Legislature(2017 - 2018)CAPITOL 106
03/23/2017 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB166 | |
| HB156 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 156 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 166 | TELECONFERENCED | |
HB 156-MUNI TAX EXEMPTION: ECON DEVEL PROPERTY
8:32:13 AM
CO-CHAIR FANSLER announced that the final order of business
would be HOUSE BILL NO. 156, "An Act relating to a municipal tax
exemption or deferral for economic development property."
8:32:34 AM
REPRESENTATIVE CATHY TILTON, Alaska State Legislature, as prime
sponsor, introduced HB 156. She explained that HB 156 is a
reintroduction of House Bill 370, which was sponsored by the
House Community and Regional Affairs Standing Committee, on
which she served as chair, in the Twenty-Ninth Alaska State
Legislature. She said the bill would provide a nonmonetary tool
for municipalities to incentivize new economic development. The
proposed legislation would amend current statute [AS
29.45.050(m)] to offer greater flexibility to municipalities to
determine their property tax policies. She explained that
although the statute has been in place since 1993, it has rarely
been used because of its restrictive nature. Representative
Tilton said projects that have been created under AS
29.45.050(m) include the Alaska Brewery in Juneau and the MTA
Sports Center in Palmer. The rigidity of the current statute
makes its use difficult for "larger dollar projects" and
"capital incentive-type projects."
8:34:31 AM
HEATH HILYARD, Staff, Representative Cathy Tilton, Alaska State
Legislature, presented HB 156 on behalf of Representative
Tilton, prime sponsor. He reiterated the key points given by
Representative Tilton in her brief introduction. He explained
that the aforementioned restrictive nature of AS 29.45.050(m) is
that it allows a municipality only a five-year deferral or
exemption and "follow-up, five-year extension." He paraphrased
one intent of HB 156, which is described in the sponsor's
statement as follows [original punctuation provided]: "The
proposed legislation would remove the time limitation mandated
by statute and authorize local governments to determine time
periods appropriate for specific projects and according to their
own needs and objectives."
MR. HILYARD referred to [paragraphs (1), (2), and (3), of AS
29.45.050(m)] which describe "economic development property" as
["real or personal property"] that:
(1) has not previously been taxed as real or personal
property by the municipality;
(2) is used in a trade or business in a way that
(A) creates employment in the municipality;
(B) generates sales outside of the municipality
of goods or services produced in the municipality; or
(C) materially reduces the importation of goods
or services from outside the municipality; and
(3) has not been used in the same trade or
business in another municipality for at least six
months before the application for deferral or
exemption is filed; this paragraph does not apply if
the property was used in the same trade or business in
an area that has been annexed to the municipality
within six months before the application for deferral
or exemption is filed; this paragraph does not apply
to inventories.
8:37:01 AM
MR. HILYARD showed a slide that illustrates that currently a
municipality can choose to exempt the entirety of the property
tax on an applicable property for five years, but after year
five cannot exempt any portion of property assigned for
education. The proposed legislation would allow the exemption
[to continue beyond five years] for the entirety of the
property, and the power to make that decision would be given to
the local governments. He clarified that HB 156 would not free
municipalities from their obligation to fund education; they
would just have to find some other way to pay for it if they
chose to allow the exemption.
8:39:13 AM
CO-CHAIR PARISH anticipated that HB 156 may result in
[competition between] municipalities.
MR. HILYARD responded that could be possible, although that was
not the case in speaking with the Municipality of Anchorage and
the City of Seward last year. He said he does not see any
projects of that nature on the horizon. In response to a
follow-up question, he said HB 156 would eliminate the initial
five-year period and five-year extension; local governments
would determine a time certain; and the obligation to fund
education would remain. He agreed with Co-Chair Parish that one
option to fund education could be to raise taxes on other
businesses and property owners in the area.
8:41:47 AM
REPRESENTATIVE RAUSCHER asked if the State of Alaska
micromanages the ability of municipalities to exempt certain
properties.
MR. HILYARD noted that there are numerous exemptions and they
are listed under AS 29.45.050, subsections (a) through (x). He
said subsection (m) is essentially "an investment optional tax
exemption rather than a charitable optional tax exemption." He
clarified that all the exemptions listed under AS 29.45.050 are
optional.
REPRESENTATIVE RAUSCHER said he finds it odd that the state
micromanages the business of municipalities to such a degree.
8:43:08 AM
REPRESENTATIVE SADDLER said he had considered the aforementioned
possibility of two municipalities competing, but he said he
thinks HB 156 would return more discretion and power to
municipalities, and he opined that "government's good that's
close to the people."
8:44:08 AM
REPRESENTATIVE DRUMMOND said she thinks the Matanuska-Susitna
(Mat-Su) Borough is the property taxing entity north of
Anchorage, and the Cities of Palmer, Wasilla, Houston, et cetera
have sales tax in place. She asked, "Since this is an act
relating to a municipal tax exemption or deferral, does it only
apply to municipalities or ... may boroughs also take advantage
of this ... exemption?"
MR. HILYARD offered his understanding that HB 156 would apply to
any municipality that levies property taxes, whether city or
borough.
8:46:51 AM
REPRESENTATIVE WESTLAKE said Representative Drummond had asked a
good question, and he said he would like to know if boroughs
need to be specified in the proposed legislation.
8:47:18 AM
SUSIE SHUTTS, Attorney, Legislative Legal Counsel, Legislative
Legal Services, Legislative Affairs Agency, Alaska State
Legislature, responded that under HB 156, the use of the word
"municipality" would include cities and boroughs.
