Legislature(1995 - 1996)
04/23/1996 08:05 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE April 23, 1996 8:05 a.m. COMMITTEE MEMBERS PRESENT Representative Jeannette James, Chair Representative Scott Ogan, Vice Chair Representative Joe Green Representative Brian Porter Representative Caren Robinson Representative Ed Willis Representative Ivan Ivan COMMITTEE MEMBERS ABSENT None OTHER LEGISLATORS PRESENT Representative Gene Kubina COMMITTEE CALENDAR CS FOR SENATE BILL NO. 280(FIN) am "An Act relating to municipalities; the incorporation of certain boroughs in the unorganized borough; the formation of separate unorganized boroughs; and to taxation in the unorganized boroughs." - HEARD AND HELD HOUSE BILL NO. 136 "An Act mandating the sale of the Alaska Railroad; and providing for an effective date." - BILL POSTPONED PREVIOUS HISTORY BILL: SB 280 SHORT TITLE: MANDATORY INCORP OF CERTAIN BOROUGHS SPONSOR(S): SENATOR(S) TORGERSON,Green,R.Phillips,Donley,Halford JRN-DATE JRN-PG ACTION 02/09/96 2352 (S) READ THE FIRST TIME - REFERRAL(S) 02/09/96 2353 (S) CRA, STA 02/28/96 (S) CRA AT 1:30 PM BUTROVICH ROOM 205 02/28/96 (S) MINUTE(CRA) 02/28/96 2578 (S) COSPONSOR(S): DONLEY 03/13/96 (S) CRA AT 1:30 PM BUTROVICH ROOM 205 03/13/96 (S) MINUTE(CRA) 03/14/96 2736 (S) CRA RPT CS 3DP 1DNP SAME TITLE 03/14/96 2737 (S) FISCAL NOTES TO SB & CS (GOV, DCRA-3, 03/14/96 2737 (S) DOE, LAW, DNR) 03/14/96 2737 (S) ZERO FNS TO SB & CS (ADM, DPS, DOT) 03/14/96 2737 (S) FIN REFERRAL ADDED 03/14/96 2746 (S) COSPONSOR: HALFORD 03/27/96 2928 (S) STA REFERRAL WAIVED Y12 N8 04/03/96 (S) FIN AT 9:00 AM SENATE FINANCE 532 04/03/96 (S) MINUTE(FIN) 04/03/96 (S) MINUTE(FIN) 04/04/96 (S) FIN AT 9:00 AM SENATE FINANCE 532 04/09/96 3099 (S) FIN RPT CS 5DP 1DNP NEW TITLE 04/09/96 3099 (S) PREVIOUS FNS(GOV, DCRA-3, DOE, LAW, DNR) 04/09/96 3100 (S) PREVIOUS ZERO FNS (ADM, DPS, DOT) 04/10/96 (S) RLS AT 10:50 AM FAHRENKAMP RM 203 04/10/96 (S) MINUTE(RLS) 04/11/96 3155 (S) RULES TO CALENDAR 4/11/96 04/11/96 3163 (S) READ THE SECOND TIME 04/11/96 3164 (S) FIN CS ADOPTED UNAN CONSENT 04/11/96 3164 (S) AM NO 1 ADOPTED Y14 N6 04/11/96 3165 (S) AM NO 2 WITHDRAWN 04/11/96 3165 (S) AM NO 3 FAILED Y6 N14 04/11/96 3166 (S) ADVANCE TO THIRD READING FLD Y12 N8 04/11/96 3166 (S) THIRD READING 4/12 CALENDAR 04/12/96 3202 (S) READ THE THIRD TIME CSSB 280(FIN) AM 04/12/96 3203 (S) RETURN TO SECOND FOR AM 2 UNAN CONSENT 04/12/96 3203 (S) AM NO 2 ADOPTED UNAN CONSENT 04/12/96 3203 (S) AUTOMATICALLY IN THIRD READING 04/12/96 3203 (S) PASSED Y13 N6 E1 04/12/96 3203 (S) TAYLOR NOTICE OF RECONSIDERATION 04/15/96 3246 (S) RECON TAKEN UP - IN THIRD READING 04/15/96 3247 (S) PASSED ON RECONSIDERATION Y13 N7 04/15/96 3251 (S) TRANSMITTED TO (H) 04/16/96 3794 (H) READ THE FIRST TIME - REFERRAL(S) 04/16/96 3794 (H) STATE AFFAIRS, FINANCE 04/23/96 (H) STA AT 8:00 AM CAPITOL 102 WITNESS REGISTER SENATOR JOHN TORGERSON Alaska State Legislature Capitol Building, Room 427 Juneau, Alaska 99801-1182 Telephone: (907) 465-2828 POSITION STATEMENT: Prime sponsor of SB 280 RICHARD MAUER Delta Greely School Board P.O. Box 1302 Delta Junction, Alaska 99737 Telephone: (907) 895-4956 POSITION STATEMENT: Testified on CSSB 280(FIN) am DORIS BENDER, Member Chugach School District, REAA 21 P.O. Box 711 Whittier, Alaska 99693 Telephone: (907) 472-2353 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am TRUDY KOSZAREK, Member Valdez City School Board P.O. Box 1941 Valdez, Alaska 99686 Telephone: (907) 835-4263 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am DAVID LAWRENCE, Member Valdez City School Board P.O. Box 1 Valdez, Alaska 99686 Telephone: (907) 835-4493 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am JACQUELINE DICK, Member Hoonah Public Schools P.O. Box 390 Hoonah, Alaska 99829 Telephone: (907) 945-3577 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am DENNY WEATHERS P.O. Box 1791 Deep Bay Cordova, Alaska 99574 Telephone: (907) 424-3745 POSITION STATEMENT: Testified on CSSB 280(FIN) am ERIC WEATHERS P.O. Box 1791 Cordova, Alaska 99574 Telephone: (907) 424-3745 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am GEORGE YOUNG Testifying for Wally Richardson P.O. Box 388 Bethel, Alaska 99559 Telephone: (907) 543-2131 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am MYRON NANENG, President Association of Village Council Presidents P.O. Box 388 Bethel, Alaska 99559 Telephone: (907) 543-3521 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am THOMAS CRAFFORD, Vice President North Pacific Mining Corporation 2525 C Street, Number 500 Anchorage, Alaska 99503 Telephone: (907) 274-8638 POSITION STATEMENT: Testified on CSSB 280(FIN) am JOHN GLOTFELTY, President North Pole Borough Planning Committee 2355 Sunflower Loop North Pole, Alaska 99705 Telephone: (907) 488-8654 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am PAT POLAND, Director Division of Municipal & Regional Assistance Department of Community & Regional Affairs 333 West 4th Avenue, Suite 220 Anchorage, Alaska 99501 Telephone: (907) 269-4500 POSITION STATEMENT: Testified on CSSB 280(FIN) am PETER RYNARD HC 60, Box 3026 Delta Junction, Alaska 99737 Telephone: Not Available POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am PAUL TROTZKE P.O. Box 2283 Dot Lake, Alaska 99737 Telephone: (907) 882-2664 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am GLEN MARUNDE Box 193 Tok, Alaska 99780 Telephone: (907) 883-4601 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am BILL MILLER Box 2262 Dot Lake, Alaska 99737 Telephone: (907) 882-2693 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am OLE BATES P.O. Box 915 Slana, Alaska 99586 Telephone: (907) 822-3023 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am CECILIA CHMIELOWSKI Mile 150 Richardson Highway Glennallen, Alaska 99588 Telephone: Not Available POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am LAURAL TYRRELL Central Alaska 99730 Telephone: Not Available POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am PAT BUCHANAN Central Alaska 99730 Telephone: Not Available POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am MARY WILLIAMS Central Alaska 99730 Telephone: Not Available POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am JULIE ROBERTS Tanana Alaska 99777 Telephone: Not Available POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am RON DELAY Tanana Alaska 99777 Telephone: (907) 366-7207 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am SIOUX PLUMMER, Mayor City of Skagway P.O. Box 415 Skagway, Alaska 99840 Telephone: (907) 983-2289 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am JAMES R. FILIP P.O. Box 419 Skagway, Alaska 99840 Telephone: (907) 983-2297 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am JULIAN PAUL WEIR P.O. Box 275 Glennallen, Alaska 99588 Telephone: (907) 822-3902 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am NICK ZERBINOS P.O. Box 371 Glennallen, Alaska 99588 Telephone: (907) 822-3451 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am HARRY TERMIN HC 60, Box 115E Copper Center, Alaska 99573 Telephone: (907) 822-3827 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am LEE ADLER P.O. Box 285 Glennallen, Alaska 99588 Telephone: (907) 822-3766 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am ART GRISWOLD 873 Runamuck North Pole, Alaska 99705 Telephone: (907) 488-7805 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am AL KETZLER, Chief Administrative Officer Tanana Chiefs Conference 122 First Avenue Fairbanks, Alaska 99701 Telephone: (907) 452-8251 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am ALAN LEMASTER P.O. Box 222 Gakona, Alaska 99586 Telephone: (907) 822-3096 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am JOHN HANDELAND P.O. Box 281 Nome, Alaska 99762 Telephone: (907) 443-6663 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am CHOW TAYLOR, City Manager Galena Alaska 99741 Telephone: (907) 656-1307 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am MARY MOSES, City Manager City of Tanana Alaska 99777 Telephone: (907) 366-7159 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am JOHN GILL Nenana City Public Schools Nenana, Alaska 99760 Telephone: Not Available POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am SCOTT JANKE P.O. Box 1210 Cordova, Alaska 99574 Telephone: (907) 424-6200 POSITION STATEMENT: Chair James read his statement into the record LARRY LaBOLLE Lower Yukon School District P.O. Box 32267 Mountain Village, Alaska 99632 Telephone: (907) 591-2411 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am PAUL SMITH, President Tok Chamber of Commerce Box 559 Tok, Alaska 99780 Telephone: (907) 883-4181 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am KIM ROTH Box 427 Tok, Alaska 99780 Telephone: (907) 883-2890 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am MICHELLE STOUT Box 532 Tok, Alaska 99780 Telephone: (907) 883-3745 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am JOHN KUNIK P.O. Box 83 Glennallen, Alaska 99588 Telephone: (907) 822-5515 POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am BERNARD GOODNO c/o P.O. Box 92 Delta Junction, Alaska 99737 Telephone: Not Available POSITION STATEMENT: Testified in opposition to CSSB 280(FIN) am ACTION NARRATIVE TAPE 96-57, SIDE A Number 0015 The House State Affairs Committee was called to order by Chair Jeannette James at 8:05 a.m. Members present at the call to order were Representatives James, Willis, Porter, Ivan and Ogan. Members absent were Representatives Robinson and Green. A quorum was present to do business. CSSB 280(FIN) am - MANDATORY INCORP OF CERTAIN BOROUGHS The first order of business to come before the House State Affairs Committee was CSSB 280(FIN) am. Chair James announced that testimony would be taken today and Thursday, April 25, 1996. Representatives Caren Robinson and Joe Green arrived at 8:06 a.m. and 8:08 a.m., respectively. CHAIR JEANNETTE JAMES asked Senator John Torgerson, Sponsor, to present SB 280. Number 0228 