Legislature(2003 - 2004)
04/02/2003 01:37 PM Senate CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 136-RESIDENTIAL PROPERTY TAX EXEMPTION
MARY JACKSON, Chief of Staff to Senator Thomas Wagoner, advised
this bill was before the committee the previous meeting and the
fiscal note was an outstanding issue.
She noted there was a new fiscal note and explained there may be
a fiscal impact, but it is not certain because no one can
predict what action municipalities would take.
She pointed out letters of support from the Kenai Peninsula
Borough and the City of Valdez, both of which are communities
that would potentially be affected.
She emphasized this is an issue of local determination. The
municipalities could, by a vote of the public, exempt up to
$50,000 in assessed annual valuation of each parcel of
residential property. Currently the allowable exemption limit is
$10,000. The community would review the issue each year as they
prepare the budget.
Kenai believes their appraisal values increase enough to offset
the increased exemption. Kenai also uses a sales tax to increase
revenue and they believe municipalities have that option and
others to utilize. Regardless of what each community chooses to
utilize, it should be a local determination.
She opined the discussion regarding whether there is or isn't a
fiscal implication should be a Finance Committee issue.
SENATOR ROBIN TAYLOR noted the state requires every municipal
entity or borough to assess at 100 percent of market value. The
exception is allowed in a home rule city and a first class
borough to provide for different levels of taxation at a
variable rate depending on the level of service provided.
However, many communities tax at 50 percent of value if there is
no electricity, no water, and no sewer then as utilities are
extended, a greater percentage of true value would be paid. With
this in mind, he asked if discussions had taken place with the
state assessor as to what impact, if any, this would have on the
education funding formula.
MS. JACKSON explained Eddy Jeans, school finance manager with
the Department of Education, said it has no impact on the
foundation formula because it is an exemption.
SENATOR TAYLOR remarked the assessor still makes the assessment
and if Kenai's property is worth $1 billion then it's still
worth $1 billion even though Kenai has decided to reduce each
residential property by $50,000.
MS. JACKSON agreed and added the $10,000 exemption is in effect
now and it isn't an issue in terms of the local share.
SENATOR TAYLOR asked how many communities were opting to utilize
the exemption.
MS. JACKSON responded there are five.
SENATOR TAYLOR asked if it was the same five. [Bristol Bay
Borough, Fairbanks North Star Borough, Kenai Peninsula Borough,
North Slope Borough, Valdez]
MS. JACKSON nodded.
SENATOR TAYLOR remarked the municipality or borough would still
need at least the same level of funding to sustain the level of
services currently provided. This would allow them the option
to exempt taxes on up to $50,000 in value in their taxing
district then seek other sources of revenue whether it's sales
tax or something else.
CHAIR WAGONER added cutting expenditures was another option.
MS. JACKSON told the Senator he was correct and repeated this
only applies to residential properties.
SENATOR LINCOLN asked whether residential property means the
primary place of residence.
MS. JACKSON said that was correct; it is residential property
that is exempt from taxation by ordinance and ratified by voters
at an election.
SENATOR LINCOLN asked if there would be a positive effect to the
state.
MS. JACKSON emphasized she didn't want her to believe the effect
would be positive. She clarified, if there were an effect, it
would be negative in terms of the revenues the state would
receive. Potentially it would have an effect on the oil and gas
properties that fall into line with the 20-mil rate when the
municipality is at 15 mills. The assessor's concern was that if
the municipality offered the $50,000 exemption then offset the
exemption by increasing the mill rate by 1, the state's share of
the oil and gas properties would be reduced. Her response to
that is that local elected officials wouldn't benefit themselves
by handing residents a carrot in one hand and hitting them with
a stick with the other.
SENATOR LINCOLN said she didn't read it the same way and she
didn't understand why the fiscal note was indeterminate because
the Finance Committee would require something more specific.
MS. JACKSON replied that has been the concern all along; you
can't make a determination on what the fiscal impact may or may
not be because you're predicting what an entity other than the
State of Alaska may or may not do. You cannot reasonably predict
what communities will do and it's not the jurisdiction of the
state to make that decision.
