Legislature(2003 - 2004)
02/12/2004 08:10 AM House CRA
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ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
February 12, 2004
8:10 a.m.
MEMBERS PRESENT
Representative Carl Morgan, Chair
Representative Pete Kott
Representative Ralph Samuels
Representative Sharon Cissna
Representative Albert Kookesh
MEMBERS ABSENT
Representative Kelly Wolf, Vice Chair
Representative Tom Anderson
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 63(STA)
"An Act relating to transition provisions related to municipal
mergers, consolidations, dissolutions, reclassifications,
annexations, detachments, and incorporations; and relating to
municipal property taxation in annexed, detached, and newly
incorporated areas."
- HEARD AND HELD
^OVERVIEW OF LOW SULFUR DIESEL FUEL
- HEARD [See 8:30 a.m. minutes for this date]
PREVIOUS COMMITTEE ACTION
BILL: SB 63
SHORT TITLE: MUNICIPAL ANNEXATIONS AND DETACHMENTS
SPONSOR(s): COMMUNITY & REGIONAL AFFAIRS
02/07/03 (S) READ THE FIRST TIME - REFERRALS
02/07/03 (S) CRA, STA
02/26/03 (S) CRA AT 1:30 PM FAHRENKAMP 203
02/26/03 (S) Moved Out of Committee
02/26/03 (S) MINUTE(CRA)
02/28/03 (S) CRA RPT 2DP 2NR
02/28/03 (S) DP: WAGONER, TAYLOR;
02/28/03 (S) NR: STEVENS G, ELTON
04/24/03 (S) STA AT 3:30 PM BELTZ 211
04/24/03 (S) Heard & Held
04/24/03 (S) MINUTE(STA)
04/29/03 (S) STA AT 3:30 PM BELTZ 211
04/29/03 (S) Moved CSSB 63(STA) Out of Committee
04/29/03 (S) MINUTE(STA)
05/01/03 (S) STA RPT CS 2DP 1NR NEW TITLE
05/01/03 (S) DP: STEVENS G, COWDERY; NR: GUESS
05/05/03 (S) TRANSMITTED TO (H)
05/05/03 (S) VERSION: CSSB 63(STA)
05/06/03 (H) READ THE FIRST TIME - REFERRALS
05/06/03 (H) CRA
05/15/03 (H) CRA AT 8:00 AM CAPITOL 124
05/15/03 (H) Scheduled But Not Heard
02/12/04 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE PAUL SEATON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HCS CSSB 63, Version X.
ACTION NARRATIVE
TAPE 04-3, SIDE A
Number 0001
CHAIR CARL MORGAN called the House Community and Regional
Affairs Standing Committee meeting to order at 8:10 a.m.
Representatives Morgan, Kott, Samuels, Cissna, and Kookesh were
present at the call to order. - HEARD AND HELD
SB 63-MUNICIPAL ANNEXATIONS AND DETACHMENTS
CHAIR MORGAN announced that the only order of business would be
CS FOR SENATE BILL NO. 63(STA), "An Act relating to transition
provisions related to municipal mergers, consolidations,
dissolutions, reclassifications, annexations, detachments, and
incorporations; and relating to municipal property taxation in
annexed, detached, and newly incorporated areas."
Number 0084
REPRESENTATIVE KOTT moved to adopt HCS CSSB 63, Version 23-
LS0489\X, Cook, 2/11/04, as the working document. There being
no objection, Version X was before the committee.
REPRESENTATIVE KOTT, upon Representative Seaton being called to
present Version S, questioned why a House member is presenting
Senate legislation.
Number 0210
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, in
response to Representative Kott, explained that there has been a
lot of friction over this legislation, which impacts the
district he represents. This is a taxation issue that needs
clarification. He further explained that he has worked with the
sponsor and thus he volunteered to carry the legislation. In
further response to Representative Kott, Representative Seaton
specified that the sponsor supports [Version X].
REPRESENTATIVE SEATON explained that when there is an annexation
or incorporation there are almost always overlying service
areas. Currently, the service areas lose a major portion of
their budget when there is an annexation early in the year but
after the service areas have their budgets in place.
Furthermore, there is no way for the service areas to make up
the loss. Therefore, this legislation specifies that the tax
year begins January 1st [of the year immediately following the
year an annexation takes effect]. Under the aforementioned
scenario budgets can be planned without facing a disruption in
service to the local areas. Furthermore, this legislation takes
one of the objections of the local parties off the table.
Number 0477
CHAIR MORGAN posed a situation in which the public doesn't vote
[on the annexation] until November. He asked if the new borough
would begin charging and collecting taxes two months later on
January 1st.
REPRESENTATIVE SEATON replied yes, but pointed out that many
[annexations and incorporations] don't go through an election
process, rather they go through a Local Boundary Commission
(LBC) process. Therefore, it would depend upon when the LBC
makes it decision. He informed the committee that currently if
the annexation or incorporation takes place after June 15th, the
taxation begins January 1st of the following year. However, if
[an annexation or incorporation occurs] between January 1st and
June 15th, the taxation could start at any time. Therefore,
such a situation is problematic, as discussed earlier.
Number 0636
REPRESENTATIVE SAMUELS suggested that it might make more sense
to specify that the [taxation] would begin six or eight months
after the [annexation or incorporation] decision is made. He
asked if it would take time for a city to establish a tax
structure to have a new service area.
