                                       
Representative Wilson noted that  there was not a permitting                                                                    
process  in Fairbanks  and asked  for verification  that the                                                                    
developer would  not pay  the deferred  tax until  the house                                                                    
was completed.                                                                                                                  
Representative  Munoz replied  that either  the sale  of the                                                                    
lot or the  construction of the building  would occur before                                                                    
the tax deferral ended.                                                                                                         
Co-Chair Stoltze referred to the zero fiscal note.                                                                              
Co-Chair  Thomas  MOVED  to  report  CSHB  264(CRA)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
CSHB  264(CRA) was  REPORTED  out of  committee  with a  "do                                                                    
pass" recommendation and with one  new zero fiscal note from                                                                    
the   Department  of   Commerce,   Community  and   Economic                                                                    

Document Name Date/Time Subjects
HB216_Regulations_Sponsor_O.pdf HFIN 2/22/2012 1:30:00 PM
HB 216
HB216_Changes_Finance.pdf HFIN 2/22/2012 1:30:00 PM
HB 216
HB253 Letter.pdf HFIN 2/22/2012 1:30:00 PM
HB 253
HB 253 Support Article Alaska Dispatch 11.07.11 (1).pdf HFIN 2/22/2012 1:30:00 PM
HB 253
Sponsor Statement for HB 253pdf.pdf HFIN 2/22/2012 1:30:00 PM
HB 253
HB 302 Sponsor Statement.pdf HFIN 2/22/2012 1:30:00 PM
HB 302
HB 302 PCG backup information.docx HFIN 2/22/2012 1:30:00 PM
HB 302
HB 302 Letters of Support.pdf HFIN 2/22/2012 1:30:00 PM
HB 302
HB 302 federal audit information.docx HFIN 2/22/2012 1:30:00 PM
HB 302
HB 302 Alaska Statute 43.23.062.docx HFIN 2/22/2012 1:30:00 PM
HB 302
HB302-NEW FN-DOR-PFD-02-17-12.pdf HFIN 2/22/2012 1:30:00 PM
HB 302
11 - HB 264 Supporting Documents - Letter of Support from the Juneau Affordable Housing Commission, 17 January 2012.pdf HFIN 2/22/2012 1:30:00 PM
HB 264
10 - HB 264 Supporting Documents - Letter of Support from DJG Development, 19 January 2012.pdf HFIN 2/22/2012 1:30:00 PM
HB 264
09 - HB 264 Supporting Documents - Letter of Support from the Alaska Association of Realtors, 4 February 2012.pdf HFIN 2/22/2012 1:30:00 PM
HB 264
08 - HB 264 Supporting Documents - Alaska State Home Building Association Resolution in Support of HB 264, 20 January 2012.pdf HFIN 2/22/2012 1:30:00 PM
HB 264
07 - HB 264 Supporting Documents - Juneau Empire Editorial - City's Top 10 Goals - Tricks or Treats, 13 November 2011.pdf HFIN 2/22/2012 1:30:00 PM
HB 264
05 - HB 264 Differences between HB 264 and CSHB 264 (CRA).pdf HFIN 2/22/2012 1:30:00 PM
HB 264
04 - CSHB 264 (CRA) Version I Sectional Analysis.pdf HFIN 2/22/2012 1:30:00 PM
HB 264
03 - CSHB 264 (CRA) Version I Sponsor Statement.pdf HFIN 2/22/2012 1:30:00 PM
HB 264
HB 56 - Relevant Statutes.pdf HFIN 2/22/2012 1:30:00 PM
HB 56
HB 56 Sponsor Statement 2012.pdf HFIN 2/22/2012 1:30:00 PM
HB 56
HB264-NEW FN-DCCED-DCRA-02-17-12.pdf HFIN 2/22/2012 1:30:00 PM
HB 264
HB216CS(JUD)-NEW FN-GOV-OMB-2-17-2012.pdf HFIN 2/22/2012 1:30:00 PM
HB 216
HB 216 CS WORKDRAFT FIN-B VERSION 022212.PDF HFIN 2/22/2012 1:30:00 PM
HB 216
HB 56 Support.pdf HFIN 2/22/2012 1:30:00 PM
HB 56
HB 264 Support letter.pdf HFIN 2/22/2012 1:30:00 PM
HB 264