04/09/2010 09:00 AM Senate FINANCE

CS FOR HOUSE BILL NO. 10(FIN)                                                                                                 
                                                                                                                                
     "An  Act authorizing  a borough  to charge  a city  for                                                                    
     costs  of  collecting  certain  taxes;  relating  to  a                                                                    
     mandatory exemption  from municipal property  taxes for                                                                    
     residences  of  certain  widows  or  widowers,  and  to                                                                    
     optional exemptions  from municipal property  taxes for                                                                    
     property  of   certain  fraternal   organizations,  for                                                                    
     certain college  property, and for  certain residential                                                                    
     property; and providing for an effective date."                                                                            
                                                                                                                                
9:08:46 AM                                                                                                                    
                                                                                                                                
Co-Chair   Hoffman  MOVED   to   ADOPT  proposed   committee                                                                    
substitute, work draft  #26-LS0063\Z, Cook, 4/8/10. Co-Chair                                                                    
Stedman OBJECTED.                                                                                                               
                                                                                                                                
DARWIN  PETERSON,  STAFF,  CO-CHAIR STEDMAN,  delivered  his                                                                    
sectional  analysis. He  explained that  Version Z  includes                                                                    
four tax exemptions.  The first two are found  in Section 1,                                                                    
which  includes  the  mandatory   tax  exemptions  in  state                                                                    
statute. The  initial change  is listed on  Page 1,  Line 14                                                                    
and  refers to  the DeLong  Mountain Transportation  System.                                                                    
The  section exempts  from assessment  the determination  of                                                                    
the Northwest  Arctic Borough  and applies  it retroactively                                                                    
to November 30,  2009 when the current  exemption expired. A                                                                    
sunset provision  for November 2012  is shown at the  end of                                                                    
the bill.  The second  mandatory tax  exemption is  found on                                                                    
Page  3,   Line  10  which   includes  the   Alaska  Pacific                                                                    
University  (APU).  The   municipality  of  Anchorage  began                                                                    
assessing property  taxes on APU  property in  January 2006,                                                                    
which  was the  first time  the University  was taxed  in 47                                                                    
years  of  tax   free  history  in  Alaska.   Prior  to  the                                                                    
assessment  the  municipality  treated APU  similar  to  the                                                                    
University  of Alaska.  The properties  in question  include                                                                    
the  Marriott Hotel  which pays  all municipal  property and                                                                    
bed taxes. The University has  a ground lease with the hotel                                                                    
that requires the hotel to  pay the taxes. The controversial                                                                    
property is the Alaska Spine  Institute (ASI) which has been                                                                    
billed  by the  municipality for  property taxes  that since                                                                    
remain unpaid. The University entered  into a lease with ASI                                                                    
and while university  grounds were tax exempt  the tax costs                                                                    
were not calculated into the  lease. The municipality is now                                                                    
assessing taxes  on ASI,  but they are  not required  to pay                                                                    
because of the  terms of the lease so the  tax bills are the                                                                    
responsibility  of the  University. He  informed that  ASI's                                                                    
lease terminates  in 2035.  He referred to  Page 8,  Line 9,                                                                    
Section  9 which  exhibits  the sunset  clause  for the  tax                                                                    
exemption  which will  be repealed  in 2035.  The University                                                                    
will  then  calculate  all property  tax  cost  into  future                                                                    
leases.                                                                                                                         
                                                                                                                                
Mr.  Peterson  referred  to  Section 2  of  the  bill  which                                                                    
includes  the  sunset  provision  for  the  DeLong  Mountain                                                                    
Transportation  System  on  November  30,  2012.  Section  3                                                                    
removes the  private land from  the University  meaning that                                                                    
private  land  will be  taxable  as  of December  31,  2035.                                                                    
Section  4 notes  a  tax exemption  that  allows widows  and                                                                    
widowers  of disabled  veterans  to qualify  for and  retain                                                                    
their municipal  property tax exemption regardless  of their                                                                    
age. This tax exemption is  optional and must be ratified by                                                                    
the voters of the municipality.  Section 5 refers to the tax                                                                    
exemption for law enforcement officers  to purchase homes in                                                                    
high  crime areas  and allows  the municipality  to pass  an                                                                    
ordinance depending on exemption up  to $150 thousand on the                                                                    
assessed value.                                                                                                                 
                                                                                                                                
Co-Chair  Stedman  removed  his OBJECTION.  There  being  NO                                                                    
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
REPRESENTATIVE  MAX  GRUENBERG  agreed  with  the  sectional                                                                    
analysis presented by Mr. Peterson.                                                                                             
                                                                                                                                
9:16:24 AM                                                                                                                    
                                                                                                                                
Senator Olson commented  on the critical nature  of the bill                                                                    
for the  Red Dog  mine and school  funding. The  sponsor has                                                                    
been gracious enough to allow  an extension of the exemption                                                                    
following the  assessment in 1999. He  expressed support for                                                                    
the exemption.                                                                                                                  
                                                                                                                                
