Legislature(2001 - 2002)

04/02/2002 08:10 AM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              HOUSE COMMUNITY AND REGIONAL AFFAIRS                                                                            
                       STANDING COMMITTEE                                                                                     
                         April 2, 2002                                                                                          
                           8:10 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Carl Morgan, Co-Chair                                                                                            
Representative Drew Scalzi                                                                                                      
Representative Lisa Murkowski                                                                                                   
Representative Beth Kerttula                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative Andrew Halcro                                                                                                    
Representative Gretchen Guess                                                                                                   
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 455                                                                                                              
"An Act relating to the assessment of farm or agricultural land                                                                 
for purposes of municipal taxation; and providing for an                                                                        
effective date."                                                                                                                
     - MOVED CSHB 455(CRA) OUT OF COMMITTEE                                                                                     
PREVIOUS ACTION                                                                                                               
BILL: HB 455                                                                                                                  
SHORT TITLE:MUNICIPAL TAXATION OF AGRICULTURAL LAND                                                                             
SPONSOR(S): REPRESENTATIVE(S)HARRIS                                                                                             
Jrn-Date   Jrn-Page                     Action                                                                                  
02/19/02     2310       (H)        READ THE FIRST TIME -                                                                        
02/19/02     2310       (H)        CRA                                                                                          
03/28/02                (H)        CRA AT 8:00 AM CAPITOL 124                                                                   
03/28/02                (H)        Heard & Held                                                                                 
03/28/02                (H)        MINUTE(CRA)                                                                                  
04/02/02                (H)        CRA AT 8:00 AM CAPITOL                                                                       
WITNESS REGISTER                                                                                                              
JOHN TOBIN                                                                                                                      
(No address provided)                                                                                                           
POSITION STATEMENT:  Urged passage of HB 455.                                                                                   
RON ILLINGWORTH                                                                                                                 
(No address provided)                                                                                                           
POSITION STATEMENT:  Testified that HB 455 would simplify the                                                                   
ROBERT WELLS, Director                                                                                                          
Division of Agriculture                                                                                                         
Department of Natural Resources                                                                                                 
1800 Glenn Highway, Suite 12                                                                                                    
Palmer, Alaska 99645-6736                                                                                                       
POSITION STATEMENT:  Testified on HB 455.                                                                                       
PETE FELLMAN, Staff                                                                                                             
to Representative John Harris                                                                                                   
Alaska State Legislature                                                                                                        
Capitol Building, Room 513                                                                                                      
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:  Answered questions on behalf of the sponsor                                                                
of HB 455.                                                                                                                      
STUART DAVIES                                                                                                                   
1606 Roosevelt                                                                                                                  
Fairbanks, Alaska 99709                                                                                                         
POSITION STATEMENT:  Urged passage of HB 455.                                                                                   
STEVE VAN SANT, State Assessor                                                                                                  
Division of Community and Business Development                                                                                  
Department of Community & Economic Development                                                                                  
550 W 7th Avenue, Suite 1770                                                                                                    
Anchorage, Alaska 99501-3510                                                                                                    
POSITION STATEMENT:  Answered questions.                                                                                        
ACTION NARRATIVE                                                                                                              
TAPE 02-20, SIDE A                                                                                                              
Number 0001                                                                                                                     
CO-CHAIR  CARL MORGAN  called the  House  Community and  Regional                                                               
Affairs  Standing  Committee  meeting   to  order  at  8:10  a.m.                                                               
Representatives Morgan, Meyer, Scalzi,  and Kerttula were present                                                               
