Legislature(2005 - 2006)SENATE FINANCE 532
02/18/2005 01:30 PM 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.