Legislature(2003 - 2004)

04/02/2003 01:37 PM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
    SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                  
                         April 2, 2003                                                                                          
                           1:37 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Thomas Wagoner, Chair                                                                                                   
Senator Robin Taylor, Vice Chair                                                                                                
Senator Gary Stevens                                                                                                            
Senator Kim Elton                                                                                                               
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Georgianna Lincoln                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 136                                                                                                             
"An Act increasing an optional exclusion or exemption from                                                                      
municipal taxation for residential property."                                                                                   
     MOVED SB 136 OUT OF COMMITTEE                                                                                              
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
SB 136 - See CRA minutes dated 3/17/03                                                                                          
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Mary Jackson                                                                                                                    
Chief of Staff to Senator Thomas Wagoner                                                                                        
Alaska State Capitol, Room 427                                                                                                  
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Introduced SB 136                                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 03-9, SIDE A                                                                                                             
                                                                                                                                
CHAIR  THOMAS WAGONER  called the  Senate Community  and Regional                                                             
Affairs Standing Committee  meeting to order at  1:37 pm. Present                                                               
were  Senators Gary  Stevens, Taylor,  Elton  and Chair  Wagoner.                                                               
Senator Lincoln arrived momentarily.                                                                                            
                                                                                                                                
He asked Mary Jackson to present SB 136.                                                                                        
                                                                                                                                
           SB 136-RESIDENTIAL PROPERTY TAX EXEMPTION                                                                        
                                                                                                                                
MARY JACKSON, Chief  of Staff to Senator  Thomas Wagoner, advised                                                               
this bill was  before the committee the previous  meeting and the                                                               
fiscal note was an outstanding issue.                                                                                           
                                                                                                                                
She noted there was a new  fiscal note and explained there may be                                                               
a  fiscal impact,  but  it  is not  certain  because  no one  can                                                               
predict what action municipalities would take.                                                                                  
                                                                                                                                
She  pointed out  letters  of support  from  the Kenai  Peninsula                                                               
Borough and  the City  of Valdez, both  of which  are communities                                                               
that would potentially be affected.                                                                                             
                                                                                                                                
She  emphasized this  is  an issue  of  local determination.  The                                                               
municipalities  could, by  a vote  of  the public,  exempt up  to                                                               
$50,000  in   assessed  annual  valuation   of  each   parcel  of                                                               
residential property. Currently the  allowable exemption limit is                                                               
$10,000. The community  would review the issue each  year as they                                                               
prepare the budget.                                                                                                             
                                                                                                                                
Kenai believes  their appraisal values increase  enough to offset                                                               
the increased exemption. Kenai also  uses a sales tax to increase                                                               
revenue  and they  believe municipalities  have  that option  and                                                               
others to utilize.  Regardless of what each  community chooses to                                                               
utilize, it should be a local determination.                                                                                    
                                                                                                                                
She opined the  discussion regarding whether there is  or isn't a                                                               
fiscal implication should be a Finance Committee issue.                                                                         
                                                                                                                                
SENATOR  ROBIN TAYLOR  noted the  state requires  every municipal                                                               
entity or borough  to assess at 100 percent of  market value. The                                                               
exception  is allowed  in  a home  rule city  and  a first  class                                                               
borough  to  provide  for  different  levels  of  taxation  at  a                                                               
variable  rate  depending  on  the  level  of  service  provided.                                                               
However, many communities tax at 50  percent of value if there is                                                               
no  electricity, no  water, and  no sewer  then as  utilities are                                                               
extended, a greater percentage of  true value would be paid. With                                                               
this in  mind, he asked if  discussions had taken place  with the                                                               
state assessor as to what impact,  if any, this would have on the                                                               
education funding formula.                                                                                                      
                                                                                                                                
MS.  JACKSON explained  Eddy Jeans,  school finance  manager with                                                               
the  Department  of Education,  said  it  has  no impact  on  the                                                               
foundation formula because it is an exemption.                                                                                  
                                                                                                                                
SENATOR TAYLOR  remarked the assessor still  makes the assessment                                                               
and  if Kenai's  property is  worth  $1 billion  then it's  still                                                               
worth $1  billion even  though Kenai has  decided to  reduce each                                                               
residential property by $50,000.                                                                                                
                                                                                                                                
MS. JACKSON agreed  and added the $10,000 exemption  is in effect                                                               
now and it isn't an issue in terms of the local share.                                                                          
                                                                                                                                
SENATOR TAYLOR asked how many  communities were opting to utilize                                                               
the exemption.                                                                                                                  
                                                                                                                                
MS. JACKSON responded there are five.                                                                                           
                                                                                                                                
SENATOR  TAYLOR asked  if  it  was the  same  five. [Bristol  Bay                                                               
Borough, Fairbanks  North Star Borough, Kenai  Peninsula Borough,                                                               
North Slope Borough, Valdez]                                                                                                    
                                                                                                                                
