Legislature(2001 - 2002)
02/07/2001 01:30 PM Senate CRA
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* first hearing in first committee of referral
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+ teleconferenced
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ALASKA STATE LEGISLATURE
SENATE COMMUNITY & REGIONAL AFFAIRS COMMITTEE
February 7, 2001
1:30 p.m.
MEMBERS PRESENT
Senator John Torgerson, Chair
Senator Alan Austerman
Senator Randy Phillips
MEMBERS ABSENT
Senator Georgianna Lincoln
Senator Pete Kelly
COMMITTEE CALENDAR
SENATE BILL NO. 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."
HEARD AND HELD
SENATE BILL NO. 48
"An Act relating to the determination of full and true value of
taxable municipal property for purposes of calculating funding for
education and certain other programs; and relating to incorporation
of second class boroughs in the unorganized borough and to
annexation of portions of the unorganized borough to boroughs and
unified municipalities."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
SB 4 - No previous action recorded.
SB 48 - See minutes dated 1/31/01.
WITNESS REGISTER
Senator Therriault
State Capitol Building, Room 121
Juneau, AK 99801
POSITION STATEMENT: sponsor SB 4
Kevin Ritchie
Alaska Municipal League
217 2nd Street
Juneau, AK 99801
POSITION STATEMENT: Supports SB 4
Dan Dickinson, Director
Dept. of Revenue
550 W. 7th Ste 500
Anchorage, AK 99501-3566
POSITION STATEMENT: Explained impacts of SB 4
Steve Van Sant
State Assessor
550 W. 7th Ste 1790
Anchorage, AK 99510-3510
POSITION STATEMENT: Explained impacts of SB 4
Burt Cottle, Mayor
P.O. Box 307
Valdez, AK 99686
POSITION STATEMENT: Supports SB 4
Nadine Hargesheimer
Fairbanks North Star Borough
Fairbanks, AK 99701
POSITION STATEMENT: Supports SB 4
Mr. Pat Poland, Director
Community and Business Development
550 W. 7th Ste 1790
Anchorage, AK 99510-3510
POSITION STATEMENT: Explained revenue impacts of SB 48.
Wayne Schaffer
P.O. Box 538
Gakona, AK 99586
POSITION STATEMENT: Against SB 48.
Dianne Jenkins Achman
P.O. Box 149
Tok, AK 99780
POSITION STATEMENT: Asked questions about SB 48.
Mayor Ed Zeine
P.O. Box 34
Cordova, AK 99574
POSITION STATEMENT: Supports SB 48.
R.J. Kopchak
P.O. Box 1210
Cordova, AK 99574
POSITION STATEMENT: Explained Cordova's economic position.
Michael Nelson
P.O. Box 375
Tok, AK 99870
POSITION STATEMENT: Against SB 48
Dave Dengel
P.O. Box 307
Valdez, AK 99686
POSITION STATEMENT: Opposed to Section 2 of SB 48.
MR. Joseph Riley
Box 540
Gakona, AK 99586
POSITION STATEMENT: Commented on SB 48 issues.
Ms. Debbie Muir
P.O. Box 333
Tok, AK 99780
POSITION STATEMENT: Opposed to SB 48.
ACTION NARRATIVE
TAPE 01-3, SIDE A
Number 001
CHAIRMAN JOHN TORGERSON called the Senate Community & Regional
Affairs Committee meeting to order at 1:30 P.M. Present were
Senators Austerman, Phillips and Chairman Torgerson. Senator Kelly
was expected to arrive late and Senator Lincoln was represented by
staff because she was ill.
The first order of business was SB 4.
SB 4-MUNICIPAL PROPERTY TAX EXEMPTION
CHAIRMAN TORGERSON called Senator Therriault forward to give an
overview of the bill.
SENATOR THERRIAULT said the bill was introduced under his name as a
reaction to a request from the Fairbanks North Star Borough
Assembly because more local flexibility is desired with respect to
the residential property tax exemption.
The interest stems from the proposed 10-mill cap on property taxes
and the feeling that property owners bear an unreasonable portion
of the government expenses. SB 4 proposes to raise the ceiling from
$10,000 to $50,000 on the amount a municipality may offer in
residential property tax exemptions. The exemption is subject to
local taxing authority discretion, as is currently the case. The
current cap has been in effect since 1974 so it is time to revisit
the issue.
Number 47
SENATOR THERRIAULT said that it was also brought to his attention
that the mandatory exemption for senior citizens and veterans
provides no mechanism for local governments to assess property
taxes mid year if a property changes hands from an exempt party to
a non-exempt party. SB 4 allows municipalities to prorate taxes
after such transfers of ownership but there is no wording for
prorating in the other direction, from non-exempt to exempt. He
suggested that this is something the committee might want to
consider and he welcomes the discussion. However, it is time to
address the issue of prorating taxes.
