Legislature(2005 - 2006)SENATE FINANCE 532

01/17/2006 09:00 AM FINANCE


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+ teleconferenced
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SB 55 AGRICULTURAL LAND
Heard & Held
HB 217 FULL & TRUE VALUE OF TAXABLE MUNI PROP.
Heard & Held
Bills Previously Heard/Scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                         January 17, 2006                                                                                     
                             9:03 a.m.                                                                                        
                                                                                                                                
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Lyda  Green convened the  meeting at approximately  9:03:53                                                          
AM.                                                                                                                           
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
                                                                                                                                
Also Attending:  REPRESENTATIVE  JOHN HARRIS; PETE FELLMAN, staff to                                                          
Representative  Harris;  AMY SEITZ,  Staff to sponsor  of the  bill,                                                            
Senator Tom Wagoner;                                                                                                            
                                                                                                                                
Attending  via Teleconference:    From  Anchorage:  STEVE VAN  SANT,                                                          
State  Assessor,  Division  of  Community  Advocacy,  Department  of                                                            
Commerce,  Community and  Economic Development;  LAMAR COTTON;  From                                                            
Delta Junction:  PETE HALLGREN,  City Administrator,  City  of Delta                                                            
Junction;  From an offnet  location: DICK  MYLIUS, Acting  Director,                                                            
Division  of   Mining,  Land  and   Water,  Department  of   Natural                                                            
Resources;  From  Kenai:  FRANK  MILLER;  ROSWITHA  MILLER;  CHARLES                                                            
GRAHAM                                                                                                                          
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
HB 217-FULL & TRUE VALUE OF TAXABLE MUNI PROP.                                                                                  
                                                                                                                                
The Committee  heard from the sponsor,  the Department of  Commerce,                                                            
Community and Economic  Development, and the City of Delta Junction.                                                            
The bill was held in Committee.                                                                                                 
                                                                                                                                
SB  55-AGRICULTURAL LAND                                                                                                        
                                                                                                                                
The Committee  heard  from the  sponsor, the  Department of  Natural                                                            
Resources and the impacted  parties. The bill was held in Committee.                                                            
                                                                                                                                
                                                                                                                                
     HOUSE BILL NO. 217(title am)                                                                                               
     "An Act  relating to the determination  of full and  true value                                                            
     of  taxable  municipal  property   for  purposes  of  providing                                                            
     planning  assistance to the Department  of Education  and Early                                                            
     Development  and  the  legislature,   calculating  funding  for                                                            
     education,  calculating  school district  participating  shares                                                            
     for school  construction grants,  and calculating tax  resource                                                            
     equalization  payments  and excluding  from that determination                                                             
     the  value  of  property  in  certain  areas  detached  from  a                                                            
     municipality  and the value of  certain property involved  with                                                            
     oil and gas that is not taxed by a municipality."                                                                          
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  JOHN HARRIS,  Sponsor  of the  bill, testified  this                                                            
bill is  an effort to allow  for unorganized  areas of the  state to                                                            
become  organized. He  spoke of  Co-Chair Wilken's  efforts in  this                                                            
endeavor.                                                                                                                       
                                                                                                                                
Representative Harris explained  this bill would allow the residents                                                            
of an  unorganized area  in which the Alyeska  TransAlaska  Pipeline                                                            
crosses,  to form  a  borough and  provide  school funding  but  not                                                            
impose property  taxes. This would  exempt the new borough  from the                                                            
requirement that  a minimum of four mils be levied  on all privately                                                            
owned property  within its boundaries.  The intent is for  the Delta                                                            
area to incorporate.                                                                                                            
                                                                                                                                
Representative  Harris stressed he opposed mandatory  incorporation.                                                            
                                                                                                                                
PETE FELLMAN,  staff to  Representative Harris,  remarked that  this                                                            
bill is  about "choice".  It would provide  an exemption of  oil and                                                            
gas properties when the  State assessor determines the overall value                                                            
of the  borough.  The borough  would be  allowed to  fund its  local                                                            
contribution  for  education  through sources  other  than  property                                                            
taxes, such as a sales tax, or a utility tax.                                                                                   
                                                                                                                                
9:08:36 AM                                                                                                                    
                                                                                                                                
Senator Bunde  assumed that revenues generated by  the borough would                                                            
be substantially  higher  if property  taxes were  collected on  the                                                            
pipeline.                                                                                                                       
                                                                                                                                
9:08:55 AM                                                                                                                    
                                                                                                                                
Mr. Fellman affirmed.                                                                                                           
                                                                                                                                
