Legislature(1995 - 1996)

04/30/1996 08:10 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 Number 795                                                                    
 CHAIR JAMES announced the next item on the agenda was CSSB 280(FIN)           
 amended.  She noted she had no intention of moving the bill out of            
 committee today, but hoped to have discussion and some sort of                
 determination as to the direction the committee would like to go.             
 The committee had made an amendment at the last hearing, mostly to            
 give a message to the people who are in organized cities that they            
 would not be doubly taxed if this bill were to go forward.  She               
 would like to get some ideas as to whether or not committee members           
 wanted to move the bill out of committee in its existing form at              
 another hearing, amend the bill in some way, or not do anything at            
 all.  She thought those were the three options available to the               
 Number 940                                                                    
 CHAIR JAMES directed committee members attention to the second                
 spreadsheet which showed the basic need for all the school                    
 districts in the state, the required local contribution, the                  
 eligible PL81-874 funds that would be applicable to the various               
 school districts, the percentage used in the foundation formula to            
 see what percentage of the PL-874 funds are offset against the                
 formula, the calculation of that percentage times the actual                  
 deductible amount of PL81-874, the FY 96 foundation state aid and             
 the full value determination in the last column.  She said the                
 total amount of money allocated for FY 96 was $762,733,630 which is           
 the foundation formula for schools and the total amount given out             
 of the basic need to the various school districts was $609,150,856.           
 CHAIR JAMES pointed out the third spreadsheet has fewer school                
 districts based on the implementation of these boroughs or                    
 unorganized boroughs which encompasses some of the Rural Education            
 Attendance Areas (REAAs) into a larger district.  She noted the               
 total basic need is $762,733,020; the total required local has gone           
 up by $14 million; the numbers in the full value determination                
 column are estimated but are currently being used for revenue                 
 sharing and municipal assistance.  While the total required local             
 has gone up by $14 million, the PL81-874 funds have gone down $14             
 million, so the net result is the same amount of money - the                  
 $609,065,596 under the existing program is the same amount that               
 would be allocated to the schools.  The reason for that is the                
 PL81-874 funds actually are considered the same in theory as local            
 contributions because it is federal money and considered to be                
 payment in lieu of taxes.  She explained there would not be a                 
 change in the net amount of money that would be sent out to the               
 school districts.                                                             
 CHAIR JAMES called the committee's attention to the first                     
 spreadsheet.  To her, these figures were even more interesting in             
 that she thought one of the problems with the bill was the                    
 perception of unfairness because those people who live in areas               
 where they pay property taxes are paying for their schools and the            
 people in the rural areas are not.  She said that's not only a                
 perception, it's really true; people in the rural areas are not               
 taking money out of their pocket and putting it into schools.  She            
 said, "Let's look at what this does then if we take the required              
 local, the deductible 874 funds, so we get the required local plus            
 impact aid currently the way it is, and then use the fiscal year 96           
 ADM divided out to see what the required local plus impact aid is             
 per ADM, and these are in order by the highest to the lowest.                 
 You'll find North Slope is the highest, which is understandable               
 that they are putting in more local impact aid because they are a             
 very rich area.  And even with a small millage rate, because they             
 have more property, they pay more and a lot of it is industrial               
 property that doesn't relate to population to students."  She would           
 like the thoughts of committee members as to what they think is the           
 best way to strike a balance and solve the issue of some people               
 paying and others not paying.  Her idea was that making all these             
 little "cells" around the state wasn't the fairest way because is             
 it Bethel's fault that the pipeline doesn't go through their area             
 or is it Nome's fault that Prudhoe Bay is in the North Slope                  
 Borough?"  As a state, she thought there were resource revenues and           
 that some how besides state's spending, ought to balance this issue           
 and that some kind of a tax on the unorganized borough might be the           
 fairest way to go.  She asked Senator Torgerson to respond to some            
 of her concerns.                                                              
 Number 1460                                                                   
 SENATOR JOHN TORGERSON, Sponsor, said he didn't mind Chair James'             
 idea of taxation for education in rural Alaska; that's what this              
 bill was about.  He thought the question was a) Is it fair to have            
 people pay the same amount for education any where in Alaska or               
 just to continue the system the way it is, and b) if you believe              
 that everyone should pay for education, how do we go about putting            
 on that fee?  He agreed with the taxation proposal but disagreed              
 with Chair James in not asking for the organization of local                  
 governments or to divide the state into segments such as those                
 recommended by the Local Boundary Commission.  He said the local              
 autonomy and the local vote is an important component of this bill.           
