04/13/2023 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

            HB  70-MUNICIPAL PROPERTY TAX EXEMPTIONS                                                                        
                                                                                                                                
8:50:05 AM                                                                                                                    
                                                                                                                                
CHAIR MCCORMICK announced  that the next order  of business would                                                               
be HOUSE  BILL NO. 70, "An  Act relating to property  exempt from                                                               
municipal taxation."                                                                                                            
                                                                                                                                
8:50:31 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FRANK  TOMASZEWSKI,   Alaska  State  Legislature,                                                               
introduced his staff to the committee members.                                                                                  
                                                                                                                                
8:50:49 AM                                                                                                                    
                                                                                                                                
MICHAELLA ANDERSON,  Staff, Representative Frank  Tomaszewski, on                                                               
behalf of  Representative Tomaszewski,  gave a brief  overview of                                                               
HB 70.   She explained  that HB  70 would clarify  tax exemptions                                                               
for some  nonprofits concerning parking lots,  space rentals, and                                                               
real property.   She  explained that the  real property  would be                                                               
free items,  such as  food, clothes,  shelter, books,  and health                                                               
care.   She  stated  that the  intent of  the  legislation is  to                                                               
prevent any  litigation between nonprofits and  municipalities in                                                               
the future.                                                                                                                     
                                                                                                                                
8:51:29 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MEARS  questioned the  status of the  new language                                                               
for the proposed legislation.                                                                                                   
                                                                                                                                
MS.  ANDERSON  replied that  this  is  still  in progress.    She                                                               
explained that  the new language  would allow for a  grace period                                                               
on construction on properties owned  by a nonprofit organization;                                                               
the organization  would have  two years  to develop  the property                                                               
before it  is not exempt.   She added that this  would also allow                                                               
for  fund raising  ability.   In  response  to several  follow-up                                                               
questions,  she   responded  that   other  scenarios   have  been                                                               
considered;  however,  the  primary   concern  for  the  proposed                                                               
legislation  would be  the food  bank in  Fairbanks.   Concerning                                                               
other municipalities, the tax-exempt  status for nonprofits would                                                               
fall under the same statute as  Fairbanks.  She stated that other                                                               
municipalities have not  been contacted, as this  is a Fairbanks'                                                               
issue.    She  added  that   any  litigation  could  cause  other                                                               
municipalities to  take steps.   In response, she stated  that it                                                               
has been discussed  with the Fairbanks North  Star Borough (FNSB)                                                               
to resolve this in other ways, but this has been to no avail.                                                                   
                                                                                                                                
8:54:10 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HIMSCHOOT  questioned whether  there is  an option                                                               
of using  the assembly's  Board of  Equalization in  Fairbanks to                                                               
address the food bank's issues.                                                                                                 
                                                                                                                                
REPRESENTATIVE  TOMASZEWSKI  replied that  there  is  a Board  of                                                               
Equalization; however,  because of changes  in the way  the board                                                               
works, it  is not easy  for property owners  to go to  the board.                                                               
He  added that  the  first  step would  be  going  to the  Alaska                                                               
Superior Court.                                                                                                                 
                                                                                                                                
8:55:15 AM                                                                                                                    
                                                                                                                                
CHAIR MCCORMICK  indicated the committee would  hear from invited                                                               
testimony.                                                                                                                      
                                                                                                                                
