HB 232-MUNICIPAL TAX CREDITS  3:20:24 PM CHAIR SPOHNHOLZ announced that the first order of business would be HOUSE BILL NO. 232, "An Act relating to a municipal air quality improvement tax credit; and relating to a municipal energy efficient new construction tax credit." 3:20:38 PM REPRESENTATIVE GRIER HOPKINS, Alaska State Legislature, as prime sponsor, provided a summary of HB 232. He informed the committee that HB 232 is being introduced at the request of the Fairbanks North Star Borough. This legislation, he said, allows local governments to offer municipal tax credits to home and business owners who invest in property improvements, which result in increased energy efficiency or improved local air quality. Relying on the adage that local problems are best solved through local solutions, HB 232 allows municipalities to offer tax credits to businesses and or residents who make investments that will result in cleaner air or reductions in overall energy use. The bill allows for maximum flexibility by municipalities who choose to offer these credits. He expressed his hope that these tools will result in more interior Alaskans choosing to convert their home heating systems to the expanding Interior Gas Utility distribution system, thereby maximizing the return on the state's investment in the system. He reported that the legislation has garnered support beyond the local municipality, as Aurora Energy, LLC. and Usibelli Coal Mine, Inc. have both offered letters of support [included in the bill packet]. Furthermore, Alaska Municipal League, Alaska State Homebuilders Association, Interior Gas Utility, Alaska Miners Association, and Cold Climate Housing Research Center have also endorsed this legislation. He stated that this is a no harm bill that offers municipalities maximum flexibility. HB 232 has been expanded to offer more options for municipalities that are addressing local air quality concerns and makes credits available for new construction as well as refurbishments, remodels, and renovations. 3:23:04 PM REPRESENTATIVE HANNAN speculated that Fairbanks has already figured out how much tax credit they will have to give to get a return. She inquired as to the amount they think they will need to give as an incentive to get their ideal results in reduced air pollution. REPRESENTATIVE HOPKINS said he has not heard what their specific plans are. He explained that hooking each type of home system up to a natural gas system will vary in cost. Much of the available area for hookup to Interior Gas Utilities is within the city of Fairbanks, as well as in North Pole, which is outside the city. It will fluctuate based on who pays what property tax to which entity and where they are in that system. 3:24:14 PM CHAIR SPOHNHOLZ pointed out that HB 232 as its currently defined, would only allow for the tax credits to be good for one year at a time. She asked if that was intentional. REPRESENTATIVE HOPKINS answered no, it was through legal drafting. He offered his understanding that the local municipality would need to make sure that they maintain them throughout each year's assessment period. CHAIR SPOHNHOLZ speculated that, "it does seem that there might be times when an energy efficiency improvement - you might want to take the tax credit over multiple years, or there might be some projects that might take longer." She asked if there has been any discussion about that. REPRESENTATIVE HOPKINS offered his understanding that they are assessed annually, and property taxes are paid for the previous year. He went on to say, "it would be what those assessments are for that previous year and so they would get that one-year tax credit for that (indisc.) carry forward, or would they be able to offset tax credits for future years and that would be available to the municipality to write how they'd like it." 3:26:08 PM CHAIR SPOHNHOLZ asked if it's possible to have a credit that is larger than the tax liability in any one year. REPRESENTATIVE HOPKINS explained that in terms of property tax credit, he's never heard of it done that way. He added, "if your home is worth less than $100,000, that property tax would be written only up to the $92,485 - or whatever it would be, not in addition - those additional tax credits left over." CHAIR SPOHNHOLZ asked if the tax credit would apply against the tax itself or if it would apply against the taxable value of the property. REPRESENTATIVE HOPKINS said the cost itself, adding that the resident must pay to the borough. CHAIR SPOHNHOLZ clarified, "the tax itself to the borough, not the tax value of the property." REPRESENTATIVE HOPKINS answered yes. 3:27:07 PM CHAIR SPOHNHOLZ pointed out that the term "energy efficient construction" is not currently defined in statute. She asked if there is any other reference statute. REPRESENTATIVE HOPKINS noted that after speaking with Legislative Legal Services, they were not concerned about that. CHAIR SPOHNHOLZ asked if that would take place at the local level. REPRESENTATIVE HOPKINS acknowledged that his intent is to give municipalities the maximum flexibility in regard to construction, adding that he heard a number of ideas that could hopefully be done at the local level. CHAIR SPOHNHOLZ clarified that there are multiple ways they could be structured, depending on what the community wants. REPRESENTATIVE HOPKINS said there are many ways that the energy improvements have shown to be effective. He shared several examples. 