 It does enforce the payment, equalization or equivalency of                   
 education dollars through some type of tax but the method is not              
 mandated.  In the taxation effort, he thought they should come back           
 with the same formula used in taxed based communities and it should           
 tie back to full and true value.  Recognizing this can't be done              
 overnight, he had asked for a phase in.                                       
 Number 1550                                                                   
 CHAIR JAMES said in response to Senator Torgerson's concern, that             
 basically is establishing a tax in the unorganized borough, which             
 she thought was a fair way to go.  The problem, however, was                  
 whether or not it needed to be tied in to the true value and still            
 be fair with the rest of the state.  The question is does it make             
 any difference as to whether the tax is collected as a fish tax, a            
 resource tax, a sales tax or should the money come out of the                 
 pockets of those specific people in the area that are paying the              
 tax, like it does with a property tax.  She noted the Denali                  
 Borough in her district does not have a property tax but the                  
 borough collects the money and pays their local share by a bed tax            
 and a resource severance tax on the coal within their area.  So,              
 technically they are not personally paying any tax, yet they are              
 meeting their local requirement.  She said her other concern was              
 that the bare 4 mills issue didn't make any difference in the                 
 bottom line of state spending and she felt there should be some               
 benefit if they were going through this exercise.  It appeared to             
 her the way the system is set up right now would give the people in           
 their own communities a little more money to spend because they               
 would keep more of the PL-874 funds.                                          
 Number 1643                                                                   
 REPRESENTATIVE PORTER said for the record, "My phone has rung a               
 couple of times but apparently other office phones have rung a                
 couple of times concerning a problem that some people had in rural            
 Alaska about a couple of remarks that I made at the last hearing.             
 I would like to get that cleared up.  If there is anyone who                  
 interpreted what I said as an indication that I didn't think people           
 who had recently - comparatively recently - arrived in the state              
 should be treated somewhat differently as the rest of the                     
 population of the state, I apologize because that is not what I               
 meant.  What I meant was just the opposite.  I would like, as we              
 have been discussing here, all of the citizens of the state to be             
 treated the same and all participate in the cost of education."               
 REPRESENTATIVE ED WILLIS arrived at 8:37 a.m.                                 
 Number 1708                                                                   
 CHAIR JAMES said she was not real comfortable with the existing               
 piece of legislation because it is not intended to be, according to           
 Senator Torgerson, a mandatory borough act and does not create                
 mandatory boroughs.  She stated, "But in a sense it is and the                
 reason it is is because first of all they get an opportunity to               
 vote as to whether or not they want to be a borough and the lines             
 are already drawn by the Department of Community & Regional                   
 Affairs.  And then if they say yes, of course, then they are                  
 forming a borough.  When boroughs are formed, we give them money              
 and there's a fiscal note giving them money to create their own               
 governments.  What we're doing is then if they decide to do that,             
 they've decided that yes, this is the best choice - it's not                  
 necessarily the choice but it is the best choice of two choices               
 which is to do or not to do.  Second of all, if they say no, then             
 we do create these little cells of named unorganized boroughs which           
 will each be treated in a different way and they will be forced to            
 make some decisions within those boundaries.  Technically, that is            
 the same as creating a borough even though it's called an                     
 unorganized borough.  Further, this bill authorizes or deletes the            
 repeal of the third class borough and I heard extreme amount of               
 testimony in my office from the people from Haines who have the               
 only third class borough in the state and said `Oh please do not do           
 that; it is the worst form of government you can possibly have.'              
