Legislature(2005 - 2006)SENATE FINANCE 532


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01:32:59 PM Start
01:33:28 PM Overview:
02:36:11 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Alaska Municipal League TELECONFERENCED
"Sustaining Strong Communities: City &
Borough Roles, Responsibilities & Issues"
                    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                                                                      
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.                                                                                                      
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)                                                               
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                                                               
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                                                               
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                                                               
2:36:02 PM                                                                                                                    
CHAIR GARY STEVENS adjourned meeting at 2:36:11 PM.                                                                           

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