HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE March 9, 1995 1:38 p.m. MEMBERS PRESENT Representative Alan Austerman, Co-Chair Representative Ivan, Co-Chair Representative Kim Elton Representative Al Vezey Representative Pete Kott Representative Irene Nicholia MEMBERS ABSENT Representative Jerry Mackie COMMITTEE CALENDAR HB 154: "An Act requiring the Department of Law to provide guidelines regarding unconstitutional state and municipal takings of private real property; relating to the taxation of private real property taken unconstitutionally by state or municipal action; establishing a time limit for bringing an action for an unconstitutional state or municipal taking of private real property; and providing for an effective date." HEARD AND HELD * HB 185: "An Act relating to an exemption from municipal property taxes for certain primary residences; and providing for an effective date." HEARD AND HELD (* First public hearing) WITNESS REGISTER REPRESENTATIVE VIC KOHRING Alaska State Legislature State Capitol Building, Room 428 Juneau, AK 99801 Telephone: (907) 465-2186 POSITION STATEMENT: Introduced new CS for HB 154 STEVE NOEY 11271 Mountain Lake Drive Anchorage, AK 99501 Telephone: (907) 346-2208 POSITION STATEMENT: Recounted personal experience with land taking by the state BILL CUMMINGS, Assistant Attorney General Transportation Section Department of Law P.O. Box 110300 Juneau, AK 99811-0300 Telephone: (907) 465-3603 POSITION STATEMENT: Testified on behalf of the Department of Law JOE RYAN, Legislative Assistant Representative Al Vezey State Capitol Building, Room 216 Juneau, AK 99801 Telephone: (907) 465-3719 POSITION STATEMENT: Commented in support of HB 154 and of the work done by Representative Vic Kohring CRAIG LYON, Legislative Aide Representative Vic Kohring State Capitol Building, Room 428 Juneau, AK 99801 Telephone: (907) 465-2186 POSITION STATEMENT: Provided backup for the testimony given by Representative Vic Kohring SARA HANNON, Lobbyist Alaska Environmental Lobby, Inc. P.O. Box 22151 Juneau, AK 99802 Telephone: (907) 463-3366 POSITION STATEMENT: Testified against HB 185 DOYLE CURRIER P.O. Box 52014 Big Lake, AK 99652 Telephone: (907) 892-6297 POSITION STATEMENT: Testified in favor of HB 154 TOM WRIGHT, Legislative Assistant Representative Ivan State Capitol Building, Room 503 Juneau, AK 99801 Telephone: (907) 465-4942 POSITION STATEMENT: Introduced HB 185 KEVIN RITCHIE, Executive Director Alaska Municipal League 217 2nd Street, Ste. 200 Juneau, AK 99801 Telephone: (907) 586-1325 POSITION STATEMENT: Testified on HB 185 RUPE ANDREWS, Representative Alaska Association of Retired Persons 9416 Long Run Drive Juneau, AK 99801 Telephone: (907) 789-7422 POSITION STATEMENT: Testified on HB 185 GENE DAW Veterans of Foreign Wars; and Alaska Association of Retired Persons P.O. Box 20995 Juneau, AK 99802 Telephone: (907) 586-3816 POSITION STATEMENT: Testified on HB 185 LAMAR COTTEN, Deputy Commissioner Department of Community and Regional Affairs P.O. Box 112100 Juneau, AK 99811-2100 Telephone: (907) 465-4700 POSITION STATEMENT: Testified in support of HB 185 PREVIOUS ACTION BILL: HB 154 SHORT TITLE: REGULATORY TAKING OF PRIVATE PROPERTY SPONSOR(S): REPRESENTATIVE(S) KOHRING, Rokeberg JRN-DATE JRN-PG ACTION 02/03/95 237 (H) READ THE FIRST TIME - REFERRAL(S) 02/03/95 237 (H) CRA, JUD, FIN 02/16/95 (H) CRA AT 01:00 PM CAPITOL 124 02/21/95 (H) CRA AT 01:00 PM CAPITOL 124 02/21/95 (H) MINUTE(CRA) 03/01/95 550 (H) COSPONSOR(S): ROKEBERG 03/09/95 (H) CRA AT 01:00 PM CAPITOL 124  BILL: HB 185 SHORT TITLE: MUNICIPAL PROPERTY TAX EXEMPTIONS SPONSOR(S): REPRESENTATIVE(S) IVAN JRN-DATE JRN-PG ACTIO 02/20/95 418 (H) READ THE FIRST TIME - REFERRAL(S) 02/20/95 418 (H) COMMUNITY & REGIONAL AFFAIRS, FINANCE 03/09/95 (H) CRA AT 01:00 PM CAPITOL 124 ACTION NARRATIVE TAPE 95-6, SIDE A Number 000 CO-CHAIR IVAN called the House Community and Regional Affairs Committee meeting to order at 1:38 p.m. He listed the meeting agenda and recognized those testifying via teleconference. The meeting was being teleconferenced to Anchorage, Fairbanks, Mat-Su and Kenai/Soldotna. HCRA - 03/09/95 HB 154 - REGULATORY TAKING OF PRIVATE PROPERTY CO-CHAIR IVAN invited Representative Vic Kohring to introduce the new Committee Substitute for HB 154. He entertained a motion to adopt the CS for HB 154 for discussion purposes. Number 041 REPRESENTATIVE PETE KOTT moved that the CS for HB 154 be adopted by the committee for discussion. Number 043 Hearing no objection, the committee substitute for HB 154 was adopted for discussion purposes. Number 047 REPRESENTATIVE VIC KOHRING, Sponsor, said he appreciated the opportunity to come before the committee to discuss CS for HB 154. He had two primary changes to the bill he wished to discuss. The first one called for the Department of Law to draw up guidelines identifying what exactly determined a regulatory taking and what procedures would be required to assist the victim regarding compensation for a taking. The second change dealt with the compensation. The original wording in the bill stated the victim would be compensated in the event there was a taking which reduced the assessed value of the property. As the bill sponsor, Representative Kohring wanted to take this one step further and require that full compensation of the reduction in value be paid to the property owner in cash. Another point Representative Kohring made was the bill writers took the word "unconstitutional" out of the bill and from the title. Representative Kohring also pointed out that 11 different states had enacted similar legislation throughout the Lower U.S. and this year 13 other states had similar bills that were being deliberated. A bill similar to this has been taken up for consideration in Congress. There also have been some court cases at the U.S. Supreme Court level as well as the Alaska Supreme Court level, where rulings have recognized the rights of private property owners and curtailed the ability of governments to impose excessive costs on businesses as a condition of further development. These courts have also said public good is best served by protecting individuals from the arbitrary power of the state. Another point pertained to a recent survey done by the National Federation of Independent Businesses which found 81 percent of small business owners supported the notion that government be required to pay just compensation to property owners. Representative Kohring believed the passage of this bill would provide public