8:55:31 AM                                                                                                                    
                                                                                                                                
BRYCE  WARD,  Mayor,  Fairbanks   North  Star  Borough,  provided                                                               
invited testimony  on HB 70.   He expressed the opinion  that the                                                               
Community Food  Bank is  a pillar  of the  community.   He stated                                                               
that,  as drafted,  the proposed  legislation would  add language                                                               
under  AS  29.45.030,  clarifying  state  required  property  tax                                                               
exemptions.   He  explained that  for nonprofits  to receive  tax                                                               
exemptions from boroughs, they would  be required to prove public                                                               
benefit.    He   stated  that  Article  9,  Section   4,  of  the                                                               
Constitution  of   the  State  of   Alaska  gives   direction  on                                                               
exemptions for  real property  tax on  properties which  are used                                                               
exclusively   for   the   purposes   of   nonprofits,   religious                                                               
ceremonies, and  cemeteries.  He explained  that properties owned                                                               
by nonprofits  are not  necessarily exempt  from taxes,  as there                                                               
are other criteria, and assigning  tax exemption to ownership, as                                                               
opposed to  use, could  undermine public  benefit.   He continued                                                               
that just  because a property  is owned  by a nonprofit  does not                                                               
mean it  is being  exclusively used for  an eligible  purpose, as                                                               
defined  by law.    He stated  that  HB  70 is  a  good start  at                                                               
addressing this; however,  there are some problematic  areas.  He                                                               
explained  that  the  Board  of   Equalization  in  Fairbanks  is                                                               
reserved  for  evaluation  cases, while  taxability  is  referred                                                               
directly to the  courts.  He added that other  communities may do                                                               
this differently.                                                                                                               
                                                                                                                                
8:58:07 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HIMSCHOOT expressed support  for local control and                                                               
expressed  uncertainty concerning  the proposed  bill because  of                                                               
localization.  She questioned whether  the duties of FNSB's Board                                                               
of  Equalization can  be changed  to address  the problem  at the                                                               
local level.                                                                                                                    
                                                                                                                                
MR.  WARD  responded  that  this  would be  a  question  for  the                                                               
assembly.   From  an administration  perspective, he  pointed out                                                               
the difference  between issues  of taxability  and the  duties of                                                               
the board.  He explained that  equalization is an issue of value,                                                               
while taxability  is an issue  of law,  which is why  these cases                                                               
are referred to the courts.                                                                                                     
                                                                                                                                
8:59:14 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   MEARS  expressed   the  understanding   that  AS                                                               
29.45.050  concerns the  optional exemptions  and exclusions  for                                                               
municipalities.    She  expressed  the  understanding  that  this                                                               
statute  would give  the borough  the opportunity  to exempt  the                                                               
properties;  therefore,  the  issue  could  be  resolved  on  the                                                               
borough level.                                                                                                                  
                                                                                                                                
MR. WARD  replied that this is  correct, and it is  required that                                                               
the property owner  file an application.  He  continued that this                                                               
has been communicated to the food bank.                                                                                         
                                                                                                                                
9:01:15 AM                                                                                                                    
                                                                                                                                
SAMANTHA  KIRSTEIN,  Community  Development  Director,  Fairbanks                                                               
Community Food  Bank, provided invited  testimony on HB 70.   She                                                               
shared that  she has worked for  the food bank for  32 years, and                                                               
until 2022  the food bank  has had  exempt property.   She stated                                                               
that an exemption  was applied for, but it  was partially denied.                                                               
She argued  that the  work the  food bank  does is  for community                                                               
purposes only, and this has been explained.                                                                                     
                                                                                                                                
9:03:11 AM                                                                                                                    
                                                                                                                                
GENE THERRIAULT, Board President,  Fairbanks Community Food Bank,                                                               
provided invited testimony on HB 70.   He added that his work for                                                               
the food  bank is pro bono.   He observed the  widespread support                                                               
that the food  bank receives.  He pointed out  that the food bank                                                               
has  recently received  emergency money  from the  state for  the                                                               
food shortage.  He continued  that the food bank has partnerships                                                               
with  other food  supply  entities in  the  state; therefore,  it                                                               
serves a larger  portion of the state.  He  reiterated that in 40                                                               
years the  food bank has  never been  levied with a  property tax                                                               
against any of its facilities until  last year.  He expressed the                                                               
understanding  that  this  has  been  perceived  as  an  upcoming                                                               
problem, but FNSB  is the first to experience this  in the state.                                                               
He  described the  food  bank's spaces  in  Fairbanks which  were                                                               
assessed with $8,200  in taxes.  He explained that  while this is                                                               
not  "crushing," in  the middle  of  the winter  the food  bank's                                                               
energy bill can be  up to $16,000 per month.   He pointed out the                                                               
denial  letter  from  the tax  assessor  addressed  several  fund                                                               
raisers  held in  the food  bank's spaces.   The  letter conveyed                                                               
that  use of  the  property  must be  for  a  direct and  primary                                                               
purpose, but any charitable fund  raising for this purpose is not                                                               
exempt.                                                                                                                         
                                                                                                                                
