Legislature(2007 - 2008)BELTZ 211
04/19/2007 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
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| SB122 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 122 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
April 19, 2007
3:32 p.m.
MEMBERS PRESENT
Senator Donny Olson, Chair
Senator Albert Kookesh, Vice Chair
Senator Joe Thomas
Senator Gary Stevens
Senator Thomas Wagoner
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 122
"An Act relating to an optional exemption from municipal
property taxes for residential property."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 122
SHORT TITLE: MUNICIPAL PROPERTY TAX EXEMPTION
SPONSOR(S): SENATOR(S) THOMAS
03/16/07 (S) READ THE FIRST TIME - REFERRALS
03/16/07 (S) CRA, FIN
04/19/07 (S) CRA AT 3:30 PM BELTZ 211
WITNESS REGISTER
GRIER HOPKINS, Staff
Senator Joe Thomas
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented SB 122 for Senator Thomas.
STEVEN VAN SANT, State Assessor
Division of Community Advocacy
Department of Commerce, Community & Economic Development
Anchorage AK
POSITION STATEMENT: Commented on SB 122.
CHARLIE REX
Fairbanks North Star Borough Assembly
Fairbanks AK
POSITION STATEMENT: Supported SB 122.
JERRY CLEWORTH
Fairbanks City Council
Fairbanks AK
POSITION STATEMENT: Supported SB 122.
SHANE HORAN, Assessor
Kenai Peninsula Borough
Soldotna AK
POSITION STATEMENT: Opposed SB 122.
TAMMY WILSON, Resident
Fairbanks North Star Borough
POSITION STATEMENT: Supported SB 122.
ACTION NARRATIVE
CHAIR DONNY OLSON called the Senate Community and Regional
Affairs Standing Committee meeting to order at 3:32:50 PM.
Senators Olson, Kookesh, Thomas, Wagoner, and Stevens were
present at the call to order.
SB 122-MUNICIPAL PROPERTY TAX EXEMPTION
3:33:15 PM
CHAIR OLSON announced SB 122 to be up for consideration.
GRIER HOPKINS, Staff to Senator Joe Thomas, sponsor of SB 122,
said it would allow a municipality to offer a residential
property tax exemption up to $100,000, but it does not mandate
any action. Current law does not allow for state-mandated local
methods of taxation or tax rates; it only allows local
governments the option of increasing property tax exemptions.
The intent behind this legislation is two-fold. First, SB 122
allows municipalities another tool for diversifying their
revenue stream. Second, in recent years many of Alaska's local
governments have dramatically increased property assessments,
resulting in repeatedly increasing costs for homeowners and SB
122 could give homeowners much deserved tax relief.
MR. HOPKINS said there are 12 boroughs and 13 cities with a
combined population of over 590,000 that levy property taxes. If
municipalities were to fully implement this proposed exemption,
the tax relief for homeowners would be profound. SB 122 would
not affect a smaller, revenue-strapped community's sources of
tax income. Instead, it would give the municipalities with a
large enough population the ability to relieve the tax burden
largely borne by homeowners. He explained that SB 122 would
allow these local governments to choose an exemption at any
amount up to $100,000. This local ordinance would then require a
ratification at the polls before it could go into effect. SB 122
is a tool for municipalities to use at their discretion,
potentially aiding both local governments and homeowners.
SENATOR KOOKESH asked how he "got to the $100,000."
MR. HOPKINS said it was a request from Fairbanks, and the
Fairbanks North Star Borough had put forward a similar
resolution, but asking for a $50,000 increase. "We decided to
shoot for the top and see what we can get."
3:36:02 PM
SENATOR STEVENS said he is confused. The state had a $250,000
exemption.
MR. HOPKINS said currently the state has a $20,000 exemption for
residential homeowners only. There is a $150,000 mandated
exemption for seniors and veterans. A proposed bill raises it to
$250,000. SB 122 is separate.
SENATOR STEVENS said he was a borough mayor for a couple of
years and it was difficult to pay the bills. This is optional,
but he asked why anyone would want to do this.