SENATOR LINCOLN read the following fiscal note analysis:
"Assuming all municipalities with oil and gas property took
advantage of the provision.... the annual revenue drop to the
state could be approximately $1.6 million." She said this shows
there are some assumptions that can be made.
MS. JACKSON described that as the worst-case scenario. Although
that fiscal information is still available, whether you could
reasonably and accurately predict that would happen has always
been the question. The department says they cannot predict
because they don't have the jurisdiction over decisions
municipalities make. That's part of the whole issue; it's a
local determination.
SENATOR TAYLOR agreed it's a local determination, but the
decision to take the carrot and stick approach certainly doesn't
occur in the North Slope Borough. It might occur in Kenai where
there is some ownership interest or some people working there
that are concerned about that, but that isn't the case on the
Slope. He noted the oil and gas property tax revenue from the
four communities amounts to about $24 million while the revenue
from the North Slope Borough is about $193 million. If they
could utilize that and manipulate lower local taxes for their
borough and in doing so increase the amount they take, that must
be where the state is coming up with the possible loss of $1.6
million.
MS. JACKSON agreed then directed him to the information
regarding mill rates. Both Valdez and the North Slope Borough
are close to the cap so the impact isn't as much as you might
think it would be. The Kenai Peninsula Borough and the Fairbanks
North Star Borough are not near that cap and they are the ones
that would have an impact if there were to be one.
SENATOR KIM ELTON said part of the question is that it's not
possible to predict what action a municipality might or might
not take which makes the effect on state revenue uncertain. He
asked whether the sponsor had considered adding that the
exemption would be contingent on a ruling from the Commissioner
of Revenue that it would have no impact on state receipts.
CHAIR WAGONER advised one of the problems he would have with
that is that currently two boroughs have been given the latitude
to max out and the state is receiving no revenue from any piece
of property within their taxing jurisdiction. Realistically, the
Kenai Peninsula Borough could assess up to 20-mills at any time
and take the revenue. The state already allows for that to be
done. We're saying, "On one hand we don't want them to be able
to tax us additionally and draw down the revenue the state gets
on the oil properties, but at the same time they already have
that authority." He acknowledged the suggestion was well
founded.
SENATOR ELTON stated he wouldn't offer an amendment because he
didn't know all the implications and because it would be a
discussion the Finance Committee could have.
MS. JACKSON advised capping the amount of money a municipality
may take has been discussed any number of times over the years.
SB 136 isn't about that discussion, it's about increasing a
$10,000 exemption that is already in place. There's already an
exemption for senior citizens and for veterans and firefighters.
SB 136 is to increase the residential property exemption to
$50,000.
SENATOR TAYLOR commented he couldn't imagine anyone in the Kenai
Peninsula Borough surviving very long if they took the current
mill rate of 6.5 and boosted it to 20 mills, but that is
certainly what has gone on and is going on in the North Slope
Borough.
Municipalities complain about the senior citizen exemption every
year because of the large tax base that is unavailable and
Legislatures have been asked repeatedly to remove that
exemption. SB 136 doesn't exempt the elderly it exempts
everyone.
He said it's an interesting question and he doesn't know what
the real ramifications would be. He continued, "I would imagine
when Senator Wilken sees this he will probably want to attach
something that says, 'All people wherever situated in the state
shall pay some taxes on their house.'" But if you give them a
$50,000 exemption there may be houses in some communities that
don't have enough value to tax.
MS. JACKSON stated that was a topic of conversation when the
bill came out and Senator Elton's point was discussed, as was
the senior citizen exemption. She continued, "It's not
inconceivable this very small one page bill could suddenly
become very, very big."
There were no further questions.
CHAIR WAGONER called for a motion.
SENATOR TAYLOR made a motion to move SB 136 and accompanying
vague fiscal notes from committee with individual
recommendations. There being no objection, it was so ordered.
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