protection from the government concerning any unconstitutional taking of private property without some form of compensation. He stated there were witnesses on teleconference wishing to testify in support of this bill. He invited Craig Lyon, his legislative aide, to discuss the bill. Number 125 CO-CHAIR IVAN asked if the committee had any questions or comments. He invited Steve Noey on teleconference from Anchorage to testify on HB 154. Number 131 STEVE NOEY, testified via teleconference in support of HB 154. The various cases Representative Kohring referred to, on both the State and Federal Supreme Court level, have been expensive for the individual because there was no codified law effecting just compensation under the Fifth Amendment. Number 152 CO-CHAIR IVAN invited Bill Cummings from the Department of Law to testify. Number 159 BILL CUMMINGS, Assistant Attorney General, Transportation Section, Department of Law (DOL), commented on HB 154. He apologized for having just received the committee substitute. MR. CUMMINGS listed his concerns regarding the statutes. The first pertained to the requirement imposed upon the DOL to come up with annual guidelines constituting a regulatory taking. The DOL had serious concerns because it would be a difficult duty to perform. Each of the takings cases one reads in the U.S. Supreme Court are incredibly fact dependent. There might be circumstances in one case that have no particular relation to other applications or fact patterns. Another difficulty is that the DOL represents agencies that promulgate regulations someone might claim was a regulatory taking. This puts the department in a difficult position of having to explain what has already been said and makes it difficult to defend just and appropriate actions of state agencies. MR. CUMMINGS discussed the statute of limitations. The difficulty with this is people want to believe five years is a reasonable time limit to bring suit if there is a regulatory taking. This ignores a long-standing tradition in Alaska law and most other jurisdictions in the United States. Complaining against an administrative agency, a person should first exhaust administrative remedies before running to court to bring action. Secondly, most of these administrative actions a person complains about are appealed to a Superior Court. One could go to the Superior Court if other attempts for filing one's complaint haven't been noticed. This usually has to be done within 30 days. By allowing the five year statute of limitations, there could be decisions that are reached with no finality and the government could find it difficult to conduct its affairs. Finally, in regard to annually creating the guidelines, it could take two months to do the first set of guidelines and the yearly revisions. The guidelines would be little more than just listing individual cases because of the special nature of the cases and because they are fact specific. He welcomed questions from the committee. Number 231 REPRESENTATIVE KIM ELTON wondered if this bill would be a playground for attorneys because of the potential litigation that could occur whenever someone determined a taking. Number 245 MR. CUMMINGS said it had the tendency to increase litigation because there were strict procedural burdens placed on administrative agencies. There are burdens of proof assigned to administrative agencies which would increase litigation. Number 254 CO-CHAIR ALAN AUSTERMAN reconfirmed that Mr. Cummings had just received the Committee Substitute. He asked if the DOL went through these bills when they were first introduced and came up with guidelines. Number 258 MR. CUMMINGS said that the bill he's gone through and reviewed was the original one. He believed the guideline requirements in the committee substitute were the same as in the original bill. He stated there were many procedural and substantive rights created in the committee substitute not included in the original bill. The original was benign in that it had specific statements that neither decreased nor increased the rights of private property owners. Mr. Cummings thought a very compelling argument could made that the committee substitute did exactly the opposite. Number 278 CO-CHAIR IVAN asked if he had any suggestions on how to remedy some of the problems he has noticed. Number 281 MR. CUMMINGS said it struck him as an extreme response. He would like to know a fact pattern this related to. He questioned the effectiveness of the original bill, but when he had the committee substitute, he believed it was going to apply to just about every administrative decision made by the state or municipality. He didn't think the system was broken quite that badly. Mr. Cummings wanted a sectional analysis concerning specific problems that engendered HB 154. Number 296 REPRESENTATIVE KOHRING said his staff aide would provide information and examples of regulatory takings that have occurred in Alaska. Representative Kohring stated the guidelines were justified in moving forth and setting them up would protect peoples' private property rights from takings. It's been commonplace for years for government entities to come in after someone has acquired property and impose a restriction on how the private property owner can develop his property, thus rendering their property less developable, less valuable and virtually worthless. This bill gives private property owners a chance to assert their rights and tell a government agency they can't do this. Number 318 MR. CUMMINGS asked for further questions from the committee. Number 324 JOE RYAN, Legislative Assistant to Representative Al Vezey, said he has been helping Representative Kohring and had some input. Mr. Ryan has read about 80 examples of case law court rulings throughout the country regarding takings. These courts have been generous in their attitude toward government takings. They have allowed many times the devaluation of peoples' property and have taken away the rights to their property. When these cases have finally reached appeal in the United States Supreme Court, it was ruled under the Fifth Amendment that these were takings, but then they remanded them back to the smaller courts for final judgment so the rulings could be applied at the separate state's law. The Supreme Court didn't make any particular remedies but told the lower courts to adjust their remedies and, under peculiar circumstances, the laws of that state. The guidelines basically tell the agencies what latitude they have in the takings of