3:37:13 PM
MR. HOPKINS said it gives communities a tool to diversify their
tax base. For example, they could take the burden off of the
homeowners by instituting a sales tax.
SENATOR WAGONER said the two biggest communities in the state
have refused continuously to do anything with a sales tax and
they have also restricted themselves to a cap on their property
tax. This bill was before the legislature two years ago when the
exemption was increased from $10,000 to $20,000 at the request
of the Kenai Peninsula Borough, and he was upset because it
stayed at the $10,000. He said this may create an entitlement
that may work in reverse to what they want. It may become an
entitlement demanded by the property tax. Sales tax takes a vote
in the community. The worry he has is that residents will force
it, and the burden of taxation will then go to small businesses.
3:39:20 PM
CHAIR OLSON said it may also be passed onto large businesses.
SENATOR WAGONER said it would be passed on to all businesses,
but Fairbanks has a preponderance of small businesses just like
the Kenai Peninsula Borough. If Fairbanks implemented a $100,000
forgiveness to each property, the difference between the $10,000
they can now issue is $90,000 per residence. The equivalent
burden of that $90,000 per residence will have to be made up
either with a sales tax or by taxing small businesses - and
they're having enough problems up there now.
SENATOR STEVENS said he had given up trying to understanding
what goes on in Fairbanks and asked if he was bringing Fairbanks
into the argument of installing a sales tax.
3:40:52 PM
SENATOR THOMAS responded that the City of Fairbanks has had a
confused situation, but it voted recently to reestablish its tax
structure as it existed prior to the October vote. It amounts to
a two-year reprieve to come up with some resolution. This bill
is not a result of that action. This is more of an issue
regarding the assessed values of property which continue to
rise. It creates quite a burden on some of the older people, not
necessarily the ones that already have an exemption. Both the
City and Borough support SB 122. He said the City of Fairbanks
will be faced with a sales tax or some other tax option. Some
people feel that the many visitors to Fairbanks make use of the
roads and facilities, but contribute nothing because they don't
have a sales tax. The only way to approach an exemption is by
state statute.
3:42:57 PM
CHAIR OLSON asked if he believed this move would get them closer
to having a sales tax.
SENATOR THOMAS replied if you take from one pocket it will have
to come out of another pocket somewhere. "So, you will have to
have a source of revenue." A sales tax has been argued quite a
bit in the Fairbanks area - even a seasonal sales tax.
SENATOR WAGONER commented that Kenai looked at a seasonal sales
tax and found that the largest collection of sales tax happens
between Thanksgiving and Christmas. So, he wasn't sure a
seasonal tax would do that much. He looked forward to hearing
from the Chamber of Commerce, because he was fearful that this
tax burden would fall on its people.
3:44:52 PM
SENATOR STEVENS said this $20,000 exemption is for everyone and
wondered if the City and Borough had other options to reduce
property tax. Couldn't the rates be changed?
MR. HOPKINS replied yes. One option that has been looked at is
lowering the mil rate, which specifically targets residential
homeowners and asks others "to fill the hole." This only affects
the prime residence; a cabin in the woods is not exempted.
3:46:22 PM
SENATOR STEVENS said they could lower their mil rate, but then
it would be lowering it for everyone including businesses.
MR. HOPKINS added that it would also reduce the amount of
revenue that municipalities get from minerals and oil and gas
properties. He explained that the state charges a 20 mil rate
and when it goes through a municipality that has a property tax,
that municipality takes its tax first. If the original mil rate
were lowered, they would receive less money from the oil and gas
property also. He said Table 3 A illustrated this point.
SENATOR KOOKESH asked him to explain the ratification process.
MR. HOPKINS said an assembly would have to decide to institute
an exemption and then go to a vote of all citizens to ratify it.
SENATOR KOOKESH asked what happens if it is voted down.
MR. HOPKINS replied that then it doesn't happen.
SENATOR WAGONER reminded them that some communities tax up to
the 20 mil level to get the maximum benefit. Others don't tax to
that level and that should figure into their calculations when
looking at revenue sharing. It allows municipalities to keep
that taxable value.