SENATOR JOHN TORGERSON, Sponsor, thought most legislators had seen similar bills in the past. His starting point had been to look at bills and committee minutes of previous mandatory incorporation legislation in an attempt to ascertain where the stumbling blocks had been and to address those problems before he introduced SB 280. This bill actually starts with a report by the Local Boundary Commission of the Department of Community & Regional Affairs (DCRA), which established what is referred to as the Model Borough Boundary within the state of Alaska. It took the unorganized borough and divided it up into 18 suggested boroughs based upon guidance of the Constitution and statutes for social, economic and cultural activities within that area. The report started in 1988 and was completed in 1992 he believed, but nothing was ever done with it. Therefore, he used that as the starting point for the borough boundaries. He stated SB 280 started out as a mandatory borough bill and the underlying thought was that those areas of the state that could afford it would start paying for some of the costs of government, particularly education. As this bill has evolved through the process, it has ended up being basically just an education funding bill that requires areas of the state currently not contributing a local effort to education to pay that local effort. SENATOR TORGERSON further stated that it gets a little more complicated. In keeping with the formation of boroughs, it requests that by a time line established in one of the sections, based upon the value of the boroughs, each area would have a vote of the residents on whether to incorporate or not to incorporate. He explained there was a prohibition in the statutes on third class boroughs; the third class borough authority was education and taxation. This bill started out as second class borough, which adds planning as a third power, so they would have education, planning and taxation. He noted that a lot of people objected to having another layer of government in the mandatory portion so it was decided to have an election. If the voters elect to incorporate, they follow the current statutes on how to form a borough which he noted had not changed. This legislation just directs that the election happen based upon a time line that reflects back to the assessed valuation of that area. If the voters elect not to incorporate, there is a mill levy that is laid upon the area for education. This bill speaks to a six mill levy. He explained that the education formula is a mandated four mills or 35 percent of basic need, whichever is less. The reason this legislation speaks to six mills is because there was a problem with separation of powers between the Legislative and Executive Branches. He noted the original bill had read four mills plus the cost of collection, or equivalency. The Legislative Legal staff however, advised that the legislature cannot give the authority to the Executive Branch to set the mill rate which is what the original language would have done. He chose the six mill rate, but he believes that may be too high and he had a proposed amendment that would lower it. He noted there was no fiscal note on what DCRA would plan to charge for that, but conversations with the assessor indicated it would be considerably less than what Senator Torgerson had thought it would be. SENATOR TORGERSON said there are currently four boroughs in the state that do not have just a sole property tax, but have a sales tax, bed tax, fish tax, property tax, resources tax or a combination thereof. Under this legislation, if the area rejects the borough proposal and decides to remain unincorporated, they will become an unincorporated borough that will follow basically whatever boundaries the Local Boundary Commission would submit, which would probably follow the DCRA report. From there, DCRA would determine if there is an equivalency. He noted the bill provides for public hearings in every community with a population of 500 or more and through public input, DCRA will decide how to reach that equivalency; it may be a mill rate, sales tax or whatever. The time line in the legislation starts with 1997 for the first proposal for boroughs with an evaluation of $550 million or more. There hasn't been a recent evaluation in rural Alaska since 1994, which were the numbers he used. He assumed the numbers are higher since everything else has gone up over that period of time, but this is just a time line of when DCRA would start their proposals and has no other effect in law. Therefore, anything with a half-billion or more would come on in 1997 as far as when the time line would affect the changes. That would be two proposed boroughs - Prince William Sound and Copper River. The time line for boroughs of $350 million to $550 million is 1998; $75 million to $350 million is 1999; and the rest of the state or everything that has less than $75 million is in the year 2000. SENATOR TORGERSON indicated he had received a lot of calls regarding this legislation and wanted to address some of the questions that had been raised. First, does this bill directly affect existing boroughs? It does not; this bill speaks only to the unorganized borough. There are other proposals being looked at by the Local Boundary Commission that affect annexation. The legislature has no authority on annexation, only to reject the proposal that might come before it as far as the annexation proposals. He believed there were five areas that DCRA was working on that would not be directed by this legislation other than perhaps overlapping authority in terms of shifting other boundaries. He reiterated this bill does not speak to annexation into existing boroughs. Second, does this legislation enforce the incorporation of boroughs adding another layer of government on to residents in the unorganized boroughs without giving them a choice? This bill does not form boroughs; it puts the vote before the residents of that area as to whether or not they want to form a borough. Thirdly, does this bill institute a new tax? He commented that he has paid this tax since he was old enough to pay a tax and that was education. It certainly is a new tax on areas that haven't been taxed, but education tax is not new. He said currently 87 percent of the state population live in boroughs and are required to pay a local contribution. That 87 percent receives 74 percent of the state foundation formula; 5 percent live in single site schools or cities outside of boroughs and receive 6 percent of the funding; and 8 percent of the population, which is basically what this bill would affect, pays no taxes and receives 20 percent of the foundation formula. Again, this is not a new tax, it's already paid by the majority of the people in the state. There isn't any property value in an unorganized borough and what land there is, is mostly exempt. He noted that none of the exemptions in current statute were being changed. For example, senior citizens will be afforded the senior citizen property tax exemption, like people in his borough. Low income people are already covered in statute. There will be a form to complete for the exemption, the same as people in an organized borough. SENATOR TORGERSON went on to say that according to the 1994 numbers, there is $3.1 billion in assessed valuation that is not being taxed, of which approximately $1.7 is oil and gas property. A six mill would generate $18.6 million in revenues per year. This estimate already does not include anything that is assumed to be exempt such as Native land, Native allotment lands, federal land, etc., so it doesn't change any of the requirements as far as taxation. Another question he had been asked is why tax the unorganized borough at all - they don't receive any services? He reiterated it is basically an education only bill. If they decide to form to have more powers, that certainly is okay. What effect does this legislation have on school districts and rural education attendance areas (REAAs)? It has none the way the bill is written. He said, "Again, this is something that should happen if we form all into organized and unorganized boroughs, then the Department of Education is going to have to look at combining school districts - or they should look, it doesn't mandate that they do - to consolidate some of the REAAs." Currently, 16 school districts have 90 percent of the kids and the rest - up to 54 - are for rural Alaska. Single site schools are their own district, so it takes in a lot of that, too. If an area forms a borough, then there is an automatic consolidation. Number 1109 CHAIR JAMES noted for the record that Representatives Robinson, Ivan and Green were in attendance. Number 1139 SENATOR TORGERSON said lastly, he had heard a lot of comments that this bill requires incorporation to occur too quickly. He noted the time line in the legislation is subject to discussion. If an area decides to incorporate, there are already phase-in provisions in the statutes that a mill rate will be paid on a phase-in over a four year period, so he didn't feel that was too encumbering. If an area decides not to incorporate, then the tax is levied beginning January 1 following the vote, since all the assessed evaluations need to be in by January 1 by statute. He distributed a copy of the valuations based on 1994 which breaks down the oil and gas and all the other jurisdictions. He realized there was a shift in dollars if an area was to incorporate - from pipeline dollars. He noted the pipeline could be taxed up to 20 mills and if an area was to incorporate and tax that area, that money would actually shift from state government to the local government. Again, it would be for education and he was willing to make that switch if the money was being taken from the general fund and going directly to education. There could also be a shift in fish taxes if an area was to incorporate, whereby the state would take the full 3 or 5 percent; if there was a local