at the  call to order.   Representative Murkowski arrived  as the                                                               
meeting was in progress.                                                                                                        
HB 455-MUNICIPAL TAXATION OF AGRICULTURAL LAND                                                                                
CO-CHAIR MORGAN announced  that the only order  of business would                                                               
be HOUSE  BILL NO.  455, "An  Act relating  to the  assessment of                                                               
farm  or agricultural  land for  purposes of  municipal taxation;                                                               
and providing for an effective date."                                                                                           
Number 0074                                                                                                                     
JOHN  TOBIN   testified  via  teleconference  and   informed  the                                                               
committee that he  owns 40 acres of  restricted agricultural land                                                               
off of Eielson  Road.  He requested that the  committee help with                                                               
the passage of  HB 455.  He informed the  committee that his land                                                               
assessment from  the Fairbanks North  Star Borough  has increased                                                               
by  almost  five-fold in  the  last  two  years, which  makes  it                                                               
[impossible] to be  self-sufficient.  [This is the  case for many                                                               
farmers on Eielson Road.]  Mr.  Tobin urged the committee to pass                                                               
HB 455.                                                                                                                         
Number 0317                                                                                                                     
RON  ILLINGWORTH testified  via teleconference  and informed  the                                                               
committee  that he  is  also a  farm owner  on  the Eielson  Road                                                               
project.    He   pointed  out  that  the   state  established  an                                                               
agricultural project and  restricted land so that it  can only be                                                               
used for agricultural purposes.  He  explained that he had to put                                                               
a certain  percentage of the  land, which was established  by the                                                               
Division of Agriculture,  into production.  In his  case, over 50                                                               
percent of the land had to  be placed into production.  That land                                                               
had to  be available for  agricultural use and continues  to have                                                               
agricultural covenants.   Therefore, he questioned  why that land                                                               
should be taxed as if it could be  used in some other manner.  He                                                               
also  questioned why  separate applications  for an  agricultural                                                               
exclusion must be made on  forms designed to give an agricultural                                                               
exemption  to   people  who  don't   live  on  land   with  state                                                               
agricultural  covenants.   Mr.  Illingworth  concluded by  saying                                                               
that HB 455 would simplify  the process and eliminate unnecessary                                                               
applications for  individuals who already own  agricultural land.                                                               
Furthermore,  it would  allow for  a tax  base that  reflects the                                                               
only use allowed for [restricted agricultural land].                                                                            
Number 0572                                                                                                                     
ROBERT WELLS,  Director, Division  of Agriculture,  Department of                                                               
Natural Resources, acknowledged that  the division has heard many                                                               
of  the same  concerns already  expressed to  the committee  this                                                               
morning.  He  noted that he has been working  with the sponsor to                                                               
make  the process  simpler, while  recognizing  that those  lands                                                               
with  an  agricultural  covenant   or  restriction  are  in  fact                                                               
restricted to  that.  There was  never the intention for  this to                                                               
fall under  the application system  that is being  addressed with                                                               
this  legislation.   He  mentioned  that  the division  has  also                                                               
worked  with the  state assessors  because the  process needs  to                                                               
work for  them as  well.   He acknowledged  that the  division is                                                               
aware that  in some  cases, the  application process  isn't being                                                               
utilized  properly by  some.   Therefore, the  division wants  to                                                               
work with the  legislature and the assessors to close  any of the                                                               
loopholes.   Mr.  Wells related  that HB  455 simply  lets people                                                               
know that  once restricted agricultural  land is  purchased those                                                               
lands  have   clearing  requirements.     However,   these  folks                                                               
shouldn't have to go through  the annual application process with                                                               
the borough.                                                                                                                    
Number 0744                                                                                                                     
REPRESENTATIVE KERTTULA posed  a situation in which  land with an                                                               
[agricultural] covenant is sold.   She asked if "they" would have                                                               
to pay  seven years in  back taxes to  the state.   She requested                                                               