 The third class borough only allows them to make educational                  
 decisions and to tax themselves -- that's all they have the ability           
 to do.  And he said it just doesn't work.  So he said, `Please                
 don't let them create more third class boroughs; those are really             
 devastating.'  So essentially what we've done then is we really               
 have forced them into something that even if we don't say it's a              
 third class borough, what we're asking them to do is come together            
 and determine how they will tax themselves.  That is the same as              
 coming together for government.  I would prefer to just say,                  
 sitting in the best interest of all those people in the unorganized           
 borough, to -- and maybe we could give them a choice even if they             
 wanted to vote on something, we could get them to all vote on do              
 you want a sales tax, do you want a resource tax or do you want an            
 income tax, or what do you want out there.  And then we implement             
 that tax for the purpose of funding schools.  The problem with that           
 then is that if we don't stick to the 4 mills and we don't do the             
 assessed valuation of all these areas, then we're treating them               
 differently than we are the rest of the people in the state who are           
 required either to do 4 mills or a percentage, whichever is the               
 least.  So whatever we do, we have to treat them the same.  If you            
 take a small bunch of people and treat them the same as a big bunch           
 of people, when you get to the comparison line of what costs more             
 per student, the small is always going to cost more per student               
 than the larger areas are going to.  And if they're only required             
 to pay the same percentages, mill rates and so forth as these,                
 you're never going to establish that balance that I think everybody           
 would really like to have.  But if the balance is that everybody              
 should pay something, we can deal with that with a tax in the                 
 unorganized borough.  And I think we can deal with that issue and             
 that might put part of this whole problem to rest.  I agree that              
 everyone in the state, if anyone has to help pay for their                    
 education, everyone should.  I think we can all agree on that one             
 statement and the testimony we heard from most of the people is               
 they don't mind paying a tax.  They don't understand how the tax              
 would work because we've never discussed it with them.  They think            
 putting on an income tax statewide would solve the problem; that              
 would just continue to create the inequity.  If we put a sales tax            
 on statewide, it would continue to create the inequity.  The only             
 way that we can establish an equity is to have them pay a tax that            
 we're already paying in some way or them make a contribution that             
 we're already doing.  And that's the only way we can level the                
 playing field.  I agree with Senator Torgerson that we could make             
 a very simple bill that required this tax.  The other problem is              
 that what is -- without looking at the fiscal note -- was it                  
 $350,000 that they thought it would cost to assess all of the                 
 property throughout the state?"                                               
 Number 1930                                                                   
 SENATOR TORGERSON said he had not seen that fiscal note yet; it was           
 a conversation that took place between he and the state assessor              
 and for whatever reason he had not gotten a fiscal note to Senator            
 Torgerson.  The state assessor's first initial thought was $240,000           
 for a period of time and then it would go to $300,000 but Senator             
 Torgerson thought the assessor was under the assumption that some             
 areas would incorporate.                                                      
 Number 1961                                                                   
 CHAIR JAMES asked if it wasn't true that if a tax was implemented             
 over all the unorganized boroughs, it might speed up the process of           
 those areas that are looking at organizing to organize?                       
 SENATOR TORGERSON said he didn't know.                                        
 Number 1978                                                                   
 CHAIR JAMES said this was a real important issue and she would like           
 to work on the language with Senator Torgerson, hear the bill again           
 and pass it out.                                                              
 Number 2012                                                                   
 REPRESENTATIVE IVAN IVAN said that Chair James had previously                 
 mentioned taxes in the unorganized boroughs and asked if she was              
 targeting individuals similar to an income tax, or individuals and            
 property owners including businesses?                                         
 CHAIR JAMES said her preference was a resource tax and, "My reason            
 for that -- and Senator Torgerson, I think gave this example as one           
 of the reasons why he realized that we have an inequity in the                
 state.  When there was a company for liquification who wanted to go           
 into Whittier and set up - and the prime reason they were thinking            
 about setting up there was because there was no taxes to pay.  So,            
 when we are in a mode of wanting to invite businesses to come into            
 the state and do different things, they are going to be treated               
 differently if they are within a borough or not.  And so that's why           
 I think that a resource based tax would be more reasonable.                   
 Something that would address businesses coming into an area that is           
 not organized because they don't have to pay the same taxes they do           
 in an organized borough.  An organized borough has an advantage               
 because they have the work force, they have the infrastructure and            
 so forth.  So, I don't know that it is really that unfair or that             
 much of something that's going to determine where people locate.              
 But I think we ought to have some kind of fairness across the state           
 and a resource tax would do it - a sales tax in the unorganized               
 borough might.  Some areas already have a sales tax but if it was             
 a small percentage - a 1 percent or even less - it wouldn't impact            
 everyone.  You could exclude, like we have in this bill, the cities           
 that are already paying their portion of school - we could just               
 (indisc.-coughing).  An income tax it seems wouldn't be - it would            
 be pretty hard to - I mean, the cost of implementing an income tax            
 is pretty great.  For the amount of money that we would be wanting            
 to collect, I think that probably would be too administratively               
 heavy.  But there is fish tax, which is also part of resources, I             
 think probably of all those resources would be the most fair."                