government, that would be split with the local government. He invited questions from the committee. Number 1267 REPRESENTATIVE JOE GREEN questioned why a rural unincorporated borough with a current significant disparity in education allocation would want to incorporate. SENATOR TORGERSON thought the committee would be hearing opposition from 80 percent of the people who live in rural Alaska. The people in favor of this legislation are the 92 percent of the population that are currently paying for education. REPRESENTATIVE GREEN said he could understand why the 92 percent of the population who currently pay would support this bill, but he wondered what could be done to entice the other 8 percent. SENATOR TORGERSON responded he wasn't aware of any enticement. However, it could be that if they incorporated, they would have more destiny over local government. On the other hand, most of them don't want a government. He added there is no incentive other than having local ownership of their education, if they chose to do so. Number 1384 CHAIR JAMES said if an area incorporated, then automatically schools within that proposed borough would form a school district. She expressed concern about ownership of the school. In all of the other boroughs, ownership of the school is with the borough, not by the state. Therefore, keeping up the buildings and things of that nature was the responsibility of the borough. She questioned if the borough would own the schools or would the state continue to own the school buildings. SENATOR TORGERSON said this bill was silent on that issue. He said, "As a rule, the old mandatory borough that most of us were created under transferred ownership of the schools to the boroughs at the time they became incorporated which was 1963." At that time there were eight boroughs of which four voted to form and four were forced to form. The mill rate was levied and was given to the schools for maintenance. One of the considerations that would have to be addressed during the public meeting process would be whether or not to take over the schools. Most of the boroughs exceed the four mill rate and the funding formula is four mills or 35 percent, whichever is less of basic need. By statute, it can't go any lower than that. He thought that would work in some of the rural areas, but in others it might not work. That determination would have to be made when the Department of Education came forward with their proposals on how to combine, etc. He explained the time lines were as follows: The DCRA prepares and submits a request to the U.S. Department of Justice for pre-clearance under the Federal Voting Right Act concerning changes in voting rights, borough incorporation, dissolution of REAAs, dissolution of city school boards, and dissolution of CRSAs, as well as the date and procedures for conducting elections. This is something that would be accomplished through the process done by the DCRA in their public hearings. At that time, they would determine what the will is of the people in terms of what to put on the ballot. Number 1582 REPRESENTATIVE ED WILLIS questioned if a borough votes and rejects forming an organized borough and then goes into an unorganized borough, who would act as their assembly? SENATOR TORGERSON responded "us." REPRESENTATIVE WILLIS asked if that was in the Constitution? SENATOR TORGERSON said according to the Legislative Legal staff, it isn't really sitting as an assembly; we can effect it with basic legislation. He added that a straight mill rate bill could be introduced, but it wouldn't give the local economy or the ownership. REPRESENTATIVE WILLIS asked if it had been done historically? SENATOR TORGERSON replied yes, to some degree. Number 1665 REPRESENTATIVE CAREN ROBINSON asked why Senator Torgerson didn't do a straight across-the-board school tax as had been done previously? She commented that many people thought that rural communities really are paying a major share through the PL-874 funds and asked Senator Torgerson what his thoughts were on that. SENATOR TORGERSON responded that PL-874 are federal funds and he understood their qualifications are because they have federal lands that are nontaxable in their jurisdiction. He noted there was a zero fiscal note on the PL-874 funds as far as the impact. There is a shift, but the shift is a zero impact. In response to Representative Robinson's first question, he said the mandatory borough part does have its own constituency where everyone thinks the rest of the state should have boroughs, so he basically started there. He agrees with the people who say they have a problem with another layer of government that doesn't do anything. The state can go ahead and fund that as long as it's not at a loss, so that was the cost of collection part of the four mills. He said it's just a judgment call. He believes there are some areas that need to incorporate and have planning powers; they do that function now. And then there are other areas that need to be put off for quite awhile before they even look at incorporating. Number 1756 REPRESENTATIVE BRIAN PORTER understood that if an area within a current unincorporated voted to incorporate, they would have an opportunity to go into the third class borough level. SENATOR TORGERSON said that was correct and added that prohibition was put on about the time the Haines Borough started. The assembly actually sits as the school district in a third class borough and it is the less power of the local government that we recognize in the state. For some reason, a prohibition was put in the statutes that said no more; you must at least have the planning capabilities along with education and taxation. He's recognizing the minimum is to have a local share for education, so it does remove that prohibition on third class boroughs and directs them to come up with a proposal for third class borough formations. Number 1805 REPRESENTATIVE SCOTT OGAN asked who in Representative Ivan's district, for example, would pay taxes? SENATOR TORGERSON couldn't give a specific answer, but said it might have been easy to levy a four mill property tax across the board. The formula would be arrived at by the assessor having to find the full and true value of the proposed borough boundary, which will be multiplied by six mills as indicated in the legislation. Then there would be a proposal on how to achieve what that number is. So, if they have $100 million times six mills, the local effort would be $600,000. He explained that local effort could be achieved one of many ways; it could be two mills on property, it could be all sales tax, it could be all resource tax or whatever. It depends on the proposal that comes forward from the Local Boundary Commission after the public hearing process. For example, the Northwest Arctic Borough just has a severance tax on Cominco, the mining operation; the Aleutians Borough has a fish tax; and the Denali Borough has a bed tax and a severance tax on Healy coal. They have to match that local effort - the four mills. Because they're organized, the 35 percent affects them; four mills times the basic need or whatever is less. They have chosen many different ways to achieve that. REPRESENTATIVE OGAN said assuming it's a property tax, who owns private property in many of the rural areas. Native corporations are exempt, but would improvements on Native corporation land or private property owners basically be the only ones to pay if it was a straight property tax? SENATOR TORGERSON responded that was correct if it was a straight property tax. He noted that any land that is Native owned and put into any kind of development is not exempt. For example, a lot of the villages still have their initial entitlement that has never been developed and that would be exempt. However, if that land had been developed, then it would become taxable. He said all that is in current statute, so the bill was silent on that issue. Number 1981 CHAIR JAMES said her observation over the last few years is there has been a real market increase in the rural communities in trying to establish some resource development to help themselves. The focus of the Alaska Federation of Natives convention last year was to be able to help themselves by getting development underway. She questioned the timing of this issue insofar as having to pay a tax on top of trying to develop their resources. She wondered if the timetable laid out in the legislation was sufficient to allow these communities to develop their resources so they would be in a position to pay some taxes. SENATOR TORGERSON thought that would be a judgment call based on the project. He didn't think there was any operation that was unlucrative to the point where the mill rate for education would affect whether or not the project goes forward. He commented there were a lot of projects in his borough that were coming on board and it's a consideration as part of the plan that they would pay the full mill rate for everything that happens in the borough. He thought that a local area - a borough or unorganized borough - would look favorably on paying their share of education. REPRESENTATIVE GREEN expressed concern that there are at least two areas and perhaps several more that have a potential for gold extraction and asked Senator Torgerson if mineral extraction is taxed the same way as oil & gas? In other words, there can be a tax on unproduced proven reserves and this could be catastrophic to a fledgling mine if there was an evaluation made of a large reserve but they've only had a small process (indisc.). SENATOR TORGERSON said he was not aware of any severance tax on mines for unreserved. As a general rule, the resource in place is real property and once it's extracted, it becomes personal property. Therefore, anything that is extracted and sitting in a pile could be taxed as personal property, but most of the jurisdictions have exempted inventories and things of that nature. However, it could happen. With respect to real property