Legislature(2001 - 2002)

05/13/2002 09:26 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                        May 13, 2002                                                                                            
                         9:26 A.M.                                                                                              
TAPE HFC 02 - 113, Side A                                                                                                       
CALL TO ORDER                                                                                                                 
Co-Chair Williams called  the House Finance Committee meeting                                                                   
to order at 9:26 A.M.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Bill Williams, Co-Chair                                                                                          
Representative Eldon Mulder, Co-Chair                                                                                           
Representative Con Bunde, Vice-Chair                                                                                            
Representative Eric Croft                                                                                                       
Representative John Davies                                                                                                      
Representative Richard Foster                                                                                                   
Representative John Harris                                                                                                      
Representative Bill Hudson                                                                                                      
Representative Ken Lancaster                                                                                                    
Representative Carl Moses                                                                                                       
Representative Jim Whitaker                                                                                                     
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Phil  Cutler,  Staff,  Senator   Dave  Donley;  Senator  Gene                                                                   
Therriault;  Wilda Rodman,  Staff,  Senator Gene  Therriault;                                                                   
Marilyn  Wilson,  Staff,  John Bitney,  Legislative  Liaison,                                                                   
Alaska Housing Finance Corporation, Department of Revenue                                                                       
PRESENT VIA TELECONFERENCE                                                                                                    
Dan  Dickinson,  Director, Division  of  Oil  and Gas  Audit,                                                                   
Department  of  Revenue,  Anchorage;  Steve Van  Sant,  State                                                                   
Assessor,  Department of  Community  & Economic  Development,                                                                   
SB 4      An Act relating to a mandatory exemption from                                                                         
          municipal  property  taxes for  certain  residences                                                                   
          and to  an optional exemption from  municipal taxes                                                                   
          for  residential  property;  and providing  for  an                                                                   
          effective date.                                                                                                       
          SB 4 was HEARD and HELD in Committee for further                                                                      
SB 181    An  Act making  the  interest rate  for the  Alaska                                                                   
          Housing   Finance  Corporation's  small   community                                                                   
          housing  mortgage loans  the same  as the  interest                                                                   
          rate   on  mortgage   loans  purchased  under   the                                                                   
          corporation's   special   mortgage  loan   purchase                                                                   
          program  from  the  proceeds  of  the  most  recent                                                                   
          applicable  issue  of   taxable  bonds  before  the                                                                   
          origination  or  purchase  of the  small  community                                                                   
          housing mortgage loans.                                                                                               
          HCS CS SB 181 (FIN) was reported out of Committee                                                                     
          with  a "do  pass" recommendation  and with  fiscal                                                                   
          note #1 by the Department of Revenue.                                                                                 
SB 339    An  Act  increasing   fines  for  certain  criminal                                                                   
          SB 339 was reported out of Committee with a "do                                                                       
          pass"  recommendation and  with fiscal  note #1  by                                                                   
          the Department  of Law and #2 by the  Department of                                                                   
CS FOR SENATE BILL NO. 181(FIN) am                                                                                            
     An Act relating  to and increasing the  interest rate on                                                                   
     that portion  of a  loan for a  single- family  house or                                                                   
     owner-occupied  duplex that  exceeds $200,000  where the                                                                   
     loan is for a house or duplex  in a small community with                                                                   
     a population  of 6,500 or less that is  not connected by                                                                   
     road  or  rail to  Anchorage  or  Fairbanks, or  with  a                                                                   
     population of  1,600 or less  that is connected  by road                                                                   
     or rail  to Anchorage or  Fairbanks for purposes  of the                                                                   
     small community  housing program  of the Alaska  Housing                                                                   
     Finance  Corporation;  relating  to  loans  for  teacher                                                                   
     housing  in  which  each  unit that  is  not  vacant  is                                                                   
     occupied by  at least one individual who  is employed as                                                                   