Number 84
SENATOR THERRIAULT said that the state assessor was on line and
available to answer questions about the bill's impact on state
revenues. Although it was not his intention to impact the state
treasury, a borough raising the exemption cap to $50,000 and then
raising the mill rate to make up the revenue loss, would impact
state revenues. At the same time, he wanted committee members to
realize that the estimates of the revenue losses are just that,
estimates. Exact figures are very difficult to establish.
Members of service areas in the Fairbanks North Star Borough have
contacted Senator Therriault asking if adjusting their mill-rate up
is the only way to capture lost revenue. He has been in discussion
with his local government and is looking at ways to structure the
bill so that service areas are not adversely affected. This could
mean that the exemption can be offered on the portion of the mill
rate that covers general government services, or things offered
area wide. Service areas could be picked out saying they operate
outside that exemption.
SENATOR THERRIAULT said he realizes that the provision of the bill
that allows the senior citizen property tax mechanism to be
modified for prorating collection of property tax opens the bill to
include that section of the statutes. He said he would understand
if the committee chose not to address that area of the statutes.
CHAIRMAN TORGERSON agreed but said it was something that needed
review. With small governments, a floating date for tax exemption,
rather than a January 1 eligibility cut off for the entire year,
could have a large impact causing budget shortfalls.
CHAIRMAN TORGERSON asked for anyone else wanting to testify on SB
4.
MR. KEVIN RITCHIE from the Alaska Municipal League came forward to
state his endorsement of the bill. He said this bill allows
municipalities an additional tool for local control of property tax
equity.
CHAIRMAN TORGERSON asked his opinion on the impact on service areas
or small governments if a floating date for property tax exemption
was adopted.
MR. RITCHIE said he was not in the room during that discussion and
couldn't comment.
SENATOR PHILLIPS had the same concern.
Number 193
CHAIRMAN TORGERSON explained that the concern was the impact on
small governments or service areas where a relatively large number
of properties may be exempted and revenue would be lost. The only
choice to recover that revenue would be to adjust the mill rate
upward. With this in mind, the committee would be charged with the
task of trying to exempt some service areas. As the local
government representative, he was interested in Mr. Ritchie's
thoughts on the matter.
MR. RITCHIE said that Steve Van Zant might be a better person to
answer the question but that he didn't feel that the amount of
money involved would be substantial.
CHAIRMAN TORGERSON asked whether Steve Van Zant was on line and had
he heard the question.
MR. STEVE VAN ZANT, state assessor, said he had asked all assessors
for their input on the exemption issue. They didn't think that the
impact would be substantial but service areas weren't asked
specifically, just municipalities in general.
SENATOR PHILLIPS asked for the Anchorage figures. He had the
figures for Fairbanks, Kenai, North Slope and Valdez and wondered
if Anchorage might not be affected.
MR. VAN ZANT referred the question to Dan Dickinson.
MR. DAN DICKINSON, Director of the Tax Division, Department of
Revenue, said that Anchorage plays a very small roll in terms of
the effect this legislation plays on state revenues.
CHAIRMAN TORGERSON thought the fiscal note was fairly self-
explanatory.
SENATOR THERRIAULT addressed Senator Phillips' question saying that
there are just five municipalities that currently exercise the
optional exemption: Bristol Bay, Fairbanks North Star Borough,
Kenai Peninsula Borough, North Slope Borough and City of Valdez.
Anchorage doesn't show on the spreadsheet because they aren't
currently exercising the option.
CHAIRMAN TORGERSON asked "If the state is faced with another 10-
mill cap initiative and that was to pass, that would, I'm assuming,
preclude the taxing jurisdictions from increasing the mill rates so
this would, actually, come right off the bottom line. Is that the
way to read this?"
MR. VAN SANT said that this is very different than a 10-mill cap.
In fact, in the situation discussed here, it is assumed that the
municipalities affected would try to make up the state revenue some
other way such as by increasing the mill rate. If a 10-mill cap
were layered over that the affect would be different. The revenue
shortfall would have to be made up with alcohol taxes, bed taxes
and others that are not property tax.
CHAIRMAN TORGERSON asked that the record show that Senator Kelly
arrived during the previous discussion.
SENATOR THERRIAULT wanted to clarify for committee members that the
real concern for service areas comes from the second portion of the
bill dealing with the cap increase from $10,000 to $50,000. To make
up for budget shortfalls, local government would have to increase
the mill rate and therefore shift more of the local property tax
burden to undeveloped land and businesses and there would be local
pressure not to do that.