REPRESENTATIVE SEATON reiterated that this legislation would let
everyone know that [taxation] all begins or ends at a budgetary
cycle in order that the entities can plan. In further response
to Representative Samuels, Representative Seaton related his
belief that all municipalities use a calendar year budget.
However, he offered to check the statute. He noted that no
municipalities or the LBC have made comments [similar to those
of Representative Samuels].
Number 0881
MARY GRISWOLD urged the committee to support Version X and
provided the following testimony:
The importance of this bill is that it eliminates
long-standing ambiguities in existing law regarding
when newly incorporated, annexed, and detached
properties are subject to municipal property taxes.
Your committee identified the need to resolve this
issue as it debated Homer's annexation proposal in
2002. And the Local Boundary Commission has requested
... a resolution for at least the past four years.
Alaska Statute established January 1 of an assessment
year as the date property shall be valued. The
statutes require municipalities to determine the rate
of levy before June 15th and to mail tax statements
setting out the levy by July 1st. These deadlines
prevent municipalities from levying in the same year
for any annexation or incorporation that becomes
effective after July 1st. The question remains
whether they can disrupt the established schedule to
immediately tax properties annexed or incorporated
between January 1 and July 1. To complicate the
situation, the Local Boundary Commission is given
broad powers to place conditions on boundary changes,
but there is no clear authority for it to decide
property tax jurisdiction. This is a policy issue and
it's better resolved through legislation than by the
Local Boundary Commission on a case-by-case basis or
by dragging it through the court. Clarifying, by
statute in cases of incorporation, annexation, and
detachment, that property taxes accrue in full each
year on January 1 is consistent with existing policies
and procedures across the state for assessing property
and adding new property tax rolls. It is a practical
approach that will simplify the transition planning
process and be less disruptive to the effected
governmental units and individual taxpayers. It is
the approach the Mat-Su Borough has consistently used
in all its annexations, and they have [completed] more
than anyone else.
It is important to note that with many annexations and
incorporations there is a corresponding, simultaneous
detachment from another governmental unit. Using
January 1 as the cutoff date to establish value and
jurisdiction provides less disruption to that
municipality's budget process and service delivery
plans. This is a better approach than pro-rating
taxes between governments for the remainder of the tax
year because many services are provided on an areawide
basis, the cost of which will not decrease
proportionately to the territory affected by the
simultaneous boundary change. It is also better
because municipal governments have flexibility to
establish levy dates and payment cycles within the
statutory limit and are often different fiscal and
budget preparation cycles, which makes pro-rating
taxes cumbersome and disruptive.
Number 1113
Taxpayers expect property assessments and tax bills on
an orderly schedule. The January 1 assessment date is
the effective date for property tax liability. Set
statutes allow up to six months to mail the bills is a
practical necessity for sufficient time to create an
assessment roll, notify property (indisc. -paper
shuffling) board of adjustment hearing, develop
budgets, certify the tax rolls, set the appropriate
levy, and levy and prepare the tax bills. This
schedule also allows taxpayers time to set aside
sufficient funds to pay their bills. It is not fair
to surprise them with a big change in the middle of
the assessment calendar. If the Local Boundary
Commission were allowed to direct municipalities to
levy taxes on property within their jurisdiction as of
any date other than January 1, serious conflicts could
arise. Exactly how close the effective date of a
boundary change could crowd the tax mailing date is
too open a question to leave unresolved until well
into the petition analysis. Furthermore, realistic
revenue projections are necessary at the beginning of
an annexation, incorporation process for responsible
evaluation and transition planning.
Some people have argued that this approach is unduly
conservative, especially for areas undertaking
incorporation because they will be required to
immediately provide services for which they have no
funding. After analyzing the consequences and trying
to accommodate special situations, I realized that the
conflicts created by more flexible approaches defeat
their purpose. Municipalities are not expected to
immediately provide the host of services typically
associated with government. Services and delivery
timelines should be made clear to everyone early in
the consideration of to incorporate or annex
territory. It is important to know that
municipalities have revenue sources other [than]
property taxes. An area deemed appropriate for
incorporation or annexation has demonstrated
sufficient economic and human resources to support
government. Sales taxes could serve as [an] initial
source of funding for government services while a
municipality (indisc.) foundation. Organized boroughs
may loan money to a newly incorporated city similar to
a loan made by the Kenai Peninsula Borough to the
service area formed in October of ... 2000 for which
the borough did not levy taxes until June of 2001.
The state offers significant financial incentives,
including a $600,000 organizational grant to areas of
the unorganized borough willing to incorporate. Such
payments would help bridge this revenue gap. Clear
guidelines for municipal taxation authority will
promote orderly municipal growth and will reduce the
stress and contention associated with boundary
changes. Please support your committee substitute for
Senate Bill 63 so everyone understands the revenue
rules before becoming involved in an annexation,
detachment, or incorporation procedure. Thank you.
I'd be happy to try to answer any questions.
Number 1367
CHAIR MORGAN, upon determining no one else wished to testify,
closed public testimony. Chair Morgan announced that he didn't
intend to hold CSSB 63(STA) forever. However, there was a
request to hold the legislation for another week and thus he
announced that it would be scheduled for next Thursday.
ADJOURNMENT
The committee took an at-ease at 8:26 a.m. in order to prepare
for the Low Sulfur Diesel Fuel Overview by the Department of
Environmental Conservation. [For the overview on Low Sulfur
Diesel Fuel, see the 8:30 a.m. minutes for this date.]
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