     a  certificated  teacher   in  a  public  elementary  or                                                                   
     secondary school in a small  community with a population                                                                   
     of 6,500 or  less that is not connected by  road or rail                                                                   
     to  Anchorage  or Fairbanks,  or  with a  population  of                                                                   
     1,600  or less  that is  connected  by road  or rail  to                                                                   
     Anchorage  or  Fairbanks,  and increasing  the  interest                                                                   
     rate on the  loans if this occupancy requirement  is not                                                                   
    complied with; and providing for an effective date.                                                                         
PHIL  CUTLER, STAFF,  SENATOR  DAVE DONLEY,  stated that  the                                                                   
committee substitute  would make  five changes to  the Alaska                                                                   
Housing  Finance   Corporation  (AHFC)  rural   housing  loan                                                                   
program established  by AS 18.56.420 and known  as the "HALF"                                                                   
program.  The changes are:                                                                                                      
      • Would make the program available for owner occupied                                                                     
         single family or duplex homes but not investment                                                                       
       • Would limit the subsidized portion of loans to                                                                         
       • Would allow AHFC to offer blended rate mortgages, a                                                                    
         loan amount in excess of the subsidized portion                                                                        
         would be at market rates;                                                                                              
       • Would add the option of using the program to                                                                           
         refinance other loans; and                                                                                             
       • Would allow multi family non-owner occupied housing                                                                    
         loans to be subsidized only if the tenants are                                                                         
         certificated    teachers    or    other    education                                                                   
Mr. Cutler pointed out that  the House Community and Regional                                                                   
Affairs  (C&RA)  Committee made  substantial  changes in  the                                                                   
measure.  The  bill  as  currently  written  does  not  fully                                                                   
reflect the  Senate Finance  Committee's intent.   The intent                                                                   
was to make the following changes:                                                                                              
      • Limit the use of the subsidized loan program to                                                                         
         owner occupied homes; and                                                                                              
      • Limit the amount of a subsidized loan to an amount                                                                      
         that would accommodate the loan for an "average"                                                                       
Mr. Cutler stated  that the Senate sent over  a bill that had                                                                   
a $200,000  dollar cap on the  amount of the loan  that could                                                                   
be subsidized.   The  bill had a  provision that  allowed for                                                                   
the first  time, the use  of a "blended"  loan.  If  the loan                                                                   
amount exceeded  $200,000 dollars,  the amount  over $200,000                                                                   
could  be financed  at non-subsidized  interest  rates.   The                                                                   
provision  was  added  at the  request  of  AHFC.   The  C&RA                                                                   
Committee raised the amount to $300,000 dollars.                                                                                
Mr.  Cutler added  that during the  Senate Finance  Committee                                                                   
hearings, Senator  Hoffman added a section  that included the                                                                   
ability to  use the subsidized financing  program for housing                                                                   
teachers.     The  bill  permitted   multi-family,  non-owner                                                                   
occupied  homes to  be financed  by  the program  as long  as                                                                   
certificated  teachers were  in  residence.   The bill  added                                                                   
other "educational professions".                                                                                                
Mr. Culter  commented that  it is not  good public  policy to                                                                   
have a  State program  that rewards rich  people in  low cost                                                                   
construction  areas  with  a special  discriminatory  housing                                                                   
loan subsidy that also discourages  formation and unification                                                                   
of  local governments.   That is what  AS18.56.420  (the HALF                                                                   
program) does.   The program includes a  statutory 1% percent                                                                   
below market  interest rate  for the Housing  Assistance Loan                                                                   
Fund (HALF)  program.  AS 18.56.420 creates  the HALF program                                                                   
to provide housing loans  to residents in communities of less                                                                   
than 6,500.   AS 18.56.420 currently requires  that the loans                                                                   
be made at 1% percent below  market rates.  The loans program                                                                   
is managed.  The 1% percent discount  on HALF loans costs the                                                                   