9:08:59 AM                                                                                                                    
                                                                                                                                
Senator  Bunde  surmised  that without  property  taxes,  the  local                                                            
contribution to schools would likely be "token".                                                                                
                                                                                                                                
9:09:06 AM                                                                                                                    
                                                                                                                                
Mr. Fellman  agreed. The  amount would be  "relative to what  school                                                            
districts and the borough  chose to pay". The local government would                                                            
have  the option  of  operating schools  with  the amount  it  could                                                            
generate in the  equivalent of four mils property  tax, if it deemed                                                            
the  amount  was sufficient.  He  noted  that  the revenues  from  a                                                            
property tax  on the pipeline that  would otherwise be appropriated                                                             
to the borough would be retained by the State.                                                                                  
                                                                                                                                
9:09:39 AM                                                                                                                    
                                                                                                                                
Representative  Harris  stated  that a  significant  portion of  the                                                            
privately owned  land in the Delta region is agricultural  and has a                                                            
low value.  Although revenue  would be generated  from the  property                                                            
housing  the pipeline,  other  property  owners  would  be levied  a                                                            
minimum of  four mils as well. These  residents would therefore  not                                                            
likely  vote in  favor of  implementation  of a  property tax.  This                                                            
legislation  would provide  a mechanism  for a community  to  form a                                                            
borough without  the imposition  of a property  tax. He preferred  a                                                            
property  tax himself because  it would  generate significant  funds                                                            
from the pipeline for school operations.                                                                                        
                                                                                                                                
9:11:10 AM                                                                                                                    
                                                                                                                                
Senator Bunde  acknowledged the realism that many  communities would                                                            
resist borough  formation to avoid  paying a property tax.  He asked                                                            
if other sufficient  tax revenue sources would be  locally available                                                            
to fund education.                                                                                                              
                                                                                                                                
9:11:52 AM                                                                                                                    
                                                                                                                                
Representative  Harris replied  that the residents  would "reach  an                                                            
agreement"  with the Pogo  Mine located in  the area and would  also                                                            
need  to implement  other  forms of  taxation,  such  as on  tourism                                                            
activities.  As reflected  in the charter  application to the  Local                                                            
Boundary   Commission  these   concepts  have   been  investigated.                                                             
Officials  at the Pogo Mine  do not support  having the mine  be the                                                            
sole source  of revenue for  the borough.  Taxes collected  from the                                                            
company should not be so onerous as to hamper operations.                                                                       
                                                                                                                                
9:12:37 AM                                                                                                                    
                                                                                                                                
Senator  Bunde commented  he empathized  with the  operators of  the                                                            
Pogo Mine,  as "some  in the state  are getting  tired of being  the                                                            
sole source of income for some organized areas."                                                                                
                                                                                                                                
9:12:48 AM                                                                                                                    
                                                                                                                                
Senator Dyson  requested a  summary of the  foreseen impact  of this                                                            
legislation on State funding.                                                                                                   
                                                                                                                                
9:13:27 AM                                                                                                                    
                                                                                                                                
Representative  Harris explained that if a local community  in which                                                            
the pipeline  traverses  within its  boundaries  imposes a  property                                                            
tax, the pipeline property  could be taxed at the same rate as other                                                            
private property  would be taxed. The State collects  a property tax                                                            
of 20 mils for all pipeline  property in Alaska and transfers to the                                                            
local government,  funds  in the amount  of the  mil rate levied  by                                                            
that  government for  the  portion of  property located  within  the                                                            
borough boundaries.  The State retains the full amount  for areas in                                                            
which a local government does not impose a property tax.                                                                        
                                                                                                                                
9:14:34 AM                                                                                                                    
                                                                                                                                
Senator  Dyson  understood  that  if  the  newly  organized  borough                                                            
imposed  a property  tax of  20 mils  for the  privately owned  land                                                            
within its boundaries,  the State would receive none of the revenues                                                            
it currently  generates  from the  pipeline property  in that  area.                                                            
Conversely,  the amount of  funding the State  contributes  to local                                                            
education  in that borough  would be reduced.  However, the  loss of                                                            
revenues  would  be  considerably   larger  than  the  reduction  in                                                            
education  funding.  He asked  if  the sponsor  had  considered  the                                                            
trade-offs.                                                                                                                     
                                                                                                                                
9:15:34 AM                                                                                                                    
                                                                                                                                
Representative  Harris responded that  if the Delta region  formed a                                                            
borough  and  levied  a  20-mil  property  tax,  it  would  generate                                                            
significantly more revenue  than required to fund schools. A concern                                                            
of local residents is a  potential loss of control in the event that                                                            
a government  entity was created and  the taxes it imposed  were too                                                            
high.  This is  a particular  concern  in relation  to agricultural                                                             
properties.                                                                                                                     
                                                                                                                                
