Legislature(1995 - 1996)

02/14/1996 01:37 PM Senate CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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        SB  20 ALASKA MUNICIPAL BASIC SERVICES PROGRAM                       
                                                                               
 Number 400                                                                    
 CHAIRMAN TORGERSON brought up SB 20 as the next order of business.            
 The committee began by hearing an overview by the Alaska Municipal            
 League (AML).  The chairman stated that SB 20 is an attempt to                
 rewrite the municipal assistance and revenue sharing programs that            
 the State of Alaska has in place.  The original intent of the bill            
 was to come up with a creative formula that all the municipalities            
 in the State of Alaska would think was a wonderful thing.  Over the           
 years, that hasn't been achieved without creating winners and                 
 losers.  The intent is to prioritize services deemed necessary,               
 which the state will reimburse municipalities for performing.  The            
 state will reimburse for mandated services.  We will do this                  
 without actually changing much of the formula.  The formula is                
 maintained the same.  There will be some changes in allocation of             
 funds, because we are raising the minimum entitlement up to                   
 $40,000.                                                                      
                                                                               
 Number 415                                                                    
                                                                               
 SENATOR KELLY asked if there is a fiscal note for SB 20.                      
                                                                               
 CHAIRMAN TORGERSON responded there is not a fiscal note for SB 20.            
 We are making the changes within the funds appropriated to                    
 municipal assistance and revenue sharing.  There is a spreadsheet             
 in members' bill packets showing that.  He has asked the AML to               
 give approximately a 15 minute overview of how things are now, and            
 how SB 20 would change things.                                                
                                                                               
 JOE MURDY, Alaska Municipal League President, Anchorage Assembly              
 Member, thanked Chairman Torgerson for his work on SB 20.  Mr.                
 Murdy introduced Mayor Tom Green, Vice-President of the Alaska                
 Conference of Mayors.  Mr. Murdy stated that Mayor Mystrom of the             
 Municipality of Anchorage, President of the Alaska Conference of              
 Mayors, was not able to attend, but he sends his greetings and                
 urges support of SB 20.  Mr. Murdy noted that a letter from Mayor             
 Mystrom had been distributed to committee members.  Other members             
 of the Alaska Conference of Mayors assisting in the presentation              
 were: Mayor Dennis Egan of the City & Borough of Juneau, George               
 Weurtz, Assembly member from the Municipality of Anchorage and Co-            
 Chairperson of the AML Legislative Committee, Drew Scalzi,                    
 President of the Kenai Peninsula Borough Assembly, Kevin Ritchie,             
 Executive Director of the AML, and Tom Greene, Mayor of Nondalton,            
 Vice President of the Alaska Conference of Mayors, and 1st Vice               
 President of the AML.  Other municipal officials were on-line via             
 teleconference to offer comments and support, as well as in the               
 audience today.  Between the AML and the Conference of Mayors, the            
 group represents over 135 municipalities, and over 95 percent of              
 Alaska's population.  The issue in SB 20 is fully supported by the            
 members of both groups.  Most of the concepts in SB 20 were                   
 proposed by a committee of the Alaska Conference of Mayors.                   
                                                                               
 Number 468                                                                    
                                                                               
 MAYOR DENNIS EGAN, City & Borough of Juneau, stated SB 20 is a                
 critical goal of both state and local governments.  The safe                  
 communities fund legislation is one of the first steps in what will           
 be a long process to create stability in taxation and services for            
 citizens.  Mayor Egan explained some charts which give an overview            
 of the partnership between state and local governments in providing           
 services.  The first chart shows that municipal budgets together,             
 are approximately the same size as the state operating budget.  The           
 main overlap is the provision of education services, which is a               
 constitutionally mandated responsibility of state government, but             
 is largely administered on the local level.  The second and third             
 charts show an overview of state and local government services.               
 Please note that a large number of the state services overlap with            
 the services of local governments, for example: public safety,                
 transportation, health and social services, and education.  These             
 charts show that there is no clear distinction between the state              
 and local responsibilities.  The fourth chart shows how state and             
 local government is paid for in Alaska.  People who assert that               
 Alaska has very few or no personal taxes are clearly wrong.  Alaska           
 funds over 40 percent of it's services from personal taxes and                
 fees, and the vast majority of those are collected by local                   
 governments.  Alaska's fiscal crisis is the wedge of the pie chart            
 marked "state reserves, 10 percent."  He added that although                  
 Alaska's municipalities are proud of our role in supporting                   
 Alaska's budget, we have been given little choice in the matter.              
                                                                               
