Legislature(1999 - 2000)
03/21/2000 08:10 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 137-MUNICIPAL DIVIDEND PROGRAM Number 1807 CHAIR JAMES announced the next order of business, HOUSE BILL NO. 137, "An Act relating to the municipal dividend program; and providing for an effective date." Number 1860 REPRESENTATIVE GREEN made a motion to adopt the proposed committee substitute (CS), version 1-LS0591\K, Cook, 3/15/00, as a work draft. There being no objection, proposed CSHB 137, Version K, was before the committee. CHAIR JAMES said Version K uses excess earnings of the permanent fund (PF) after full dividends and inflation proofing. She explained that the amount of the municipal dividend is calculated by multiplying $125 times the number of permanent fund dividends (PFD) paid in the previous fiscal year. Last year there were 570,000 PFDs, so it would yield a total of $71.25 million for fiscal year (FY 2001) if the legislature passed HB 137. CHAIR JAMES commented that the proposed CS also changes the current way of supporting municipal assistance and revenue sharing. She mentioned that the change is designed to encourage boroughs and municipalities to provide services identified under this revenue sharing program. She indicated that the identified services are police protection, fire, emergency medical services (EMS) and roads. The proposed CS also provides a $25,000 basic amount and raises it to $45,000 for small communities. Number 2061 CHAIR JAMES reminded the committee that one advantage of adopting the municipal dividend system is simplicity. If a [community] did not have police [protection], it would not receive $17 per person for police; the same is true for lack of any other identified service under the revenue sharing plan. She recognized that there is encouragement in the proposed CS for an area to provide identified services. The proposed CS also sets aside $21 million for a municipal capital matching grants program, which would replace any general funds designated for that purpose. CHAIR JAMES noted that a spreadsheet in committee packets illustrates what the proposed CS would do for municipalities. She said that in order to review a particular municipality to find net result in comparison to what that municipality is receiving now, look under the title Total New PS Found., fourth to last column, FY 2000 Current column, and Compare FY 2000 column. She noted that the last column shows the percent of increase that each municipality would receive under the proposed CS. CHAIR JAMES commented that one other good selling point is that there would be $46.9 million in reduction to general fund spending under the proposed CS. She mentioned that the proposed CS is a much simpler way of distributing money. Number 2240 REPRESENTATIVE SMALLEY said he understood that the calculation is not a simple "$125 times population" but must also be accountable to the other criteria listed on the spreadsheet. He noted that Kenai then would receive $606,086 under the proposed CS. CHAIR JAMES explained that under the proposed CS, Kenai would receive $278,203 more revenue sharing than it had received last year. She commented that there is no relationship between the number of dividends that may be allocated to an area and municipal revenue sharing for that area. She mentioned that the dividends are figured statewide and the $125 for each PF is used only to establish a fund. She indicated that the fund is distributed in the manner illustrated on the spreadsheet. Number 2299 MIKE SCOTT, Manager, Matanuska-Susitna Borough, testified via teleconference from Palmer. He said he was speaking today on behalf of the Alaska Municipal League's legislative committee of which he is co-chair. He noted that the proposed CS is consistent with what the Municipal League has been speaking to for the last four years both as a priority in its overall platform as well as policy statement in support of a community dividend. He commented that it is clear that the proposed CS does some things that would be beneficial for municipalities and local taxpayers. He observed that revenue sharing and safe communities funding have been reduced over the past several years whereas property taxes have risen. He stated that in the Mat-Su Borough revenue sharing goes to pay for roads, fire service areas, and libraries but does not go to support general government. Therefore, he added, as funds are reduced, taxes in road and fire service areas rise, and then the borough reduces payments to Palmer and Wasilla. In turn, he stated, Palmer and Wasilla have to come up with local tax revenues to offset those losses. MR. SCOTT reiterated that the proposed CS would hopefully set up an endowment that would allow for funding in the long term and help the state meet its goal of a long-range fiscal plan. He said that when the Municipal League has met during the last four years there is no higher issue than setting a course for long range fiscal health of both state and municipality. He noted that the proposed CS is a huge step in the right direction, and from that standpoint, it concurs with the Municipal League's legislative committee. Number 2452 MR. SCOTT said in committee packets there is a letter from the Municipal League's Revenue and Finance Committee. From the Municipal League's point of view, the proposed CS is consistent with the people's vote last November. He commented that there is a property tax cap due up for vote in November [2000], and the proposed CS is a way for municipalities to advise the people that there is a way to backfill revenue losses. He cannot stress enough the importance of how consistent the proposed CS is with the Municipal League's top legislative effort. Number 2460 CHAIR JAMES said the proposed CS does not affect the way the current PFD system is calculated and would have very minimal affect on the PFD in future years. She acknowledged that it is true that the PFD is calculated on total income of the PF plus earnings, and if $71.25 million is deducted from PF earnings, PFD calculation will be affected to a small degree. She added that no matter what long term plan is chosen, the proposed CS could still be calculated and continued alongside any long-term plan that is implemented. CHAIR JAMES noted that stress has been heightened by the 83 percent vote on September 14, 1999, which said no to any use of PF earnings. After speaking with many folks, she believes that the people voted no because they did not like the plan. Therefore, the plan is being scrapped. It is her opinion that people would be willing to allow use of PF earnings if the money was benefiting their communities, as the proposed CS does. She commented that distributing PF earnings money to local government is more palatable to people than giving the money to