SENATOR THERRIAULT wanted to make clear that current wording in the
statute says that voters would have to ratify the ordinance.
CHAIRMAN TORGERSON asked if the laws outlining the meeting dates
for the Board of Equalization (BoE) would have to be changed.
MR. VAN SANT said he didn't anticipate any problem because property
values would be set by the time the BoE meets in April.
CHAIRMAN TORGERSON called on Nadine Hargesheimer from Fairbanks.
MS. NADINE HARGESHEIMER with the Fairbanks North Star Borough
supports SB 4, particularly the increase in the cap from $10,000 to
$50,000. She said that people are generally comfortable with the
level of service received but perhaps not with the funding source.
About 80 percent of the Fairbanks North Star Borough revenues are
derived from property tax. They have created an alternative revenue
task force that communicates with the public to determine how
services will be funded. Although the increase in the residential
exemption may or may not be used, they actually view the exemption
as a tool in the process. If there is another revenue source
available, they might not increase the residential exemption but
they aren't ready to do without the revenue. There would still need
to be passage by the assembly and public ratification.
She said there would be an impact on service areas. They have every
intention of keeping fire, emergency and road services whole. If
more residential land is exempted then the mill rate will have to
go up. They have widely varied population densities in different
service areas and they don't know how business will be affected in
each of these areas if the residential exemptions are increased. It
could range from onerous to a non-event but they won't know until
they begin looking at the specifics in each area.
CHAIRMAN TORGERSON asked if she had the spreadsheet prepared by
Steve Van Sant titled "Estimated Revenue Loss Due to Increased
Allowance for Residential Exemption". He said it looks as though
the state would lose money if the borough wide mill rate were
increased.
MS HARGESHEIMER agreed and said they were looking at implementing
revenue sources separate from property tax so that revenue stays
the same and people are paying less property tax. They are looking
at alcohol, sales, and personal property taxes, not the mill rate.
They want to shift the burden from the property owners.
CHAIRMAN TORGERSON commended those efforts, but said there was
still the possibility that if the mill rate were increased, the
state would lose $1.6 million in revenue.
MAYOR BURT COTTLE of Valdez testified that they too were in support
of SB 4. It is their belief that they would have greater local
control and taxes would be stabilized with passage of SB 4.
CHAIRMAN TORGERSON said that SB 4 would be set aside and heard
again.
Number 326
SB 48-MUNICIPALITIES:INCORP/PROPERTY VALUATION
CHAIRMAN TORGERSON read the full title of SB 48. He said Senator
Wilken had given the sponsor's statement and the Boundary
Commission had given their initial reaction in the 1/31/01 hearing.
CHAIRMAN TORGERSON asked Pat Pollen to come forward and address the
revenue impacts of SB 48 to municipalities.
MR. PAT POLAND, Director of Community and Business Development,
said that in an effort to explain the possible fiscal impacts of SB
48 he had summarized the statewide programs and the potential
impacts of each. There are extreme variations by region, so to have
a meaningful discussion about a particular region, calculations for
that region would have to be addressed. He said that Bill Rolfzen
was available to answer technical questions on the following
programs.
· National Forest Receipts Program: Distributes federal funds
for education and roads only to organized boroughs, REAAs, and
cities within national forests. If both national forests in
Alaska were wholly included in organized boroughs, four REAAs
and 16 cities located within the unorganized portion of the
Tongass and Chugach National Forests would become ineligible
for funding.
Potential Impact: The $5,567,748 currently received each year
by the four REAAs and 16 cities would be shifted to organized
boroughs. The organized boroughs would assume responsibility
for education in the areas previously served by the four REAAs
and in 9 of the 16 cities that currently provide education
services. The revenue is redistributed, not lost.
· Payment in Lieu of Taxes (PILT): This program provides
payments to local governments containing federal lands
(national forest, national parks, etc.). Due to a special
Alaska provision, 96 cities in the unorganized borough receive
PILT funds amounting to $5.1 million annually.
Potential Impact: If the unorganized borough became
incorporated as boroughs, the cities located within those
boroughs would become ineligible for PILT funds. Those funds
would subsequently be distributed directly to the new
boroughs. Again, this is a shift in revenue, not a loss.
· State Revenue Sharing: Unincorporated communities and
volunteer fire departments (VFDs) located within the
unorganized borough qualify for funding under the state
revenue sharing program. Currently, 65 unincorporated
communities receive a total of $241,000 annually and 21 VFDs
received a total of $12,000 annually.