State on  average over  $40,000 dollars  in lost income  over                                                                   
the  life of  one of  the loans.    The committee  substitute                                                                   
modifies  the program  by capping the  subsidized portion  of                                                                   
the loan. Capping  the subsidized portion of  the loan amount                                                                   
at $200,000  dollars would make  the program more  profitable                                                                   
to AHFC, would make more loans  available to other borrowers,                                                                   
and  would stop  the  current subsidizing  the  full cost  of                                                                   
higher priced homes.                                                                                                            
   1. A September 2000 legislative audit concluded that the                                                                     
     need for  the program has been eliminated  through other                                                                   
     programs  and  private  entities  meeting the  needs  of                                                                   
     homeowners.   Testimony   before   the  Senate   Finance                                                                   
     Committee  showed that  the program  is a vital  program                                                                   
     in small communities.                                                                                                      
   2. The committee substitute contains provisions that are                                                                     
     intended   to  enhance  teacher  recruitment   in  small                                                                   
     communities.     Subsidized  loans  could   be  used  to                                                                   
     finance  multiple-unit housing  as long as  certificated                                                                   
     teachers' were residents.                                                                                                  
   3. By limiting the subsidized portion of the loans, AHFC                                                                     
     should  be earning  additional income  while offering  a                                                                   
     subsidized program to qualified borrowers.                                                                                 
   4. Providing the low cost loans to borrowers that do not                                                                     
     need the  subsidy while denying such a  subsidy to other                                                                   
     less  well off Alaskans  is unfair discrimination.   The                                                                   
     committee   substitute  also  provides  that   any  loan                                                                   
     amount in  excess of $200,000 dollars can  be offered at                                                                   
     market rates.                                                                                                              
   5. The committee substitute provides for financing of                                                                        
     certificated   teacher   occupied  multi-family   homes.                                                                   
     Loans   for  multi-family   homes  that   do  not   have                                                                   
     certificated  teachers  as  residents are  not  eligible                                                                   
     for the subsidized program.                                                                                                
   6. AHFC indicated that they changed the lending                                                                              
     regulations  so  that  the program  no  longer  inhibits                                                                   
     formation,   consolidation  and  unification   of  local                                                                   
     governments.   Those  changes would  further reduce  the                                                                   
Mr. Cutler pointed out that the  HALF program was intended to                                                                   
give people a chance at home ownership  when they didn't have                                                                   
other options.   However,  the eligibility requirements  need                                                                   
to  be  tightened up  so  that  those  who can  afford  other                                                                   
programs or  are already in  low cost construction  areas are                                                                   
not eligible.   The eligibility requirements  included in the                                                                   
committee  substitute  include limiting  the  loans to  owner                                                                   
occupied single family or owner  occupied duplex homes.  That                                                                   
should continue  to provide an attractive  loan program while                                                                   
providing more  income to the State and AHFC.   He added that                                                                   
it  is not  good  public  policy to  subsidize  a multi  unit                                                                   
housing development  to increase  the owner's profits.   Even                                                                   
though no loans have been  made for housing units larger than                                                                   
two  units, it  is good policy  to place  the prohibition  in                                                                   
Mr. Cutler  reiterated that it  is not good public  policy to                                                                   
have a  State program  that rewards rich  people in  low cost                                                                   
construction  areas  with  a special  discriminatory  housing                                                                   
loan subsidy  that discourages  formation and  unification of                                                                   
local  governments.   For that  reason, the  HALF 1%  percent                                                                   
subsidy program  should be modified so that  high value loans                                                                   
cannot be fully subsidized under the loan program.                                                                              
Vice-Chair Bunde  shared the bill sponsor's  concern with the                                                                   
State subsidizing  investment property.   He  referenced Page                                                                   
