Legislature(2011 - 2012)BELTZ 105 (TSBldg)


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* first hearing in first committee of referral
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<Above Item Removed from Agenda>
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSSB 223(CRA) Out of Committee
        HB 264-MUNI PROPERTY TAX DEFERRAL: SUBDIVISIONS                                                                     
3:45:05 PM                                                                                                                    
CHAIR OLSON announced the consideration  of HB 264, which relates                                                               
to a municipal property tax deferral for subdivisions.                                                                          
3:46:58 PM                                                                                                                    
REPRESENTATIVE CATHY MUNOZ, Alaska  State Legislature, sponsor of                                                               
HB  264 introduced  the bill  speaking to  the following  sponsor                                                               
     Passage of House Bill  264 will give municipalities the                                                                    
     option  to provide  an  incentive to  develop land  for                                                                    
     housing by  deferring for up  to five years  a property                                                                    
     tax  increase associated  with subdividing  a piece  of                                                                    
     property into three or more parcels.                                                                                       
     The measure  would give municipalities  the flexibility                                                                    
     to  defer increases  in  property  taxes on  subdivided                                                                    
     parcels until a lot is sold or a city grants a building                                                                    
     permit for  that piece  of property.  It would  allow a                                                                    
     local government to adopt the optional deferral for all                                                                    
     or a  portion of a  subdivided portion. It would  let a                                                                    
     municipality  decide  the  terms   of  paying  the  tax                                                                    
     deferral and when those payments would be due.                                                                             
     Supporters  of  this  measure  say it  would  remove  a                                                                    
     disincentive for developing privately owned property by                                                                    
     holding  taxes  at  the undeveloped  land  value  until                                                                    
     improvements  occur  that  lead  to  a  parcel's  being                                                                    
     developed and  sold -  thus becoming more  valuable and                                                                    
     capable   of  generating   more   revenues  for   local                                                                    
     governments that choose to exercise this option.                                                                           
     The  purpose   of  the   bill  is  to   encourage  land                                                                    
     development for more housing  and let local governments                                                                    
     decide  whether a  property tax  deferral will  benefit                                                                    
3:47:38 PM                                                                                                                    
SENATOR  MENARD  noted that  the  Alaska  Municipal League  (AML)                                                               
submitted a  letter opposing  HB 264. She  asked if  anything had                                                               
changed since that letter was written.                                                                                          
REPRESENTATIVE MUNOZ responded that AML  was neutral on the bill.                                                               
She emphasized that this was a  tax deferral not an exemption and                                                               
it was optional.                                                                                                                
SENATOR  MENARD  summarized her  understanding  of  the bill  and                                                               
AML's opposition.                                                                                                               
REPRESENTATIVE MUNOZ  said the  intent was  always to  provide an                                                               
option  for  a   tax  deferral,  but  the   original  title  said                                                               
"exemption" and  AML is  generally opposed  to bills  that exempt                                                               
property taxes. AML has since  withdrawn its objection and is now                                                               
neutral on the legislation.                                                                                                     
SENATOR  MENARD suggested  that if  AML revised  its position  it                                                               
should be clarified in the bill packet.                                                                                         
3:50:02 PM                                                                                                                    
REPRESENTATIVE MUNOZ said she agreed.                                                                                           
SENATOR WAGONER asked who would eventually pay the deferred tax.                                                                
REPRESENTATIVE MUNOZ  answered that the responsibility  lies with                                                               
the developer and the deferred tax is due when the lot sells.                                                                   
CHAIR OLSON asked if the purchaser actually pays.                                                                               
REPRESENTATIVE  MUNOZ  answered  that  it  becomes  part  of  the                                                               
carrying cost  for the development  of the land. The  bill allows                                                               
the  developer to  move forward  without the  additional carrying                                                               
costs of  ongoing property tax  from increased  assessments. This                                                               
makes development in communities more likely.                                                                                   
SENATOR   MENARD   reviewed   the  provisions   and   asked   for                                                               
confirmation  that   the  developer  would  eventually   pay  the                                                               
deferred taxes.                                                                                                                 
REPRESENTATIVE MUNOZ  said yes; it  is an optional  provision for                                                               
up  to five  years  on all  or  a  portion of  the  parcels in  a                                                               
SENATOR MENARD asked who would decide  if the deferral is for all                                                               
the parcels or just a portion.                                                                                                  