that Mr. Wells explain the covenants.                                                                                           
MR.  WELLS  answered   that  once  the  land   is  designated  as                                                               
agriculturally  restricted,  that  restriction remains  with  the                                                               
land.   Therefore, if the  land were  sold it would  still remain                                                               
subject to the  agricultural covenant.  Mr.  Wells explained that                                                               
selling land  and paying back  taxes to the borough  only relates                                                               
to   fee  simple   land  that   doesn't   have  an   agricultural                                                               
restriction.   As  long as  the  land owners  were farming,  they                                                               
would have been  applying on an annual basis.   However, once the                                                               
farming  was discontinued,  the land  owner could  be subject  to                                                               
back taxes from  the municipal government.  Mr.  Wells didn't see                                                               
a  case  where that  would  come  in  to play  with  agricultural                                                               
restricted land sold by the state.                                                                                              
Number 0875                                                                                                                     
REPRESENTATIVE   KERTTULA  recalled   legislation  sponsored   by                                                               
Senator Green,  legislation that allowed a  less restrictive sale                                                               
and division of the land.                                                                                                       
PETE FELLMAN,  Staff to Representative John  Harris, Alaska State                                                               
Legislature, explained  that there  are three different  types of                                                               
land.  First, there is fee  simple land that is voluntarily being                                                               
used for  agriculture.  Second,  there is land restricted  by the                                                               
state for use  only for agriculture.  Third, there  is also land,                                                               
land with an  agricultural covenant, for which a  patent has been                                                               
applied and  received under SB 109  by Senator Green.   Under the                                                               
latter  type of  land the  agricultural covenant  stays with  the                                                               
land.    That covenant  allows  for  division  of the  land  into                                                               
parcels no less than 40 acres.                                                                                                  
REPRESENTATIVE KERTTULA turned to  the land with the agricultural                                                               
covenant  that can  be divided.   She  asked if  that would  fall                                                               
under the ambit of SB 109.                                                                                                      
MR. FELLMAN  reiterated that the  land addressed in SB  109 can't                                                               
be divided into parcels less than  40 acres.  Still, the land has                                                               
an agricultural restriction.  On  the other hand, fee simple land                                                               
with no agricultural covenant or  restriction still requires that                                                               
paperwork  be filled  out  to  show that  [the  owner] is  making                                                               
income from  farming that fee simple  land.  If one  were to sell                                                               
their land after  making [and receiving] an  application for this                                                               
exemption and  they could  show [income]  from farming,  then the                                                               
[owner] would have to pay the back taxes.                                                                                       
REPRESENTATIVE  KERTTULA  asked  if the  [agricultural]  covenant                                                               
would remain with the land that under SB 109 can be divided.                                                                    
MR. FELLMAN replied  yes.  In further  response to Representative                                                               
Kerttula,   Mr.  Fellman   answered  that   originally  all   the                                                               
[agricultural] land  [identified by  the state] only  allowed one                                                               
building site and  the land couldn't be divided to  a parcel less                                                               
than what was originally received.                                                                                              
REPRESENTATIVE  KERTTULA  related  her  understanding  then  that                                                               
under HB 455  the [owner of the] third type  of land doesn't have                                                               
to go back to the assessor.                                                                                                     
Number 1123                                                                                                                     
STUART  DAVIES  testified  via   teleconference.    He  began  by                                                               
informing the committee  that he farms and owns 160  acres in the                                                               
Fairbanks  North Star  Borough.   Mr.  Davies  explained that  he                                                               
purchased  the  farm  in  2000  knowing  it  had  a  agricultural                                                               
covenant  restricting  the  use  of this  land  for  agricultural                                                               
purposes.  He  pointed out that his borough  taxes have increased                                                               
273 percent in 2000 and 94  percent in 2002, which amounts to the                                                               
current  assessed  value  being  $400  per  acre.    The  borough                                                               
assessor says that  such an assessment is comparable  to the sale                                                               
of  other land  in the  borough.   However,  the borough  doesn't                                                               
acknowledge  the differences  between fee  simple title  property                                                               
