03/25/2025 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

            HB  13-MUNICIPAL PROPERTY TAX EXEMPTIONS                                                                        
                                                                                                                                
8:04:34 AM                                                                                                                    
                                                                                                                                
CHAIR REBECCA  HIMSCHOOT called the House  Community and Regional                                                             
Affairs  Standing  Committee  meeting   to  order  at  8:03  a.m.                                                               
Representatives  Ruffridge, Hall,  Holland, Himschoot,  and Mears                                                               
were present at  the call to order.   Representative Prax arrived                                                               
as the meeting was in progress.                                                                                                 
                                                                                                                                
            HB  13-MUNICIPAL PROPERTY TAX EXEMPTIONS                                                                        
                                                                                                                                
8:04:34 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  HIMSCHOOT announced  that the  first order  of business                                                               
would  be SPONSOR  SUBSTITUTE  FOR  HOUSE BILL  NO.  13, "An  Act                                                               
relating  to  optional  municipal  property  tax  exemptions  for                                                               
certain long-term  rental units,  certain mobile home  parks, and                                                               
real property rented to low-income families."                                                                                   
                                                                                                                                
8:04:59 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ANDREW  GRAY, Alaska  State Legislature,  as prime                                                               
sponsor, presented SSHB 13.   He read from the following prepared                                                               
remarks [original punctuation provided]:                                                                                        
                                                                                                                                
     Thank  you  Co-chairs  Himschoot   and  Mears  and  all                                                                    
     members of  the C&RA  committee for hearing  house bill                                                                    
     13 today. What  this bill seeks to do  is provide tools                                                                    
     to municipalities  for tackling  a crisis in  our state                                                                    
     today    that crisis is  lack of housing  that Alaskans                                                                    
     can afford.                                                                                                                
                                                                                                                                
     Alaska has faced  a sharp rise in home  prices over the                                                                    
     past  decade. In  2024 state  economists reported  that                                                                    
     our housing  was the  least affordable  it had  been in                                                                    
     two decades. In my home  city of Anchorage, the average                                                                    
     price of  a single-family home jumped  to $524,000 this                                                                    
     fall,  a 23%  increase from  just 4  years ago.  Add to                                                                    
     this the  increase in mortgage rates,  monthly payments                                                                    
     for an average  Alaska home have nearly  doubled in the                                                                    
     past 4 years.                                                                                                              
                                                                                                                                
     Statewide,  the   average  price  of  a   new  home  is                                                                    
     $423,000, which  about 70%  of Alaskans  cannot afford.                                                                    
     The cost  of a newly  constructed home in  Anchorage is                                                                    
     now $683,000, which 86%  of Anchorage households cannot                                                                    
     afford.                                                                                                                    
                                                                                                                                
     Along with  the sharp  increase in home  prices, Alaska                                                                    
     has  seen a  sharp increase  in rents.  This is  due to                                                                    
     several factors.  The first is that  when homeownership                                                                    
     is not  affordable, many  renters who  previously would                                                                    
     have exited  the rental market  with the purchase  of a                                                                    
     home,  are  unable  to purchase  that  home.  So,  they                                                                    
     remain in the rental  market indefinitely. As a result,                                                                    
     fewer units  are available for young  Alaskans entering                                                                    
     the  rental market  for  the first  time.  A 2024  AHFC                                                                    
     housing survey showed that  rental vacancy rates across                                                                    
     the  state  remain historically  low.  As  the pool  of                                                                    
     rental   properties   shrink    landlords   face   less                                                                    
     competition  from other  landlords  while renters  face                                                                    
     more competition  from other  renters. The  free market                                                                    
     drives  up  rents due  to  increase  in demand  with  a                                                                    
     decrease in supply. Finally,  of course, inflation also                                                                    
     drives rents up. when  landlord's operating costs rise,                                                                    
     they pass  those costs onto  their renters. I  think we                                                                    
     can   agree  that   we  have   experienced  significant                                                                    
     inflation over the past few years.                                                                                         
                                                                                                                                
     I've identified the  problem, House Bill 13  is part of                                                                    
     the solution. This bill incentivizes                                                                                       
          more rental properties                                                                                                
          of better quality                                                                                                     
          at lower cost.                                                                                                        
                                                                                                                                
     It   does  so   by  offering   OPTIONAL  PROPERTY   TAX                                                                    
     EXEMPTIONS  to  municipalities.  Alaska  municipalities                                                                    
     decide which if any of  the following options are right                                                                    
     for them.  And they  have great discretion  in crafting                                                                    
     the exemptions to meet their  local needs. Here are the                                                                    
     possibilities:                                                                                                             
                                                                                                                                