REPRESENTATIVE MUNOZ answered that it  would be done by municipal                                                               
SENATOR MENARD asked if municipalities negotiated for that.                                                                     
REPRESENTATIVE   MUNOZ  answered   no;   optional  property   tax                                                               
exemptions and  deferrals must be instigated  by the municipality                                                               
through ordinance.                                                                                                              
SENATOR  KOOKESH  asked  how  she   decided  that  three  parcels                                                               
constitutes a subdivision.                                                                                                      
REPRESENTATIVE MUNOZ said  the intent was to  avoid the situation                                                               
of an  individual subdividing  their property  into two  lots and                                                               
not  developing one  in  order to  defer  taxes. The  legislation                                                               
seeks to increase housing stock in the community.                                                                               
3:53:16 PM                                                                                                                    
SENATOR KOOKESH asked for clarification  that dividing a piece of                                                               
property into  two parcels  is not  considered a  subdivision but                                                               
three parcels is considered a subdivision.                                                                                      
REPRESENTATIVE MUNOZ reiterated her previous answer.                                                                            
CHAIR OLSON  commented the intention  is to keep  property owners                                                               
from manipulating the system.                                                                                                   
REPRESENTATIVE  MUNOZ  responded that  she  would  hope to  avoid                                                               
SENATOR MENARD asked how many Alaskans own five acres.                                                                          
REPRESENTATIVE MUNOZ  said she could  not speak to the  number of                                                               
parcels this  would affect,  but Juneau has  a very  limited land                                                               
base and  the bill  seeks to encourage  more development  of that                                                               
limited land base.  .                                                                                                           
CHAIR OLSON asked how this  would affect second-class cities that                                                               
do not have a property tax.                                                                                                     
REPRESENTATIVE MUNOZ  answered that  in areas  where there  is no                                                               
planning  and zoning  authority, the  deferral would  end when  a                                                               
property is developed or sold.                                                                                                  
CHAIR  OLSON  asked how  properties  in  the unorganized  borough                                                               
would be affected.                                                                                                              
REPRESENTATIVE  MUNOZ  reiterated  that  in  those  jurisdictions                                                               
without a  permitting authority, the  deferral ends when  a house                                                               
is built or a lot is sold.                                                                                                      
CHAIR OLSON opened public testimony.                                                                                            
3:56:07 PM                                                                                                                    
DARRELL BOURNE, Secretary, Board  of Directors, Alaska State Home                                                               
Builders  Association,  and  President Interior  Alaska  Building                                                               
Association,  testified in  support  of HB  264.  He relayed  his                                                               
experience  as a  partner  in a  52-acre  subdivision outside  of                                                               
Fairbanks. The roads and power  were completed five years ago and                                                               
two ten-acre parcels  were subdivided so that he  and his partner                                                               
could  build new  homes. However,  the new  home market  has been                                                               
soft and  they have sold just  three homes. The only  interest is                                                               
from the higher-end  market and those people  want the riverfront                                                               
lots that have yet to be subdivided.                                                                                            
MR. BOURNE said that if the  Fairbanks North Star Borough were to                                                               
adopt this  amendment, he was  confident that he and  his partner                                                               
could accommodate two people who  were interested in having homes                                                               
built  this  summer. HB  264  would  have  a positive  effect  on                                                               
Fairbanks builders and the local government tax base, he stated.                                                                
3:59:24 PM                                                                                                                    
SENATOR  MENARD asked  if  he  was referring  to  spec or  custom                                                               
MR. BOURNE answered he was talking  about custom homes. If HB 264                                                               
were to  pass, he could  subdivide four or five  riverfront lots,                                                               
sell two, and have up to five  years to sell the others before he                                                               
had to pay the higher taxes.                                                                                                    
CHAIR OLSON asked if there  are developers that might go bankrupt                                                               
if this bill did not pass.                                                                                                      
MR. BOURNE  answered that he did  not know, but this  year is the                                                               
most  difficult in  recent years.  He added  that the  bill would                                                               
directly affect him and one or two others in the association.                                                                   
SENATOR MENARD asked  if the high-energy costs  in Fairbanks were                                                               
a factor in the soft new home market.                                                                                           
MR. BOURNE answered yes.                                                                                                        
4:02:15 PM                                                                                                                    
DAVID  OWENS,  Legislative  Chair,  Alaska  State  Home  Builders                                                               