and agricultural  restricted land.  Furthermore,  the assessor is                                                               
requesting that  he apply for  a farm  use exemption in  order to                                                               
receive  a  reduced  assessment,   which  Mr.  Davies  viewed  as                                                               
redundant per the agricultural restriction  placed on the land by                                                               
the  state.   Mr. Davies  pointed out  that currently  he doesn't                                                               
meet the  income qualifications  of this exemption,  which states                                                               
that he must  earn 10 percent of his gross  income [from farming]                                                               
in order to  qualify.  The amended language in  AS 29.45.060 will                                                               
correct  these  inequities and  require  land  restricted by  the                                                               
state to be assessed on its potential for farm use.                                                                             
MR. DAVIES  related his  belief that the  state's intent  when it                                                               
created agricultural  restricted land was to  develop and promote                                                               
agriculture in  the state.   By amending AS 29.45.060  to include                                                               
land restricted for  agricultural use, the committee  will send a                                                               
strong message  that farming is  viable in Alaska as  an economic                                                               
entity.   Mr.  Davies urged  passage of  HB 455  because it  will                                                               
enable him to make future plans for improvements on his farm.                                                                   
MR.  DAVIES turned  to  the  third type  of  land  that has  been                                                               
discussed.  He specified that he  didn't believe there is a third                                                               
type  of  land,  but  rather  SB 109  simply  allowed  owners  of                                                               
agricultural restricted land  to subdivide up to  four times with                                                               
the parcels being no less than 40 acres.                                                                                        
CO-CHAIR MORGAN closed public testimony.                                                                                        
Number 1377                                                                                                                     
REPRESENTATIVE SCALZI  moved that  the committee  adopt Amendment                                                               
1, which reads as follows:                                                                                                      
     Page 1, line 1:                                                                                                            
          Delete "farm or"                                                                                                    
          Insert "certain"                                                                                                    
     Page, 2, line 5:                                                                                                           
          Delete "for farm use in accordance with this                                                                          
          Insert "based upon that restricted use"                                                                               
There being no objection, Amendment 1 was adopted.                                                                              
Number 1416                                                                                                                     
STEVE  VAN  SANT,  State  Assessor,  Division  of  Community  and                                                               
Business   Development,  Department   of  Community   &  Economic                                                               
Development  (DCED),  explained  that  currently  Alaska  doesn't                                                               
value farm  land based  on its  potential production,  which some                                                               
states  do.   In Alaska,  assessors utilize  the market  sales of                                                               
these  [agricultural  restricted]  lands in  order  to  establish                                                               
these  values.   The [assessor's  office] views  these restricted                                                               
properties  as a  different  animal than  some  of the  different                                                               
agricultural land.   The  farm land for  which the  owner applies                                                               
for and  receives the deferment  under AS 29.45.060 is  land that                                                               
is required  to be farmed  such that  income is derived  from it.                                                               
He posed an  example in which the farm land  is selling or valued                                                               
around  $400 an  acre,  while the  restricted  lands are  selling                                                               
around $500-$600 an  acre.  Mr. Van Sant related  his belief that                                                               
the  land  can  be  subdivided  and home  sites  placed  on  each                                                               
subdivided  parcel.   The proposed  amendment lets  everyone know                                                               
that  the  assessable  value  of   these  lands  based  on  those                                                               
restricted  values   will  be  different  than   those  under  AS                                                               
29.45.060,  to some  extent.   Once these  lands are  farmed, the                                                               
values  will probably  come in  line with  the other  values [for                                                               
farm land].                                                                                                                     
Number 1591                                                                                                                     
REPRESENTATIVE MURKOWSKI  inquired as  to how  HB 455  will work.                                                               
She  recalled  the  testimony regarding  significantly  increased                                                               
assessments.    She asked  if  the  assessment  is based  on  the                                                               
restricted use [of  the land], would the restricted  use be taken                                                               
into account  such that the  assessment would be revised  for the                                                               
past several years.                                                                                                             