MS. JACKSON nodded.                                                                                                             
                                                                                                                                
SENATOR TAYLOR  remarked the municipality or  borough would still                                                               
need at least  the same level of funding to  sustain the level of                                                               
services currently  provided.  This  would allow them  the option                                                               
to  exempt taxes  on  up  to $50,000  in  value  in their  taxing                                                               
district then  seek other sources  of revenue whether  it's sales                                                               
tax or something else.                                                                                                          
                                                                                                                                
CHAIR WAGONER added cutting expenditures was another option.                                                                    
                                                                                                                                
MS. JACKSON  told the  Senator he was  correct and  repeated this                                                               
only applies to residential properties.                                                                                         
                                                                                                                                
SENATOR  LINCOLN asked  whether  residential  property means  the                                                               
primary place of residence.                                                                                                     
                                                                                                                                
MS. JACKSON  said that  was correct;  it is  residential property                                                               
that is exempt from taxation  by ordinance and ratified by voters                                                               
at an election.                                                                                                                 
                                                                                                                                
SENATOR LINCOLN asked if there would  be a positive effect to the                                                               
state.                                                                                                                          
                                                                                                                                
MS. JACKSON emphasized she didn't  want her to believe the effect                                                               
would be  positive. She  clarified, if there  were an  effect, it                                                               
would  be negative  in  terms  of the  revenues  the state  would                                                               
receive. Potentially it  would have an effect on the  oil and gas                                                               
properties  that fall  into line  with the  20-mil rate  when the                                                               
municipality is at  15 mills. The assessor's concern  was that if                                                               
the municipality  offered the $50,000  exemption then  offset the                                                               
exemption by increasing the mill rate  by 1, the state's share of                                                               
the  oil and  gas properties  would be  reduced. Her  response to                                                               
that is that local elected  officials wouldn't benefit themselves                                                               
by handing residents  a carrot in one hand and  hitting them with                                                               
a stick with the other.                                                                                                         
                                                                                                                                
SENATOR LINCOLN  said she  didn't read  it the  same way  and she                                                               
didn't understand  why the fiscal note  was indeterminate because                                                               
the Finance Committee would require something more specific.                                                                    
                                                                                                                                
MS.  JACKSON replied  that has  been the  concern all  along; you                                                               
can't make a  determination on what the fiscal impact  may or may                                                               
not be  because you're predicting  what an entity other  than the                                                               
State of Alaska may or may  not do. You cannot reasonably predict                                                               
what communities  will do  and it's not  the jurisdiction  of the                                                               
state to make that decision.                                                                                                    
                                                                                                                                
SENATOR  LINCOLN   read  the  following  fiscal   note  analysis:                                                               
"Assuming  all  municipalities with  oil  and  gas property  took                                                               
advantage of  the provision....  the annual  revenue drop  to the                                                               
state could be  approximately $1.6 million." She  said this shows                                                               
there are some assumptions that can be made.                                                                                    
                                                                                                                                
MS. JACKSON  described that as the  worst-case scenario. Although                                                               
that  fiscal information  is still  available, whether  you could                                                               
reasonably and  accurately predict  that would happen  has always                                                               
been  the  question.  The department  says  they  cannot  predict                                                               
because  they   don't  have   the  jurisdiction   over  decisions                                                               
municipalities  make. That's  part  of the  whole  issue; it's  a                                                               
local determination.                                                                                                            
                                                                                                                                
SENATOR  TAYLOR  agreed  it's  a  local  determination,  but  the                                                               
decision to take the carrot  and stick approach certainly doesn't                                                               
occur in the  North Slope Borough. It might occur  in Kenai where                                                               
there is  some ownership  interest or  some people  working there                                                               
that are  concerned about that,  but that  isn't the case  on the                                                               
Slope. He  noted the oil  and gas  property tax revenue  from the                                                               
four communities amounts  to about $24 million  while the revenue                                                               
from the  North Slope  Borough is  about $193  million.   If they                                                               
could utilize  that and  manipulate lower  local taxes  for their                                                               
borough and in doing so increase  the amount they take, that must                                                               
be where  the state is coming  up with the possible  loss of $1.6                                                               
million.                                                                                                                        
                                                                                                                                
MS.  JACKSON   agreed  then  directed  him   to  the  information                                                               
regarding mill  rates. Both  Valdez and  the North  Slope Borough                                                               
are close  to the cap  so the impact isn't  as much as  you might                                                               
think it would be. The  Kenai Peninsula Borough and the Fairbanks                                                               
North Star  Borough are not near  that cap and they  are the ones                                                               
that would have an impact if there were to be one.                                                                              
                                                                                                                                