3,  Section B,  multi-use  housing occupied  by teachers  and                                                                   
receiving   an  investment   income.    Discussion   followed                                                                   
regarding that concern.                                                                                                         
Representative  Croft asked which  Committee had  changed the                                                                   
amount from $200 thousand dollars to $300 thousand dollars.                                                                     
Mr.  Cutler replied  that  the House  Community and  Regional                                                                   
Affairs Committee made that change.                                                                                             
JOHN  BITNEY,  LEGISLATIVE  LIAISON, ALASKA  HOUSING  FINANCE                                                                   
CORPORATION,   DEPARTMENT    OF   REVENUE,   referenced   the                                                                   
spreadsheet distributed to members.  (Copy on File).                                                                            
Mr.  Bitney  pointed  out  that Alaska  Housing  and  Finance                                                                   
Corporation (AHFC) does support  the bill; however, there are                                                                   
a  number  of  issues  regarding  the  subsidy  that  are  of                                                                   
concern.  He addressed the  term "subsidy".  The program is a                                                                   
revolving fund within AHFC,  purchased from the State in 1992                                                                   
for $190 million  dollars that went into  the State's general                                                                   
fund.   What State  laws stipulate is  that AHFC  makes loans                                                                   
from the program to small  communities at an interest rate 1%                                                                   
below the  taxable loan rate.   The taxable loan  rate is the                                                                   
conventional highest loan  rate with no absolute restrictions                                                                   
on the  borrower.  Additionally,  there are  tax-exempt rates                                                                   
for the first time homebuyer  program available.  The federal                                                                   
government  puts strings on  the tax-exempt money  that comes                                                                   
with the program.   The money limits of the  borrower and the                                                                   
purchase  price of the  home are affected  in terms  of their                                                                   
income.   Because of market  conditions in Alaska,  it is not                                                                   
possible  to buy  a home  in some rural  places within  those                                                                   
purchase  price  limitations on  the  tax-exempt  money.   He                                                                   
pointed out that in terms  of fairness, 66% of the tax-exempt                                                                   
money  goes  into south  central  Alaska  because the  market                                                                   
there is such  that home prices fit within the  limits of the                                                                   
program.  It is an issue of fairness.                                                                                           
Mr.  Bitney continued,  the bill  began  as a  repeal of  the                                                                   
interest  rate differential  for that  program that had  been                                                                   
around  for four  years.   The  bill  never  left the  Senate                                                                   
Finance Committee  being proposed as that.   AHFC, in working                                                                   
with the sponsor,  looked at the notion that  if working with                                                                   
the upper  end homes,  the 1%  should not  apply to  the full                                                                   
amount.    A  year  ago,  AHFC  proposed  the  concept  of  a                                                                   
threshold.  That  proposal was set at $250  thousand dollars,                                                                   
based  on  the idea  that  statewide  that was  a  reasonable                                                                   
average cost for a home.                                                                                                        
The program  is making  money in terms  of the dividend  that                                                                   
AHFC  pays to  the State  revolving fund.     Last year,  the                                                                   
program  made  $20.3 million  dollars  in  net income.    The                                                                   
program  is viable  for  investments and  making  money.   He                                                                   
stressed  that it  is a key  component of  AHFC's ability  to                                                                   
generate profits that are turned back to the State coffers.                                                                     
Mr. Bitney recommended  when considering making  changes to a                                                                   
program as  large as  this, it  is good to  approach it  as a                                                                   
business  aspect.    The Legislative  audit  on  the  program                                                                   
brought light to valid issues  regarding fairness.  Since the                                                                   
program originated, there is a  heavy expectation for AHFC to                                                                   
be making a profit.  If AHFC looses  the ability to offer the                                                                   
1%  differential, the  impact  is that  AHFC  would loose  at                                                                   
least 75% of  their business to the other  national secondary                                                                   
purchasers when going to a straight conventional rate.                                                                          
Mr.  Bitney stated  that Senator  Hoffman  added the  teacher                                                                   
portion  to the  bill.   It replaced  the non-owner  occupied                                                                   
portion  of  the program,  which  was  an effort  to  provide                                                                   