MR. VAN SANT replied no.   He explained that the assessments that                                                               
he has heard seem to be in the  ballpark of what the farm land is                                                               
selling for and thus he wouldn't see any need for revision.                                                                     
REPRESENTATIVE  KERTTULA  posed a  situation  in  which a  person                                                               
purchases a  restricted use  land, then  the assessor  will value                                                               
the  property   based  on  the  restrictions.     Therefore,  the                                                               
valuations wouldn't change.   [Under HB 455,]  the owner wouldn't                                                               
have to come in and file with the assessor's office.                                                                            
MR.    VAN   SANT    agreed   with    Representative   Kerttula's                                                               
Number 1716                                                                                                                     
REPRESENTATIVE KERTTULA asked  if there is a  Mat-Su Borough case                                                               
regarding the 10 percent income requirement for fee simple land.                                                                
MR. VAN SANT answered that  any participant of this program under                                                               
AS 29.45.060 will have to derive  10 percent of their income from                                                               
the farming of the land in order to participate in the program.                                                                 
REPRESENTATIVE  KERTTULA  posed a  situation  in  which a  person                                                               
farms the land  for 60 years, but doesn't farm  it the 61st year.                                                               
She  inquired as  to how  the land  would be  valued on  the 61st                                                               
MR. VAN  SANT specified that as  long as the use  hasn't changed,                                                               
the owner  wouldn't have  to repay  the past  seven years.   What                                                               
matters is what  they do after that.  If  the owner doesn't apply                                                               
for the  [exemption] and the  land is  fee simple, then  the land                                                               
value would likely return to the  full value of the possible uses                                                               
of  the  property.    Therefore,  the  value  could  dramatically                                                               
Number 1829                                                                                                                     
CO-CHAIR  MEYER pointed  out  that cities  often  grow up  around                                                               
existing farm land and thus the  farm land would be more valuable                                                               
for   development   versus  for   farming.      He  related   his                                                               
understanding that  the status of  the farm land can  be changed,                                                               
but the assessed back taxes would have to be paid.                                                                              
MR.  FELLMAN reiterated  that  if the  land  has an  agricultural                                                               
restriction, it doesn't  change.  However, when the  land is paid                                                               
off and  a patent  is received,  the [owner],  under SB  109, can                                                               
obtain an  agricultural patent  with a  covenant.   The covenant,                                                               
and its requirements,  never change.  Mr.  Fellman explained that                                                               
the [owner of]  fee simple land that is being  farmed can use the                                                               
application process.  If this  fee simple land becomes surrounded                                                               
by  a city  and the  land isn't  restricted, that  land could  be                                                               
divided  and  sold -  depending  upon  the circumstances  in  the                                                               
borough.   However, that  [land owner]  would be  responsible for                                                               
seven years of back taxes on that fee simple land.                                                                              
MR.  FELLMAN, in  further response  to Co-Chair  Meyer, explained                                                               
that SB 109  made changes such that  agricultural restricted land                                                               
remains agricultural  land with a  covenant.  With SB  109, there                                                               
would be  agricultural restricted  land with a  title/patent that                                                               
could be  taken to the  bank in order to  obtain a loan  based on                                                               
the equity [in the land].   Still, there have been very few banks                                                               
that have been  willing to lend on land that  has been restricted                                                               
as  agricultural  land.    Moreover, although  the  land  may  be                                                               
appraised  at a  certain value,  if the  land owner  can't borrow                                                               
against that appraised value, what good is it, he asked.                                                                        
Number 2079                                                                                                                     
MR. VAN SANT explained that  AS 29.45.060, the farm use deferment                                                               
program,  is designed  specifically to  address those  farms that                                                               
are situated on the borders of  cities where there is pressure to                                                               
sell land so  that it can be developed into  subdivisions.  Those                                                               
farms will  remain at the  farm value,  and if those  farms don't                                                               
produce much  more, then  the chances are  that the  values won't                                                               
increase.   Under the agricultural restricted  property, if there                                                               
is a  situation in which land  is scarce, then those  parcels may                                                               
go up  in value  because there  is no  requirement to  farm those                                                               