Potential Impact: Upon incorporation of a borough, these
entities would no longer be eligible for funding. Their
allocations would be redistributed to all municipalities under
the existing revenue sharing formulas. Monies would be
redistributed.
· Unincorporated Capital Match Grant: There are currently two
state capital matching grant programs. One program provides
funding for municipalities that share available funding
through a formula-based allocation. A second program provides
fixed $25,000 capital matching grants for unincorporated
communities located within the unorganized borough. Currently,
74 unincorporated communities participate and receive a total
of $1,850,000 annually.
Potential Impact: If the unorganized borough were incorporated
entirely as boroughs, the unincorporated communities would no
longer be eligible for direct participation in the program.
Funding for the unincorporated community program would be
rolled into the municipal capital match program in which the
newly incorporated boroughs would participate.
· Fisheries Business Tax: Under the Department of Revenue Shared
Fisheries Business Tax Program, cities located within the
unorganized borough retain one-half of the state fish tax
collected based on fish processing that occurred within their
respective city boundaries. Last year, 30 cities located in
the unorganized borough received a combined total of about
$7.7 million.
Potential Impact: Cities located within a borough are required
to split the local share with the borough. Consequently, after
incorporation of a new borough, half of this locally shared
amount would be distributed to the new borough in which the
city is located. This change in distributing fish tax funds
would occur over a five-year period.
MR. POLAND stressed that this was a quick review but that analyzing
a particular region is necessary in order to draw accurate
conclusions about impacts.
CHAIRMAN TORGERSON asked about needing feasibility studies before
boroughs are enacted.
MR. POLAND said there is no such requirement. Rather, there is a
provision in statute allowing regions to request grants of about
$100,000 to do feasibility studies. The fiscal note reflects that
amount being spent for an on the ground contractor to collect
feasibility data such as potential revenue sources and financial
impacts.
CHAIRMAN TORGERSON asked where the responsibility lay for
determining titles and boundaries.
MR. POLAND said they anticipate spending up to one-half of the
$100,000 in that area. They would take a professional sampling to
determine the nature of the property in an area. Their expectation
is that in the majority of the cases, property tax isn't going to
be the mechanism used to generate revenue to support a borough. If
it were, it would come from a principle source such as oil and gas
properties.
CHAIRMAN TORGERSON asked, "If they did oil and gas property would
they require them to levy a tax on all the residents of the
borough?"
MR. POLAND said yes, they would.
CHAIRMAN TORGERSON asked whether a title search would be required
on all properties before the tax is levied.
MR. VAN SANT said that, in most cases, some title searches would
have to be done to determine ownership, which properties are
taxable and where tax bills should be mailed.
CHAIRMAN TORGERSON asked for the fiscal note prepared several years
ago on this issue. He was particularly interested in the provision
for oil and gas property valuations if property taxes were
instituted.
He also wanted information on land grants available to each
borough.
MR. POLAND said 10 percent of the vacant, unreserved,
unappropriated property is available for land grants to boroughs.
Any land that is resource rich is already reserved by the state and
not selectable.
SENATOR AUSTERMAN asked Mr. Poland about cities around the state
that have dropped their classification because they couldn't afford
to keep the city or municipality going.
MR. POLAND said there were several communities that dissolved about
six or seven years ago. Although the small governments were
struggling, the primary motivation in these cases was a desire to
embrace tribal government.
SENATOR AUSTERMAN wanted to know the impact this bill would have on
these types of communities.
MR. POLAND said there shouldn't be direct financial impacts. He
pointed out that one of the strengths of a regional government is
that issues that are difficult to deal with on an individual
community level are more easily addressed on a regional level.
SENATOR KELLY asked why there were no longer any 3rd class
boroughs.
MR. POLAND said that 3rd class boroughs were basically incorporated
school districts with no planning power. It was thought that if
there was going to be a regional government they should have
planning power. Through legal amendments, the 2nd class borough
became more flexible and the 3rd class boroughs were no longer
needed.
Number 593
CHAIRMAN TORGERSON called for public testimony.
Side B
MR. WAYNE SCHAFFER from Slana, outside Tok, said that people is his
area see no reason for boroughs or taxation since there was no tax
base in the area.
MS. DIANNE JENKINS AKIN from Tok spoke for the chamber of commerce
and herself. She said there is no tax base and most lands in the
area are either federal or native. She said that they want to know
where the seat of government would be located and what benefits
they could expect to receive.
MAYOR ED ZEINE of Cordova said the Cordova City Council has given
unanimous approval for SB 48. Two years ago, they conducted a study
to review the economic benefits of forming a borough and how
Cordova and Prince William Sound would be affected. The Boundary
Commission has a copy of that study.
