Legislature(2005 - 2006)SENATE FINANCE 532
02/18/2005 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
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ALASKA STATE LEGISLATURE
SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
February 18, 2005
1:32 p.m.
MEMBERS PRESENT
Senator Gary Stevens, Chair
Senator Bert Stedman
MEMBERS ABSENT
Senator Thomas Wagoner
Senator Johnny Ellis
Senator Albert Kookesh
OTHER LEGISLATORS PRESENT
Representative Kurt Olson
COMMITTEE CALENDAR
Alaska Municipal League Overview - Sustaining strong
communities: city and borough roles, responsibilities, and
issues
PREVIOUS COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
Kevin Ritchie
Executive Director
Alaska Municipal League (AML)
217 Second Street
Juneau, Alaska 99801
POSITION STATEMENT: Presented Alaska Municipal League Overview
Valery McCandless, Mayor
City of Wrangell
P.O. Box 531
Wrangell, Alaska 99929
POSITION STATEMENT: Supported AML position
Arliss Sturgulewski
Anchorage, Alaska
POSITION STATEMENT: Supported AML position
David Trantham, Jr.
City of Bethel
City Council Member
PO Box 90
Bethel, Alaska 99559
POSITION STATEMENT: Supported AML position
Gary Wilispa
No address provided
POSITION STATEMENT: Supported AML position
ACTION NARRATIVE
CHAIR GARY STEVENS called the Senate Community and Regional
Affairs Standing Committee meeting to order at 1:32:59 PM.
Present were Senators Burt Stedman, Chair Gary Stevens and
Representative Kurt Olson.
^Overview:
Alaska Municipal League - Sustaining strong communities: city
and borough roles, responsibilities, and issues
1:33:28 PM
CHAIR GARY STEVENS announced the Alaska Municipal League (AML)
Overview.
1:39:23 PM
KEVIN RITCHIE, AML executive director, related the importance of
coordinating projects between cities, boroughs and the state and
drew attention to education, law enforcement, and corrections as
examples of blending and coordinating responsibilities.
1:41:21 PM
MR. RITCHIE referenced the 1992 Task Force for Governmental
Roles that concluded that for reasons of accountability and
efficiency, delivery of most public services should be
maintained at the local level regardless of what level of
government provided their funding. He also referenced a 1988
regional government study that concluded that incorporation of
many small communities into boroughs would benefit both the
residents of the communities and the State of Alaska as a whole.
However, the incentives for communities to remain unincorporated
were so great that few were likely to incorporate.
CHAIR GARY STEVENS asked him to give examples of incentives and
disincentives to incorporate.
1:44:09 PM
MR. RITCHIE responded the greatest disincentive is the loss of
the municipal revenue sharing program and the greatest incentive
is the higher quality of life that would be possible through
incorporation.
1:46:04 PM
MR. RITCHIE presented a brief history of the revenue sharing
program and then noted some of the key issues currently
affecting municipalities. He highlighted the benefits of
multilevel cooperation by mentioning that if the price of oil
increases by $1, the state receives an additional $60 million,
but the cost of living in Alaska also increases by $20 million,
a substantial portion of which would be incurred at the
community level.
1:48:15 PM
MR. RITCHIE noted that the increasing cost of PERS and TRS and
simultaneous cuts to municipalities has created serious service
impacts on small communities as well as very high local tax
rates in large communities.
1:50:01 PM
MR. RITCHIE noted that the Alaska Joint Insurance Association
(AJIA) that insures 140 cities and school districts throughout
the state has already had to cancel insurance for ten cities. It
will cancel insurance for seven more this week and currently has
30 cities on month-to-month payment contracts due to their
inability to pay up front. He noted that if a loss occurred in a
city without insurance or assets, the courts would likely look
to the state to cover its loss.
1:51:57 PM
CHAIR GARY STEVENS asked if the Senior Veterans Property Tax
Exemption is as important as revenue sharing.
1:52:43 PM
MR. RITCHIE said the cost to municipalities this year for the
property tax exemption program is about $40 million. Initially
cities were assured that the program costs would be reimbursed.
The state did provide reimbursement for 12 or 13 years and then
it started to decline. At the same time the program became more
and more expensive. The state has provided no reimbursement
since 1997 even though state law says the state shall reimburse
city or boroughs appropriate for revenue lost by the program. Of
course the Legislature can't be required to make the annual
appropriation. Municipalities bear the entire cost now but would
be very happy to have some of the costs reimbursed and they
would probably equate what they were getting at the end of the
revenue sharing.
1:54:44 PM
CHAIR GARY STEVENS asked if AML generally encourages
incorporation of communities into boroughs.
MR. RITCHIE replied incorporation would work for some
communities, but not for others.
1:55:43 PM
MR. RITCHIE summarized a chapter of the AML report on the
history of revenue sharing in Alaska from 1969 to 2004 and
pointed out two common misconceptions about the program. The
first is that the program was made possible with oil money and
the other is that revenue sharing is unique to Alaska. There was
no oil in 1969 and every state has a revenue sharing program. He
said that except for education, about 30 percent of a municipal
budget is typically some form of revenue sharing.