Harris pointed  out that the  City of Valdez  collects a rate  of 20                                                            
mils on all  private property. The  residents of Delta do  not favor                                                            
this for their community.                                                                                                       
                                                                                                                                
9:16:59 AM                                                                                                                    
                                                                                                                                
Senator Dyson  asked the amount the State currently  appropriates to                                                            
Delta area schools.                                                                                                             
                                                                                                                                
9:17:07 AM                                                                                                                    
                                                                                                                                
Mr. Fellman  did not  have the exact  amount.  He noted that  school                                                            
districts  request funds  from the legislature  and the legislature                                                             
determines the amount to appropriate.                                                                                           
                                                                                                                                
9:17:36 AM                                                                                                                    
                                                                                                                                
Senator Dyson  asked the amount  of lost revenue  to the State  if a                                                            
borough formed and levied taxes on the pipeline.                                                                                
                                                                                                                                
9:17:53 AM                                                                                                                    
                                                                                                                                
Representative  Harris  deferred  to  the  Department  of  Commerce,                                                            
Community  and Economic Development.  He reiterated  that the  State                                                            
currently  generates more  funds from  this area  than the  proposed                                                            
borough would  require for its operations. He noted  that in a local                                                            
government  that  imposed  four mils  the  State would  continue  to                                                            
receive 16 mils.                                                                                                                
                                                                                                                                
9:18:45 AM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  reported that the State appropriates  approximately                                                            
$8.9 million  annually for  education purposes  to the Delta/Greely                                                             
Rural Education Attendance Area (REAA).                                                                                         
                                                                                                                                
Co-Chair  Wilken furthered  that the 20-mil  rate collected  for the                                                            
pipeline in that area equals approximately $3.8 million.                                                                        
                                                                                                                                
9:19:45 AM                                                                                                                    
                                                                                                                                
Co-Chair  Wilken  referenced  a spreadsheet  titled,  "Upper  Tanana                                                            
Borough  Valuation Summary  Page" [copy  on file]  that details  the                                                            
estimated  values of the  Delta/Greely REAA  and the Alaska  Gateway                                                            
REAA, in the Tok area.                                                                                                          
                                                                                                                                
9:20:07 AM                                                                                                                    
                                                                                                                                
STEVE  VAN SANT,  State Assessor,  Division of  Community  Advocacy,                                                            
Department   of  Commerce,  Community   and  Economic  Development,                                                             
testified via teleconference  from Anchorage that the total value of                                                            
the Delta area  is $501,578,000. Of  that amount $182,078,000  is in                                                            
local property, and $125  million is the estimated value of the Pogo                                                            
Mine, which  is 50 percent  complete. The  pipeline value is  $194.5                                                            
million.  If the  proposed  borough  levied a  property  tax of  the                                                            
minimum  allowable  four  mils,  it  would  generate  approximately                                                             
$800,000. A  levy of 20 mils would  generate almost $4 million.  The                                                            
local  funding  requirement  for education  would  be  $2.3  million                                                            
including revenues  from the pipeline  and $1.2 million without  the                                                            
inclusion of the pipeline.                                                                                                      
                                                                                                                                
9:21:53 AM                                                                                                                    
                                                                                                                                
Co-Chair Green  asked if the witness had other information  to share                                                            
with the Committee pertaining to this issue.                                                                                    
                                                                                                                                
9:21:59 AM                                                                                                                    
                                                                                                                                
Mr. Van  Sant stated that  the Department  supports this bill  as an                                                            
incentive  for  borough  formation.  A  borough  formed  under  this                                                            
provision would have no  negative fiscal impact to the State. If the                                                            
borough imposed a property tax, State revenues would be reduced.                                                                
                                                                                                                                
9:22:28 AM                                                                                                                    
                                                                                                                                
Co-Chair  Green asked if  a community elsewhere  in the state  could                                                            
misuse the provisions of this legislation.                                                                                      
                                                                                                                                
9:22:39 AM                                                                                                                    
                                                                                                                                
Mr. Van  Sant was not aware  of any opportunity  for this to  occur.                                                            
The provisions are specific to only three regions.                                                                              
                                                                                                                                
9:22:52 AM                                                                                                                    
                                                                                                                                
PETE  HALLGREN,   City  Administrator,   City  of  Delta   Junction,                                                            
testified   via  teleconference   from   Delta   Junction  that   he                                                            
collaborated with the state  assessor on this mater for one and one-                                                            
half  years.  He  stressed  that  a  formal  petition   for  borough                                                            
formation has  been submitted and is under review  by the Department                                                            
of Commerce, Community  and Economic Development.  The area includes                                                            
two large commercial  stakeholders: the pipeline and  the Pogo Mine.                                                            
Current statute  requires that a borough formed in  an area in which                                                            
the pipeline traverses  impose a minimum of a four-mil rate property                                                            
tax.                                                                                                                            
                                                                                                                                