parcels.    He  noted  that  there  is  a  clearing  requirement.                                                               
However, he  specified that the agricultural  restricted property                                                               
would never rise to the value  of the fee simple land because the                                                               
property  can't be  divided smaller  than 40  acre parcels.   He,                                                               
too,  noted that  the  owner  of the  fee  simple  land would  be                                                               
required to pay  seven years back taxes whereas the  value of the                                                               
agricultural  restricted  land  would   be  whatever  the  market                                                               
CO-CHAIR  MEYER inquired  as  to the  difficulty  in moving  from                                                               
state restricted land to covenanted land.                                                                                       
MR. FELLMAN pointed out that the  owner would have to pay off the                                                               
land first.  When one applies  for a patent, the owner also fills                                                               
out  paperwork for  the agricultural  covenant.   Therefore,  the                                                               
land would  have an  agricultural covenant.   He noted  that some                                                               
people  have paid  off their  land, but  haven't applied  for the                                                               
patented agricultural land.                                                                                                     
Number 2196                                                                                                                     
CO-CHAIR  MEYER asked  whether  the farm  land  is assessed  with                                                               
different values based on whether there is irrigation or not.                                                                   
MR.  VAN   SANT  said  that   the  market  drives   [the  value].                                                               
Obviously, if a farm has  more amenities, then one would probably                                                               
pay more for that property.   The irrigation would come into play                                                               
with  regard to  the  improvement value,  which  is added  later.                                                               
Therefore, an assessor/appraiser reviews  similar property in the                                                               
area to drive the value.   In further response to Co-Chair Meyer,                                                               
Mr.  Van Sant  explained  that  all property  in  the borough  is                                                               
assessed every year.                                                                                                            
Number 2260                                                                                                                     
REPRESENTATIVE  MURKOWSKI  related  her impression  that  HB  455                                                               
could  keep  in  check  the rising  assessments  on  agricultural                                                               
[restricted]  land.    However,  Mr. Van  Sant  said  that  isn't                                                               
necessarily the case.  Still,  the letters of endorsement express                                                               
the need to pass HB 455  because of the increased assessments and                                                               
the need to keep that in check.                                                                                                 
MR. FELLMAN explained  that by removing the  requirement to apply                                                               
every year,  the hope is  to open the  door so that  those owning                                                               
land can go to the borough  and have their land evaluated.  There                                                               
is no attempt to  set a tax rate.  This  attempts to clarify that                                                               
the land  has an agricultural  restriction and thus  doesn't have                                                               
to make  this application each year  in order to decide  that the                                                               
land  has an  agricultural restriction.   Therefore,  the farmers                                                               
will be  involved in  the process and  have their  land appraised                                                               
such that it [recognizes] the agricultural restriction.                                                                         
REPRESENTATIVE  KERTTULA remarked  that [HB  455] seems  to be  a                                                               
good  start.   She  reported  that she  may  have  a conflict  of                                                               
interest  due  to  her  parents'  land  that  is  situated  on  a                                                               
municipality's boundary.   Representative Kerttula  expressed the                                                               
need to  review the  assessments and  determine whether  the next                                                               
step should be taken [in order to address rising assessments].                                                                  
MR. FELLMAN  mentioned that he and  Mr. Van Sant have  spoken and                                                               
have invited anyone interested to  become involved in the process                                                               
in order to  lay out some clear  guidelines in this state.   As a                                                               
whole, the  nation has a  variety of policies  regarding taxation                                                               
of agricultural land.                                                                                                           
CO-CHAIR MORGAN noted that Amendment 1 had been adopted.                                                                        
Number 2462                                                                                                                     
CO-CHAIR  MEYER  moved  to  report  HB  455  as  amended  out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.   There  being  no  objection, CSHB  455(CRA)  was                                                               
reported from  the House Community and  Regional Affairs Standing                                                               
There being no  further business before the  committee, the House                                                               
Community  and Regional  Affairs Standing  Committee meeting  was                                                               
adjourned at 8:46 a.m.                                                                                                          

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