Legislature(2001 - 2002)
05/13/2002 09:26 AM House FIN
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+ teleconferenced
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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
None
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,
Anchorage
SUMMARY
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
consideration.
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
offenses.
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
Administration.
#SB181
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
property;
• Would limit the subsidized portion of loans to
$300,000;
• 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
professionals.
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"
home.
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
disincentive.
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
statute.
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
threshold.
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"
people.
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
areas.
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.
#SB339
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
$250,000;
· Class B felony maximum fine is increased to
$100,000; and
· Class C felony maximum fine is left at $50,000
dollars.
· 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
offenses.
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.
ADJOURNMENT
The meeting was adjourned at 10:09 A.M.
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