in place, he thought that if an area owned the subsurface rights, which in most cases they don't, then that could be taxable as real property. CHAIR JAMES noted the state does have a mining license tax when a mine is in production. SENATOR TORGERSON commented it wasn't the production he was concerned about but rather what's not produced. Number 2208 REPRESENTATIVE IVAN IVAN commented that he represented one of the least developed areas in the state. He said he wanted to address the intent of the legislation and how Senator Torgerson had gotten to this point. He asked if committee meetings had been held throughout the unorganized borough areas so that people had an opportunity to testify as the bill had been crafted? SENATOR TORGERSON responded just teleconference. REPRESENTATIVE IVAN said he would liked to have seen that done so that individuals, community members and potential resource developers would have been given the opportunity to testify. He has heard some concern expressed from potential resource developers and he certainly invited their input. He has enjoyed attempting to reduce the red tape and/or regulations that prevented development not only in mining, but in other business potentials that would be a foundation for such a proposal. With legislation such as this, he thought the areas affected should at least have an opportunity to testify and work with the legislature to improve the bill. SENATOR TORGERSON said this bill pays for education and if an area refuses to pay the education cost now, he didn't know what the benefit would be of holding public hearings; either they want to pay education costs or they don't. CHAIR JAMES asked if there were any further questions of the sponsor. Hearing none, she invited testimony from Richard Mauer. Number 2388 RICHARD MAUER, Delta Greely School District, said he had a question regarding the property valuation increasing. He noted that with the closing of the base in his community, property value was not going up. In fact, in the last 12 years he has lost over $20,000 in valuation on his house before the base closure, so he didn't think that coming in with a tax to help pay for education was a good vehicle. He thought perhaps an income tax would be better because his salary has increased while his property value has gone down. He believed that was the case in other parts of the state, not just in Delta Junction. He believed this bill boiled down to forced consolidation of schools to pay for education, but forced consolidation doesn't necessarily save money. His district just went through that process, not for consolidation, but looking at how to reduce administrative costs, etc. Many people don't realize that when you try to reduce administrators, under current statute, these people are tenured teachers so they have to be put back into the classrooms. Lastly, he didn't think this bill was good for children because the span of control from a local area was broadened. In his particular case, this would tie them in with the REAA of the Gateway School District which is 120 miles away. So even if there was an unorganized borough with one school district, which there is some ambiguity.... TAPE 96-57, SIDE B Number 0001 MR. MAUER continued...wish to remain unorganized, but under the statutes, do they become in essence an unorganized borough and then have to have forced consolidation. That question had not been adequately answered in his mind. CHAIR JAMES thanked Mr. Mauer for his testimony and called on Doris Bender to present her testimony. Number 0022 DORIS BENDER, Member, Chugach School District, REAA 21, testified there are 21,000 square miles in their school district with approximately 15 miles of road. She objected to the failure to hold hearings because none of their sites fall in the category of having a population of 500 or more and expressed her concern with the public not being informed. She said that Whittier is working on a lot of economic development for the future. She was concerned in terms of what would happen to the children in the mean time. There isn't enough private property in Prince William Sound that's completely surrounded by Chugach National Forest or the state, including the Alaska Railroad; Whittier itself has got 99.2 acres of private land. She said, "I think it's going to cost more to evaluate what little private land is out there than you will get back out in the next 20 years." CHAIR JAMES thanked Ms. Bender for testifying. She called on Trudy Koszarek to testify. Number 0090 TRUDY KOSZAREK, Member, Valdez City School Board, testified in opposition to CSSB 280(FIN) amended. She represented a small first class city and she did not feel that all the questions had been answered in terms of what would happen to Valdez. She said they currently pay 20 mills of taxes which pays for over 50 percent of their school budget. She referred to the Model Borough Boundary Study which would combine them with Cordova and the Chugach REAA and said there are two first class cities in there that already provide for their education. She was concerned about an added layer of government. She said she wasn't sure the anticipated cost savings would occur. Their school district has reviewed it and has found there probably wouldn't be a cost savings. They could eliminate two superintendents from the three school districts, but because of the travel involved there may not be a savings. Also, the three sets of teacher contracts involved would probably come out to the high end. Thirdly, she was concerned about loss of local control. Currently, she can get into all the schools in her district and she knows what is happening in each one. There would be travel costs involved for her to get into Whittier, Cordova and the other schools. Lastly, she said there were a lot of unanswered questions. They would be the first ones to vote in 1997 as to whether to consolidate and she believed there were a number of questions that needed to be answered before they could do that. Number 0176 REPRESENTATIVE PORTER said it was his understanding from the sponsor's testimony that there would be no affect on current school districts. MS. KOSZAREK said that was still unclear. REPRESENTATIVE PORTER said Ms. Koszarek was assuming they would be forced to consolidate with an unorganized borough and his understanding was that would not happen. Number 0189 CHAIR JAMES recalled the sponsor had said that if they chose to become a borough, then automatically all the schools within the borough and the borough's boundaries would be put all together, they then in fact would have a consolidated school district. REPRESENTATIVE PORTER responded that was a local decision that could certainly be made. CHAIR JAMES commented they could decide not to be a borough. REPRESENTATIVE PORTER assumed no one was going to do this and it would go to Plan B. Under the Plan B scenario, no existing school districts would be affected. Number 0208 DAVID LAWRENCE, Member, Valdez City School Board, expressed concern with the disparity. He thought there was disparity everywhere in Alaska as it is now and this may create a greater burden. He thought there was a potential of losing the $35 million in federal funding. CHAIR JAMES thanked Mr. Lawrence for his testimony and called upon Jacqueline Dick to testify. Number 0246 JACQUELINE DICK, Member, Hoonah Public Schools, testified that she and the other board members were not in favor of CSSB 280(FIN) amended. They do not want to consolidate because it is not good for the school children or the families. The individual local control would be lost and according to her husband, the mayor of Hoonah, Hoonah is not financially prepared for a borough set up and needs more time to research the issue. The Hoonah School Board wants to know what the impact would be on the children's education in their district. They do not view this bill as a cost saving measure to their district; it creates another local government. CHAIR JAMES announced the committee would begin taking testimony from individuals testifying via teleconference. Number 0339 DENNY WEATHERS testified from Cordova that she was not against paying for education, but against the direction of the bill. She was confused with Senator Torgerson's statement that school districts would not be combined. She referred to Article X, Section 6 of the Alaska Constitution and said the legislature would be their assembly. This law is already on the books; the legislature already is their assembly. Therefore, at any time if they deemed it necessary according to Article X, they could charge a school tax. Also, she stated for the record she opposed CSSB 280(FIN) amended and suggested the legislature look into reimposing a school tax of $100 per person over the age of 18 working in Alaska and a lower rate for low income individuals. According to law, the state's requirements for education are supposed to include language arts, social studies, mathematics, science, and health/physical education. All the extra subjects should be paid for separately. She thanked the committee for the opportunity to testify. CHAIR JAMES thanked Ms. Weathers for her testimony and called on Eric Weathers to present his testimony. Number 0438 ERIC WEATHERS testified from Cordova in opposition to CSSB 280(FIN) amended. He said that most of the local resident fishermen still living there don't have the means of support to pay any additional taxes. He's not against school tax if it was a flat tax, but he didn't feel there should be a property tax. CHAIR JAMES announced the committee would hear testimony from Bethel. Number 0479 GEORGE YOUNG read the following statement for Wally Richardson: "Madam Chair, members and hello to Representative Ivan, thank you for giving us this opportunity to testify against SB 280. I am glad to hear Senator Torgerson's comments that changed the whole concept that was originally presented in SB 280 and if the purpose is to fund education, let's go back to the $10 school tax per person in the state. It previously worked. Perhaps even raise that to $15. I can predict that our area, like in Delta, would reject this issue if it came to a ballot initiative. There's basically no economic base in our area to support it - no oil development, no timber, no mining, no pipeline and especially this year, no fishery. Representative Ivan, we need you to stand up for our people; you know this wouldn't work in our area. Vote against this bill. Thank you." Number 0523 MYRON NANENG, President, Association of Village Council Presidents, testified representing 56 villages on the Yukon/Kuskokwim/Delta. He said it's ironic this bill is Senate Bill 280; he believed Public Law 280 takes away a lot of responsibilities from the villages. Once again, the state is trying to put more of the burden on the villages. He wondered if committee members recalled the days when the schools were being transferred to the state of Alaska from the BIA system. In the early 1970s, there was a lawsuit to get the state to provide its responsibility to the villages by establishing schools. The state provided only its educational system through the regional school (indisc.