 Number 508                                                                    
                                                                               
 MAYOR EGAN stated that since 1986, when oil revenues began                    
 decreasing, the state has cut municipal assistance and revenue                
 sharing by over 60 percent, without generation of new revenue by              
 the state nor significantly decreasing the overall dollar amount of           
 its' budget.  He noted that the State of Alaska and municipalities            
 share the same citizens.  It simply doesn't matter whether a tax or           
 a fee is a local tax or fee, or a state tax or fee: the cost is               
 still the same to our citizens.  However, how taxes and fees are              
 structured may be of critical importance to all taxpayers in terms            
 of equity and affordability.  If the State of Alaska continues to             
 ignore the impact of its actions on local services and local taxes,           
 our ability to offer safe communities to our citizens will be                 
 threatened.  We believe that rebuilding the relationship between              
 the state and local governments is absolutely critical.  The                  
 framers of the state constitution felt so strongly about the future           
 relationship between state and local governments, it specified that           
 there must be a local government agency in the executive branch.              
 This is the only executive branch agency specified in the                     
 constitution.  He asks that it be remembered that cutting revenue             
 sharing is not cutting the state budget, it is a new sales tax or             
 property tax increase to the taxpayers of Alaska, and should be               
 represented to the public as such.                                            
                                                                               
 Number 532                                                                    
 SENATOR RANDY PHILLIPS commented that Hillside people would debate            
 the question that services provided by troopers and city police are           
 indistinguishable.                                                            
                                                                               
 MAYOR EGAN replied that there are some situations like that.  He              
 thinks that if there was a debate like that in Juneau, they would             
 finally distinguish between troopers and city police.  There is               
 only one trooper in Juneau anyway.                                            
                                                                               
 Number 539                                                                    
                                                                               
 SENATOR KELLY asked how much state money Juneau has received for              
 schools between 1986 and 1996.                                                
                                                                               
 MAYOR EGAN responded that there has been no percentage increase in            
 that period.                                                                  
                                                                               
 SENATOR KELLY asked if Juneau was not receiving more money today.             
                                                                               
 MAYOR EGAN replied Juneau is receiving more money, but the                    
 population has gone up a tremendous amount.                                   
                                                                               
 SENATOR KELLY said the Conference of Mayors has good numbers on               
 revenue sharing, and he asked if the conference has any numbers on            
 education funding.  He doesn't discriminate between education and             
 road service at the local level.  He asked how much money Juneau              
 has received for education, on a percentage basis, since 1986.                
                                                                               
 MAYOR EGAN responded that he didn't have that information in front            
 of him, but he would get those figures for Senator Kelly.  He                 
 pointed out that the local school district's budget is $40,000,000,           
 and over 50 percent of that comes from local tax payers.                      
                                                                               
 SENATOR KELLY asked then if half came from the state.                         
                                                                               
 MAYOR EGAN replied that it comes from the state and from the                  
 federal government.  5.8 mills of property tax increases were due             
 directly to decreases in state shared revenue and municipal                   
 assistance.                                                                   
                                                                               
 SENATOR KELLY stated he is trying to make the point that there has            
 been a tremendous increase in the amount of money that the state              
 has sent to municipalities to fund education.  The state considers            
 that as one pot of money.  Mayor Egan would like to differentiate             
 between municipal revenue sharing and education.  The state thinks            
 education funding is also assisting local governments.  That is his           
 point.                                                                        
                                                                               
 Number 560                                                                    
                                                                               
 GEORGE WEURTZ, Assembly Member, Anchorage Municipal Assembly,                 
 commented that the education issue is a dispute whether it is added           
 up as local or state.  According to the state constitution,                   
 education is a state responsibility.  As the state becomes                    
 increasingly concerned with finding ways to balance its own budget,           
 shifting more budget problems to local taxpayers increases.  The              
 governor's proposed budget for this year includes direct cuts                 
 estimated to be in excess of $15,000,000.  In addition to the 8%              
 cuts to municipal assistance and revenue sharing, there are direct            
 cuts to school transportation, elimination of funding for the state           
 senior citizen tax, and cuts to many other programs.  Mr. Weurtz              
 itemized some of the cuts.  He contended that little or no                    
 consideration has been given by the state to the escalating and               
 cumulative effects of these cuts on local taxes and local public              
 services.  He thinks SB 20 is a good step in the direction of a               
 win-win solution for everyone.                                                
                                                                               
 SENATOR RANDY PHILLIPS asked, regarding the language on page 4,               
 line 17--[end of Side A]                                                      
                                                                               
 TAPE 96-6, SIDE B                                                             
                                                                               
 --communities, versus municipal assistance; isn't it the same cat,            
 only a different color?                                                       
                                                                               
 MR. WEURTZ responded that the issue is the priority of where the              
 money needs to be spent.  These dollars are focused on the                    
 functions that create a safe community for our citizens.                      
                                                                               
 CHAIRMAN TORGERSON informed Senator Phillips that there would be a            
 presentation on that subject by DCRA that will explain in more                
 detail what we're doing.                                                      
                                                                               