9:08:13 AM                                                                                                                    
                                                                                                                                
MR. THERRIAULT  continued that  the tax  assessor's determination                                                               
related  that if  the  food  bank is  raising  money,  it is  not                                                               
feeding people,  which is  its primary purpose.   He  stated that                                                               
the  tax  assessor's  office  determined   the  property  tax  by                                                               
measuring  the  square  footage  which had  been  used  for  fund                                                               
raising.  He  described how another recent  fund-raising event at                                                               
a food bank  space may have put another, bigger  facility at risk                                                               
for a tax.  He stated that  if this happens, the only recourse is                                                               
to  go  to court;  however,  the  food  bank  does not  have  the                                                               
resources to  go to court,  which is why  the food bank  paid the                                                               
2022 property taxes.  He explained  the details of how HB 70 came                                                               
to be and how  it may be applied to other  nonprofits.  He stated                                                               
that it has been recommended the  definition of the word "use" be                                                               
expanded in  a way which  would not  risk misuse of  the statute.                                                               
He  discussed  the expense  which  goes  along with  meeting  the                                                               
state's needs during  the food shortages, and he  argued that the                                                               
food  bank needs  help to  make  sure it  is not  subjected to  a                                                               
property tax.                                                                                                                   
                                                                                                                                
9:13:30 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MCCABE  questioned  how much  food  $8,200  would                                                               
supply.                                                                                                                         
                                                                                                                                
MR.  THERRIAULT replied  that recently  31,000 pounds  of bycatch                                                               
fish from  Seattle had no cost;  however, it had cost  $8,000 for                                                               
freight to ship it to Fairbanks.                                                                                                
                                                                                                                                
REPRESENTATIVE MCCABE questioned what changed  in 2022 to cause a                                                               
tax to be levied.                                                                                                               
                                                                                                                                
MR.  THERRIAULT  expressed  the   understanding  that  it  was  a                                                               
reinterpretation of statute.   He stated that  the tax assessor's                                                               
office had not indicated there would be a change.                                                                               
                                                                                                                                
REPRESENTATIVE MCCABE requested  a copy of the letter.   He said,                                                               
"It seems  a little  much to have  to do this  via statute."   He                                                               
requested  clarity that  the food  bank  is a  nonprofit for  the                                                               
community and not just for a small group of people.                                                                             
                                                                                                                                
MR. THERRIAULT responded  in the affirmative.  He  stated that he                                                               
would provide  a copy of  the denial letter.   He added  that the                                                               
food  bank only  leases property  to other  qualified nonprofits.                                                               
He gave  the example  of the Literacy  Council of  Alaska selling                                                               
used  books, and  how this  was  determined to  create a  taxable                                                               
space.  He  described some of the other properties  the food bank                                                               
owns and  how tax  was determined.   He  expressed the  desire to                                                               
strike a balance with something which is not subject to abuse.                                                                  
                                                                                                                                
9:18:32 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MCCABE questioned  what the  Literacy Council  of                                                               
Alaska, as  a nonprofit, does with  the proceeds when it  sells a                                                               
book.                                                                                                                           
                                                                                                                                
MR.  THERRIAULT replied  these profits  are used  to support  its                                                               
charitable  function.   He stated  that, concerning  the proposed                                                               
legislation,  the language  addresses entities  reselling donated                                                               
goods at  a lower price.   He expressed the desire  not to impact                                                               
other charities  whose definitions  may not align;  therefore, he                                                               
suggested  that  the  language  needs  to  be  more  nuanced  and                                                               
sensitive.                                                                                                                      
                                                                                                                                
9:20:12 AM                                                                                                                    
                                                                                                                                
CHAIR MCCORMICK announced that HB 70 was held over.