rental property.   At that  time, it  was a small  and little                                                                   
used  portion of  the  program.   AHFC  continues to  support                                                                   
that.  The House  C&RA committee did add language  on Page 1,                                                                   
Section 1,  providing the ability  for the loans to  have the                                                                   
option to refinance.   That is standard language  in any loan                                                                   
program and it was added in.                                                                                                    
Mr. Bitney concluded  that as the bill moved  from the Senate                                                                   
to the  House, a $200  thousand dollar,  1% threshold  was in                                                                   
the title of the  bill.  Changing that to $300  thousand made                                                                   
a title  change.  The  idea of the  threshold is that  the 1%                                                                   
discount would only apply to what  it is established at.  The                                                                   
portion above  the threshold  will loose that  1%.   The loan                                                                   
then would pay a "blended rate".                                                                                                
Co-Chair  Mulder summarized  what he  understood the  concern                                                                   
voiced by  AHFC was regarding  the proposed legislation.   He                                                                   
stated that the  main focus of the bill was  that the "better                                                                   
loans tend to be above the threshold".                                                                                          
Mr. Bitney  explained that the  current loan portfolio  has a                                                                   
very low delinquency rate;  it is lower than the loans in the                                                                   
urban areas.                                                                                                                    
Co-Chair Mulder questioned the loss to the competition.                                                                         
Mr. Bitney commented that  if AHFC did provide a full repeal,                                                                   
and do away  with the 1% discount for  the small communities,                                                                   
an action  bringing the interest  rates up to the  full rate,                                                                   
would  be detrimental.    In many  of  the communities,  tax-                                                                   
exempt funds  under the First Time Homebuyer  Program are not                                                                   
available  because they cannot  qualify to  buy a home.   The                                                                   
acquisition  limits for  new construction  are at  about $170                                                                   
thousand dollars.  If that  option were lost, everything that                                                                   
AHFC has available to compete  for the loans, would be at the                                                                   
full  taxable rate.   The  competition is  Fanny Mae.   Their                                                                   
taxable  rate,  on  a day-to-day  basis  will  beat  Alaska's                                                                   
taxable  rate by  3/8% to  1/4%.   Those  borrowers will  not                                                                   
choose  AHFC with  that differential  and AHFC  will  loose a                                                                   
large amount of business.                                                                                                       
Co-Chair Mulder  asked if AHFC was more  comfortable with the                                                                   
amount currently being proposed.                                                                                                
Mr.  Bitney  responded  that  AHFC  likes  the  blended  rate                                                                   
Co-Chair Mulder  asked if the  title had been changed  in the                                                                   
House C&RA Committee and  if it had come to the House at $200                                                                   
thousand dollars.                                                                                                               
Mr. Bitney replied that was correct.                                                                                            
Vice-Chair Bunde asked why  the House CRA Committee increased                                                                   
the amount to $300 thousand dollars.                                                                                            
Mr.  Bitney responded  that  there was  a  lot of  discussion                                                                   
regarding  costs in  smaller communities  and the  impacts to                                                                   
rural Alaska.                                                                                                                   
Vice-Chair  Bunde interjected that  the Legislature  and AHFC                                                                   
have fiduciary  responsibilities.  He noted that  many of his                                                                   
constituents  think   that  AHFC  is   subsidizing  "wealthy"                                                                   
Vice-Chair   Bunde  referenced   Page  3,   Section   B,  and                                                                   
subsidizing  investment  income.   He  pointed  out that  the                                                                   
multiple  units could  be making  profit.   He asked  if that                                                                   
problem could be solved.                                                                                                        
Mr.  Bitney  explained  that  in that  section,  the  teacher                                                                   
housing  would  be  limited  to  the  small  communities  and                                                                   
limited to  the revolving fund.   In terms of a  subsidy, the                                                                   
only thing  that is  occurring is that  AHFC would  be making                                                                   
loans out of a  revolving fund at a reduced rate.   The loans                                                                   
to  teachers  would  be  limited  to  certified  teachers  or                                                                   