1:59:20 PM
MR. RITCHIE introduced another chapter of the AML report that
summarized some of the relationships between the state and
municipalities. He said the trend in the past 30 to 40 years has
been that the state has made major revenue shifts that have
resulted in the erosion of some of the deals that it made with
municipalities. He noted that the Senior Citizen's Property Tax
Exemption Program represents a good example of this trend as it
was initially a firm deal in which the state reimbursed
municipalities but it ended as an annual loss of $40 million to
local governments.
2:01:43 PM
MR. RITCHIE said the biggest tax exemption municipalities have
is the exemption of all state facilities from local taxes.
2:03:53 PM
SENATOR BERT STEDMAN questioned whether the purpose of the
report was simply to provide general information or should the
Legislature make a formal request from AML to implement some of
the suggestions.
MR. RITCHIE replied they have made a request, but they don't
expect all the suggestions to be implemented.
MR. RITCHIE introduced the chapter titled "Taxes and Challenges
Facing Municipalities" and noted that Alaska municipalities
currently collect almost $1 billion in property and sales taxes
and the only part that isn't paid by businesses and families is
the property tax on oil and gas property. Total property and
sales tax over the past five years has increased by about 29
percent, which is fairly significant. But given the trend with
PERS and TRS, the price of fuel, and the price of insurance, the
tax increases are going to look less significant if the same
level of services is provided in the future.
SENATOR STEDMAN referenced the donut pie chart outlining the
fiscal challenges in FY 05 and FY 06 and questioned whether he
was using the N value for PERS that actuaries recommend that the
contributions go to or whether he was using the current
contribution rate. Also he was curious about what Mr. Ritchie
expected the PERS costs to be in five years.
MR. RITCHIE replied the numbers are basic, but the PERS costs
for municipalities are increasing at a rate of 5 percent or $20
million a year. Since the cost is cumulative, by the time it
reaches 30 percent of employees' salary, it will have increased
by roughly 4.5 times or about $90 million.
MR. RITCHIE introduced letters the AML received in the last week
from small communities, specifically a letter from the village
of Ambler regarding how expensive it is for them to get freight
and insurance.
2:11:11 PM
MR. RITCHIE noted the City of Ambler has a population of 291 and
would receive an additional $7,500 per year for every percentage
point that it increased its sales tax. He said the replacement
of $50,000 from a loss of revenue sharing would cause Ambler to
institute what would perhaps be the highest sales tax in the
U.S. The total assessed value of Ambler is $3.5 million, which
makes it an unlikely prospect for a property tax since most of
the land is not taxable because it's Native allotment land or
federally owned.
MR. RITCHIE said a recent calculation completed by the state
assessor for the City of Bethel showed that it would take a 50-
mil property tax to replace a 5 percent sales tax. This would be
equivalent to some residents paying 2.5 to 3 times as much as
the property tax rate in Anchorage while other residents would
essentially pay none.
He presented a letter from the City of Aleknagik that cited a
lack of funding for basic services and infrastructure. Aleknagik
currently has a 5 percent sales tax and would have to increase
that to an 8 percent sales tax to replace the loss in revenue
sharing.
2:15:55 PM
MR. RITCHIE noted a chart titled "A Comparison of Local Taxes
Nationwide and in Alaska" that showed that Anchorage levies a
high property tax relative to other cities in the U.S. He then
referenced table 3A that showed that Anchorage ranks 31st in per
capita taxation among Alaska cities and remarked that these two
charts show that Alaska's local tax rates are very high compared
to those for the rest of the country.
He introduced some ideas to assist in the financial management
of the PERS/TRS burden and noted that currently there is no
special analysis required for a bill that affects the PERS/TRS
system. AML is very interested in considering the possibility of
selling pension bonds. Another recommendation is balancing the
expanding representation on the PERS/TRS Boards. He noted that
municipalities, school districts, and the university have a
bigger portion of the PERS/TRS program than the state.
2:24:16 PM
SENATOR STEDMAN stated the PERS/TRS issue is enormous and to pay
off the liability, the state would have pay $25,000 an hour for
the next 25 years.
2:25:42 PM
MR. RITCHIE said the final page of the report is a list of
recommendations the AML Board feels are important. He said it
includes a recommendation of some form of revenue sharing for
municipalities or relief from the senior citizen property tax
exemption costs.
2:27:13 PM
PETE SPRAGUE, president of the AML, said the most important
issues are revenue sharing, tax relief in whatever form but
particularly for The Senior Citizens Disabled Veterans Property
Tax Exemption, and PERS/TRS.
2:30:05 PM
ARLISS STURGULEWSKI, former senator, encouraged the Legislature
to become familiar with the issues, especially PERS/TRS, revenue
sharing, and to get information from organizations such as AML.
VALERY McCANDLESS, mayor, City of Wrangell, supported AML's
position on sustainable communities. She wanted municipal
revenue sharing reinstituted this year and noted that her
community has a high local sales tax and a growing property tax.
DAVE TRANTHAM from Bethel stated support for AML's position on
sustainable communities.
2:34:25 PM
GARY WILISPA stated support for AML's position on sustainable
communities.
2:36:02 PM
CHAIR GARY STEVENS adjourned meeting at 2:36:11 PM.
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