Mr. Hallgren  relayed that  the supporters  of the petition  contend                                                            
that a property tax would  reduce revenue to the State and that more                                                            
than four-mils  would  be required  because of  the operating  costs                                                            
involved  with administration  of  the tax.  He estimated  the  rate                                                            
would be five to eight  mils. Therefore, the reduction in revenue to                                                            
the  State  would be  greater  than  the amount  the  borough  would                                                            
contribute to education.                                                                                                        
                                                                                                                                
Mr. Hallgren  informed that  the borough  commission entered  into a                                                            
payment  in lieu of  taxes (PILT)  agreement with  the Pogo  Mine to                                                            
collect from the mine an  amount equal to a ten-mil valuation of the                                                            
mine.                                                                                                                           
                                                                                                                                
Mr. Hallgren continued as follows.                                                                                              
                                                                                                                                
     That  would  bring  us  in  the  money  necessary  on  Pogo  to                                                            
     contribute toward  the local school contribution. So it's not a                                                            
     token  local tax if we take out  the tax here if you  pass this                                                            
     bill.  We're still  paying  the four  mils on  all the  private                                                            
     taxable property  in the borough plus the Pogo  value, which is                                                            
     probably going to  be well in excess of $200 million as of this                                                            
     point  per year. So  with the Pogo PILT  agreement, the  second                                                            
     thing  we need  to do  is figure  out  how to  handle the  $200                                                            
     million  value in tax.  Without a property  tax on the  current                                                            
     statute,  the local citizens would have to pull  that money out                                                            
     of  their own  pockets  to contribute  to the  school  district                                                            
     because the State's  currently getting all 20 mils from the tax                                                            
     value.                                                                                                                     
                                                                                                                                
9:27:26 AM                                                                                                                    
                                                                                                                                
Co-Chair Wilken understood  that $1.2 million would be garnered from                                                            
the  Pogo  Mine  to  essentially  fund  the  local  contribution  to                                                            
education.  Any additional  services the borough  provides,  such as                                                            
platting  and animal  control, would  be funded  from others  means,                                                            
such as a sales tax or a utility tax.                                                                                           
                                                                                                                                
9:28:32 AM                                                                                                                    
                                                                                                                                
Mr.  Hallgren  affirmed  and  told of  a  proposed  fuel tax  and  a                                                            
proposed power  tax, neither of which would "target"  the Pogo Mine.                                                            
                                                                                                                                
9:28:55 AM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  applauded Mr. Van  Sant's efforts to establish  the                                                            
value  of the  REAA.  The previous  valuation  was made  before  the                                                            
construction of a prison, the Pogo Mine and other developments.                                                                 
                                                                                                                                
Co-Chair  Wilken divided  963,  the number  of residents,  into  the                                                            
total  value  of the  region  of $501  million  and  calculated  the                                                            
capacity  to support local  government and  schools at $520,000  per                                                            
resident.  The average  amount  of organized  boroughs  is  $99,000;                                                            
Anchorage  is $82,000  and Fairbanks  is $71,000.  The Delta/Greely                                                             
area would  be the  second highest  in the State  next to the  North                                                            
Slope Borough.                                                                                                                  
                                                                                                                                
Co-Chair Wilken  expressed frustration that residents  of some areas                                                            
are  "not  stepping  up  and  carrying  their   weight"  in  funding                                                            
education.  He  warned  that if  the  vote to  incorporate  into  an                                                            
organized  borough were  to fail,  a "full blast  attempt" would  be                                                            
made for a mandatory formation.  This could result in a borough that                                                            
the  Delta area  residents  may  not have  chosen.  Local  residents                                                            
should  contribute  to the  betterment  of  their schools.  Not  all                                                            
unorganized areas are unable to make this contribution.                                                                         
                                                                                                                                
9:32:15 AM                                                                                                                    
                                                                                                                                
Co-Chair  Wilken  supported  this bill,  noting  he had  offered  an                                                            
amendment to legislation  considered during a previous  session that                                                            
would have  provided the  same option as  this bill. Four  organized                                                            
boroughs fund  its government with  revenue from sources  other than                                                            
property taxes.                                                                                                                 
                                                                                                                                