3:49:29 PM
SENATOR THOMAS said the mil rates are in the packet and that
some municipalities have no oil and gas properties.
CHAIR OLSON asked if this measure would transfer one portion of
tax from property owners to another type of taxpayer.
STEVE VAN SANT, State Assessor, Division of Community Advocacy,
Department of Commerce, Community & Economic Development,
commented that having an exemption without another source of
revenue, like a sales tax, would shift a portion of the burden
from residential property to commercial and vacant property, and
for Valdez, Kenai, the North Slope, and Fairbanks it will also
take some revenues from the state because they will have to
increase their mil rates to make up for that loss. He said a few
years ago an analysis showed that a $50,000 exemption would take
about $2 million from the state. So, if everyone took the
$100,000 that would make it $4 million. However, the trouble
with that calculation is that Fairbanks and Anchorage would have
a percentage up to the maximum and not everybody would receive
the maximum exemption.
3:52:37 PM
SENATOR KOOKESH asked if he supported the bill.
MR. VAN SANT replied that he couldn't speak for the
administration, but it would be important to municipalities.
Used by itself it shifts the burden, but if it's used with other
revenues coming in, that would help. Fairbanks, for instance,
has a revenue cap, so any other revenue stream they have would
certainly lower their property taxes. He supports any tools that
help municipalities with their revenue streams.
SENATOR WAGONER said he didn't understand his last statement.
MR. VAN SANT explained that there are many tools for
municipalities to use to enhance their revenue streams and one
is diversification of their tax revenues - a sales tax or maybe
a gross receipts tax. This allows municipalities to shift
burdens where residential values are increasing more than in
other areas. In this case, residential values are increasing
across the state more rapidly than commercial properties.
Increasing residential exemptions would give some tax relief to
residential property owners, but he didn't support any
particular number.
3:55:20 PM
CHARLIE REX, Fairbanks North Star Borough, said he is on the
borough assembly, and that this bill is not getting a lot of
support from Kenai and Anchorage because both of those are
served by natural gas. Fairbanks has to depend on fuel oil and
those costs are going up exponentially and putting a crunch on
homeowners. People will soon be in the position of having to
choose between paying a fuel bill or property taxes.
He brought a resolution forward to the Assembly to raise the
exemption to $50,000 with the idea that everyone would see a
substantial decrease in property taxes. If this is implemented
at the same time a sales tax is implemented, they would end up
with a substantial decrease for those folks who own commercial
properties and at the same time, a substantial decrease for
those residential properties. This is a tool that Fairbanks
needs. It takes a vote by the people, but he didn't think it
would be implemented up to the highest level.
MR. REX said he felt the sales tax issue would get put on the
ballot in Fairbanks, and voting for a $100,000 exemption doesn't
mean it would need to be implemented at that level. When they
went from a $10,000 exemption to a $20,000 exemption, their mil
levy decreased. So, from a revenue standpoint on the pipeline
the state has seen a positive increase even with an increase in
the exemption. Since he has been on the Assembly the mil rate
has been lowered from approximately 14 mils to 12 mils, but with
increased valuations, the home owners "have had enough."
MR. REX said any alternative tax other than raising the
exemption has a cost for collecting it. If a sales tax is
implemented, there is really no cost. You just push a different
button on the computer.
4:00:00 PM
SENATOR WAGONER corrected Mr. Rex saying hundreds of thousands
of gallons of home heating oil are sold on the Peninsula too. He
asked if the municipality or the Fairbanks North Star Borough
had a vote on a sales tax. If so, how many times has it failed?
MR. REX replied that the City of Fairbanks has had five or six
votes. The Borough has never had a vote on sales tax. This would
be the first time borough-wide it has gone to the ballot.
4:01:05 PM
SENATOR STEVENS asked Mr. Van Sant if boroughs can charge a
differential rate of tax on commercial property as compared to
home properties.
MR. VAN SANT replied that current statutes say all mil rates
have to be the same for both residential and commercial
properties except for different levels of service.
4:01:59 PM
CHAIR OLSON asked Mr. Rex if he was talking about the borough
administration.