 Number 582                                                                    
                                                                               
 SENATOR HOFFMAN stated, "The problem that I see is that that was              
 the governor's proposed cuts, and [interference] even further cuts            
 and those haven't been delineated by the budget subcommittees yet,            
 but it is my vision that what's going to happen is we're going to             
 see substantially higher cuts than what the governor asked from               
 this legislature."                                                            
                                                                               
 MR. WEURTZ responded that is a point they're aware of and concerned           
 about.  SB 20 brings us to the table to talk about equity and                 
 fairness.                                                                     
                                                                               
 Number 575                                                                    
                                                                               
 SENATOR ZHAROFF stated that his concern is that as communities                
 dissolve, services will still be needed, and somebody is going to             
 have to provide services.                                                     
                                                                               
 CHAIRMAN TORGERSON stated that is the main driving force behind               
 raising the minimum entitlement up to $40,000, in order to try to             
 shore up some of the communities that have been prorated down by              
 cuts.  It should be higher, but what we're trying to do by changing           
 this formula is take the money out of existing communities.  So               
 we're taking money out of tax-base communities.  This approach has            
 the support of all the mayors and the assemblies.  They recognize             
 that if we don't shore up local governments in rural Alaska, we're            
 not going to have local governments in rural Alaska.                          
                                                                               
 Number 562                                                                    
                                                                               
 DREW SCALZI, President, Kenai Peninsula Borough Assembly, stated SB
 20 is about stabilization.  The state and municipalities need to              
 get revenues and expenditures stabilized in order to have safe and            
 prosperous communities.  Mr. Scalzi explained three charts to the             
 committee: the first one illustrates how we fared; the second chart           
 gives proof of the correlation between local sales and property tax           
 increases and municipal assistance and revenue sharing; the third             
 chart illustrates the history of funding for municipal assistance             
 and revenue sharing programs.  Sharing revenues with municipalities           
 is done in all 50 states, and Alaska is below the average in the              
 western states, even if one considers the education funding as part           
 of the revenue sharing.  The major advantage of municipal                     
 assistance and revenue sharing is that it gives municipalities                
 their share of Alaska's oil wealth without strings and the high               
 administrative costs, like most other state and federal programs.             
 However, the same flexibility is a disadvantage to municipalities,            
 which is a factor in determining why it has been cut so much.                 
                                                                               
 Number 530                                                                    
                                                                               
 KEVIN RITCHIE, Executive Director, Alaska Municipal League, stated            
 that SB 20 would make six major changes:                                      
                                                                               
  1) change the name municipal assistance to safe communities;                 
  2) tie funding to safe community types of issues;                            
  3) the minimum entitlement for incorporated communities would                
     be set at $40,000;                                                        
  4) the program retains the former allocation formulas, but                   
     allows for a more equitable proration;                                    
  5) funding will be distributed on July 31;                                   
  6) only six communities would actually receive less funding if               
     a decrease in revenue sharing occurred.                                   
                                                                               
 MR. RITCHIE stated that the Alaska Municipal League and the Alaska            
 Conference of Mayors view SB 20 as a good first step in building a            
 revenue-sharing program that will continue to evolve and improve.             
                                                                               
 Number 485                                                                    
                                                                               
 MAYOR THOMAS GREENE, City of Nondalton, stated that municipal                 
 governments have always been the leaders in finding creative ways             
 to meet community needs.  A survey of members conducted by the AML            
 and the Alaska Conference of Mayors showed that all but two                   
 communities responding reported significant service cuts and or tax           
 increases.  Mayor Greene related some of the remarks from                     
 communities.  He stated that passing SB 20 will cost the state                
 almost nothing, but it will be an important step in improving the             
 process and ensuring accountability of funds.                                 
                                                                               
 Number 408                                                                    
                                                                               
 JUDITH SLAJER, Chief Financial Officer, Fairbanks North Star                  
 Borough, testifying from Fairbanks, stated she was speaking on                
 behalf of the Mayor Jim Sampson.  Ms. Slajer stated that the                  
 Fairbanks North Star Borough supports SB 20.                                  
                                                                               
 CHAIRMAN TORGERSON asked Ms. Slajer to put the borough's support in           
 writing and submit that to the committee.                                     
                                                                               
 Number 390                                                                    
                                                                               
 PATRICK COLE, Mayor's Staff, City of Fairbanks, stated he was                 
 representing the Mayor.  He stated that the city supports SB 20.              
                                                                               
 CHAIRMAN TORGERSON informed everyone that SB 20 will not be passed            
 out of committee today, because not everyone has had a chance to              
 review it yet.  It will probably be held for a week.                          
                                                                               
 Number 382                                                                    
                                                                               
 LAMAR COTTEN, Deputy Commissioner, Department of Community &                  
 Regional Affairs (DCRA), stated that the department supports SB 20.           
 DCRA sees three essential features of SB 20:                                  
                                                                               