 Number 2109                                                                   
 REPRESENTATIVE ROBINSON said it seemed to her that this was an                
 extremely important decision and she didn't really know which way             
 to go.  However, she believed that if major changes were going to             
 be made additional input was necessary and preferred that it be               
 assigned to an interim committee.  She wasn't sure she was ready to           
 be part of a legislative body that imposed a tax on rural                     
 communities when she had heard that many of those people don't mind           
 paying their own way, but they just don't know how they want to pay           
 their own way.                                                                
 Number 2194                                                                   
 REPRESENTATIVE PORTER said the bill has had quite a few hearings              
 and a lot of input from the department and communities.  He, too,             
 was hearing there are a lot of people who do not want to be                   
 organized into a borough and of course, this bill doesn't do that.            
 It requires that they consider it, but it does not require they do            
 it.  The thing he liked about the bill was that it provides for               
 some opportunity to have the Local Boundary Commission look at it             
 in individual segments and develop strategies for participation in            
 the education payment that fit the needs and desires of people in             
 those localized areas instead of having one sweeping decision for             
 the entire unorganized borough.                                               
 Number 2247                                                                   
 REPRESENTATIVE IVAN said he was in a dilemma in that the regional             
 corporation he represents goes through several election districts             
 and the mining project that's being looked at goes way out of their           
 proposed boundary area.  He would like to have some input from the            
 mining companies that are doing some serious exploration.                     
 Number 2282                                                                   
 REPRESENTATIVE GREEN asked if something like a resource tax would             
 potentially be looked at as a negative?  He said, "We've got a lot            
 of outlying areas where this thing would really take place and                
 we're striving to try and develop some sort of a resource,                    
 primarily energy but also gold mining and that sort of thing and              
 this could be a deterrent if it's going to be a tax on resources              
 that are yet to even be developed.  A let's not get involved kind             
 of an attitude could prevail among people who might otherwise want            
 to go out there.  The other thing I'm wondering about is would it             
 be based on a vote -- if you had several communities within one of            
 these areas - community areas - let's just assume that we're all              
 communities now and three of us like some sort of a resource tax              
 and the others would prefer just to stay with a per capita tax, do            
 you envision any kind of squabbles or are they fairly uniform in              
 the potential borough areas?"                                                 
 Number 2332                                                                   
 SENATOR TORGERSON said he didn't know how to answer that but he               
 assumed there would be a lot of discussion.  The bill was silent on           
 that issue; it just says the department will go out and through               
 their public hearing process, come forward with a decision.  It               
 wasn't really spelled out how they would go about that.  He stated,           
 "I suppose we could go in there and say we'd like everybody to vote           
 on the kind of tax or the kind of proposal they would like to do -            
 it could happen that way.  I just assumed that since it has not in            
 the past - since we have mandated incorporation of boroughs and               
 annexations and a lot of other things, we've never put that                   
 particular question to the vote.  Basically, it is confined within            
 the powers that the borough forms under.  In this case, it's third            
 class powers -- third class boroughs -- they (indisc.) education              
 and taxation powers.  Or if you have a home rule or some other                
 kind, then that rests with the body that governs it if they form.             
 The whole thing is put together on having a proposal put together             
 by individualized incorporated or unincorporated boroughs and then            
 come back to this body for approval over a period of time."  In               
 response to Representative Robinson's concerns, he said this                  
 doesn't happen tomorrow; it's 10 or 15 years out without even                 
 amending this bill.                                                           
 Number 2400                                                                   
 CHAIR JAMES said in response to Representative Green's comment                
 about this discouraging resource development, in going back to the            
 local match that's indicated and based on estimated value, it's $14           
 million out of the total unorganized borough.  She asked if                   
 Representative Green thought that would stop resource development.            