     1.   An optional property tax  exemption can be offered                                                                    
          to  landlords who  transition a  short-term rental                                                                    
          property  to  a  long-term rental  property.  This                                                                    
          incentivizes Alaskan  properties being  leased NOT                                                                    
          BY TOURISTS  (as most short-term rentals  are used                                                                    
          for) but by Alaskans.                                                                                                 
     2.   An optional property tax  exemption can be offered                                                                    
          to  mobile   home  park  owners  who   make  major                                                                    
          infrastructure  investment  in their  mobile  home                                                                    
          parks.   Alaska's mobile home parks  are often the                                                                    
          most  affordable  housing  option for  our  lower-                                                                    
          income  families    but we  know  that our  mobile                                                                    
          home parks  are absolutely  not what they  used to                                                                    
          be. This  would allow municipalities  to encourage                                                                    
          major repairs inside the park.                                                                                        
     3.   An optional property tax  exemption can be offered                                                                    
          to  landlords  who  rent to  low-income  families.                                                                    
          This  is self-explanatory.  We want  landlords who                                                                    
          are  willing   to  rent  to   low-income  families                                                                    
          without  overcharging  them.  HB  13  would  allow                                                                    
          municipalities to  reward landlords who  are doing                                                                    
          the right  thing. This  particular section  of the                                                                    
          bill is still having  its language adjusted, and a                                                                    
          CS should be coming forward soon.                                                                                     
     4.   Finally,  number  4,   An  optional  property  tax                                                                    
          exemption  could be  offered  for first-time  home                                                                    
          buyers   as I said  in my introduction   homes are                                                                    
          very expensive,  mortgages have doubled  in recent                                                                    
          years, and  if we  want people to  be able  to buy                                                                    
          their first homes   which I  for one do -- we have                                                                    
          to figure out how to help them.                                                                                       
                                                                                                                                
     Those   are   the    four   different   criteria   that                                                                    
     municipalities  could  potentially offer  property  tax                                                                    
     exemptions for.                                                                                                            
                                                                                                                                
     The  bill does  one  additional thing  and  that is  it                                                                    
     allows  property  tax  exemptions  to  be  offered  for                                                                    
     owner-occupied   residential   properties  only.   This                                                                    
     aspect of  the bill  grew out of  a recent  proposal by                                                                    
     the  Anchorage Economic  Development Corporation  which                                                                    
     had proposed an Anchorage sales  tax that would be used                                                                    
     in part for  property tax relief   passing  HB 13 would                                                                    
     allow  that  relief  to go  to  residential  homeowners                                                                    
     rather  than to  commercial property  owners which  was                                                                    
     not the intent of that proposal.                                                                                           
                                                                                                                                
8:10:11 AM                                                                                                                    
                                                                                                                                
CO-CHAIR HIMSCHOOT sought questions from committee members.                                                                     
                                                                                                                                
8:10:29 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MEARS shared  through her  experience in  the Anchorage                                                               
Health Department, that  she had observed code  violations in the                                                               
water/sewer  infrastructure  in  mobile   home  parks  that  were                                                               
expensive to  fix.  For  that reason, mobile home  parks struggle                                                               
to remain  in compliance.   She opined that making  it affordable                                                               
to live in  these mobile home communities by bringing  them up to                                                               
code would be a great option.                                                                                                   
                                                                                                                                
REPRESENTATIVE   RUFFRIDGE   shared    his   understanding   that                                                               
currently, changes  to this municipal ordinance  require approval                                                               
by  voters in  an election,  whereas if  the bill  were to  pass,                                                               
municipalities would  be able to  offer exemptions  without voter                                                               
ratification.                                                                                                                   
                                                                                                                                
8:12:48 AM                                                                                                                    
                                                                                                                                
SANDRA  MOLLAR,  Director,  Division   of  Community  &  Regional                                                               
Affairs  (DCRA), Department  of  Commerce,  Community &  Economic                                                               
Development  (DCCED),   answered  yes,   the  bill   would  allow                                                               
municipalities  to  create  the exemption  without  the  existing                                                               
process.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  RUFFRIDGE asserted  that  boroughs  would not  be                                                               
granted the authority outlined in Section 1.                                                                                    
                                                                                                                                
REPRESENTATIVE GRAY said  he would want to amend  the language to                                                               
include boroughs.                                                                                                               
                                                                                                                                