Association, testified in  support of HB 264. It  is expensive to                                                               
develop property  so it would be  beneficial to be able  to defer                                                               
the  higher taxes  until the  lots are  sold. It  would encourage                                                               
development  of  an  entire  subdivision  instead  the  piecemeal                                                               
approach. He encouraged the committee to pass the bill.                                                                         
4:03:37 PM                                                                                                                    
CHARLES   EDWARDSON,  President,   Alaska  State   Home  Builders                                                               
Association and Workforce  Development Director, Ketchikan Indian                                                               
Community (KIC), testified in support  of HB 264. He relayed that                                                               
KIC is developing  19 city lots to  construct affordable housing.                                                               
If the municipality takes advantage  of the provisions in HB 264,                                                               
it might  accelerate this development. He  reiterated support for                                                               
the bill.                                                                                                                       
4:06:27 PM                                                                                                                    
BRUCE  GRIGGS, Contractor,  SJS Excavation,  said he  had been  a                                                               
developer in the Juneau area for  15 years. He described a seven-                                                               
lot  subdivision near  McDonalds that  he had  worked on  for six                                                               
years.  The property  tax  on the  raw piece  of  land was  about                                                               
$1,000 per  month, but it increased  to $3,500 per month  as soon                                                               
as the  property was  platted. To  date, he  and his  family have                                                               
paid an  additional $62,000  in property tax  on that  parcel. He                                                               
relayed  that he  was afraid  to submit  the plat  and apply  for                                                               
permits on  another much larger  parcel because the  property tax                                                               
would immediately  increase before  any development  takes place.                                                               
It does not make economic sense to move ahead.                                                                                  
CHAIR OLSON asked how developers stay in business.                                                                              
MR.  GRIGGS  acknowledged  that  it   was  a  good  question.  He                                                               
described  a  development  from  several years  ago  that  was  a                                                               
"homerun," but since then the market dropped.                                                                                   
SENATOR WAGONER  pointed out  that this  does not  guarantee that                                                               
the borough will change the tax policy.                                                                                         
MR. GRIGGS  responded that the  City and Borough of  Juneau (CBJ)                                                               
indicated it would adopt this option.                                                                                           
SENATOR MENARD asked if he had appealed the assessment.                                                                         
MR. GRIGGS said $3,500 a month was the appealed price.                                                                          
SENATOR MENARD relayed a personal experience.                                                                                   
4:15:02 PM                                                                                                                    
DAVID HANNA, General Contractor, testified  in support of HB 264.                                                               
He  said  he  had  been  floating this  idea  for  10  years  and                                                               
Representative Munoz was the first  legislator to bring it forth.                                                               
He  said  not  everybody  understands how  difficult  it  is  for                                                               
developers  to  get   things  done  in  many   parts  of  Alaska.                                                               
Developing  a subdivision  is a  time-consuming, costly  process,                                                               
and  property  taxes  increase  before a  shovelful  of  dirt  is                                                               
turned. This  causes developers to  hold back and  sometimes they                                                               
miss a  boom. Even  sadder is  when a developer  is sitting  on a                                                               
subdivision, paying  higher taxes,  and has  no sales.  Often the                                                               
developer will not go forward  with the subdivision. This creates                                                               
a diminished basis of land  available for people to build houses.                                                               
HB 264 will help this situation.                                                                                                
SENATOR  MENARD asked  if banks  were  holding back  on lines  of                                                               
MR. HANNA  confirmed that  it was  much more  difficult to  get a                                                               
loan for any speculative venture.                                                                                               
SENATOR MENARD observed that that  was another strong argument in                                                               
support of the bill.                                                                                                            
CHAIR OLSON  questioned why boroughs and  municipalities couldn't                                                               
do this individually in order to encourage development.                                                                         
4:21:21 PM                                                                                                                    
REPRESENTATIVE  MUNOZ  said state  law  requires  property to  be                                                               
assessed at fair  market value, so as soon as  a subdivision plat                                                               
is  approved   the  municipality  is  compelled   to  adjust  the                                                               
assessment even though no work has occurred.                                                                                    
She thanked  the committee for  hearing the bill and  opined that                                                               
it  was  a  good  piece   of  legislation.  It  is  flexible  and                                                               
incorporates  the  concerns   of  municipalities  throughout  the                                                               
CHAIR OLSON held HB 264 in committee.                                                                                           

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