personal property. It is like operating on the concept of buying an automobile and being told one could only drive it on the weekends; one would then say the government had no right to restrict the use of the automobile if a car wasn't provided for the other five days. The government takes away the value of a person's property and the right to use that property when they impose unreasonable conditions, but it is the private property owner who ends up paying for the property, paying the interest on the loan and maintaining the property taxes. It is taking a person's wealth to devalue that property. There would be no fiscal note or compensation costs if the agencies quit taking people's property. We are not only trying to protect property but also water rights, timber rights, extractable minerals, right to grow things and all the things for which a person could use his property. A government taking without compensation diminishes the value of the property and makes a private property owner that much poorer. The bill is very comprehensive, addressing many issues brought forth through litigation. Decisions by the United States Supreme Court said those activities were not allowable under the law. The cases should have been addressed as public nuisance and/or eminent domain. Number 383 CO-CHAIR IVAN asked Representative Kohring about specific data or cases concerning a regulatory taking. Number 386 REPRESENTATIVE KOHRING said his staff aide, Craig Lyon, had the information. Number 387 CRAIG LYON, Legislative Aide to Representative Vic Kohring, said there were numerous cases around the country. He referred to two cases that were determined. The first was Lucas v. South Carolina, and the second, Dowlan v. Tigard. The cases in Alaska were Noey DEC and Kenai v. Burnett. The latter was a case in which the city of Kenai granted an easement to a citizen by ordinance for access to his property which he'd planned to subdivide. The city later leased adjacent land to a developer for a golf course and removed the property owner's access. The citizen was unable to secure other access because of the cost of putting in another road and couldn't continue development plans. The Alaska Supreme Court held that a compensable taking had occurred but ruled on several grounds that it had not taken place at the time the lower courts ruled it had and the Supreme Court remanded it back to the lower court to reconsider the compensation aspects. Mr. Lyon said Mr. Noey could probably better explain the case he brought to the State Supreme Court. Mr. Lyon was willing to go over the U.S. Supreme Court cases if the committee wished. Number 409 CO-CHAIR IVAN asked if Mr. Noey was still on line. Number 411 MR. NOEY explained his case which started in 1982. The DOL explained the administrative appeal process and followed an administrative appeal in 1984 which went to the Supreme Court. It was heard in 1987 and remanded back for administrative appeal. His case went through two more appeal hearings and finally went through the administrative appeal process in 1991. Because this administrative process was so lengthy and expensive, Mr. Noey filed a case to the Superior Court in an attempt to speed it up because he had exhausted his administrative remedies. The current system is cumbersome for someone trying to get results. Getting through the administrative process could take eight or nine years where this law specifies the time limit. Mr. Noey's case was set up by the department instead of being an administrative procedure and it went to the first administrative hearing where a member of that same division was the administrative hearing officer in favor of the division. Mr. Noey then didn't have an impartial body hearing the evidence of his case. Number 435 CO-CHAIR IVAN asked if committee members had any questions or comments. He invited Mr. Lyon to describe another case. Number 438 MR. LYON noted he had two U.S. Supreme Court cases to discuss if the committee was interested. He said he had 15 other state Supreme Court cases that related to takings. He also had other cases or instances where regulations devalued or inhibited property owners use of their land. Number 443 CO-CHAIR IVAN asked if the committee would like to hear the other cases. Number 449 REPRESENTATIVE KOHRING pointed out that his staff had accumulated information regarding Alaska residents who were considered victims. He said he was amazed at the number of people who have come to him expressing their interest in HB 154 and who have shared their personal cases. He reiterated that a taking wasn't about literally taking land back, but about reducing the value of the land. When restrictions are placed on property by a state agency or a governmental agency, the litigation caseload would increase. Representative Kohring believed the caseload would decrease with these kinds of restrictions in place because they would make clear to a government agency these private property owners had rights. A government can't impinge on these rights because there would be a repercussion in having to compensate the victim. He believed HB 154 would be an incentive for government agencies not to impose restrictions and would affect the amount of resulting litigation. He pointed out he wasn't anti-regulation but believed in the rights of private property owners. Number 473 REPRESENTATIVE KOTT asked if there were several states with similar measures. Number 475 REPRESENTATIVE KOHRING said within the last two years, a total of 32 other states have submitted similar legislation almost identical to HB 154. Six of those bills have passed into law. Number 478 REPRESENTATIVE KOTT asked if there had been a proliferation of litigation based on those statutes in the books? Number 481 MR. LYON stated the information he has found has not suggested an explosion in litigation as it has only been recently that those bills have passed. Number 485 REPRESENTATIVE KOTT asked if the bill sponsor had requested research from those states that have implemented similar measures to find out in what direction the Alaskan Legislature should head. Number 487 MR. LYON said that he had requested information on litigation from the National Conference of State Legislatures (NCSL) and the American Legislative Exchange Council (ALEC). Initial reports state litigation has not occurred. Number 491 REPRESENTATIVE KOTT said the committee's questions could be answered if the Department of Law in those states with similar measures was contacted. Number 494 