education  professionals.   The  effort was  not intended  to                                                                   
create investment  property.  The issue is to  attempt to get                                                                   
someone  to  take  out  the  loans  to  address  the  housing                                                                   
concerns  in those  communities.   He  did not  know to  what                                                                   
extend there would be a demand for the loan.                                                                                    
The  language is  limited, and  in Subsection  B, if  someone                                                                   
other than  a certified  teacher or educational  professional                                                                   
moves into the building, they would loose the 1% discount.                                                                      
Co-Chair Mulder clarified  for the record, that  if the limit                                                                   
were reduced  back to $200  thousand dollars, it  would still                                                                   
be in the borrowers interest to  get an AHFC loan rather than                                                                   
going  out to  get  a commercial  product  as it  would be  a                                                                   
relatively better deal.                                                                                                         
Mr. Bitney  agreed  that was correct.   He  pointed out  that                                                                   
AHFC's original  proposal was $250 thousand dollars  based on                                                                   
running some average costs to the home.                                                                                         
In response  to Representative  Hudson, Mr. Bitney  explained                                                                   
that this would be a new program  and that AHFC would monitor                                                                   
teacher  compliance.   He acknowledged  that  was an  ongoing                                                                   
issue for discussion within AHFC.                                                                                               
Representative Hudson voiced concerns  regarding the legality                                                                   
of that.                                                                                                                        
Representative  Lancaster  pointed out  that  there are  many                                                                   
owner  occupied  loans  currently  on  the  market  and  that                                                                   
language is available to address the teacher concern.                                                                           
Representative   Davies  commented   that   this  would   not                                                                   
necessarily be  a "perk" for  those teachers; however,  it is                                                                   
an important  concern  for teacher recruitment  in the  rural                                                                   
Vice-Chair  Bunde  foresaw "scamming".    He  asked how  AHFC                                                                   
intended to enforce it so that  it would be teacher occupied.                                                                   
Co-Chair Mulder  MOVED to  AMEND the  title to indicate  $250                                                                   
thousand dollars.  There being  NO OBJECTION, it was adopted.                                                                   
Co-Chair Mulder  MOVED to report HCS  CS SB 181 (FIN)  out of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal note.                                                                                                       
HCS CS SB 181 (FIN) was reported  out of Committee with a "do                                                                   
pass"  recommendation   and  with  fiscal  note   #1  by  the                                                                   
Department of Revenue.                                                                                                          
SENATE BILL NO. 339                                                                                                           
     An Act increasing fines for certain criminal offenses.                                                                     
MARILYN  WILSON,  STAFF,  SENATOR  DAVE  DONLEY,  noted  that                                                                   
Senate Bill  339 would increase  maximum criminal  fines that                                                                   
may be imposed  on an individual or organization  for certain                                                                   
criminal  offenses.   Alaska  has not  increased the  maximum                                                                   
criminal fine  amounts on  individuals since the  revision of                                                                   
the Alaska Criminal Code  in 1978, while inflation since 1978                                                                   
has been 215% percent.  Alaska  has not increased the maximum                                                                   
criminal fine  amount on  organizations since 1990  and noted                                                                   
that inflation since 1990 has been 46% percent.                                                                                 
Ms. Wilson continued, in existing law, the maximum allowable                                                                    
criminal  fine  to  an  individual  who is  convicted  of  an                                                                   
unclassified   felony  under   AS  12.55.035(a)   is  $75,000                                                                   
dollars.  SB 339 would increase  the maximum criminal fine to                                                                   
$500,000 dollars.                                                                                                               
Ms. Wilson added that the existing maximum allowable                                                                            
criminal fine imposed on  an individual for a Class A, B or C                                                                   
felony is  $50,000 dollars.   SB 339 separates and  imposes a                                                                   
maximum allowable criminal  fine for each class individually:                                                                   
        · Class A felony maximum fine is increased to                                                                           
        · Class B felony maximum fine is increased to                                                                           
          $100,000; and                                                                                                         