-coughing) without allowing a family to even see their children for a number of years and many of them were gone from kindergarten through their adult years. If this legislation is passed, the schools will be closed. He urged the committee to reject CSSB 280(FIN) amended. CHAIR JAMES asked Thomas Crafford to testify from Anchorage. Number 0618 THOMAS CRAFFORD, Vice President, North Pacific Mining Corporation, testified that North Pacific Mining Corporation is a wholly-owned subsidiary of Cook Inlet Region, Inc. and the owners of state mine leases on which the Illinois Creek property near Galena is situated. That property is on the brink of development which is anticipated this year by their partner, U.S.M.X. He mentioned that a question had come up regarding taxation of in situ resources; specifically mineral resources. He thought that issue had been addressed about three years ago before the legislature and there is a specific exemption against the taxation of those in situ resources. His specific comments related to what he perceived to be the impact of this legislation regarding the mining industry. He thought that because of the rural nature of minerals development in Alaska, and in particular the capital intensive nature of that development, the mining industry is going to be disproportionately affected if SB 280 is implemented. The industry is currently subject to rents and royalties that are on state lands, the mining license tax and of course, the state income tax. Many of the contemplated mineral development projects in the state are going to be fly-in projects and removed from the actual village sites. They will be in rural locations and not likely to receive any kind of direct services from the borough, organized or not. Additionally, many of these mining projects will be seasonal and the taxation will be year round. Finally, this had been addressed in Nevada where there were charges and taxes that had been levied against the mineral development in Nevada. There were specific exemptions in place for regulatory and environmentally mandated types of developments that really don't go anywhere towards producing income or profitability for types of developments that are required through regulation. He thought those types of considerations needed to be addressed when considering CSSB 280(FIN) amended. CHAIR JAMES thanked Mr. Crafford for his comments and asked the next individual in Anchorage to present his testimony. Number 0749 JOHN GLOTFELTY, President, North Pole Borough Planning Committee, testified the North Pole Borough has already assumed the full four mill rate in their proposal; they have no opposition to paying for school tax. They are diametrically opposed to CSSB 280(FIN) amended for a couple of reasons. One, if people vote not to be in a borough, the tax is going to be imposed on them which sounded to him like taxation without representation. The second reason is that unless the Alaska Constitution has been amended, it clearly states the state will pay 100 percent. He didn't understand why that was not understood. He said we should not squelch the rural areas, consolidate them and destroy them through heavy-handed government at whatever level. He urged committee members to vote against CSSB 280(FIN) amended and give the rural areas a chance to develop. Number 0797 PAT POLAND, Director, Division of Municipal & Regional Assistance, Department of Community & Regional Affairs, testified the division provides a variety of services to local governments including staff support to the Local Boundary Commission and the office of the State Assessor. He said generally the division supports the thrust of this legislation; that is, the implementation of the local government article of the Constitution and local areas and people taking greater responsibility for local services. However, at this time the division feels there are far too many unanswered questions and too many information gaps to proceed. While the division has provided some very tentative estimates of taxable property, they feel there is potential for tremendous variance for those. He understood the Department of Education would be speaking to the education impacts and while the Department of Education is offering a fiscal note that basically shows a wash, DCRA is aware that depending on how that's implemented, there could again be tremendous variation. He said there's a lot of state land that would potentially be transferred to local governments, there's issues relating to fish tax and pipeline taxes that haven't been answered. Finally, he thought there was a number of very important ambiguities in the bill that need to be resolved before it moves forward. He encouraged the committee to gather additional information and fact finding before moving forward. CHAIR JAMES thanked Mr. Poland for his testimony and announced the committee would hear testimony from the Delta Junction teleconference site. Number 0894 PETER RYNARD testified in opposition to CSSB 280(FIN) amended because it breaks down what the Constitution (indisc.) and the state has to pay 100 percent. In Delta Junction, people don't have the money to pay this and they would not vote in a borough and pay taxes. Number 0953 PAUL TROTZKE said he believes that less government is better. He said he works approximately five months each year to support the government. People live in unorganized areas because they like it that way - socially, economically and geographically. Federal taxes pay school bills and costs. He pays this tax every year. He said time after time they have expressed their opposition to these efforts. Another layer of government is not needed. Number 1060 GLEN MARUNDE testified he has lived in the Tok area for 35 years and had five children go through the school system from kindergarten through the University of Alaska. He is a mechanical and electrical contractor in addition to being the Chairman of the Tok area Senate Bill 280 Legislative Action Committee. He referred to Section 7, lines 17-21 of the committee substitute and said the language in this section says the Department of Community and Regional Affairs shall develop a proposed method of levying and collecting taxes in separate unorganized boroughs and a proposed method of establishing boards of equalization. He stated this language is not compatible with Article X, Section 6 of the state Constitution which says specifically the legislature shall provide for the performance of services it deems necessary or advisable in the unorganized borough allowing for a maximum local participation and responsibility. It may exercise any power in an unorganized borough which the assembly may exercise in an organized borough. He believes this means the legislature must physically sit in assembly for each one of the possibly 10 or up to 18 of the new unorganized boroughs which may be formed because of this legislation. The majority of the legislature - 31 members - would probably have to be present to conduct business. The legislature is not permitted to pass these responsibilities to the Executive Branch as the bill attempts to do in Sections 6 and 7 wherein important functions of responsibilities are passed on to the state tax assessor and/or the Department of Community & Regional Affairs which are part of the Executive or Administrative Branch, not the Legislative Branch of state government. It is probable that the legislature would have to sit in assembly quarterly, with a 31- member majority to administer the local government and taxation they may want to impose on each of the newly created unorganized boroughs. It is obvious the methods of establishing a taxing authority and a board of equalization as written in Sections 6 and 7 of SB 280 are not in agreement with the language of the state Constitution which says the legislature must follow the specific performance requirements of an organized borough. He said this legislation is therefore unconstitutional. If this legislation became law, the legislature would find itself deeply involved with the administrative duties incurred even in the middle-level of government for possibly 10 to 18 newly-formed organized boroughs. Number 1266 BILL MILLER said one of his major concerns with CSSB 280(FIN) amended is the fact that over the last 40 years, the small communities and villages within the unorganized borough have built an infrastructure and facilities within their communities. He questioned whether under this legislation these facilities would be turned over to the borough or whether they would remain within the incorporated communities. If they are turned over to the borough, the maintenance on these facilities would be degraded because he was sure the facilities would not be maintained. Many of these facilities were built with capital funds from the state with