CO-CHAIR AUSTERMAN asked if there was a new fiscal note with the committee substitute or if the existing fiscal note was still the same. Number 496 MR. LYON said the committee substitute had just come out so he thought the DOL was going to keep it the same, as the representative from the DOL stated the guidelines were virtually the same. He didn't want to speak for the DOL but he assumed it would be similar. Number 501 REPRESENTATIVE KOHRING wanted to add as far as the cost that would be incurred, one was talking about a zero fiscal note because it would be the agencies that would provide compensation through the budgets so there wouldn't be any extra financial burden on the state of Alaska. Number 507 REPRESENTATIVE ELTON said if the bill didn't move from the committee it may behoove the committee to solicit some comments from other parties who hadn't commented on the affect on municipalities. The committee may want to talk to the Alaska Municipal League (AML) and other municipalities. Number 513 MR. LYON stated the AML did request information before the first hearing but he wasn't sure if the AML wanted to come before the committee. Number 515 REPRESENTATIVE VEZEY said he found the bill to be interesting as he'd followed a number of the court cases. He wanted to have a scheduled teleconference to see input from around the state before the committee passed the bill. Number 522 CO-CHAIR IVAN agreed and asked for questions or comments from committee members. Number 527 REPRESENTATIVE KOHRING expressed his appreciation of the committee's time and consideration toward HB 154. He would be willing to provide subsequent information and arrange the teleconference. Number 534 REPRESENTATIVE KOTT asked the bill sponsor to explain Section 10 as it related to Section 11 which asked the DOL to prepare the guidelines by January 1996 but enacted the bill in July 1995. He wondered if this bill would be enacted with no guidelines and if the government would have to compensate retroactively. Number 538 MR. LYON said he believed the bill would become effective July 1995. He stated the DOL couldn't start drawing up the guidelines until the bill came into effect and when it did come into effect, the DOL needed to have the initial guidelines done by January 1996. Number 548 REPRESENTATIVE KOTT asked if this bill shouldn't tie the effective date more in line with the guideline date called for in the bill. He wanted to know how long it's going to take the DOL to put the guidelines in place if HB 154 become law. Number 554 REPRESENTATIVE KOHRING said he's working with the DOL on identifying the appropriate timing of those two dates. Number 557 CO-CHAIR IVAN invited Bill Cummings from the DOL to respond to the question. Number 562 REPRESENTATIVE KOTT expressed his concern on the effective date and the date called for the DOL to have the guidelines in place. Number 565 MR. CUMMINGS said a better drafting technique to the substantive provisions of the Act would be effective on the latest date. The DOL would have the guidelines done and six months later, the rest of the bill would go into effect. This technique is used quite frequently to have various effective dates for various portions of a bill. Number 574 REPRESENTATIVE KOTT asked if Mr. Cummings was familiar with any other states that have implemented this kind of statute on their books and whether there had been a proliferation in lawsuits. Number 576 MR. CUMMINGS said he wasn't familiar with any of the other states that have enacted it. Number 580 CO-CHAIR IVAN asked if this problem had been identified in rural Alaska before, and how the DOL dealt with these cases and problems that may have occurred. Number 582 MR. CUMMINGS answered these cases depend upon where one is going to cut the line because the legislation makes reference to private, real and personal property. Under this legislation, when there has been a constitutional taking and whoever is affected, has to make payment for it. He believed the impact of this legislation will occur in Alaska's urban centers. Number 593 CO-CHAIR IVAN said he understood that the DOL had some problems with this legislation because the DOL thought it benefitted state agencies. He wondered about individuals having problems with this. He was on the side of individuals having these kinds of problems. Number 601 MR. CUMMINGS stated the assumption that state and cities are uncaring and don't care much about the rights of private property was not a fair comment. The people he works with are very conscious of the impact they have upon private property owners and they try to craft what they are doing as narrowly as they can. The examples such as Mr. Noey's and in Kenai are extreme examples. He questioned all other situations where there wasn't a regulatory taking and how it's possible to paint a horrible picture. Number 614 CO-CHAIR IVAN stated that he would hold this bill until next Thursday and try to coordinate telephone calls to other states and Legal Services. Number 617 REPRESENTATIVE KOTT asked if this bill was being teleconferenced and if there were other witnesses that wished to testify. Number 622 SARA HANNON, Lobbyist, Alaska Environmental Lobby, Inc., said she would speak as a citizen and a student of public policy. She wanted the committee to think about this in the real context. She stated the committee hadn't heard the fact pattern behind the two given examples. She wondered what were the resolutions and what was the infringement of property rights. She urged the committee to remember the whole basis of the judicial system and law body was the best protection for the individual and equal application of the law. She stated the closest infringement of one's property rights usually comes from your neighbor's behavior. If one wanted to cut down his trees on his private property, it didn't impact his neighbor, but if your neighbor wanted to open a waste incinerator next to you, that impacted your value. She asked who does the government compensate if the waste incinerator is not allowed to open. Does the government compensate the person who wanted to open the waste incinerator or does it compensate all the citizens who are impacted when their property value falls? If a porn shop is zoned out of business because of the residential neighborhood's outcry, is the business compensated? Or if the business was allowed to operate, is their compensation for the citizens whose property values have been impacted? She didn't believe there was an upswell among the