9:32:52 AM                                                                                                                    
                                                                                                                                
Senator  Bunde listed  the combined  earned income  of residents  of                                                            
unorganized  areas in  2004 as  $504 million.  He  asked the  earned                                                            
income of the residents of the Delta region.                                                                                    
                                                                                                                                
9:33:24 AM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  stated he would provide this information.  He noted                                                            
that  the $504  million  was  earned by  approximately  18,000  wage                                                            
earners.                                                                                                                        
                                                                                                                                
9:33:47 AM                                                                                                                    
                                                                                                                                
Senator  Bunde noted  other pending  legislation  he sponsored  that                                                            
would require  residents of unorganized areas to pay  for schools by                                                            
other means if they chose not to organize.                                                                                      
                                                                                                                                
9:34:07 AM                                                                                                                    
                                                                                                                                
Senator  Bunde noted  that  the contribution  to  the local  schools                                                            
would be paid almost entirely  by the Pogo Mine. Mine operations are                                                            
finite.  He asked  the  plan for  school  funding after  the  mining                                                            
operations cease.                                                                                                               
                                                                                                                                
9:34:42 AM                                                                                                                    
                                                                                                                                
Representative  Harris reported that the projected  life of the mine                                                            
is approximately 20 years.  He did not know the community's plan for                                                            
generating revenue  after the mine closure. The concern  is with the                                                            
formation of a government  entity that over-taxes. Stipulations must                                                            
be made to  prevent this. He would  oppose the over-taxation  of any                                                            
private sector entity.                                                                                                          
                                                                                                                                
9:35:46 AM                                                                                                                    
                                                                                                                                
Senator Olson  remarked that the title  of the bill is broad  enough                                                            
to allow  insertion  of other provisions  relating  to boroughs.  He                                                            
asked  how such additions  could  affect boroughs  that are  already                                                            
organized.                                                                                                                      
                                                                                                                                
9:36:14 AM                                                                                                                    
                                                                                                                                
Representative  Harris  assured this  bill would  have no impact  on                                                            
existing organized  boroughs. Rather it provides another  option for                                                            
the formation of new boroughs.                                                                                                  
                                                                                                                                
9:37:04 AM                                                                                                                    
                                                                                                                                
Senator  Olson  clarified  that the  North  Slope Borough  would  be                                                            
unaffected, and this bill  could not be amended to insert provisions                                                            
that would impact it.                                                                                                           
                                                                                                                                
9:37:32 AM                                                                                                                    
                                                                                                                                
Representative  Harris  shared  that officials  of  the North  Slope                                                            
Borough  are aware  of this  legislation and  do not  object to  its                                                            
passage.  The  Borough  already  has  the  option  to  tax  the  oil                                                            
industry.                                                                                                                       
                                                                                                                                
9:37:53 AM                                                                                                                    
                                                                                                                                
Senator  Olson  asked  how  borough  formations  would  be  possible                                                            
without a private sector entity operating in the region.                                                                        
                                                                                                                                
9:38:11 AM                                                                                                                    
                                                                                                                                
Representative  Harris stressed the  need to understand the  mindset                                                            
of  Delta area  residents.  Co-Chair  Wilken  has tried  to  educate                                                            
legislators  and  residents  of the  value  of  organized  boroughs.                                                            
However, the  residents of this region  do not want to pay  property                                                            
tax and  do not want  additional  government. It  is unfair  for the                                                            
State to  contribute all  education funding  when the community  has                                                            
the means to  contribute as well.  This legislation would  allow the                                                            
new borough to forgo property  taxes. If property taxes were levied,                                                            
the tax must be fair.                                                                                                           
                                                                                                                                
Representative  Harris asserted  that the  House of Representatives                                                             
did not intend to insert additional provisions in this bill.                                                                    
                                                                                                                                
9:40:03 AM                                                                                                                    
                                                                                                                                
Co-Chair Green noted the  bill title of the original version of this                                                            
legislation  was broader  and was  amended specifically  to  prevent                                                            
insertion of provisions affecting existing boroughs.                                                                            
                                                                                                                                
9:40:59 AM                                                                                                                    
                                                                                                                                
Senator Hoffman  understood the current valuation  of the Pogo Mine,                                                            
which  is 50  percent  completed,  was $125  million.  He asked  the                                                            
projected valuation of the completed facility.                                                                                  
                                                                                                                                
9:41:06 AM                                                                                                                    
                                                                                                                                
Representative  Harris expected an announcement soon  of the pouring                                                            
of the first gold  bar. By the end of this year, the  mine should be                                                            
in full operation.                                                                                                              
                                                                                                                                
9:41:27 AM                                                                                                                    
                                                                                                                                
Senator Hoffman asked if  the full value of the completed mine would                                                            
be $250 million.                                                                                                                
                                                                                                                                