the agreement they would be turned over to any municipality or any government formed in the area. Also, revenues to maintain and operate these facilities would be lost. He was opposed to CSSB 280(FIN) amended and felt the people in the unincorporated communities and unorganized boroughs show a lot more organization than a lot of the organized communities in the incorporated boroughs. CHAIR JAMES said the committee would now hear testimony from individuals in Slana. Number 1350 OLE BATES testified from Slana in opposition to CSSB 280(FIN) amended in its entirety. He agreed with the comments expressed by individuals in Tok and Dot Lake. Number 1379 CECILIA CHMIELOWSKI testified in opposition to CSSB 280(FIN) amended. (Note: Her testimony is indiscernible). CHAIR JAMES advised the committee would now take testimony via teleconference from Central. Number 1430 LAURAL TYRRELL testified against CSSB 280(FIN) amended. She felt the legislation could be better written. She was not against paying for education but this issue is not just limited to education. She felt they needed more input into the organizing and meetings should be held at the local level. Number 1505 PAT BUCHANAN testified in opposition to CSSB 280(FIN) amended. She said no one in Central was opposed to paying for education but if this is truly a bill for education, then there should be an education tax. She had seen firsthand what goes on in a borough that taxes people supposedly fairly to support education and how the outlying rural schools do not benefit from any of those taxes. Number 1576 MARY WILLIAMS testified she is a business owner in Central and is opposed to CSSB 280(FIN) amended. She said that Central is a small community with less than 100 people and two or three businesses. She commented there were a lot of recreational and seasonal people in Central and she wondered if they were going to be taxed. Central has a very small tax base and she believed it would cost more money to come out and assess people than what the state would take in. Number 1642 JULIE ROBERTS testified that Tanana is a very small community which seems to get smaller every year. She has served on the Board of Education for many years and was aware of the consolidation efforts of the legislature. The people in Tanana survive on very basic needs; there is a high unemployment rate and most of the land around Tanana is Native land, so there would be very little money produced from taxation in that area. Number 1708 RON DELAY testified regarding the huge inequities that Senator Torgerson was speaking of earlier regarding who supports education and who does not and to what degree. The Senator seems to dismiss the single sites as not providing their fair share. In the city of Tanana, the city pays about two and one-half times the four mill rate to support education. He said in terms of the dismissal of PL-874 funds, he owns property in Fairbanks as well as in Tanana and those lands which are tax exempt generate money the state does not have to pay for education about six times what he as a taxpayer in Fairbanks pays to support education. He didn't think the single site funds or the PL-874 funds should ever be dismissed as supporting education to a much higher degree than urban area supporters. The studies on consolidation have shown there are no significant savings to consolidation. He didn't feel this bill would eliminate the huge inequities that were being discussed. The people in Tanana pay about six times what he as a property owner in Fairbanks has to pay to support education. He wanted everyone to realize that PL-874 monies are significant in the small villages and they are paying their own way, more so than the urban areas. CHAIR JAMES inquired if there was anyone in Skagway wishing to testify. Number 1850 SIOUX PLUMMER, Mayor, City of Skagway, testified in opposition to CSSB 280(FIN) amended. She thought that initially this legislation was well intended to help support education, but as many people have testified, there are a lot of serious problems as it stands now. The city of Skagway could not support it primarily because they already contribute significantly to their own school district. It doesn't seem fair and equitable that they should be punished by being levied a further tax if they chose not to be part of a borough. She urged the committee not to pass CSSB 280(FIN) amended out of committee. She suggested going back to the drawing board and solve education's problem in a much more equitable way. She felt this was another form of government that doesn't serve the people well. She thanked the committee for the opportunity to testify. Number 1967 JAMES FILIP testified from Skagway on a couple of issues that were unique to Skagway. First, there is no support for borough incorporation in Skagway at the present time. Their proposed contribution to education in FY 97 is $619,000 which is equivalent to 6.25 mills or $763 per capita for the year. They feel that force in the form of political or economic sanctions should not be used to foster borough creation and Section 6 of the bill appears to do just that. Borough development should be left to the communities and the areas in which they serve to make decisions of this magnitude. He thanked the committee for the opportunity to testify. CHAIR JAMES announced the committee would now take testimony from Glennallen. Number 2063 JULIAN PAUL WEIR testified from Glennallen in opposition to CSSB 280(FIN) amended, specifically the six mill tax. He was opposed to any type of property tax and felt the old school tax should be reimposed. A property tax is very unequal in that it punishes businessmen because they would pay a lot more than the average citizen. He believed a school tax with no exemptions would be more appropriate. He commented there wasn't much land owned by private individuals in that area; most of the land is Native land or state and federal land. Number 2170 NICK ZERBINOS testified that many (indisc.) cannot even afford to support their local communities and school districts. Note: Mr. Zerbinos testimony is indiscernible. Number 2349 HARRY TERMIN testified against CSSB 280(FIN) amended. He couldn't understand why the legislature would not listen when the public spoke. He said any time another layer of bureaucracy was introduced, there were additional costs which ended up with less revenues and higher costs. TAPE 96-58, SIDE A Number 0013 LEE ADLER testified that he didn't know very much about this issue, but he didn't feel they were at all ready for this legislation so he was definitely opposed to CSSB 280(FIN) amended. He wondered where the money would come from to cover the high cost of the appraisal in that every piece of private property or land would have to be appraised. CHAIR JAMES stated the committee would next take testimony from the Fairbanks teleconference site. Number 0105 ART GRISWOLD testified in opposition to CSSB 280(FIN) amended. He referred to the combination of the Gateway and Delta Borough situation and said it just barely meets the requirements for the first year by combining those two areas that are not economically or sociologically compatible; one is agriculture and one is Native lands and tourism. He was also concerned that this value goes on a pipeline that is going to depreciate down to zero in the near future, so that means the value of those lands would drop considerably. He questioned how a tax would be figured on state- owned farm land that farmers rent only under the land use agreement for agriculture as it stands currently. He felt this legislation had too many holes in it and needed a lot of work. He also questioned who would be funding the start up of all these new borough governments. Number 0256 AL KETZLER, Chief Administrative Officer, Tanana Chiefs Conference, testified in opposition to CSSB 280(FIN) amended. He said Tanana Chiefs Conference agreed with many of the comments made in opposition by previous testifiers. CHAIR JAMES asked Alan Lemaster to present his testimony. Number 0307 ALAN LEMASTER testified there appeared to be little support for CSSB 280(FIN) amended in Alaska outside that of the legislature. He understood that if they didn't form a borough, the state would tax them at four mills. He said that would be about $4 million of the $668 million that is assumed to be the value of their lands. He noted their school budget is over $5 million so that means they would be funding somewhere around 75 or 80 percent of the total budget with these taxes. The rest of the boroughs pay less than 40 percent and he thought that was an inequity. He questioned if the funds from the taxes would be placed in the general fund of the state or dedicated to schools. If so, what would happen to the dollars being spent on the services provided by the state currently? Will those dollars continue to go to the borough or would the state take them away? He referred to the constitutional burden the state would be under when this was challenged in the courts on the basis of the inequities that arise from taxing some of the people and not taxing everybody. There appears to be another inequity in that if they don't vote for a borough, then they would have to pay taxes to the state where other people do not. He wasn't sure that was constitutional. He asked where the mythical figure came from that indicated the Copper Valley was worth $668 million on the tax rolls. To his knowledge, none of the businesses nor the individual property holders in that area have ever been approached by a tax assessor. In listening to the testimony that has been presented today, he said there is virtually no support for this issue except for those in the legislature. He urged the legislature to listen to the people rather than force court challenges that neither the state nor the people in the unorganized boroughs can afford. He thanked the committee for the opportunity to testify. CHAIR JAMES announced the committee would now take testimony from the Nome