MR. R.J. KOPCHAK said Cordova and other Prince William Sound
communities had studies done beginning in the early 1970s. In 2000,
there was an economic profile of Prince William Sound done
documenting the economies of the region. It was determined that
there are sufficient resources to fund a borough government.
Cordova favors SB 48 due to frustration relating to regional
government over the last several decades. This bill removes many
obstacles and makes it possible for a motivated community to bring
a borough government to regional attention. They see borough
government as beneficial to education, land use, and long-term
resource management.
Number 526
CHAIRMAN TORGERSON asked why Cordova didn't petition to form a
borough without the bill.
MR. KOPCHAK said that a regional petition relating to borough
government is fairly complicated and drawn out and that Cordova is
a very small town without the human resources to bring a petition
to fruition.
CHAIRMAN TORGERSON thought that perhaps the petition process should
be studied if it presented such difficulties.
MICHAEL NELSON from Tok testified that he couldn't see that taxes
are justified in areas that are small and without many job
opportunities.
DAVE DENGEL, City Manager of Valdez, said the city council hasn't
taken an official position on SB 48 but that, in the past, they
have objected to any legislation requiring formation of boroughs.
Section 2 of SB 48 causes the most concern because Valdez wants to
be able to vote on whether or not they form or join a borough. The
city willingly pays a substantial amount for education and they
will continue to do so. However, it is important to note that the
tax base in Valdez is declining from five to ten percent per year
due to devaluation of pipeline properties. Understanding the
implications of the decline in valuation is important for not just
Valdez but the entire Prince William Sound when considering borough
organization.
Number 466
CHAIRMAN TORGERSON asked whether Mr. Dengle anticipated the council
taking a vote for or against as a resolution.
MR. DENGEL said they probably would.
SENATOR PHILLIPS asked Mr. Shafer from Slana if he felt he should
pay something toward the cost of education.
MR. SHAFER said the revenue base in his area was zero and that
imposing taxes on the residents would cause the businesses in town
to fail and jobs to be lost.
SENATOR PHILLIPS said that the unorganized areas of the state were
going to have to pay something toward education even if it was a
reduced amount.
MR. JOE RILEY of Gakona asked if the lands belonging to Native
corporations would be taxed.
CHAIRMAN TORGERSON said that Congress exempts undeveloped Native
lands from taxation.
MR. RILEY asked if they would have a say in the type of tax to be
levied if this bill were to pass.
CHAIRMAN TORGERSON said that this bill lets the department nominate
areas to go before the Boundary Commission. There would be plenty
of opportunity for public comment.
MR. RILEY said he would like to see more than the one required
public hearing.
CHAIRMAN TORGERSON said that was a good point. He then reminded
everyone that the purpose of this meeting was to take public
testimony and not to debate the merits of the bill.
MS. DEBBIE MUIR from Tok said that the community isn't ready to pay
taxes and they are particularly unhappy at the prospect of having
the right to vote on annexation or borough formation taken away.
CHAIRMAN TORGERSON asked for any other public comment. There was
none so he closed the public comment portion of the meeting.
Number 345
CHAIRMAN TORGERSON asked Mr. Poland whether the $300,000 grant for
incorporation expenses should be adjusted upward. He referenced
Cordova's comment that they couldn't afford the current petition
application for borough formation.
MR. POLAND said some clarification was in order. It was his
understanding that the city of Cordova commented that with their
existing resources they don't have the capacity to fully explore
and develop a petition. Separate from that, there is an
organizational grant providing $300,000 the first year, $200,000
the second year and $100,000 the third year that would go to a
region after it had formed a borough.
He also said that a law was put on the books a number of years ago
allowing a region to apply for up to $100,000 in grant monies to
explore the feasibility of establishing a borough but to his
knowledge, that program was never funded.
CHAIRMAN TORGERSON asked if they had funded the Prince William
Sound study.
MR. POLAND didn't believe so; that Coastal Zone Management was
involved there.
SENATOR PHILLIPS asked what "each area having the opportunity for
public comment" meant.
MR. POLAND said the general practice is to go to population centers
but that the department and commission makes an effort to allow
everyone to appear in person and be heard.
CHAIRMAN TORGERSON said that issue had been addressed previously
but it might warrant revisiting. He asked for other comments or
questions. There were none.
CHAIRMAN TORGERSON announced that the bill would be held over.
Public testimony would be taken on Saturday February 10, 2001 from
1:30 to 3:30 p.m. Senator Phillips would be available via
teleconference.
There being nothing further to come before the committee, the
meeting was adjourned at 2:45 p.m.
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