9:41:37 AM                                                                                                                    
                                                                                                                                
Mr. Van Sant  estimated the completion  value would be between  $250                                                            
and $300 million.  A full review would be required  to determine the                                                            
exact amount.                                                                                                                   
                                                                                                                                
9:42:10 AM                                                                                                                    
                                                                                                                                
Senator Stedman  quipped, "The only person who likes  property taxes                                                            
is the  king." Like  most Alaskans,  Senator  Stedman pays  property                                                            
taxes. He spoke of the  struggle ongoing since statehood to organize                                                            
residents  into   boroughs.  He  was  willing  to   be  flexible  in                                                            
accomplishing  this to provide more  local contribution to  schools.                                                            
The closure of the mine  in 20 years would have a significant impact                                                            
on the local economy  and he was concerned that the  petitioners for                                                            
this borough  formation  did not have  a long  term plan to  address                                                            
this. The community of  Sitka lost two large commercial enterprises,                                                            
which  had  supported  the  local  structure.   Twenty  years  is  a                                                            
relatively  short period. He asked  whether any provisions  exist to                                                            
address these  issues in  the event the residents  of this  proposed                                                            
borough attempt to dissolve the local government.                                                                               
                                                                                                                                
9:44:07 AM                                                                                                                    
                                                                                                                                
Representative  Harris  replied that  the State has  the ability  to                                                            
mandate  that  the   area  remain  a  borough.  He   hoped  that  as                                                            
infrastructure   is  formed,  locals  would  recognize   the  better                                                            
delivery  of  services  and  would  choose  to  retain  the  borough                                                            
government.  These residents  already  value the  services  received                                                            
from the State  government including  Alaska State Troopers  and the                                                            
snowplowing  of roads; however, these  residents do not want  to pay                                                            
for these services. He  recommended addressing this issue with "baby                                                            
steps."                                                                                                                         
                                                                                                                                
9:45:52 AM                                                                                                                    
                                                                                                                                
Senator  Stedman commented  on the  debate about  whether the  State                                                            
should be entitled to the  entire 20 mils from property taxes on the                                                            
pipeline.                                                                                                                       
                                                                                                                                
9:47:08 AM                                                                                                                    
                                                                                                                                
Representative  Harris responded  that the  community of Valdez  has                                                            
dealt  with  this  issue extensively  for  many  years.  The  20-mil                                                            
property tax collected  by that city on pipeline property  comprises                                                            
a significant  portion of its tax  base. This bill addresses  a fear                                                            
of property taxation, which must be overcome.                                                                                   
                                                                                                                                
9:47:56 AM                                                                                                                    
                                                                                                                                
Senator  Bunde recalled  hearings  held on  another  Senate bill  he                                                            
referred  to as providing  for a "borough  lite". He asked  how this                                                            
legislation interrelates  to that bill and whether the two bills had                                                            
any "cross purposes".                                                                                                           
                                                                                                                                
9:48:23 AM                                                                                                                    
                                                                                                                                
Representative Harris did  not think so. The other legislation would                                                            
provide  a different  opportunity  for  borough formation.  The  two                                                            
bills compliment each other.                                                                                                    
                                                                                                                                
9:48:40 AM                                                                                                                    
                                                                                                                                
LAMAR COTTON  testified via  teleconference  from Anchorage  that he                                                            
was available to respond to questions.                                                                                          
                                                                                                                                
9:49:08 AM                                                                                                                    
                                                                                                                                
Representative  Harris informed that Mr. Cotton was  employed by the                                                            
City  of Delta  Junction  in the  past  and could  still  be in  its                                                            
employment.                                                                                                                     
                                                                                                                                
9:49:22 AM                                                                                                                    
                                                                                                                                
Co-Chair  Green ordered  the  bill HELD  in Committee  to allow  any                                                            
additional questions to be brought forward.                                                                                     
                                                                                                                                
9:49:33 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 55                                                                                                         
     "An Act instructing the commissioner of natural resources to                                                               
     issue a patent for the remaining interest in certain state                                                                 
     land to the owner of the agricultural rights to that land."                                                                
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
AMY  SEITZ, Staff  to  sponsor of  the  bill, Senator  Tom  Wagoner,                                                            
testified that  this legislation was introduced to  settle ownership                                                            
of a parcel  of land near the community  of Hope. The Miller  family                                                            
homesteaded 27  acres and leased grazing rights on  another 15 acres                                                            
from the federal  government. During the 1964 earthquake,  18 of the                                                            
acres owned by the Miller  family became part of a riverbed and were                                                            
unsuitable  for use.  The federal  government compensated  this loss                                                            
of 17 acres  with one acre  of federal land.  The State deemed  this                                                            
exchange  unfair and  leased grazing  rights on  15 acres of  Forest                                                            
Service  land   to  the  family.   These  rights  were  amended   to                                                            
agricultural  rights in 1978. However,  the family should  have full                                                            
rights to this land.                                                                                                            
                                                                                                                                