teleconference site. Number 0533 JOHN HANDELAND testified the Nome City Council the previous evening had passed a motion unanimously opposing the passage of CSSB 280(FIN) amended and urging its defeat. The Nome City Council had some major concerns about the substantial cost savings of the consolidation alleged to in the sponsor's briefing paper. They believed it would simply add an additional level of government that would not save any cost. He also expressed concern about the proposed borough boundaries as drafted. According to the Constitution, it should be social, cultural and economic activities integrated and there is certainly some diverse area in this proposed borough which he didn't believe met that challenge. Third, if the state was looking to gain some additional property, this was probably a good bill. In the Nome area, there would be a lot of property the state would have to take in foreclosure because the villages in the area do not have the economic base to pay this tax. Even though it has been indicated there would be no affect on the Nome School District, they believe there would be whether they voted for the plan or against the plan. The people in Nome are not opposed to paying taxes to support their school district. In fact, according to the city clerk, the equivalent millage they paid this last year was 9.25 mills as a single site. They are not opposed to taxation, but they are opposed to this borough plan and urged the committee to hold this bill because it needed a lot of work. He thanked the committee for allowing him to testify. Number 0705 CHOW TAYLOR, City Manager of Galena, testified that she agreed with the remarks of Pat Poland and those of Mr. Handeland. She said the language in Section 6 states that funds may be appropriated for funding regional educational attendance areas; however, that also implies that funds may not be appropriated. Number 0802 MARY MOSES, City Manager, City of Tanana, agreed with the remarks of the individuals who testified in opposition to this bill. She said that no one had touched on the impact this legislation would have culturally and to the people living in rural communities; that being further dividing the state's Native and non-Native population. This is particularly true because all the Native land could be held in trust and that would create a situation in which only lands held by non-Native people would be taxable which creates a form of segregation and discrimination. There is no guarantee that it won't actually force reorganization of education and government. If it does, in most of the rural areas it will be along lines that would decrease the local control and cause controversy and division among the community. Also, the city of Tanana does not believe that holding hearings in communities over 500 in population only is fair in the rural areas because their population is spread very thinly over a wide area. Also, the city of Tanana contends this legislation does not consider the people who live on subsistence land. To those individuals, the land is their job and it would create a situation whereby their income would be taxed at both ends. She thanked the committee for allowing her to testify. Number 0963 JOHN GILL, Nenana City Public Schools, testified there would be a loss of local control and parental involvement if some of the smaller districts were taken over by the larger ones. There would be tremendous legal costs concerning compensation of school boards and taxation. There would be costs for tax assessment and tax collection even if it was done at the local level. He referred to the six mills as an alternative if the people do not wish to become an unorganized borough and said that would only be $600 per $100,000 so he didn't think there would be any large increase in savings. He believed a school tax should be considered as an alternative. Number 1042 SCOTT JANKE wasn't able to wait to testify so Chair James read the following facsimile statement from Mr. Janke: "He opposes six mill level. Not consistent with current law. Opposed time line for formation of Prince William Sound Borough. That communities of Prince William Sound are currently investigating the formation of a borough and SB 280 time line causes undue pressure. If local vote fails to create an organized borough, what happens to the Cordova City School District which is funded locally? Do we lose local control of education or are we forced to consolidate? Most residents of Prince William Sound already pay a local contribution for education." CHAIR JAMES asked Larry LaBolle to present his testimony. Number 1098 LARRY LaBOLLE, Lower Yukon School District, testified in opposition to CSSB 280(FIN) amended as it currently stands. He thought there was an economic issue and said in the Lower Yukon School District, 10 of the 11 villages are second class cities which charge sales taxes and are having problems meeting their city budgets currently. Over 90 percent of their students live on federal property, so they receive impact aid for those students. If the church property and school district property is taken out, almost 100 percent of their students live on property that would be tax exempt if a borough was formed. A feasibility study was done in this region in the late 1980s or early 1990s which showed there was not a significant tax base for the Lower Yukon region to support a borough. He commented that the boundaries of the borough do make sense. He believed that a school tax or an income tax was much more realistic if the legislature was looking for additional funding. On the other hand, if the legislature was looking for school consolidation, he didn't believe this should be the vehicle because blanket school consolidation does not make sense. Disbursed districts, such as the Lower Yukon, are very expensive to operate. The Lower Yukon School District's travel each month is $100,000 for curriculum meetings, student activities which is not a big part, supervision of school sites, school board meetings, meetings of district-wide committees, et cetera which all involve air transportation. He suggested the legislature look at the economic feasibility before taking action on this legislation. He believed there were better vehicles for raising additional funds. Number 1246 PAUL SMITH, President, Tok Chamber of Commerce, testified that all 37 members of the Tok Chamber of Commerce were opposed to CSSB 280(FIN) amended. In terms of the senior citizen exemption, he is a senior citizen in addition to being a businessman and questioned what would happen in his particular case. Also, tourism has been a big impact on Tok and it will continue to grow, so should the tourists be taxed? He remarked that out-of-state workers on the pipeline are taking home a large paycheck every couple of weeks and not being taxed at all. He encouraged the committee to consider a school tax or a state income tax. He said it had been pointed out that people living in the rural areas don't contribute anything to the urban areas. He said that was totally false. He personally spends thousands of dollars every year in Anchorage or Fairbanks on bed tax, sales tax or whatever the tax happens to be. He thanked the committee for the opportunity to testify. Number 1331 KIM ROTH testified that almost everything she had to say had already been said, but she wanted to add a few comments. First, a few years ago the Hickel Administration did a feasibility study. The commission came around and looked at the actual tax base that was available and concluded it would cost the state more money than it would receive by forming a borough and collecting taxes. The issue was dropped. She didn't understand why the legislature continued to push an issue that was not feasibly possible. All the rural areas with a tax base; i.e., Prudhoe Bay, Red Dog Mine, etc., are already a borough. She said if the state wants us to form a borough, they have to allow us an economic (indisc.-coughing). The only thing that would be in the perfect borough as designed by the Department of Community & Regional Affairs, is the pipeline and that's already taxed at 20 mills. The only other thing they have is timber, because over 90 percent in that borough would be the state, federal or Native land. The legislature not only needs to look at their constituency, but must look at the good of the state as a whole and this was not for the good of the state as a whole. She referred to the disparity issue and said she thought most of the school districts south of the Alaska Range and in Southeast Alaska would blanch at the heating bills of the Tok school. In looking at the money received as total (indisc.) education per student is much more in the Bush than it is in urban areas. For example, the heating and maintenance bills are much higher in the rural areas than in urban areas because of being in the middle of no where. No one objects to paying a tax for their children's education, but something that hasn't been looked at is the dividend. She thanked the committee for the opportunity to testify. Number 1453 MICHELLE STOUT testified from Tok and requested that before this bill goes one more step, there be a complete accounting provided to their representative of what the total cost would be to assess "all taxable property" in the vast unorganized areas of the state. She pointed out that in an era of strict budget cutting, the state should carefully weigh the priorities for the use of the extremely limited funds. She expressed concern about cutting out things that enhance revenue production in rural areas; i.e., the public lands and tourism offices, and then on the other hand spending this kind of money to implement a plan which year after year had been proven to be economically unfeasible. She said in conclusion, it seems this bill would not only close down any development in the rural areas, it could also open the state of Alaska to numerous losses, which along with the practical impossibility of the assessment