the legislature because people do not necessarily trust the legislature. She envisioned that if a pot of money is set up and sent back to local governments for expenditure decisions then people would be more inclined to use of PF earnings. Number 2596 MR. SCOTT agreed with Chair James. He said that when taxpayers understand that a reduction in revenue sharing means a reduction in their services and increase in local taxes, two thirds of property tax payers say they do not want to see further reduction in revenue sharing and municipal assistance. He noted that the proposed CS provides an opportunity to assist local taxpayers without impacting the PFD because out in the Mat-Su the PFD is in fact a big part of the economy. There is much support for the PFD, but there is also much angst about increasing pressure on property taxes. Number 2650 KEVIN RITCHIE, Alaska Municipal League, said revenue sharing has had an impact on local taxes and now a property tax-cap initiative is in place, partly in response to what people perceive as a rise in taxes. He said if there were small cuts to revenue sharing obviously they could be absorbed by municipalities. However, over the past 13 years revenue sharing has been cut from $140 million a year down to the current amount of $28 million, which is a $112 million cut per year. When cuts of that magnitude are made, it has to affect services, assuming that municipalities are still doing about the same types of things. The proposed CS would set up a way of permanently fixing revenue sharing, taking a huge step toward stabilizing local property taxes. He explained that the proposed CS is not the long-range financial plan, as Chair James has already said. Nevertheless, he has learned in 25 years of government service that nothing happens in government except incrementally. The old saying that "the longest journey begins with a single step" is absolutely true in government, and this looks like a single step to him - one that he can understand as a citizen and would probably endorse. Number 2753 MR. RITCHIE said that the impact of the proposed CS on the PFD is somewhere between zero and very small, as Chair James had said. However, the dollar impact is $125 per person spread to municipalities where local taxpayers can control the use of that money. He said that the proposed CS shifts funding from the state general fund to the new program for both revenue sharing and capital matching grants. He noted that the Alaska Municipal League's number one priority is a long range fiscal plan, number two is revenue sharing, number three is education, number four is deferred maintenance, and number five is power cost equalization. He commented that the proposed CS would provide the ability to meet some or all of those needs to a certain extent and still maintain a reduction in overall general fund spending. Therefore, the proposed CS seems like a win on a few fronts. He emphasized that the spreadsheet under discussion is not a legal document but is the best estimate available right now so those numbers might go up or down as the Municipal League talks with municipalities about what municipalities actually do and how the money is distributed. Number 2845 CHAIR JAMES said she thinks that in order to have control over government funding, it is better to distribute money to local governments. She explained that she thinks the proposed CS might even encourage some districts to incorporate and start providing services for themselves. She commented that she believes that if money is sent to local government to perform many services that the state now does statewide, local government could perform for much less than the state. Also, it would lessen aggravation of local citizens because they can attend their borough assembly meetings and be heard. Being heard at a borough assembly meeting is much more real to people than arguing to get money from the state for state expenditures; the proposed CS is the first step. She mentioned that the proposed CS establishes $125 per dividend, and it is very likely that the amount could be increased when additional services are identified as being provided by the state [when they could be provided just as well by local government]. Number 2961 MR. RITCHIE reminded the committee that local taxes are not low. For example, Juneau has a five percent sales tax and some places in Alaska have a seven percent sales tax. Alaska is the leader in the United States of increasing property taxes as a percentage of the entire state budget; the reason for that is because the state budget has been going down. Property taxes are providing a bigger portion of money that runs government, and the whole issue is money. The proposed CS is a very reasonable approach to showing local taxpayers that they can still maintain local taxes at a reasonable rate and provide more services. TAPE 00-22, SIDE B Number 2914 REPRESENTATIVE GREEN said he is concerned that legislative prerogative to spend state money being committed to the proposed CS is very similar to a dedicated fund which is unconstitutional. He explained he is not saying that the proposed CS is unconstitutional, but it is right on the borderline; the committee needs to find out for sure if the proposed CS is constitutionally correct. He noted that he thinks PF earnings are ultimately going to be needed, which was intended when the PF was initiated. He suggested that the proposed CS be modified to become one of the budget categories to be approved by the legislature every year; then he could accept the proposed CS, but right now he has a real problem with it. Number 2846 CHAIR JAMES said the committee can get a reading on the constitutionality issue. She explained that she would agree in part to what Representative Green stated. She agreed that when a fund is set up, such as dedicated program receipts, though the legislature is not bound to abide by the intent, it is expected that the legislature will fulfill the intent. She commented that dedicated program receipts identifies money coming in, and the legislature has allowed the state to dedicate those receipts for a certain program without suffering unconstitutional repercussions. The legislature has to appropriate the funds for dedicated program receipts, and the legislature would also have to appropriate funds for the proposed CS; so she does not see any difference between the two. She mentioned that the legislature has the option to change the dollar amount [$125] and can change the allocation because the proposed CS is a statutory scheme completely under legislative control. She stated she does not believe that the proposed CS sets up a dedicated fund. CHAIR JAMES announced the HB 137 would be held for further discussion.
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