Ms. Seitz informed  that a statutory provision is  required to allow                                                            
the conveyance  of this property. Former Senator John  Torgerson had                                                            
sponsored  similar legislation  during his  tenure. The legislation                                                             
before the  Committee is limited  to the one  parcel of land  and it                                                            
contains detailed provisions for the exchange.                                                                                  
                                                                                                                                
9:52:40 AM                                                                                                                    
                                                                                                                                
Senator Bunde  asked the  total dollar amount  of the proposed  land                                                            
sale and  whether the  proceeds would  be deposited  into the  State                                                            
general fund or the Lands Disposal Account fund.                                                                                
                                                                                                                                
9:53:05 AM                                                                                                                    
                                                                                                                                
Ms. Seitz  assumed  the monies  would be  deposited  to the  general                                                            
fund.  The  final  price  would not  be  determined  until  a  final                                                            
appraisal was completed.                                                                                                        
                                                                                                                                
9:53:26 AM                                                                                                                    
                                                                                                                                
DICK MYLIUS,  Acting Director, Division  of Mining, Land  and Water,                                                            
Department of  Natural Resources, testified via teleconference  from                                                            
an offnet  location  that the  value of  the property  would not  be                                                            
assessed if  and until this legislation  passed. The proceeds  would                                                            
be  deposited  to  the Land  Disposal  Fund  account  and  would  be                                                            
utilized for other land disposal activities.                                                                                    
                                                                                                                                
9:54:19 AM                                                                                                                    
                                                                                                                                
Senator Bunde surmised  that the amount of the fiscal note should be                                                            
indeterminate rather than zero.                                                                                                 
                                                                                                                                
9:54:33 AM                                                                                                                    
                                                                                                                                
Senator Bunde assumed that  the cost to process the sale of the land                                                            
would not exceed the selling price.                                                                                             
                                                                                                                                
9:54:55 AM                                                                                                                    
                                                                                                                                
Mr. Mylius replied that  the fiscal note could be amended to reflect                                                            
an  indeterminate  amount.  The  expense  would  be  less  than  the                                                            
proceeds from the sale.                                                                                                         
                                                                                                                                
9:55:13 AM                                                                                                                    
                                                                                                                                
FRANK MILLER  testified via  teleconference  from Kenai that  he and                                                            
his  sister  are  co-owners  of  the  property   in  question.  They                                                            
inherited   the  land  from   their  parents.   He  supported   this                                                            
legislation, as it would  solve problems encountered for many years.                                                            
Currently  the property  could not  be subdivided  and subsequently                                                             
passed along to their children.                                                                                                 
                                                                                                                                
9:56:20 AM                                                                                                                    
                                                                                                                                
ROSWITHA  MILLER testified  via teleconference  from  Kenai also  in                                                            
support of this bill. She is married to Frank Miller.                                                                           
                                                                                                                                
9:56:40 AM                                                                                                                    
                                                                                                                                
CHARLES  GRAHAM testified  via  teleconference  from  Kenai, as  the                                                            
spouse of Linda  Miller, Frank Miller's  sister and co-owner  of the                                                            
property. This legislation  is necessary to resolve the title to the                                                            
property.                                                                                                                       
                                                                                                                                
9:57:14 AM                                                                                                                    
                                                                                                                                
Senator Bunde  spoke to efforts of the community of  Hope to attract                                                            
new  families  in  order  to  continue  its  school  operations.  He                                                            
understood  that the intent of transferring  ownership of  this land                                                            
is to allow the property  to be subdivided. He asked the possibility                                                            
that this could assist the community's goal.                                                                                    
                                                                                                                                
9:57:44 AM                                                                                                                    
                                                                                                                                
Mr.  Graham acknowledged  the  possibility,  although  he could  not                                                            
provide a  definitive answer.  Currently the  property could  not be                                                            
subdivided. The intent is to share the land with family members.                                                                
                                                                                                                                
9:58:21 AM                                                                                                                    
                                                                                                                                
Mr. Miller  shared that  his daughter  would like  to reside  on the                                                            
property, which has necessitated  resolution to the ownership issue.                                                            
He admitted  that the  decision as  to whether  she would assist  in                                                            
increasing the student body was not his to make.                                                                                
                                                                                                                                