process described in the bill, would end up costing the state of Alaska far more than could ever be collected. Number 1535 JOHN KUNIK testified from Glennallen that in the Glennallen area, there are 632 students; they have a total budget of $5.4 million; and total acreage of 21 million acres. Sixty percent of the state's administration budget goes to six boroughs; the other 40 percent goes to the remainder of the state, which is nothing. He said based on the state assessor's figures, of a 20 mill rate they get about $12 million from their area. He pointed out there is no tax base in their area. The majority of the property is not taxable; less than 1 percent is taxable. Their unemployment rates are among the highest in the state, yet they pay the highest electrical rates and gasoline prices. He referred to Section 6, page 3, line 10 of CSSB 280(FIN) am which states, "...may be appropriated for funding for regional educational attendance areas" and asked Senator Torgerson where the money would go if it didn't go to the schools. Number 1743 BERNARD GOODNO testified from Delta Junction that the citizens are already paying and when the state can't live within their budget, then it's time to downsize until they can. He said no new taxes until then. He opposed CSSB 280(FIN) amended. CHAIR JAMES announced this would conclude the teleconference and thanked everyone for testifying. She asked Senator Torgerson for his wrap-up comments. Number 1765 SENATOR TORGERSON said he had made note of some of the questions that had been raised. First, this legislation does not force school districts to consolidate. He, however, thought that school districts and REAAs should consolidate. He said, "across the board, if you take the administrative costs and you have one school district per organized borough, it's a savings of $17,700,000." The Department of Education disputed those figures and indicated the savings would be somewhere between $3.3 million and $5.1 million. In terms of disparity, the Senate had just recently passed SB 244 which is the Governor's fix to the disparity problem on the federal level; it doesn't speak to the foundation formula. Basically, the Governor's remedy is to tax the taxed based community some more and give the untaxed based communities $500 more unit value. He commented that a school tax or some other type of tax would just throw the problem even further; the majority of that statewide tax would still come from tax based communities and 87 percent of the population lives in those tax based communities. It would raise more money from the people already paying it and shifting that money out again under our own formula foundation disparity of 8 percent of the people get 20 percent of the money. The comment that the burden is greater because you have more exempt property within your area, is not true. It is assessed evaluation, times the mill rate, equals what is paid; if you're already exempt, you're exempt. It isn't to try to match the total burden for education; the basic need in all that comes from the mill rate and its full and true value is found by the assessor. In terms of SB 280 being unconstitutional, he didn't share that thought. The actual levying of a tax rests with the legislature which would serve as an assembly in all the areas that chose to be unorganized when the mill rate was set. With regard to how much money it would cost to assess all the property in rural Alaska, in his opening comments he had indicated the mill rate could be lowered from 6 mills to 4.5 mills. The state assessor had told Senator Torgerson that it would be about $240,000 the first year and then it would go up to $300,000+ for the additional years with approximately four people being hired to do the evaluation. It wouldn't be the millions of dollars the public thought it would be. He referenced page 4, lines 9 and 10 which state, "Money from taxes levied under this section may be appropriated for funding for regional educational attendance areas" and said the legislature cannot dedicate funds without a vote of the people. Relating to the question of where does the money go if it isn't dedicated to education, he said it may be appropriated back to the REAAs which is done through the appropriation process currently in statute. He said the legislature certainly doesn't have the authority to direct that back to the REAAs if they collect the tax. However, if they formed their own jurisdiction, in a third class borough they'd be taxing for education. He pointed out that the senior property tax exemption extends to seniors for their primary residence; it does not extend to their property that is revenue enhanced like rental property, for example. In conclusion, he said, "I was kind of keeping track of the testimony. I know everyone was opposed that testified but they weren't opposed to the tax. That number was about even in my thought. So if the committee would like to just gut the bill and come forward with an education tax of 4.5 mills, that is certainly what the intent is of this legislation. By doing so, you would be taking out the local economy and you would be doing some of the horrible things that you heard these people testify to. The intent of this bill was to give the maximum local input to how they should pay their share of education costs." Number 2014 CHAIR JAMES said that some of her concerns had been the cost of getting the assessed valuation done, the method of using assessed valuation, whether or not they use the cost basis or fair market value basis and what kind of a percentage because almost always in the local governments, there's a percentage of either fair market value and/or cost basis. She also questioned how appeals to the assessments would be handled. Finally, she expressed concern regarding the requirement of only holding hearings in communities with a population of 500 or more. She believed there were lots of communities with a population of less than 500 and many times people in the Bush don't hear about what is going on. Number 2082 SENATOR TORGERSON responded that the requirement of the hearing in communities with a population of 500 or more was an amendment made on the Senate floor by a Senator from one of the rural areas. The language in the original bill indicated it would be left up to the Department of Community & Regional Affairs. The fiscal note submitted by the Department of Community & Regional Affairs estimated the cost to be $1,000 per meeting. The department's response to how they intended to handle this was to use local radio and broadcast media as much as possible and then advertise when those meetings would take place. He doubted the department could effectively go out and talk to everyone. But again, their methods of getting information out to rural Alaska have been the same since statehood. He understood there may be an amendment to reduce it to 300 or more and he really had no objection to that; it was up to the department. He said, "As far as the tax and what way to put the tax on, you know I don't think I'd be in favor of doing a special way of doing taxes that's different for my borough than the rest of Alaska." It's already in statute and this bill does not affect how property is assessed or instruct the assessor to treat people in rural Alaska differently than in other parts of the state. The assessed valuations are set in statute for oil and gas property, mining property, et cetera, as well as the exemptions. It should apply to everyone equally. Number 2170 CHAIR JAMES said, "I think it was the fellow from Skagway who was concerned because at a four mill rate, the amount that that would collect because of the values they have there was a much larger percentage of their money they spend on schools and this bill in its own present form allows people to pay in any old way. It doesn't say they have to have a property tax; it says they could have fish tax, a bed tax, a sales tax, whatever, but it does say the tax would be four mills times this appraised value, whatever it is. So, in that particular case, if the appraised value is more and 4 percent is a larger percent of what they're spending for schools, how could we provide that kind of flexibility so that it wouldn't unfairly treat that group." She believed it should be an either/or situation such as the current four mills or the 30 or 35 percent as a maximum. Number 2212 SENATOR TORGERSON said this bill doesn't actually address Skagway; Skagway is under an annexation proposal. He pointed out the bill doesn't call for just a 4.5 tax; it must be the equivalency and the proposal submitted from the Department of Community & Regional Affairs would have all that laid out as to how they'd match that. If they are an unorganized borough, first and second class cities which Skagway is, will be exempt because they are currently already collecting taxes. He said, "I know of none of them that are paying below their requirement by state statute of the single site schools or in this case the first and second class cities." When they formed a first and second class city, one of the powers that was given to them by statute was to have a city school district. So, they are currently doing that already. He found it interesting these people were opposed to these bills because most of the first and second class cities have a large number of students coming from outside their jurisdiction and basically this would help reimburse for that. Number 2274 CHAIR JAMES said she understood that. Her summation of the testimony heard today was that people really resist another level of government and resist being told they must do something, but the bottom line is they don't really mind paying the tax. She herself was not totally convinced that property tax was the right way to go. She announced the bill would be held over until the following Thursday. ADJOURNMENT There being no further business to come before the House State Affairs Committee, CHAIR JAMES adjourned the meeting at 10:20 a.m.