Legislature(1995 - 1996)
04/03/1996 09:25 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 280(CRA) "An Act relating to the mandatory incorporation of certain boroughs in the unorganized borough." Senator John Torgerson and staff aide, Deb Davidson were invited to join the committee. He presented a short review of the bill. It encompassed the equalization of rights and taxation especially concerning education in order to conform unorganized areas of the boroughs. The initial legislation said proposed borough boundaries were only for setting the order of incorporation and were based upon the state assessor's estimation of the evaluation of REAA's in 1994. The local boundary commission must approve the incorporation proposals or requests. Appropriate revisions to them would be acceptable within six months of receipt and within thirty days after approval of the incorporation proposal by the local boundary commission the division of elections must be notified and the division shall order an election to be held on proposed borough boundaries within ninety days. Senator Zharoff asked about the public vote and Senator Torgerson said it is not a question of wanting to be a borough or not. Senator Zharoff said his concern that depending on where one is in the state there is support to have mandatory borough formation and likewise support not to have this type of mandate imposed on regions because in some areas where there already boroughs formed it does change some of the boundaries and people seem to like it the way it is. There are current discussions going on either the formation of new boroughs or annexing into an existing borough. Borough formations has to come from the people. The argument that seems to come to the surface as the impetus for this is for equity and education funding. Most of the unincorporated areas of the state generate federal dollars that actually go into the general fund and are then dispersed to all school districts throughout the state. Those districts, in a sense, are paying their own way. Senator Torgerson responded regarding a fiscal note from the Department of Education showing there is no impact on the PL 874 funds. As far as annexation, this bill would not control any annexation or any particular existing petitions by a borough to incorporate other areas of the unorganized borough. That decision is one strictly for the local boundary commission and the Legislature would not have authority for annexation. He said he had an amendment #1 and reviewed it for the committee. It would change the mandatory borough to the formation of boroughs and unorganized boroughs. This amendment would direct that there would be an election held on the same time line as presented earlier, based on the assessed value of the districts. The first vote would be up or down as to whether they wanted to incorporate. If the incorporation vote was upheld then there would be a discussion as to what powers the new proposed area would want to take on. If the vote was not to incorporate then it sets a time line for the state assessor to start assessing the area at a mill rate levy of six mills. The money collected from the mill rate level would be deposited in the general fund. This amendment does recognized the testimony heard in C&RA. Senator Phillips referred to the sales tax and other forms of taxation to get to the equivalent of six mills. Can the legislature allow for this? Senator Torgerson said currently it could not be allowed for without an effective vote of the people in the affected area. Currently there are four boroughs and their education dollars are on equivalency and they do not have property tax. They have fish tax, sales tax or resource tax. He said his amendment did not allow for that. It has to be a mill rate because they did not have authority to do equivalencies. Co- chairman Halford asked if that was a constitutional provision or if it was a Title 29 provision. He asked if Title 29 could be amended in the way Senator Phillips suggested. Senator Torgerson said funds could not be collected and dedicated to a school without a vote for a dedicated fund which is a constitutional amendment to allow that. The legislature has the power to put in equivalencies. Senator Rieger said he would support this bill if the sponsor supported allowing sales tax revenues on an equivalency basis to go up to six mills. That would seem reasonable. Senator Torgerson said the goal here is to collect an equivalency for education. Senator Phillips said there should be some flexibility because in some areas there would not be much property to be taxed. A tax burden should not be put on a few for the enjoyment of others around them. Senator Torgerson said this bill sets up second class boroughs so an assembly would sit as a second class borough and the sales tax provision would require a vote of the people. Co-chairman Halford said that when this is limited to property taxes there are small local communities where a great deal of the residential property is federally exempt from taxation. Sales tax would include non-residents paying part of the bill and it would be equally allocated based on expenditures of residents. That might be an important feature to investigate. Senator Torgerson concurred. Senator Zharoff suggested the assessor may be able to impose a sales tax on incorporated areas as well. Senator Zharoff noted that there would be some existing borough line changes and referred to pages 14 and 15, the Juneau borough would be extended and also the Ketchikan Gateway borough would be extended. He did not think the communities would want to be mandated to expand their borough boundaries to incorporate areas that they would then have responsibility for. Senator Torgerson said this bill did not address any annexation. It is not under the authority of the legislature to mandate that an existing borough annex lands outside of its' boundaries. Lamar Cotten, Department of Community and Regional Affairs was invited to join the committee. He said the department supported the concept of the bill and that it would bring positive benefits to rural Alaska. It would encourage enhancement of school