9:58:48 AM                                                                                                                    
                                                                                                                                
Senator  Stedman assumed  that this  transaction  would not  include                                                            
subsurface rights.                                                                                                              
                                                                                                                                
9:59:03 AM                                                                                                                    
                                                                                                                                
Ms. Seitz responded  that as with any land disposal,  the subsurface                                                            
rights would be retained by the State.                                                                                          
                                                                                                                                
9:59:27 AM                                                                                                                    
                                                                                                                                
Senator Stedman  supported  this bill. However,  he did not  support                                                            
establishment  of a precedent of providing compensation  for coastal                                                            
properties  in which useable  land was eliminated.  He spoke  to the                                                            
global   warming  phenomena   causing  significant   ice  melt   and                                                            
subsequent   changes  to  mean  high   tide  marks.  Although   this                                                            
legislation  is specifically  directed  to land lost  because  of an                                                            
earthquake,  he  cautioned  against   the precedent   that  property                                                            
boundaries  could be expanded but  not reduced from natural  causes.                                                            
                                                                                                                                
10:00:41 AM                                                                                                                   
                                                                                                                                
Senator Stedman explained  that property located in an area in which                                                            
the  land plate  was  sinking  could be  reduced  in size.  If  that                                                            
property  were  located in  an  area in  which  the high  tide  mark                                                            
receded, the amount of property could increase.                                                                                 
                                                                                                                                
10:01:20 AM                                                                                                                   
                                                                                                                                
Mr. Mylius replied that  such coastal occurrences would not apply to                                                            
this parcel  because the property  is inland. The initial  land that                                                            
was lost in the  earthquake became a part of the Turnigan  Arm water                                                            
body.                                                                                                                           
                                                                                                                                
Mr. Mylius  also affirmed  that the  subsurface  rights of the  Hope                                                            
property would be retained by the State.                                                                                        
                                                                                                                                
10:02:08 AM                                                                                                                   
                                                                                                                                
Senator Bunde  noted that the provisions  of this legislation  would                                                            
be repealed at the end  of the current year and could not be applied                                                            
in other situations.                                                                                                            
                                                                                                                                
10:02:22 AM                                                                                                                   
                                                                                                                                
Senator   Olson  asked  the   relevancy  of   this  legislation   to                                                            
communities experiencing extensive erosion.                                                                                     
                                                                                                                                
10:02:48 AM                                                                                                                   
                                                                                                                                
Mr.  Mylius  responded  that erosion  is  not  the issue  with  this                                                            
parcel.  A  well-established  principle  exists  regarding  boundary                                                            
changes caused  by erosion.  Compensation is  not provided  in these                                                            
instances  that  occur  gradually.  Because the  earthquake  was  an                                                            
immediate occurrence, compensation  was warranted. Loss from a flash                                                            
flood could be another exception.                                                                                               
                                                                                                                                
10:04:35 AM                                                                                                                   
                                                                                                                                
Senator Olson  asked the number of other landowners  affected by the                                                            
1964 earthquake who received compensation.                                                                                      
                                                                                                                                
10:04:50 AM                                                                                                                   
                                                                                                                                
Mr.  Mylius replied  that  many property  owners  in Anchorage  were                                                            
granted  parcels on  the Anchorage  Hillside after  their low  lying                                                            
land slipped into Turnigan  Arm. Land was also granted for land lost                                                            
in Girdwood, Portage  and Kachemak Bay. Few properties  in Hope were                                                            
affected.                                                                                                                       
                                                                                                                                
10:05:29 AM                                                                                                                   
                                                                                                                                
Senator  Olson  asked why  the  Department  anticipated  that  other                                                            
property  owners affected  by the earthquake  would not qualify  for                                                            
compensation under the provisions of this bill.                                                                                 
                                                                                                                                
10:05:44 AM                                                                                                                   
                                                                                                                                
Mr.  Mylius  responded  that  most  of  the originally  compensated                                                             
property  owners  were  granted  fee  simple   rights.  The  Millers                                                            
received  agricultural  rights  to  National  Forest  land  that  is                                                            
subject to limited  applicability. Also, the federal  government was                                                            
the grantor  of the  other properties.  The rights  to the  property                                                            
addressed  in this  legislation  were awarded  to the  Millers  as a                                                            
substitution  for the compensation  the federal  government  did not                                                            
award.                                                                                                                          
                                                                                                                                
10:07:02 AM                                                                                                                   
                                                                                                                                
Co-Chair  Green  ordered  the bill  HELD  in  Committee to  await  a                                                            
revised fiscal note.                                                                                                            
                                                                                                                                
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Lyda Green adjourned the meeting at 10:07:44 AM                                                                      

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