citizens of Alaska to deal with this because she believed there were few cases where remedy for situations were not found. She stated there were citizens the government has treated in a malicious way or the result is malicious. She said the government wasn't trying to impact people's lives in a negative way but trying to help the state of Alaska. She urged the committee to think about the bureaucratic implications. She believed this bill would open a litigating sink hole the state would never recover from by complicating a bureaucratic government and the citizens of Alaska don't care if 25 other states had takings laws. If the state didn't need it, the laws shouldn't be changed. She agreed that the government had room for some fine tuning of regulatory actions and behaviors, but HB 154 was a nightmare no local government would ever be able to keep up with financially and the state of Alaska would never get out of litigation. She urged the committee to kill the bill. Number 664 CO-CHAIR IVAN asked if there were any questions for Sara Hannon. He stated there were other teleconference witnesses wishing to testify on HB 154. Number 669 DOYLE CURRIER testified via teleconference, and stated everyone was worrying about what the government would do in case the bill split into sections. He asked if anyone on the committee had ever been in litigation with the government. He stated that currently in the Valley, they have an arbitrary setback that has caused problems with the value of property. The same size piece of property that had a waterfront value of $50,000, currently has a waterfront primeval valued at $12,000. This is justified in a daily report survey. This is part of the problem this bill would supposedly address. He believed it was long past due. Number 691 CO-CHAIR IVAN asked if the committee had any more questions or comments for Representative Kohring's staff. He stated he would schedule a meeting on Thursday of next week where there needed to be coordination to hook up with legal services from the sister states. He also asked the DOL representative, Bill Cummings, to look at the committee substitute and make further comments in reference to the bill. Number 702 REPRESENTATIVE KOTT agreed with Representative Vezey's earlier comment and thought the committee needed to hear input from around the state. He believed the municipalities needed to voice their concern because they may construe HB 154 as an unfunded mandate. He stated the next course of action should be to hold the bill and schedule another hearing. He asked the bill sponsor if he was planning to revise the sponsor statement. He was still troubled with the word "unconstitutional." Since the committee has taken the wording from the bill it should be reflected in the sponsor statement. TAPE 95-6, SIDE B Number 007 REPRESENTATIVE ELTON agreed with Representative Kott. He expressed his desire for the bill sponsor or his staff to answer within the context of the committee substitute at the next meeting. He wondered what exactly did happen in the case raised by the previous testifier, where a municipality rezones a neighborhood too close to a porn shop. He was curious about the liability of the municipality and the municipal taxpayers in the context of this bill in a situation like this. Number 032 CO-CHAIR IVAN said some coordination had to be made and communications set up. He asked if there were any more questions or comments from committee members. HCRA - 03/09/95 HB 185 - MUNICIPAL PROPERTY EXEMPTIONS  CO-CHAIR IVAN brought up HB 185 and stated as a sponsor of this bill, it wasn't his intent to move the bill, but to hear testimony from interested parties, as well as comments from committee members. CO-CHAIR IVAN invited Tom Wright, his legislative aide, to present HB 185 on his behalf. Number 052 TOM WRIGHT, Legislative Assistant to Representative Ivan, referred to Representative Kott's comments concerning unfunded mandates. HB 185 addresses senior citizens/disabled veterans property tax exemption. The findings section outlines the goal of this bill and one of the problems. The cost of the senior citizens/disabled veterans tax exemption program for fiscal year 1995 was $16,000,800 and the state reimbursed municipalities only $1.5 million for fiscal year 1995; an underfunding of about $15 million. When the program was last fully funded, in 1985, there were 5,418 taxpayers eligible. For fiscal year 1995, there are 12,197 taxpayers eligible. One reason why Representative Ivan introduced this bill was to get discussion on the table regarding unfunded mandates. There have been a number of issues brought before the legislature concerning federal unfunded mandates. This issue on a state level was the senior citizens' property or disabled veterans' property tax exemption is an unfunded mandate. He stated he has done quite a bit of research regarding this bill and there was also a bill introduced by Governor Hickel last year, HB 66, that almost made it through the system. Representative Ivan has had discussions with various senior groups and with various veterans groups and it is currently his intention to exempt the disabled veterans and keep the current program in place. Mr. Wright stated the disabled veteran portion did not make up a very large part of the exemption and it was the chairman's wish to keep that exemption in place. Another aspect not included in this bill is a renter rebate program which is another part of this exemption. It is the equivalency of the property tax exemption. It was Mr. Wright's understanding that Kevin Ritchie, executive director of the Alaska Municipal League (AML), had extensive discussions with some of the senior groups, in particular the American Association of Retired Persons (AARP), with regard to this exemption. Concessions were made that Mr. Wright didn't wish to discuss because he wasn't involved in those negotiations. He stated that Kevin Ritchie from AML was present, as was a representative from senior groups and disabled veterans groups. He said there were witnesses on teleconference wishing to testify. Number 125 CO-CHAIR IVAN asked for questions or comments from the committee. Number 129 MR. WRIGHT said that it would be better if Kevin Ritchie, from the AML, testified first to discuss these negotiations before the public testified. Number 137 KEVIN RITCHIE, Executive Director, Alaska Municipal League (AML), said the AML has placed this most problematic issue, unfunded mandates for municipalities, before the legislature to