Legislature(2011 - 2012)FAHRENKAMP 203
04/13/2012 08:00 AM COMMUNITY & REGIONAL AFFAIRS
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HB 264-MUNI PROPERTY TAX DEFERRAL: SUBDIVISIONS 12:36:57 PM CHAIR OLSON reconvened the Senate Community and Regional Affairs Committee meeting and announced the consideration of HB 264. 12:37:29 PM SENATOR KOOKESH moved to adopt Senate CS for CSHB 264, 27- LS1090\E. 12:37:58 PM CHAIR OLSON said without objection, version E was before the committee. 12:38:05 PM DAVID SCOTT, Staff for Senator Olson, Alaska State Legislature, said the committee substitute (CS) added two sections to the bill, Section 2 and Section 3. He said the CS removed the statutory municipal operating tax cap. 12:38:23 PM RANDY HOFFBECK, Chief of Staff for Mayor Brower, North Slope Borough, said the CS removed the statutory operating property tax cap by amending AS 29.45 and AS 43.56. He said the current tax cap did not allow a jurisdiction to have a total assessed value for all properties to exceed 225 percent of the statewide per capita assessed value. He said the cap sets the maximum assessed value allowed for the purposes of funding operations and provided a "no cap" provision for the repayment of general obligation debt. He said the cap did not affect the amount of property tax that could be collected. He said the cap was put into place in the 1970's due to a concern that boroughs within the Oil Pipeline Corridor (OPC) would have an inordinate amount of property tax money to spend on operations. He said the state had grown dramatically over the past 40 years and OPC boroughs were operating with mature fiscal policies. He said cap removal would allow for greater fiscal flexibility for the North Slope Borough (NSB) and Valdez. He noted that the cap had affected Unalaska, Bristol Bay and Skagway due to a high proportion of property tax value within a relatively small population jurisdiction. He said the cap would impact Unalaska once again due to future offshore oil and gas exploration. 12:43:22 PM He said NSB currently collected 9 to 9.5 mills for operations and 9 to 9.5 mills for bonded debt. He said using cash flow would be more efficient than cycling through the bond market for tax collection purposes. He noted that $140 million would be paid towards interest on the current $480 million in outstanding general obligation debt. He said paying for interest was money wasted and eliminating the cap would allow for more funds to go towards community projects. He said the borough faced up to $600 million in capital maintenance projects over the next five years and being allowed to use operating funds would be preferred. He said the only entities that would be affected by the removal of the cap would be New York bankers and investors. He said it was a zero sum game for everybody else and state tax revenue would not change. He said the state would continue to receive its 20 mill property tax obligation from the oil and gas industry. He noted that the oil and gas industry gets to use any local tax as a credit against what is paid to the state. He said with the North Slope Borough's 18.5 mill rate, the state would continue to receive 1.5 mills after the industry takes its credit. He said the bill would provide more flexibility to use the money more efficiently and actually provide long term stability. He said the borough's tax base was dictated by the population and not by assets within the borough. He said oil field worker fluctuations made it very difficult for long term fiscal planning. He said the intent was not to ask for an advantage over other jurisdictions, but to be allowed to operate on par with jurisdictions that do not have to deal with cap provisions. 12:47:52 PM SENATOR WAGONER asked if the industry would feel comfortable with the bill. MR. HOFFBECK answered that the industry's 20 mill cap does not change and the Department of Revenue (DOR) would continue as the assessing authority. CHAIR OLSON asked if there were additional comments. MR. HOFFBECK responded that the Alaska Municipal League (AML) solicited other communities for comments on the bill's potential impact. He said no communities had identified any adverse effects. He noted that the municipality of Juneau indicated that cap removal would be good fiscal policy. CHAIR OLSON asked if removing the cap was good fiscal policy. MR. HOFFBECK answered yes. He said Unalaska recognized that they were likely facing a cap issue and thought it was a good idea. He said there was no additional revenue flowing to any jurisdiction and no liability to the industry. He said only the New York bankers would lose in the process. 12:50:48 PM JOHANNA BALES, Deputy Director, Tax Division, Department of Revenue, said DOR opposed the CS for SB 264. She said DOR did not have adequate time to vet the CS and would like to have discussions with municipalities. She said DOR would like to look at reasons behind the original legislative intent to put a cap into place. She said DOR disagreed with Mr. Hoffbeck's statement that state tax revenue would not be affected and said the state could lose $115 million if municipalities increased their rates to 20 mills. 12:53:18 PM MR. HOFFBECK responded that the cap only affects a community that had a certain relationship between its population and the tax base. He noted that communities could raise rates above 20 mills regardless of the current cap. He said NSB had rarely exceeded 18.5 mills over the past 40 years and the rate was important for the borough's long term fiscal stability. 12:55:16 PM He said 18.5 mills was critical to the bond rating agencies due to the extra 1.5 mills being available to raise additional funds if assessed values did not meet forecasts. He said the state's majority of oil and gas properties were in unincorporated areas without local jurisdictions. He said if the NSB went to 20 mills, about $20 million would be moved and not $115 million. He said NSB always considered 20 mills as a hard cap for forecasting purposes. He said going to 30 mills would take money away from other portions of the state and would set the borough up for tax limitation legislation. He said the bill would allow NSB to relieve itself of its debt burden and reduce pressure on assessed values. He said reducing payments on interest rates would allow for flexibility to decrease mill rates. 12:57:55 PM SENATOR WAGONER asked why DOR did not present a fiscal note. MS. BALES answered that DOR was working on a fiscal note due to the limited time from the CS announcement. SENATOR WAGONER commented that he would like DOR to proceed with their follow up work. 12:59:17 PM CHRISTOPHER CLARK, Staff for Representative Cathy Munoz, Alaska State Legislature, said the sponsor supported the bill from page 1 up to line 12 on page 2 and shared the same concerns with DOR on the rest of the language. CHAIR OLSON asked for clarification that the sponsor was not against the bill, just that more time was required to audit it. MR. CLARK answered correct. 12:59:44 PM SENATOR WAGONER asked if rules and finance were the next committees of referral. He noted that a fiscal note would be required. SENATOR ELLIS answered correct. 1:00:16 PM SENATOR KOOKESH moved to report SCS CSHB 264( ), 27-LS1090\E, from the committee with individual recommendations and attached fiscal note(s). 1:00:31 PM CHAIR OLSON said without objection, SCS CSHB 264(CRA) passed out of the Community and Regional Affairs Standing Committee.