Senator   Huggins    echoed   Senator    Olson's   comments.                                                                    
Representative  Gruenberg  expressed   appreciation  to  the                                                                    
committee.                                                                                                                      
                                                                                                                                
Senator Thomas asked about the  fiscal note. He commented on                                                                    
the  zero  nature of  the  fiscal  note when  past  property                                                                    
exemptions  led to  large  figures on  the  fiscal note.  He                                                                    
asked if he was missing a fiscal note.                                                                                          
                                                                                                                                
Co-Chair  Stedman mentioned  one zero  fiscal note  from the                                                                    
Department of Commerce,  Community and Economic Development.                                                                    
He  requested  an  updated fiscal  note  for  the  Committee                                                                    
Substitute  (CS).  He  pointed  out a  memorandum  from  the                                                                    
assistant  state  assessor  in  the  committee  packet  that                                                                    
identifies a potential fiscal impact to the municipalities.                                                                     
                                                                                                                                
9:18:48 AM                                                                                                                    
                                                                                                                                
MARTY  MCGEE,  ASSESSOR,   MUNICIPALITY  OF  ANCHORAGE  (via                                                                    
teleconference)  stated  that   the  municipality's  primary                                                                    
interest  refers   to  the   University  property   and  the                                                                    
provisions for the exemption of  the property. He noted that                                                                    
the municipality has  never regarded APU as  having the same                                                                    
status  as  the  University  of Alaska.  The  University  of                                                                    
Alaska is  exempt because it  is a subdivision of  the state                                                                    
and therefore owned by the  government. He noted that APU is                                                                    
exempt because  its property was  acquired from  the federal                                                                    
government in a  land grant dedicating it  to an educational                                                                    
purpose  for a  mandatory statutory  exemption. The  Supreme                                                                    
Court of Alaska has defined  educational purpose in a narrow                                                                    
fashion. A  building built with  the purpose of  renting for                                                                    
income  is not  subject  to the  educational exemption.  The                                                                    
hospital  and the  medical office  building  both fall  into                                                                    
that category.  He expressed concern with  the provision for                                                                    
the effective  date of the  bill as  shown in Section  9. He                                                                    
understood that  the interest  of the  tenants in  the spine                                                                    
clinic would not be taxable until  2035. If the bill were to                                                                    
pass,  the tax  revenue from  the hospital  and the  medical                                                                    
office building would be significantly  less than today when                                                                    
taxed at  the full value.  He stated no intention  of taxing                                                                    
any   portion  of   APU  which   is  used   exclusively  for                                                                    
educational purpose.                                                                                                            
                                                                                                                                
9:21:53 AM                                                                                                                    
                                                                                                                                
RICK ECKERT, PRESIDENT, ALASKA  STATE ELK'S ASSOCIATION (via                                                                    
teleconference),  testified in  opposition  to  the CS.  His                                                                    
original  intention  was  to   testify  in  support  of  the                                                                    
municipal   exemption   for   property  tax   on   fraternal                                                                    
organizations. He noted that the  issue was removed from the                                                                    
current  CS. He  commented  that the  17 Elks  organizations                                                                    
have contributed $2.2  million a year. The  advantage of the                                                                    
old exemption is that a  municipality could review the value                                                                    
provided for the community by the fraternal organization.                                                                       
                                                                                                                                
MICHAEL  LUHR,  PRESIDENT,  PETERSBURG,  ALASKA  STATE  ELKS                                                                    
ASSOCIATION  (via teleconference),  echoed  the comments  of                                                                    
the Mr.  Eckert. He hoped  that the committee would  see the                                                                    
wisdom  of reinserting  the section.  The goal  of the  Elks                                                                    
Lodge is to provide community service.                                                                                          
                                                                                                                                
9:27:25 AM                                                                                                                    
                                                                                                                                
Senator  Olson asked  if the  other fraternal  organizations                                                                    
receive  the  same tax  exemption  proposed  in the  earlier                                                                    
version of the bill. Mr.  Luhr responded that he is familiar                                                                    
with other  fraternal organizations.  He stressed  that only                                                                    
upstanding fraternal organizations  should be recognized for                                                                    
the exemption.                                                                                                                  
                                                                                                                                
9:28:52 AM                                                                                                                    
                                                                                                                                
KATHIE  WASSERMAN,  EXECUTIVE   DIRECTOR,  ALASKA  MUNICIPAL                                                                    
LEAGUE  (AML),  reminded  the committee  that  property  tax                                                                    
exemption should be local. She  reminded that AML is opposed                                                                    
to mandatory  property tax exemptions.  She stated  that AML                                                                    
believes  that property  tax  is a  local  authority led  by                                                                    
local decisions.                                                                                                                
                                                                                                                                
Representative  Gruenberg  thanked  the  committee  for  the                                                                    
support.                                                                                                                        
                                                                                                                                
HB  10  was   HEARD  and  HELD  in   Committee  for  further                                                                    
consideration.