8:14:44 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RUFFRIDGE shared that  the statutory definition of                                                               
"dwelling unit"  is a place a  person sleeps and in  reference to                                                               
page 1, line 10, suggested that  a person could take advantage of                                                               
this exemption  by converting a one-bedroom  short-term rental to                                                               
a long-term rental to get the entire house exempted.                                                                            
                                                                                                                                
REPRESENTATIVE  GRAY said  he would  accept an  amendment to  the                                                               
bill to correct that language.                                                                                                  
                                                                                                                                
8:17:13 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOLLAND asked why  sub-subparagraph (ee) would not                                                               
require first-time home  buyers to occupy the  residence they are                                                               
purchasing.                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRAY  said he  would consider  that as  a possible                                                               
amendment to ensure  that people are not buying  their first home                                                               
and remaining renters; however, he said  it is not a common issue                                                               
in his community.                                                                                                               
                                                                                                                                
REPRESENTATIVE HOLLAND  maintained that  he had seen  renters buy                                                               
their first home  as an investment property and rent  it for cash                                                               
flow.   He pointed out that  the bill might reduce  revenues from                                                               
property  tax  at  a  time  when  municipalities  are  struggling                                                               
financially.    Additionally,  if  Anchorage  were  to  grow  its                                                               
economy,  he asked  how the  bill would  contribute to  available                                                               
housing.                                                                                                                        
                                                                                                                                
REPRESENTATIVE GRAY  reiterated that  no borough  or municipality                                                               
would be required  to implement these tax exemptions.   He stated                                                               
that  the bill  was created  at the  request of  municipalities                                                                 
specifically  the  Municipality  of  Anchorage (MOA)  -  for  the                                                               
purpose  of   incentivizing  certain  behavior.     He  spoke  to                                                               
population decline and the drastic  decrease in new construction.                                                               
He added that  affordable homes are "derelict  and falling apart"                                                               
and advocated  for measures that incentivize  the availability of                                                               
properties,  property improvement,  and the  construction of  new                                                               
homes.                                                                                                                          
                                                                                                                                
8:23:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RUFFRIDGE  pointed  out  that  any  reduction  in                                                               
revenue would have  to be offset by implementing  another form of                                                               
tax  or  raising property  taxes  on  eligible homeowners,  which                                                               
would  solve  one  small  problem  while  creating  others.    He                                                               
expressed concern  that the bill  might have the  opposite effect                                                               
of its intended outcome by  incentivizing property investment and                                                               
short-term rentals.   He  also stated his  concern that  it would                                                               
circumvent voter oversight.                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRAY  addressed   local  control  and  questioned                                                               
whether  the state  should be  deciding how  Anchorage makes  and                                                               
spends  its money.   He  reiterated that  the Anchorage  Assembly                                                               
passed a resolution in unanimous support of the bill.                                                                           
                                                                                                                                
REPRESENTATIVE RUFFRIDGE  speculated that the  Anchorage Assembly                                                               
is in  support of the bill  because it would give  them unchecked                                                               
authority  [to   enact  property  tax  exemptions]   without  the                                                               
approval of the  electorate.  He expressed  concern that property                                                               
taxes  would increase  for individuals  who may  not qualify  for                                                               
these exemptions,  and that  the assembly  could do  this without                                                               
voter approval.                                                                                                                 
                                                                                                                                
8:28:51 AM                                                                                                                    
                                                                                                                                
KYLE JOHANSEN,  Staff, Representative  Andrew Gray,  Alaska State                                                               
Legislature,  on behalf  of Representative  Gray, prime  sponsor,                                                               
pointed out  that there  are 26 other  instances in  statute that                                                               
give municipalities  the direct  ability to enact  the exemptions                                                               
beginning on page 1, line 7 of SSHB 13.                                                                                         
8:29:56 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MEARS  opined  that explicit  language  is  better  for                                                               
public process  and clarity.   She said  one limitation  on local                                                               
government is  that the state must  allow them to act.   She said                                                               
the  bill would  add  clarity and  give  permission for  discrete                                                               
economic development tools.                                                                                                     
                                                                                                                                
REPRESENTATIVE GRAY  pointed out that municipalities  can already                                                               
enact these property  tax exemptions in the  interest of economic                                                               
development without voter approval;  however, they cannot provide                                                               
blanket  property  tax  relief while  excluding  commercial  real                                                               
estate, which the bill would allow for.                                                                                         
                                                                                                                                
8:32:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PRAX sought  to confirm that there  would still be                                                               
public hearings on the ordinance change proposed in the bill.                                                                   
                                                                                                                                