make it a local option. The AML has always maintained the member communities had intended to provide a program on the local level. Recently, the AML met with representatives from senior and disabled veteran groups and the conclusion of those discussions was that the disabled veterans did not support a reduction in the program. The AARP, however, representing a large number of Alaskan seniors, offered a compromise that the AML believes fulfills the goals of the AML and the AARP which is to reduce the mandatory exemption from $150 thousand down to $75 thousand. Currently, the average exemption in the state of Alaska on housing for seniors under this program, is $87,266. This doesn't mean there would be a $50 thousand decrease in the cost of the program but for the larger municipalities, the net decrease in the subsidy would be about 25 percent of what they now pay, if this compromise were to become law. This amount is offset by a larger increase to school foundation formula funding because the assessed value taxed in the communities across the state would increase by around $300 million. Mr. Ritchie said this was a true compromise and the AARP suggested this was a real problem for municipalities. The municipal governments currently have to carefully balance the resources they have to best meet the needs in their own communities. He stated there were many other needs that could be as pressing that were not being well met, so HB 185 was an attempt to balance the needs and resources of communities to come up with a compromise that worked for both parties. He said he had been in communication with the AML legislative committee and board, and the AML has yet to present this to all the municipalities. He believed coming before the committee was a good introduction to this and the AML intended to get in detailed conversations with all the municipalities in the league. Number 199 REPRESENTATIVE ELTON asked if it was acceptable to cut $150 thousand to $75 thousand, and did it then mean the local option language would come out and would it still be a mandated state program? Number 206 MR. RITCHIE said it would be a mandated state program up to $75 thousand and then there would be an option above that amount. The nuance was to encourage municipalities to keep the exemption the same if they desired. In general, optional exemptions if they are granted by a municipality, still are required to be counted when the government figures up the foundation funding. Mr. Ritchie's recommendation would be that if people chose to maintain the program between $75 to 150 thousand, those communities were not penalized by having more assessed value included in the foundation formula. Number 221 CO-CHAIR IVAN asked if there were any questions. He invited Rupe Andrews from Juneau to testify. Number 256 RUPE ANDREWS said he was representing the AARP and there wasn't much more he could add to the comments made by Kevin Ritchie. Representatives from the AARP and Kevin Ritchie have sat down and discussed and negotiated this. The AARP is a victim of a public policy that had good intentions in the beginning and allowed seniors to remain in their own homes as long as possible in the face of a circuit breaker policy. It has worked well for 20 years but AARP does recognize that municipalities have a problem. The government needs to share some of that burden the municipalities are facing and the AARP has developed this compromise of a 50 percent downward movement to $75 thousand of the first appraised value. Mr. Andrews said the AARP thought this would target the lowest income group, but they wouldn't fall through the cracks; it's a safety net and he believed it was a fair way to negotiate this. Number 280 REPRESENTATIVE VEZEY asked in Mr. Andrews' discussions and negotiations, what exactly was the problem. Representative Vezey said he assumed it dealt with municipal revenues. He hadn't checked out many municipalities, but their assessed valuations had steadily risen in the past ten years. This meant revenues were steadily rising. He wasn't aware of any that had any significant changes in their mill rates. He stated revenues have been rising, perhaps not as fast as inflation of certain costs of providing government services, but he asked what the particular problem was. Number 299 MR. ANDREWS said originally, the problem was the seniors who were on fixed incomes watched the acceleration of property values and corresponding tax rates and were really concerned they would lose their property. They are faced with an option of selling and leaving Alaska, moving in with children or doing something else and this was their concern. Number 308 REPRESENTATIVE VEZEY said this was a problem from the seniors' perspective, but what was the problem from the municipal perspective. Number 310 MR. ANDREWS said the original intent of the legislature was to reimburse municipalities, but since then there may have only been one year when it was ever fully funded. He stated it has been underfunded for the vast majority of time it has been in existence which is now causing a financial burden on the municipalities. Number 317 REPRESENTATIVE VEZEY said he'd started looking at assessment rolls and looked at his own personal property tax records and then looked at the municipality as a whole. He stated the senior property tax exemption was an unfunded mandate and has been for seven to eight years, but revenues have been rising. He's looked at very few and he questioned whether they were the exception or whether municipal revenue has been rising. Number 329 MR. ANDREWS said he could only speak for the Juneau Borough and say that it has been rising. He mentioned his own home had increased $37,000 in the last 3 years. Number 334 REPRESENTATIVE VEZEY said his personal residence taxes and the assessed value had gone up 250 percent in the last 12 years. Two years ago, the legislature looked at a similar bill, and Representative Vezey had concerns because they were dealing with an unfunded mandate. He stated he didn't like unfunded mandates. He is of the opinion municipalities are crying wolf in that they want more money. There isn't a shortage as there is more revenue money coming in, but they still want more and Representative Vezey said he wasn't sure that he wanted to balance this request on the back of the seniors. If monies were going down, he could see the need to change policy. Number 346 MR. ANDREWS said he couldn't speak to this. He would have to take the word of the AML in this case and