3:28:29 PM REPRESENTATIVE HANNAN questioned whether there are specific commercial enterprises in the Fairbanks North Star Borough that anticipate taking advantage of the tax credit and reducing their air pollution as opposed to the individual homeowner coming onboard with a new energy efficient system. REPRESENTATIVE HOPKINS said the intention is that commercial businesses would also be able to hook up to the Interior Gas Utility system and not limit that to homeowners. He addressed the Aurora Energy Plant and their consideration of creating a dry wood kiln for Fairbanks residents to be able to purchase dried firewood, which would allow for better air quality improvement. He went on to say that this bill would be an economic boost to communities by giving municipalities the ability to create tax incentives for new construction. He explained that there are ways of reducing the new constructors tax liability without negatively impacting the municipalities revenue or offsetting the lose revenues onto other people. 3:31:30 PM REPRESENTATIVE GILLIS asked if someone would receive tax credits if they are already saving energy, or if the bill specifically applies to new construction. REPRESENTATIVE HOPKINS said it would not apply to past improvements. REPRESENTATIVE GILLIS clarified that it would not apply to someone who had already spent $15,000 to put a heated floor in. REPRESENTATIVE HOPKINS confirmed that. 3:32:14 PM CHAIR SPOHNHOLZ in response to Representative Gillis, noted that the bill specifically says to allow for tax credits based on real property improvements made in the immediately preceding tax year. 3:32:31 PM CHAIR SPOHNHOLZ opened public testimony. 3:32:44 PM NILS ANDREASSEN, Executive Director, Alaska Municipal League, commended the bill sponsor for the construction of the HB 232 and maximizing local control. He said that the way the bill is constructed empowers local governments and allows them to set the terms that they deem necessary for their economic development and tax evaluation. This gives local governments additional tools to look for solutions to air quality and energy efficiency improvements. He offered his belief that the more tools created for local governments the more ability they have to address the needs of Alaskans. 3:34:11 PM AARON WELTERLEN, Alaska State Home Building Association, informed the committee that he is a local contractor in Fairbanks and a member of both the Interior Alaska Building Association and the Alaska State Home Building Association (ASHBA). He stated that the ASHBA looks forward to HB 232 passing as quickly as possible. The ASHBA has a long history of supporting energy efficient construction, he said. They have supported state programs in the past, such as home energy rebates and funding for low income (indisc.). He said that Fairbanks has some of the highest energy costs in the country. He explained that most consumers want energy efficient homes but often can't afford them, due to low appraisals and high construction costs. He added that HB 232 could stimulate housing starts in the Fairbanks community. Energy efficient construction pays dividends for years to come in terms of monthly cost reductions, as well as healthy homes which lead to healthy inhabitants, he said. Remodeling poorly constructed homes is more expensive than building them properly up front, which is why the ASHBA fully supports this bill. He said it would improve the standard of living for homeowners and tenants. 3:36:41 PM REPRESENTATIVE RASMUSSEN noted that Alaska housing is working with the Appraisal Institute to ensure that appraisers are well trained in valuing energy efficient properties. 3:37:23 PM BRANDON SNODGRASS, Construction/Commercial Lender, First National Bank of Alaska, stated that he is a board member for the Anchorage Home Builders Association (AHBA) and the Alaska State Home Building Association (ASHBA). He informed the committee that energy efficient homes are more beneficial to the environment, cost less to maintain, last longer, and provide healthier living spaces for their occupants. He recounted having seen people who have reduced the planned efficiency of their home because of the equity requirements and evaluation of the property. When building a new home, the borrow typically needs 20-25 percent equity in the project upfront - through land or cash. If the evaluation comes in lower than the total cost, often times borrowers will sacrifice energy efficiency instead of coming up with the extra cash. He addressed various appraisal issues related to energy efficiencies. He offered his belief that this bill would add to the economy and create new business opportunities for businesses to enter the market or for existing businesses to grow. REPRESENTATIVE RASMUSSEN asked if solar will be included under the Anchorage ordinance. 3:42:57 PM MR. SNODGRASS said there is no mention of solar [power]. He noted that there are a growing number of solar projects happening in Anchorage. He offered his understanding that he financed the only home in the Anchorage inspection area that is completely off the grid with solar and wind power. 