        · Class C felony maximum fine is left at $50,000                                                                        
        · For a Class A misdemeanor, the maximum fine is                                                                        
          increased to $10,000; and                                                                                             
        · The maximum fine for a Class B misdemeanor is                                                                         
          increased to $2,000.                                                                                                  
        · A violation maximum fine is increased to $500.                                                                        
The   current   maximum   allowable   fine  imposed   on   an                                                                   
organization   convicted  of  a   felony  or   a  misdemeanor                                                                   
resulting  in death (AS 12.55.035(b))  is either  the greater                                                                   
of  $500,000, twice  the pecuniary  gain of  a defendant,  or                                                                   
pecuniary  loss to the  victim as a  result of  that offense.                                                                   
SB 339 increases the maximum  fine under AS 12.55.035(b) that                                                                   
may be  imposed to the greater  of $1,000,000 or  three times                                                                   
the pecuniary gain or loss.                                                                                                     
Ms. Wilson  pointed out that the legislation  applies only to                                                                   
offenses  committed on  or after  its' effective  date.   The                                                                   
fine amounts are not mandatory;  they are the maximum amounts                                                                   
allowed  to be imposed.   Judges  retain their  discretion to                                                                   
set the fines based on the conditions  surrounding individual                                                                   
She added  that the  sponsor recognizes  that most  criminals                                                                   
would  not  be  able  to  pay  the  higher  increased  fines.                                                                   
However, those that  can pay should be subject  to meaningful                                                                   
fines.   Increasing the maximum  allowable fines that  may be                                                                   
imposed  for  committing criminal  offenses  would  hopefully                                                                   
help to  deter crime.  Additionally,  the higher  fines would                                                                   
help  reimburse  the State  for  the  costs to  the  criminal                                                                   
justice system.                                                                                                                 
Co-Chair Mulder MOVED to report  SB 339 out of Committee with                                                                   
individual recommendations and with the accompanying fiscal                                                                     
notes.  There being NO OBJECTION, it was so ordered.                                                                            
SB  339  was reported  out  of  Committee  with a  "do  pass"                                                                   
recommendation and with fiscal  notes #1 by the Department of                                                                   
Law and #2 by the Department of Administration.                                                                                 
CS FOR SENATE BILL NO. 4(RLS) am                                                                                              
     An Act  relating to  optional exemptions from  municipal                                                                   
     property taxes  on residential property and  limiting an                                                                   
     optional  exclusion or exemption  to the assessed  value                                                                   
     of  $10,000 for  a residence  in a  municipality with  a                                                                   
     total  bonded   indebtedness  that  equals   or  exceeds                                                                   
     $15,000  multiplied by  the number  of residents  in the                                                                   
     municipality; and providing for an effective date.                                                                         
SENATOR GENE THERRIAULT, SPONSOR,  explained that HCS CS SB 4                                                                   
(CRA)  would  allow municipalities  to  offer  a  residential                                                                   
property  tax exemption  for up  to S10,000  of the  assessed                                                                   
value of  a residence  owned and occupied  by a resident  who                                                                   
provides  fire  fighting services  and  is certified  by  the                                                                   
Department  of Public  Safety or  provides emergency  medical                                                                   
services and is certified under  AS 18.08.082.  Not more than                                                                   
two exemptions would be granted per residence.                                                                                  
Senator Therriault  noted that the  earlier versions of  SB 4                                                                   
allowed  local  governments  to   lower  property  taxes  for                                                                   
homeowners  by   increasing  the  residential   property  tax                                                                   
exemption from  S10, 000 to  $15,000 dollars.   Under current                                                                   
law, municipalities  may exempt up to $10,000  dollars of the                                                                   
assessed  value  of any  single  residential  property.   For                                                                   
example, if  a house has an  assessed value of  $100,000, the                                                                   
municipality   would   assess  taxes   on   $90,000.     Five                                                                   
municipalities offer this exemption:                                                                                            
        · Kenai                                                                                                                 
        · Bristol Bay                                                                                                           