from the other members that testified two years ago. Even though the revenues may be going up, municipalities are still experiencing a burden. Number 352 CO-CHAIR IVAN asked Kevin Ritchie to answer the question. Number 356 MR. RITCHIE replied the answer was largely the tax increase people see on their local level due to cutbacks and state funding in areas like the senior citizen property tax exemption and in areas like municipal assistance and revenue sharing. Municipal assistance and revenue sharing has been cut back 55 percent in the last 9 years. To Anchorage, this means about three mills of property tax is replacing the state funding, while not counting the fact that inflation has been a big factor since that time. One reason being, the changes in the basic agreement municipalities had with the state, and the funding has gone way down and the mandates have gone way up. Mandates are in a whole lot of different areas. When Mr. Ritchie was the manager of the Juneau municipality, the municipal assistance would go down every year and the funding for senior citizen property tax exemption would go down. When the commensurate cuts were made in the departments, each one said they couldn't up-keep certain things due to lack of funding. There isn't really a choice in those types of situations, but much of what's been seen across the state has actually been the municipality getting more to do from the state and less money to do it than was part of the original agreement. Number 383 REPRESENTATIVE VEZEY said if we were to change the legislative policy and fund our senior and disabled veterans property tax exemption program, it wouldn't be an unfunded mandate. The AML's revenues wouldn't go up because the government would take at least as much, if not more, out of municipal assistance. If this occurred, he asked what would municipalities be asking for then. Number 391 MR. RITCHIE said municipal assistance and revenue sharing partially covers all of the unfunded mandates the state has placed upon municipalities at this time. There was a 143-page report that had been put out by the Legislative Research Agency listing all of the unfunded mandates the state put on municipalities. Mr. Ritchie stated there were hundreds of unfunded mandates that exist and that's part of what cities do. If the government were to take the money from municipal assistance and revenue sharing and put it into the senior citizen property tax exemption program, it would be taking money to cover one unfunded mandate and creating more unfunded mandates somewhat currently covered by municipal assistance or revenue sharing. He said this doesn't solve that particular problem. Number 408 REPRESENTATIVE VEZEY said the government was just trading dollars, not creating more. He stated he hadn't researched all the local municipality problems and still hasn't looked into or looked across the whole state, but he's just looked at a few specific municipalities. He said that gross revenues to municipalities have been up steadily and their budgets have been up steadily and he believed it was keeping up with inflation. He stated he was starting to believe the government was blaming the wrong people. Number 420 CO-CHAIR AUSTERMAN said the government wouldn't be faced with the problem if it didn't have the mandate. He said the municipality should have the responsibility of deciding whether their citizens want to pay this or whether the municipality wants to tax the citizens to pay it. Co-Chair Austerman said the government didn't allow them that opportunity because they mandated it would happen this way and then the government had to give money to take care of the mandate. He said it was the same basic theme the state government was having with the federal government. Even though government tax rates are going up, the inflation rates go up, the cost of living goes up, the cost of operations goes up and all the costs are not following along with each other. Number 432 MR. ANDREWS said the problem with local option is, seniors would be treated unequally around the state. One municipality may not grant any exemption whereas another may grant a large exemption. Number 438 MR. RITCHIE pointed out the AML was not in favor of discontinuing all exemptions for seniors or disabled veterans. The whole issue concerned local option as Co-Chair Austerman commented. Those paying the bill are local communities and the concept would be the $75 thousand continue as a mandatory exemption, which philosophically isn't what the AML wants, because they pay most of that bill. He stated there would be an option, community by community, and whether to provide assistance above $75 thousand per residence or not. The AML fully expects some communities would continue the current program which is one reason why the AML wants language that doesn't hurt municipalities who decide to grant this option all the way up. This would simply allow citizens within a community paying the bill to decide. Number 454 REPRESENTATIVE VEZEY said the total cost of this program is currently up to an estimated $16 million. If the government were to fund that as a state legislature it would not be an unfunded mandate. The government could do away with municipal assistance which he believed was about $62 million, leaving about $40 million to work with. Number 461 MR. RITCHIE said it would create another unfunded mandate. Number 462 REPRESENTATIVE VEZEY asked if municipal assistance was currently an unfunded mandate. Number 463 MR. RITCHIE replied that municipal assistance pays for the unfunded mandates the state has put on municipalities by statute. Number 466 REPRESENTATIVE VEZEY answered this would be carrying the argument to the point that the government owes the municipalities for their existence. Number 468 MR. RITCHIE said the theory basically is the wealth of the state, which originated in the northern oil fields. The state takes that money and spreads the wealth around to the various communities in the state providing state services. He stated it would be a different state if all that wealth remained in the north. Municipalities are the agents, the creations of the state, to provide services on a local level. To provide for some consistent services throughout the state, municipal assistance and revenue sharing is one way this occurs. He said if the funding were not there with 55 percent cuts in municipal assistance and revenue sharing, small communities are choosing to want some discretion on how they govern themselves and