funding and promote economic development. This bill would provide for 34 school districts instead of 54 and the department felt there would be administrative savings by this reduction. Second class boroughs have three powers, tax & assessment, planning and education which are positive benefits. He referred to the property tax schedule and said there was such a checker board of who owns what property in rural Alaska and possibly a lot of resentment would be fostered and therefore from a practical point of view this would not work. Some consideration should be given two a possible 2 mill levy or stretched out to six years. Further consideration should be given to allowing for third-class boroughs which presently are not allowed with the exception of Haines. A third class borough is able to provide for education. There are no pots of gold outside of the pipeline in the unorganized borough. The department felt the net effect of taxing oil and gas line properties needed to be recognized. Eddy Jeans, Department of Education was invited to join the committee. He said that Senator Torgerson's office was provided information assuming all the boroughs were fully incorporated and up to the minimum four mills and that the boroughs were contributing over the four mill requirement and what is seen is a shift in the amount of impact aid that the state would consider. The foundation formula would decrease approximately $14 million while local effort goes up approximately $14 million once the full implementation is taken over by the borough. The department was continuing with further analysis. Senator Zharoff asked about movements being made by the school districts. Mr. Jeans advised that curriculum services were provided as needed. Denny Weathers, Marla Adkins, Eric Weathers and one unidentified individual testified briefly via teleconference from Cordova in opposition to this bill. All parties testified that they did not want to have a borough forced upon them and they felt they would only have to pay more taxes. Senator Phillips said that the possibility of a third-class borough as an option would be studied seriously. Senator Torgerson said he had no objection to a third-class borough either. Senator Zharoff asked for a map of the state showing the large unincorporated areas. Senator Torgerson said the map would show currently what was available for taxation in 1994. He further stated that land was not taxable until developed. Co-chairman Halford said he thought the equity question in rural communities is not the corporate lands or the large parcels, but rather the allotments that are right in town. Everyone is criss- crossed in land ownership. Much of the land is exempt from taxation right in the middle of the same services. Some communities choose a sales tax to avoid that question otherwise recipients of the services are not necessarily the people who are paying for the service. Deb Davidson related her conversation with Tam Cook and said the legislature has never acted as an assembly for the unorganized borough. The presumption is the legislature could enact a statute that contained a type of tax scheme for the unorganized borough and could include sales or use tax in that not requiring a vote of the people. Presently incorporated boroughs under current statute may not enact a tax by ordinance unless it is ratified by a vote. Since different classes of boroughs are treated differently it is not necessarily clear that the unorganized borough could be treated as yet another matter. Patrick Dalton, P.R. Miller and Patrick Schlichting testified briefly via teleconference from Delta Junction in opposition to this bill. They mirrored the same thoughts as the previous individual that testified from Cordova saying that this bill was bad legislation. Dan Billman and John Kunik testified briefly via teleconference from Glennallen in opposition to this bill. They said the taxes should be taken from the pipeline and the necessary services be provided to the community. Co-chairman Halford said the question that comes to mind is regarding education funding and that is something that is unequally funded across the state. Carl Rose, Alaska School Board was invited to join the committee and said the school board association was opposed to mandatory borough. There were a number of concerns specifically in an unorganized borough, the ability to identify, survey and assess the value of the land. The issue is not one of taxation. Most people will pay the tax but do not want an organized borough. The concern is for those forced to borough but do not have the resources. He referred to the Aleutian Region including the Sandpoint City School District and King Cove. When the three districts were consolidated, as could be expected, when time came to negotiate which salary would be adopted, the highest salary was chosen. This is an issue when speaking of consolidation and he said this example reinforced why the association was against mandatory borough. Co-chairman Halford referred to amendment #1 and said making an alternative tax and third-class borough an option would address most problems. Senator Torgerson said he could use his amendment with a few conceptual amendments and it should suffice the concerns of the committee. He suggested deleting "second-class" borough and inserting "third-class". This would not preclude organized areas from adopting home rule charter or whatever they would like. On the amendment itself, page 2, line 11, the annual tax of "six mills" could be deleted and "or equivalency" be inserted. Co-chairman Halford wanted this indicated that it was to go to the REAA's or a match for the local shares of the REAA's. Senator Torgerson felt that some intent language could be written up. Senator Phillips moved the conceptual amendment to amendment objection of Senator Zharoff being noted it was adopted. Senator Rieger discussed his amendment #2. Following discussion by the committee co-chairman Halford asked that he submit a new draft of this amendment including his proposed changes. ADJOURNMENT Co-chairman Halford adjourned the meeting at approximately 11:00 A.M. to reconvene again at 1:45 P.M. today.