        · Fairbanks North Star Borough                                                                                          
        · North Slope Borough                                                                                                   
        · Valdez                                                                                                                
A $5,000 dollar  increase would have been  the first increase                                                                   
adjustment to  the property tax exemption since  1974.  As is                                                                   
currently  the  case, it  would  be optional  and  up to  the                                                                   
discretion of local taxing authorities.                                                                                         
Senator  Therriault  continued,  the provision  allowing  the                                                                   
House  Community  & Regional  Affairs  Committee removed  the                                                                   
$5,000  increase.   C&RA removed  the tax exemption  increase                                                                   
because  the  Senate version  provided  a  safety valve  that                                                                   
precludes  any community  with  bonded  indebtedness of  more                                                                   
than $15,000  per capita from offering the  additional $5,000                                                                   
dollar exemption.   Currently, the only  community that would                                                                   
be  subject to  the  exclusion is  the  North Slope  Borough,                                                                   
which carried  a bond debt in  2000 of more than  $64,000 per                                                                   
capita, while the State average  was less than $2,000 dollar.                                                                   
The  special   provision  regarding   the  level   of  bonded                                                                   
indebtedness  was  implemented   to  prevent  a  possible  $1                                                                   
million dollar  fiscal loss to the State if  the taxes in the                                                                   
oil rich  borough were shifted  from residential  property to                                                                   
oil and gas property.                                                                                                           
Under AS  43.56, the State imposes  a 20-mill tax  on oil and                                                                   
gas property.   If the municipality also has  a property tax,                                                                   
the owner  of oil and  gas property  is allowed a  credit for                                                                   
any  local taxes  before paying  the State  tax.   The Senate                                                                   
version of  SB 4 addresses the concern  that the municipality                                                                   
would offer the residential  exemption, and then increase the                                                                   
mill  rate to recapture  the entire  value.  While  residents                                                                   
would  see no  net  change, the  municipality  would take  in                                                                   
significantly more  from oil and gas property  at the expense                                                                   
of the State.                                                                                                                   
DAN  DICKINSON,  (TESTIFIED  VIA  TELECONFERENCE),  DIRECTOR,                                                                   
DIVISION  OF  OIL  AND  GAS  AUDIT,  DEPARTMENT  OF  REVENUE,                                                                   
ANCHORAGE, offered to answer  questions of the Committee.  He                                                                   
referenced the spreadsheet in member's packets.                                                                                 
STEVE  VAN   SANT,  (TESTIFIED  VIA   TELECONFERENCE),  STATE                                                                   
ASSESSOR,  DEPARTMENT OF  COMMUNITY  & ECONOMIC  DEVELOPMENT,                                                                   
ANCHORAGE, offered to answer questions of the Committee.                                                                        
Vice-Chair  Bunde noted that  the spreadsheet  indicates that                                                                   
in  the worse  possible  scenario, the  bill  could cost  the                                                                   
State a lot of money.                                                                                                           
Mr. Dickinson  referenced the  fiscal notes.   An alternative                                                                   
analysis  indicates  that the  purpose  of  the exemption  to                                                                   
raise  the  mill-rate is  that  the  homeowner  would see  no                                                                   
change in the amount that they pay.                                                                                             
Vice-Chair Bunde cautioned regarding potential costs.                                                                           
Mr.  Dickinson   reminded  members   that  Vice-Chair   Bunde                                                                   
referenced the worse case potential.                                                                                            
Representative  Davies referenced  the  "extreme amount"  and                                                                   
asked if that would be possible under the 20-mill limit.                                                                        
Mr. Dickinson replied that there  is no formal 20-mill limit.                                                                   
There  is an  informal 20-mill  limit because  the manner  in                                                                   
which the  property tax  works, the  oil company would  cover                                                                   
the cost.   In general,  municipalities do  not mind  if they                                                                   
"bump"  up against  the 20-mill  limit.   The statute  states                                                                   
that the limit is 30-mills.                                                                                                     
Co-Chair  Williams  indicated  that SB  4  would be  HELD  in                                                                   
Committee for further consideration.                                                                                            
The meeting was adjourned at 10:09 A.M.                                                                                         

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