they are getting a burden they can't accept. Communities that dissolve are allowing the state to provide all those services for them and have less determination in what takes place. The Local Boundary Commission (LBC), in writing their recent report to the legislature, said the Mat-Su Borough had been penalized by becoming a borough because their deal concerning appropriated money for certain projects wasn't there anymore. The municipal assistance and revenue sharing is the way the state spreads some of the wealth from the oil fields to ensure some level of services is provided throughout the state. Mr. Ritchie again stated that many unfunded mandates were partially funded by municipal assistance and revenue sharing. Number 497 CO-CHAIR IVAN said he wanted to hear from witnesses before continuing. He invited Mr. Daw to testify. Number 504 GENE DAW, member of VFW, DAV, and AARP, expressed his interest in HB 185. He said as the bill was written, veterans would oppose it but with the supplement suggested by the AML, he believed the veterans could go along with that, being that disabled veterans would stay status quo. Mr. Daw's understanding was if one went along with the supplement, HB 185 would stay at a status quo and the only thing that would change would be the amount of the exemption from $150 thousand down to $75 thousand for senior citizens. He believed Representative Vezey had a good idea. He listed four categories of people such as little children born with a disability or into a poor family, poor people, disabled veterans and senior citizens. He said he has had the opportunity to live in all those stages. He said it is tough to break out when one is in those categories. He compared our state to other states and said it was well-to-do, but the state needed to look at its priorities and not put the squeeze on these four categories of people looking for security. Number 570 REPRESENTATIVE KOTT asked Mr. Daw if he fell within the category that would allow for this tax exemption. Number 575 MR. DAW answered yes, but he did not sign up until he retired two years ago. He has worked in the state for 30 years and could have taken advantage of this tax exemption all along, but he figured as long he could work, meeting his budget, he could pay his taxes. He thought there were many veterans too proud to beg. Number 596 REPRESENTATIVE KOTT believed this was the point he wanted to bring out. He didn't know how the government could correct it. He'd had a phone call during the debate last year on this matter from a man working in civil service who had been medically retired, drawing a pension from the military. His wife was a school teacher and he was worried about his tax exemption for his $300 thousand home. Representative Kott would much rather see the legislature eliminate this category and take that pool and shift it over to people who really need it. Number 610 CO-CHAIR IVAN asked if there were any more questions or comments. He invited Lamar Cotten to testify. Number 614 LAMAR COTTEN, Deputy Commissioner, Department of Community and Regional Affairs (DCRA), said in general, the DCRA agrees with the concept because it's consistent with the position that municipalities should be given a maximum amount of flexibility when it came to raising revenues, in deciding issues at a local level. It also addresses the issue of underfunded mandates, since the state pays about 6 percent of the funds for the exemption. The other provision the DCRA liked in the bill allowed the exemption to be based on financial need and be provided by ordinance. He thought it consistent with the DCRA's position of allowing municipalities the discretion to devise or determine how they want to address the issue of exemptions through local taxes. His last point was the DCRA had not looked at or discussed the compromise between the AARP and the AML. Number 632 REPRESENTATIVE VEZEY asked if state revenues had been trending down for a number of years. He didn't have the opportunity to look into these figures but he asked about municipalities and their revenues. Number 637 MR. COTTEN answered that the reductions in municipal assistance and revenue sharing over the last eight years has affected municipalities. He said one couldn't address communities as a whole. He said there were areas in Southwest Alaska which have gone through an economic boom and the government has grown to meet some of the demands and needs of those changes. He stated other communities, due to economics and internal political decisions to cap their tax mechanisms, have not grown as much. He agreed with Representative Vezey's observation that valuations have increased and mill rates are probably floated with inflation rates. The expenditures have increased but the level of services have not gone up. Mr. Cotten thought this was a good question because it went back to more of the fundamental questions about who was providing basic services to the state and the transition when locals take on those services or simply do without. He thought there wouldn't be a statewide pattern because the state is different by regions and subregions. He stated economics will have driven the size of government. Number 664 CO-CHAIR IVAN invited any more questions or comments from the committee members. He noted this bill would be held in committee and scheduled for the next week. Number 670 REPRESENTATIVE ELTON said his inclination would be to leave the status quo, but he would be surprised if municipalities came in and said they were willing to take a cut. In the testimony he has heard from many different areas he thought the general desire was to hold the status quo or give the municipality more. Representative Elton would be willing to go for the compromise because it was offered and it is the first time he has heard of such a compromise. Number 679 CO-CHAIR AUSTERMAN stated he felt a different trend in the state. He thought people were starting to realize that Alaska has been a wealthy state, able to afford luxuries, but people are starting to realize these luxuries cost money. He said the cost of paving roads and taking care of other mandated and necessary things are just as important and citizens are starting to realize that as a state, we need to pay our way. Number 687 CO-CHAIR IVAN invited questions or comments. He said he would submit a committee substitute to take out disabled veterans from the legislation. ADJOURNMENT CO-CHAIR IVAN adjourned the House Community and Regional Affairs Committee at 3:12 p.m.