MR. REX replied yes and said that he supported the bill because
it would enhance the chance that a sales tax would pass in his
community.
SENATOR KOOKESH asked why go from $20,000 to $100,000.
MR. REX explained that the City of Fairbanks passed a resolution
to raise the exemption to $100,000. He brought a resolution
forward at the borough level for $50,000 because he thought it
had a better chance of passing. A $100,000 exemption would be
more of a bitter pill to swallow for the chambers and some of
the local small businesses that Senator Wagoner mentioned
earlier. The $50,000 is a realistic number.
4:03:42 PM
SENATOR WAGONER said he tried using $50,000 before and it got
whittled down to $20,000. So he understands the process this has
to go through. He asked what the population is outside the City
of Fairbanks and if North Pole has a sales tax.
MR. REX replied that North Pole has a sales tax, and the
population outside Fairbanks city proper is 32,000 and North
Pole has approximately 1,500 residents. So, they would end up
with approximately 55,000 residents that reside in neither city
- for a total population of about 88,000.
4:05:41 PM
JERRY CLEWORTH, Fairbanks City Council, supports SB 122. He said
the City of Fairbanks has three separate sales taxes for a total
of approximately $4 million out of a $29 million budget. The
property tax raises about $12 million. The balance comes from
other revenue sources and the city is diversified. He corrected
Mr. Rex saying that the Borough voted a sales tax down in the
late 80s. He said the City Council is always looking for ways to
relieve the residential owner because of increasing borough
assessments. Further, he said the combination of increasing fuel
costs and assessments are a double hammer that people have been
experiencing. The Council wants the opportunity to be able to
juggle the residential exemption more than what it is right now.
The $20,000 was great and it overwhelmingly passed. They were
hoping to have a tool that would allow it to go higher.
4:07:51 PM
SENATOR WAGONER asked if he was aware of a bill moving through
the process that restricts the borough to an increase of 2
percent per year in assessed valuation. He hears that the rate
of appreciation might be much higher than that in Fairbanks.
MR. CLEWORTH replied yes and recently home owners have been hit
with assessments as high as 30 percent. His house fluctuated
around the 10 to 13 percent rate each year and it would probably
sell for its assessment. But the increases are too fast and too
sudden for most people.
4:09:45 PM
MARTY MCGEE, Assessor, Municipality of Anchorage, said the
municipality does not oppose this bill. He said it is true that
residential property is rising about twice as fast as other
types of property in Anchorage resulting in a redistribution of
the tax. This bill would give them another tool to consider. He
said the bill sets another fixed amount in terms of total
exemption and every time that is done, it creates a problem over
time, because property values increase not only with market, but
with inflation. The historical fixed amounts sometimes depart
from reality. In Anchorage the average home is selling for
$300,000. So $100,000 will not exempt all property value for
most home owners and it would provide relief. If Anchorage were
to implement this to the limit, the shift would increase the
millage and a redistribution of the tax not just to commercial
property owners, but to higher value homeowners, as well.
He also agreed with Mr. Van Sant that fractional assessment is
not allowed under Alaska law. The Anchorage mil rate is
significantly affected by the tax cap. So they are limited in
terms of total tax revenue and the mil rate can only raise
enough money to meet the amount allowed by the tax cap.
4:12:30 PM
SENATOR STEVENS said they are redistributing the tax to
commercial property, but in the end if tax is raised on
McDonald's Restaurant, McDonald's would raise the price of its
hamburgers and the public would pay that anyway. He asked for an
overall view of what happens when the tax is redistributed on
commercial property.
MR. MCGEE replied if they were to implement the exemption to the
limit allowed, it would cause the remaining taxpayers, both
commercial and residential, to pay more taxes. In terms of its
distribution down the chain, the market elements of supply and
demand don't always allow them to pass their increased tax down
to their customers. Some people have the option, especially in
Anchorage, of going to Matsu to do business in a different tax
environment. Sometimes local tax policy has consequences beyond
the obvious. He said that apartment owners in Anchorage have not
been able to pass all of their increased expenses to their
customers and probably wouldn't be able to with this tax.
