SB 13-OIL AND GAS PROPERTY TAX  4:52:33 PM CHAIR HUGHES announced the consideration of SENATE BILL NO. 13 "An Act relating to oil and gas exploration, production, and pipeline transportation property taxes; and providing for an effective date." 4:53:12 PM SENATOR TOM BEGICH, Alaska State Legislature, Juneau, Alaska, sponsor of SB 13, stated he received a letter from the Alaska Oil and Gas Association (AOGA) opposing the bill. He said there is something in AOGA's letter that he wants to draw the committee's attention to. The letter described the bill as a 50 percent tax increase. SENATOR BEGICH explained SB 13 is an oil and gas property tax bill that would add one percent to the existing oil and gas property tax assessment. A 50-percent increase sounds massive but the increase is one percent. He explained SB 13 emerged from discussions with the oil and gas industry over the last three years. He noted hearing repeatedly that building taxes on the volatility of oil and gas prices is not a good planning process. He noted he crafted the bill in 2020 and reintroduced the legislation in 2021 with a number of qualifications. SENATOR BEGICH said what SB 13 proposes to do is increase the mill rate from 20 mills to 30 mills and make that additional mill rate available to the State of Alaska. SB 13 would designate the funds in three ways. First, 50 percent would go to the Capital Income Fund to help pay down deferred maintenance backlog. Second, 25 percent would go to the Higher Education Investment Fund to further endow the merit-based Alaska performance scholarships and the other items of education necessities drawn from that fund. Third, 25 percent would go to municipalities to reimburse the Senior Citizen and Disabled Veteran Property Tax Exemptions that the legislature has not reimbursed since 1997. The funds will provide something of a community dividend. He said SB 13 creates a predictable source because the industry understands its depreciation values, so the tax is a predictable source for their planning processes. SENATOR BEGICH noted the President of the Senate has indicated that there needs to be an all-in approach to how the legislature addresses its efforts and he has consistently said that includes the industry, which is what the bill does. It fills one element of that all-in approach. CHAIR HUGHES announced invited testimony on SB 13. 4:56:52 PM NILS ANDREASSEN, Executive Director, Alaska Municipal League, Juneau, Alaska, said AML has not taken a position on SB 13, but he will provide a summary of municipal impacts. MR. ANDREASSEN said of the 165 local governments that AML serves, 24 have a property tax and this includes all boroughs except the Aleutians East Borough, Denali Borough, Northwest Arctic Borough, and Lake and Peninsula Borough. Those rely on fish taxes, bed tax, and a payment in lieu of tax formula. Nine of the 15 home rule and first class cities within the Unorganized Borough have a property tax as well. He noted the 24 local governments with a property tax all have required minimum contributions to their municipal school districts. This is a state mandate for all boroughs and home rule and first class cities outside the organized borough. MR. ANDREASSEN said 7 of those 24 local governments also have their property tax applied to oil and gas property within their jurisdiction. The total assessed value of this property is about $25.9 billion. The 7 local governments then apply their property tax. The state take is the difference between the local governments' mill rate set out in statute which is currently at 20 mills. Oil and gas property extends into the Unorganized Borough (valued at approximately $3.1 billion) and the state's take on that is 100 percent or the full 20 mills. He noted the local property tax has applied since 1997 but the mill rate has fallen for local governments an average of 1.6375 mills by jurisdiction. That means the state's take has actually increased over that same period, and overall property taxes have stayed stable, so the decrease is meaningful for property owners. 4:59:45 PM MR. ANDREASSEN said extending the state's current tax of this property to a higher level does not negatively impact the rates of local governments, as long as there is no further tax change or amendment that extends down to change current local tax rates or preempts their rightful ability to collect the property tax within municipal boundaries, or negatively impact investment decisions by property owners. MR. ANDREASSEN noted there are strong arguments for maintaining the property tax as it applies to oil and gas property within municipal boundaries. This includes the ability for those local governments to pay for school bond debt, to construct and maintain schools on behalf of the state, to continue to pay into the state managed pension system. to contribute to the state's obligation to provide a system of public education, and to choose investments in road, port and harbor maintenance, police departments, emergency medical services (EMS), search and rescue, and health. MR. ANDREASSEN explained AML has a longstanding position that the state should fulfill its statutory responsibilities by appropriating the funds necessary to reimburse for the state's mandatory property tax exemptions. Local governments have seen applications for the state exemption increase by 20,000 since 2010. The value of that exemption has increase by $45 million in that same timeframe. The important takeaway is it does not mean there is less tax or less tax needed overall, only that it is other taxpayers in that jurisdiction that make up the difference for each local government to continue to meet the demands of residents. MR. ANDREASSEN said he hopes his comments provide a more complete picture of how local governments currently apply the property tax, and the potential impacts from the bill on local governments. 5:02:13 PM SENATOR GRAY-JACKSON said she appreciates the bill forward, particularly that it provides revenue for the unfunded mandate in terms of the Senior Citizens and Disabled Veteran Property Taxes. It has been a priority for the Municipality of Anchorage and other communities to receive relief. CHAIR HUGHES asked Ms. Colbert to provide a sectional analysis for SB 13. 5:03:12 PM MERCEDES COLBERT, Staff, Senator Begich, Alaska State Legislature, Juneau, Alaska, provided the following sectional analysis for SB 13: Section 1 Amends AS 43.56.010(a) to include a new subsection (2) that increases the maximum mill rate an additional 10 mills. This only applies to taxable property as defined under AS 43.56.210. Section 2 Amends AS 43.56.010(d) with conforming language. This clarifies the municipal property tax under (a)(1) of the bill can only be credited to the taxpayer. Section 3 The estimated balance of the taxes collected under Section 1 of this bill may be appropriated by the legislature as follows: 1. 50 percent to the Alaska Capital Income Fund; 2. 25 percent to reimburse municipalities for real property tax revenue lost due to the Senior Citizen/Disabled Veteran Property Tax Exemption provided under AS 29.45.090(g); and 3. 25 percent to the Alaska Higher Education Investment Fund. Section 4 Establishes an effective date of January 1, 2022. 5:05:01 PM CHAIR HUGHES encouraged the members to review the fiscal notes for SB 13, the second page of which provides a recap and positions on possible needs to carry out the bill. CHAIR HUGHES held SB 13 in committee.