  1) no longer holding harmless the base amount;                               
  2) a minimum grant of $40,000;                                               
  3) the funds would be distributed in July, instead of                        
   February.                                                                   
                                                                               
 CHAIRMAN TORGERSON asked DC&RA to explain the spreadsheet                     
 distributed to committee members.  The intent of the spreadsheet is           
 to show last years' funding levels, what the hold-harmless is, and            
 the effect of removing the hold-harmless.                                     
                                                                               
 Number 340                                                                    
                                                                               
 BILL ROLFZEN, Division of Municipal & Regional Assistance,                    
 Department of Community & Regional Affairs, explained the                     
 spreadsheets distributed to the committee.                                    
                                                                               
 SENATOR KELLY asked if, under the current system, everyone would              
 get a check for the third column amount in February.                          
                                                                               
 MR. ROLFZEN responded that is not correct.  The first column, the             
 revenue sharing payments, go out on July 31 of each fiscal year.              
 The municipal assistance payments, the second column, go out                  
 February 1.                                                                   
                                                                               
 CHAIRMAN TORGERSON stated that under SB 20, those payments would be           
 lumped together, because we're consolidating the program.                     
                                                                               
 SENATOR KELLY asked if the state has currently been adding that               
 interest revenue on their own books.                                          
                                                                               
 CHAIRMAN TORGERSON responded, more than likely.                               
                                                                               
 SENATOR KELLY commented that if it is a plus here, it's got to be             
 a minus somewhere else.                                                       
                                                                               
 CHAIRMAN TORGERSON replied he is sure it would be.  He asked how              
 much money that would be.                                                     
                                                                               
 MR. ROLFZEN responded the municipal assistance distribution this              
 year was $31,900,000.                                                         
                                                                               
 CHAIRMAN TORGERSON asked how much revenue sharing was.                        
                                                                               
 MR. ROLFZEN responded it was approximately $26,000,000.                       
                                                                               
 CHAIRMAN TORGERSON thinks that interest revenue would probably be             
 in the fiscal note from the department, when those become                     
 available.                                                                    
                                                                               
 DC&RA staff responded that it would be roughly in the neighborhood            
 of $600,000.                                                                  
                                                                               
 CHAIRMAN TORGERSON noted that amount would only be for a yearly               
 basis, when we're referring to a six-month period.  So he doesn't             
 think it will be that high.  However, Senator Kelly is correct in             
 that there will be some impact somewhere.                                     
                                                                               
 There was a discussion on how accrual of interest would possibly              
 affect the amount of money available.                                         
                                                                               
 Number 264                                                                    
                                                                               
 SENATOR ZHAROFF asked about communities not included.                         
                                                                               
 MR. COTTEN responded that Metlakatla participates in the revenue              
 sharing program as an unincorporated community, but they                      
 participate in the municipal assistance program as a municipality.            
 That's why they're not included in the general spreadsheet.                   
 Egegik, based on the date of incorporation, was not eligible for              
 the FY 96 revenue sharing program but was eligible for the FY 96              
 municipal assistance program.                                                 
                                                                               
 It is noted that there is an attempt to take care of Metlakatla's             
 problem through other legislation.                                            
                                                                               
 MR. ROLFZEN stated that under SB 20, all of the municipal                     
 assistance money will now have to be spent on priority public                 
 services, whereas in the past, it could be spent by the                       
 municipality for any public purpose for which they were legally               
 authorized to spend funds.  This bill does not tinker with the                
 revenue sharing formula.  It would take about 60% of the total                
 money and designate it for specific public services.                          
                                                                               
 CHAIRMAN TORGERSON notes the existence of another spreadsheet                 
 listing the hold-harmless portion, and how that is applied.  The              
 chairman called Representative Long to testify.                               
                                                                               
 Number 205                                                                    
                                                                               
 REPRESENTATIVE DON LONG, former mayor of Barrow and president of              
 the AML, stated he spent most of the last year working on this                
 subject.  Currently, small communities are unincorporating because            
 there is no support from the state.  Citizens of small communities            
 need support, just as do people of larger communities.  He had no             
 specific statement to make relating to SB 20 at this time.                    
                                                                               
 DONALD MOORE, Manager, Matanuska-Susitna Borough, stated he is                
 conveying support from the borough and Mayor Lacher for SB 20.                
 Right now, revenue sharing and municipal assistance is at about the           
 same level as it was in the late 1970's.  The guessing game that              
 goes on from year to year is as much a hazard to us as the decline,           
 so we appreciate the work that's gone into the development of this            
 formula and this proposal.                                                    
                                                                               
 CHAIRMAN TORGERSON, seeing that there was no further testimony,               
 stated that SB 20 would be held in order to receive further                   
 comment.                                                                      

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