4:14:41 PM
SHANE HORAN, Assessor, Kenai Peninsula Borough, said the borough
doesn't support SB 122. He said that Mayor John Williams
believes it would pressure the assembly to pass an unfunded
exemption. Currently the Kenai Peninsula Borough does offer the
$20,000 residential exemption for residential properties that
are owned and occupied as a primary residence and permanent
place of abode. In 2005 they went from a $10,000 residential
exemption up to a $20,000 exemption. According to the Kenai
Peninsula Borough code, one must occupy one's home for at least
183 days per year in the prior year for which the exemption is
sought. This bill has no such requirements and merely states: "A
municipality may exclude or exempt or partially exempt
residential property from taxation by ordinance ratified by the
voters at an election." There is no language specifying
ownership or occupancy.
MR. HORAN said that current exemptions amount to about $185
million and approximately $2.2 million in taxes being exempted
or shifted elsewhere. A $50,000 exemption would amount to
approximately $452.4 million or approximately $5.5 million in
taxes exempted or shifted elsewhere. At $100,000, the assessed
value exempted would be $855 million or approximately $10
million in taxes exempted. Lastly, this additional available
exemption would place political pressure on the municipality to
go before the voters at a time when budgets are attempting to be
managed with all due care and fiscal responsibility.
4:17:32 PM
CHAIR OLSON asked how the sales tax provision would affect their
current sales tax situation.
MR. HORAN replied that he didn't know, but he did know that the
mayor and administration are considering lowering the mil rate.
The Peninsula has a 2 percent sales tax and they wish to
increase that to 3 percent and reduce property taxes by 1 mi.
SENATOR WAGONER said that would take place on January 1, 2008 if
they do that.
TAMMY WILSON said she lives in the Fairbanks North Star Borough,
and she thanked Senator Thomas for bringing this forward. As a
homeowner, she gets a choice of $20,000 or a percentage. She
thought this would work the same way. If this passed, she didn't
think Fairbanks would all of a sudden go up to $100,000. They
would go to $30,000 or $40,000 and see how that would be shifted
to the businesses. She said, however, that the sales tax puts
the entire burden on the residents who buy things. Shifting the
responsibility to businesses will cause them to pass on the cost
to the customer. They are lucky their mil rate has been lower
each year, but most assessments have grown 30 percent and even
doubled in the last year. SB 122 establishes a tool for boroughs
to use. It is not forced on anyone.
4:20:09 PM
SENATOR WAGONER said he used to be a commercial property owner
in Kenai and the ability to increase prices is directly
proportional to the competition. Smaller communities don't have
many new businesses coming in; they move within the community
from one piece of property to another where they can get the
lowest and best rate on their lease or rent. His rental rates
were basically stagnant for 12 years.
MS. WILSON responded that while she understands that, as a
residential homeowner, she has no way to pass it off to anybody.
At least businesses have a chance.
SENATOR STEVENS requested that the committee contact the Alaska
Municipal League since this would impact all Alaska communities.
CHAIR OLSON said that was an excellent idea.
SENATOR WAGONER asked the bill sponsor to consider including
"and/or commercial property." He worries about small business
owners at $100,000. Maybe they would accept $25,000.
4:23:43 PM
SENATOR THOMAS said he could look at that. His concern is that
change would broaden the concept, which might draw even more
concern about the direction they are headed. He said he would
take a look and get back with more testifiers.
SENATOR WAGONER said in Kenai he pays about 1.5 percent of the
value of his home in property taxes each year, but he paid 7 to
8 percent of the income from his commercial building for
property taxes. He knows how tough it is for small businesses.
SENATOR STEVENS asked if the sponsor would look at clarification
of ownership or occupancy requirements.
SENATOR THOMAS responded that he thought those terms were
already defined in the bill.
4:27:11 PM
MR. HOPKINS said that the primary residence qualifications run
along the same lines as applying for a Permanent Fund Dividend.
It is in statute, not in the bill.
SENATOR THOMAS said the bill would make that clear.
CHAIR OLSON said SB 122 was held over for further work. There
being no further business to come before the committee, he
adjourned the meeting at 4:28:04 PM.
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