3:44:04 PM CHAIR SPOHNHOLZ questioned whether the one-year limitation on the tax credit represents an obstacle or a natural framework. MR. SNODGRASS offered his understanding that the one-year limit referred to things that had happened within the last year. The way the proposed municipality ordinance is written in Anchorage, he said, would allow for five years of tax exemptions for anything that was retrofitted or built within the last year when the credit was applied for. CHAIR SPOHNHOLZ said she wants to ensure that local communities have the flexibility to implement this. In Anchorage, for example, adding energy efficient elements to a higher value property could be expensive; however, they could pay themselves back if they were spread out over several years for which the municipality would be willing to offer a multi-year tax credit, as they have identified energy efficiency as a primary strategy in their climate action plan at the local level. She reiterated that she wants to offer communities the ability to offer multi- year tax credits. MR. SNODGRASS replied that he fully supports that. 3:46:25 PM REPRESENTATIVE HOPKINS agreed. He said the improvements would be made the previous year; however, the tax credit could be for multiple years afterward. He provided several examples. CHAIR SPOHNHOLZ asked Mr. Caisse to answer the question regarding tax exemptions over multiple years. 3:47:33 PM JOSEPH CAISSIE, Assistant State Assessor, Division of Community and Regional Affairs, Department of Commerce, Community & Economic Development, disclosed that he is not a lawyer although he did attend law school. He said he would have read that to mean only one year after the improvement is made. 3:48:00 PM REPRESENTATIVE HANNAN sought clarification on his understanding of the issue in question. MR. CAISSIE stated that he would interpret the current language to mean "only the one year after and if you are intending something like five years, I think you might want to reword the bill." CHAIR SPOHNHOLZ read the following: An ordinance may provide for an energy efficient new construction tax credit to offset a portion of property taxes due on a residential commercial property that during the immediately preceding tax year was improved with energy efficient new construction. CHAIR SPOHNHOLZ added that they may want to spend more time on this to get it right. She asked if anyone is available from Legislative Legal Services. 3:49:17 PM CHAIR SPOHNHOLZ closed public testimony. She announced that they would resume HB 232 at the end of this committee meeting. HB 232-MUNICIPAL TAX CREDITS  4:39:47 PM CHAIR SPOHNHOLZ announced that the final order of business would be resuming HOUSE BILL NO. 232, "An Act relating to a municipal air quality improvement tax credit; and relating to a municipal energy efficient new construction tax credit." CHAIR SPOHNHOLZ moved to adopt Conceptual Amendment 1, as follows: Page 1, line 6 Following "for" Delete "an" Insert "a single or multiple year" Page 1, line 8 Following "year" Insert "prior to the municipality's initial approval of the tax credit" Page 1, line 14 Following "for" Delete "an" Insert "a single or multiple year" Page 2, line 2 Following "year" Insert "prior to the municipality's initial approval of the tax credit" REPRESENTATIVE STUTES objected for the purpose of discussion. 4:40:29 PM TED MADSEN, Staff, Representative Ivy Spohnholz, Alaska State Legislature, on behalf of Representative Spohnholz, explained that the intent behind Conceptual Amendment 1 is to allow for municipalities to offer single or multiple year energy efficiency and air quality improvement tax credits. He proceeded to read the two sections of legislation as if the amendment was adopted. He offered his understanding from prior committee discussion that their intent is that this energy efficiency and air quality tax credit could be offered for multiple years after the improvements are made. He asked if that is accurate. CHAIR SPOHNHOLZ confirmed that her intention is to make sure that local municipalities have the opportunity to extend multi- year tax credits should they choose to do so. 4:42:29 PM REPRESENTATIVE HOPKINS acknowledged that is consistent with the intent of the initial legislation. He said now that the language specifically allows for single or multiple year tax credits for both types of improvements based on when the improvement was made, he is supportive of Conceptual Amendment 1. MR. MADSEN noted that on the final line of Conceptual Amendment 1 it says, "legislative legal may make conforming changes in line with the intent of this amendment." He shared his belief that through this discussion the intent has been made clear and Legislative Legal Services will understand the committee's intention. CHAIR SPOHNHOLZ agreed that the intention is clear. REPRESENTATIVE STUTES removed her objection. There being no further objection, Conceptual Amendment 1 was adopted. 4:44:05 PM REPRESENTATIVE STUTES moved to report CSHB 232, Version LS1355\K, out of committee with individual recommendations and the accompanying fiscal notes. Without objection, CSHB 232(L&C) was moved out of the House Labor and Commerce Standing Committee.