 She said, "Once we go out and do an assessment valuation of the               
 property in all of this, it may be larger because this is an                  
 estimated amount of money.  It may be considerably larger.  Let's             
 say it's twice as much as what we've guess is out there - now we're           
 talking about $28 million in the total unorganized borough.  Is               
 that going to be changing the way people are going to be doing                
 resource development?  I don't think so.  One more thing is that a            
 lot of the existing boroughs get their tax base not from their                
 people's pockets but from actual business and other issues that's             
 going on in their district.  If we do resource development, we're             
 asking those other people to pay from those same sources instead of           
 their own pocket.  And so we can't say, just because we have a                
 property tax in Fairbanks and you have one in Anchorage, they don't           
 have one in Denali, so I should make them pay property tax, too?              
 Because then that means they're paying -- but they're meeting their           
 local match.  I think this is the argument that we have to do if              
 we're going to try to level the playing field and I'm willing if              
 this committee wants to move this bill out just like it is without            
 fixing it, I would take that motion.  I don't know how I would vote           
 on it because I have grave concerns about it.  I think if this bill           
 would have come to us and been on the plate since last year that we           
 would have had more time to be able....                                       
 TAPE 96-64, SIDE B                                                            
 Number 001                                                                    
 CHAIR JAMES continued..."and we've heard a lot from the people who            
 would be affected.  We haven't heard a lot from the people who are            
 out there besides legislators who really think this is a good idea.           
 We really should hear from those too -- people in Anchorage and               
 Fairbanks and so forth."                                                      
 Number 026                                                                    
 REPRESENTATIVE GREEN responded, "Mine wasn't so much of what we're            
 looking at now as a perception because we haven't got the                     
 development yet, anyway.  It's kind of the camel under the - the              
 nose under the tent syndrome that if this is good for schools it              
 may go on and on.  Generally, and certainly the history of this               
 state is that our major source of revenue comes from some sort of             
 resource and whether it's schools and this issue or something else            
 in these unincorporated boroughs, it's just a perception among                
 energy producing companies that when you open the door to that                
 being the source of revenue, it's a scary situation.  And I didn't            
 mean just for schools."                                                       
 Number 055                                                                    
 CHAIR JAMES commented that's what this bill does.  If all the local           
 people in the unorganized boroughs can make the choice of who to              
 tax, who do you think they're going to tax?                                   
 Number 066                                                                    
 REPRESENTATIVE OGAN said based on a property tax, the biggest                 
 problem he has with some sort of organized borough is that the                
 person who is the most capitalistic and works the hardest, gets               
 penalized (indisc.).  He favored the resource tax and thought it              
 was more fair.  He thought that eventually there would be taxes               
 even though some people were adamant there would be no new taxes              
 until there was appropriate budget reductions.  However, at the               
 appropriate time, he thought there would be a tax.  He suggested              
 that perhaps the best thing to do was to just hold off on this                
 legislation until there is a tax in place.  He thought the most               
 fair tax was a sales tax where everyone pays according to what they           
 spend, not what they save or invest.  He noted he would not hold              
 the bill up; he would vote to move it on especially if there was a            
 resource based tax.                                                           
 Number 148                                                                    
 REPRESENTATIVE WILLIS agreed with Representative Robinson's                   
 remarks.  He felt the bill needed additional work and whatever the            
 committee agree upon should have another round of public hearings.            
 Number 179                                                                    
 SENATOR TORGERSON said the committee was scaring him with some of             
 their conversation on the resource tax.  The state already gets               
 paid royalties which is in lieu of resource taxes in a lot of cases           
 and if the committee was thinking of an in-place tax, that would              
 kill the legislation.   He commented that a mining venture or                 
 another big company that locates any place in the state is only               
 liable for the amount of tax that is its personal property or real            
 property times the mill rate or the equivalent of that.  He didn't            
 think it should be assumed there was going to be a big gold mine or           
 coal mine that would pay the taxes for the entire borough.  It                
 could happen, but they would not be required to do that.  He                  
 thought the committee was trying to fix all the problems that exist           
 with assessed valuation and other concerns across the state of                
 Alaska with one bill that's trying to equalize the part that aren't           
 paying.  He stated whether it's a sales tax or income tax, we're              
 still starting from a point where there are people who are paying             
 and people who aren't paying and that's not going to be equalized             
 unless you determine to double tax people to bring them up to speed           
 with the rest of the state, which can't be done.                              
 CHAIR JAMES said this bill would be held over in committee and she            
 would notify Senator Torgerson when it would be heard again.                  

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