SENATOR KIM  ELTON said  part of  the question  is that  it's not                                                               
possible to  predict what  action a  municipality might  or might                                                               
not take  which makes the  effect on state revenue  uncertain. He                                                               
asked  whether  the  sponsor  had   considered  adding  that  the                                                               
exemption would be  contingent on a ruling  from the Commissioner                                                               
of Revenue that it would have no impact on state receipts.                                                                      
                                                                                                                                
CHAIR  WAGONER advised  one of  the problems  he would  have with                                                               
that is that currently two  boroughs have been given the latitude                                                               
to max out  and the state is receiving no  revenue from any piece                                                               
of property within their  taxing jurisdiction. Realistically, the                                                               
Kenai Peninsula Borough  could assess up to 20-mills  at any time                                                               
and take  the revenue. The  state already  allows for that  to be                                                               
done. We're  saying, "On one hand  we don't want them  to be able                                                               
to tax us  additionally and draw down the revenue  the state gets                                                               
on the  oil properties, but  at the  same time they  already have                                                               
that  authority."   He  acknowledged  the  suggestion   was  well                                                               
founded.                                                                                                                        
                                                                                                                                
SENATOR ELTON  stated he wouldn't  offer an amendment  because he                                                               
didn't  know all  the  implications  and because  it  would be  a                                                               
discussion the Finance Committee could have.                                                                                    
                                                                                                                                
MS. JACKSON  advised capping the  amount of money  a municipality                                                               
may take has  been discussed any number of times  over the years.                                                               
SB  136 isn't  about  that discussion,  it's  about increasing  a                                                               
$10,000 exemption  that is already  in place. There's  already an                                                               
exemption for senior citizens and  for veterans and firefighters.                                                               
SB  136 is  to  increase the  residential  property exemption  to                                                               
$50,000.                                                                                                                        
                                                                                                                                
SENATOR TAYLOR commented he couldn't  imagine anyone in the Kenai                                                               
Peninsula Borough  surviving very long  if they took  the current                                                               
mill  rate  of 6.5  and  boosted  it to  20  mills,  but that  is                                                               
certainly what  has gone on  and is going  on in the  North Slope                                                               
Borough.                                                                                                                        
                                                                                                                                
Municipalities complain about the  senior citizen exemption every                                                               
year  because of  the  large  tax base  that  is unavailable  and                                                               
Legislatures   have  been   asked  repeatedly   to  remove   that                                                               
exemption.  SB   136  doesn't  exempt  the   elderly  it  exempts                                                               
everyone.                                                                                                                       
                                                                                                                                
He said  it's an  interesting question and  he doesn't  know what                                                               
the real ramifications  would be. He continued,  "I would imagine                                                               
when Senator  Wilken sees  this he will  probably want  to attach                                                               
something that says,  'All people wherever situated  in the state                                                               
shall pay  some taxes on  their house.'" But  if you give  them a                                                               
$50,000 exemption  there may be  houses in some  communities that                                                               
don't have enough value to tax.                                                                                                 
                                                                                                                                
MS.  JACKSON stated  that was  a topic  of conversation  when the                                                               
bill came  out and  Senator Elton's point  was discussed,  as was                                                               
the   senior  citizen   exemption.  She   continued,  "It's   not                                                               
inconceivable  this  very  small  one page  bill  could  suddenly                                                               
become very, very big."                                                                                                         
                                                                                                                                
There were no further questions.                                                                                                
                                                                                                                                
CHAIR WAGONER called for a motion.                                                                                              
                                                                                                                                
SENATOR  TAYLOR made  a motion  to move  SB 136  and accompanying                                                               
vague    fiscal   notes    from    committee   with    individual                                                               
recommendations. There being no objection, it was so ordered.                                                                   
                                                                                                                                
CHAIR  WAGONER noted  he  had  a letter  from  the Department  of                                                               
Environmental  Conservation  (DEC)  recommending  SB  118  go  no                                                               
further.                                                                                                                        
                                                                                                                                
SENATOR KIM  ELTON questioned,  "The letter is  from DEC,  it's a                                                               
Governor's bill and they want it killed?                                                                                        
                                                                                                                                
CHAIR WAGONER said that was  correct. After the first hearing the                                                               
department found there were far more questions than answers.                                                                    
                                                                                                                                
SENATOR  ELTON  remarked  they could  assume  the  committee  was                                                               
diligent in raising concerns.                                                                                                   
                                                                                                                                
CHAIR WAGONER agreed.                                                                                                           
                                                                                                                                
He  announced  the Local  Boundary  Commission  would make  their                                                               
annual borough report the following week.                                                                                       
                                                                                                                                
There being no further business to come before the committee,                                                                   
the meeting was adjourned at 2:00 pm.                                                                                           

Document Name Date/Time Subjects