MR.  JOHANSEN  confirmed that  it  would  go through  the  public                                                               
process.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  PRAX opined  that  if the  public  had wanted  to                                                               
enact these exemptions, they would have  voted for it.  He shared                                                               
his belief that the bill would drive people out of Anchorage.                                                                   
                                                                                                                                
REPRESENTATIVE GRAY  acknowledged Representative  Prax's concern,                                                               
adding that  the bill has been  met with "joy" in  other areas of                                                               
the state with high property tax burdens.                                                                                       
                                                                                                                                
8:35:43 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RUFFRIDGE  asked whether there  would be a  cap on                                                               
the exemptions in the bill.                                                                                                     
                                                                                                                                
REPRESENTATIVE GRAY  said he  supports local  control so  much so                                                               
that he would  like municipalities and boroughs to  set their own                                                               
criteria.  He  reiterated that these tax exemptions  would not be                                                               
required.                                                                                                                       
                                                                                                                                
REPRESENTATIVE RUFFRIDGE  expressed concern  that the  bill would                                                               
grant authority to a small group  of people and asked whether the                                                               
sponsor would be  amenable to, instead of  exempting by ordinance                                                               
in sub-subparagraph (aa), exempt  by ordinance "adopted by voters                                                               
at an election."   He maintained his concern that  the bill would                                                               
set in motion  an inequitable approach to  government in addition                                                               
to taking away people's vote on the matter.                                                                                     
                                                                                                                                
REPRESENTATIVE GRAY  stated that  Anchorage Assembly  members are                                                               
elected by  the citizens to  make decisions in the  best interest                                                               
of  the  public.    He   emphasized  that  his  intention  is  to                                                               
incentivize  the  availability of  higher  quality  rentals at  a                                                               
lower cost, not to provide property tax relief.                                                                                 
                                                                                                                                
8:45:03 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RUFFRIDGE  asked how  the bill would  prevent rent                                                               
from increasing.                                                                                                                
                                                                                                                                
REPRESENTATIVE GRAY  said he  was still  working on  crafting the                                                               
right language  for the low-income property  tax exemption, which                                                               
would apply  if the monthly  rent charged to a  low-income family                                                               
is not  more than 30  percent of the  median family income.   For                                                               
properties  that are  on the  verge of  qualifying, he  explained                                                               
that it would be in the  landlord's best interest to drop rent by                                                               
$100  to  qualify for  the  exemption,  thereby putting  downward                                                               
pressure on rent.                                                                                                               
                                                                                                                                
8:47:24 AM                                                                                                                    
                                                                                                                                
CO-CHAIR HIMSCHOOT  referred to  sub-subparagraph (bb)  and asked                                                               
what would qualify as a renovated mobile home park.                                                                             
                                                                                                                                
REPRESENTATIVE GRAY  said the language is  intentionally vague to                                                               
allow municipalities to define major infrastructure investment.                                                                 
                                                                                                                                
CO-CHAIR HIMSCHOOT expressed concern  that a wealthy person could                                                               
buy a dilapidated mobile home park  and replace it with a single-                                                               
family  mansion.   She  said  there  needs  to be  solutions  for                                                               
upgrading  mobile home  parks and  making the  owner's investment                                                               
more durable.                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRAY said  the bill would not  address that issue,                                                               
but it's something to be considered.                                                                                            
                                                                                                                                
8:51:07 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HALL  spoke to the  differences in  each community                                                               
with regard to  the housing crisis and  emphasized the importance                                                               
of  offering  numerous  levers  to  address  the  home  shortage.                                                               
According to  a 2023  Agnew Beck  Consulting study,  she reported                                                               
that Alaska is in need of  27,500 new housing units over the next                                                               
10 years.   She asked  the bill sponsor  to speak to  the housing                                                               
shortage in Anchorage.                                                                                                          
                                                                                                                                
REPRESENTATIVE GRAY  said it's a complicated  issue because there                                                               
are  different  types of  housing.    In anchorage,  the  average                                                               
single-family home  costs $524,000 and  the average new  build is                                                               
$683,000.                                                                                                                       
                                                                                                                                
REPRESENTATIVE HALL shared her  understanding that any additional                                                               
housing would be helpful due to the bottleneck in the market.                                                                   
                                                                                                                                
REPRESENTATIVE GRAY  shared an anecdotal example  of an apartment                                                               
building  complex in  his  district and  the  price of  recouping                                                               
building   costs  on   new  construction   in   Anchorage.     He                                                               
acknowledged that landlords are in a difficult position as well.                                                                
                                                                                                                                
8:56:54 AM                                                                                                                    
                                                                                                                                
CO-CHAIR HIMSCHOOT announced that SSHB 13 was held over.