8:48:02 AM
MARTY MCGEE, Section Manager/State Assessor, Municipal and
Community Policy and Research Section, Division of Community and
Regional Affairs (DCRA), Department of Commerce, Community &
Economic Development (DCCED), talked about the change to statute
that would be made under HB 156. He said AS 29.45.050 (m)
pertains to optional exemptions. He said, "The basic theory on
taxation is that all property is subject to taxation, except
that which is excluded or exempted by law." He said optional
exemptions are the choice of local governments. He related that
the fiscal note provided by his division shows no fiscal impact.
He said, "Property exempted under the optional exemptions ...
would be added back into the full value determination, but it
does effect the school funding format."
8:50:45 AM
REPRESENTATIVE SADDLER asked if, in general, giving an exemption
to one property tax payer shifts the burden of providing public
services to other tax payers.
MR. MCGEE answered that's correct.
REPRESENTATIVE SADDLER surmised that the local authority would
take that into consideration to ensure that the economic
development opportunities outweighed any costs. He asked Mr.
McGee to confirm Representative Drummond's previous remark that
the City of Palmer and the City of Wasilla are not taxing
authorities in the Matanuska-Susitna (Mat-Su) Borough.
MR. MCGEE responded that the taxing authority belongs with the
borough; local city governments have the authority to add
millage or, in certain cases, exemptions. He said the City of
Wasilla currently has no specific millage associated with its
operation but has had in the past and could in the future. In
response to a comment by Representative Saddler regarding
competition between municipalities, he said it is common for
competition to happen. For example, he mentioned competition
between the airports in Anchorage and Fairbanks, in terms of
looking for which airport would offer the best deal on a
project.
REPRESENTATIVE SADDLER offered an example to illustrate that in
the heat of a bidding competition, those involved in the bidding
may lose sight of the fact that they may be foregoing tax for a
long time (by offering exemptions).
8:53:18 AM
CO-CHAIR PARISH asked Mr. McGee for clarification as to where
under HB 156 there would be an increased obligation to the state
for school funding.
MR. MCGEE explained that if a local government chooses to expand
an optional exemption, the value of the property exempted is
added back to the full value determination, which is part of the
school funding formula. [Mr. McGee offered further comment
pertaining to a bill version that was not before the committee.]
8:54:45 AM
MR. HILYARD, in response to Co-Chair Fansler, clarified that Mr.
McGee had been referring to a potential amendment package that
was discussed in Representative Westlake's office but would not
at this time, and most likely never, be offered.
Notwithstanding that, he offered his understanding that he and
Mr. McGee were still essentially saying the same thing: HB 156
would not free municipalities from the obligation to fund
education; it would simply provide that if a municipality
chooses to exempt the portion of property tax that funds
education, then it would have to find another way to fund that
education obligation.
8:55:59 AM
MR. MCGEE retracted any comments he had made related to
amendments to a version of HB 156 that had not been offered. He
stated, "The part ... which is functional is that the school
funding millage is now removed, and the local government can
exempt that portion of the millage - the tax associated with
economic exemption development projects. It still has a fiscal
impact, but I can't calculate it in current (indisc.)."
8:56:51 AM
MR. HILYARD, in response to Co-Chair Parish, said under HB 156
the shipyard would not have the exemption. He offered his
understanding that Representative Westlake's amendment package
he did not offer would have provided for an exemption for the
shipyard, but because there would have been a fiscal
implication, "the amendment was not put forward."
MR. MCGEE said in general he agrees with Mr. Hilyard's comments.
He said, "If ... all value, including that associated with
education, is exempt by local option, then that value's added
back in the full value determination and there isn't [a] shift
from the borough to the state government. If the exemption is
mandatory, then there is a shift from local government
obligation to state obligation."
CO-CHAIR PARISH offered his understanding that HB 156 does not
include mandatory obligations.
MR. HILYARD confirmed that HB 156 pertains to only optional
exemptions.
8:59:20 AM
REPRESENTATIVE SADDLER asked Mr. Hilyard to clarify the term
economic development property.
MR. HILYARD noted that the language in HB 156 relating to
economic development property is found on page 2, beginning on
line 11, and considers whether the property would be used in a
way that would create employment, generate sales, reduce the
importation of goods or services from outside the municipality,
or ultimately add back to the property tax base at the
conclusion of the exemption deferral. He said it is important
to remember that the issue is not just about exemption; it is
also about deferral. He said the idea is to provide maximum
flexibility to municipalities to work with private business
partners "to make a package that makes sense." He said
municipalities would have to consider that [an exemption or
deferral] could "pass back for a time being onto the other
existing property tax payers," but the prime sponsor thought it
would be better for the local governments to make that decision
rather than the state.
REPRESENTATIVE SADDLER asked if there is any formal analysis
that over time there would be a net benefit to a community or if
that was something that would just be felt organically.
MR. HILYARD responded that the current statute is so narrow that
it has not been utilized enough to provide an analysis.
Nevertheless, he suggested asking the City & Borough of Juneau
if the investment for the Alaskan Brewing Company was a wise
decision. In response to a follow-up questions, he said one
example of a best case scenario under HB 156 would be a port
expansion for the City of Seward. He offered his understanding
that a representative from the Municipality of Anchorage was
available to testify, and that that municipality could have used
this legislation to advance the "Dave & Buster" project. He
said the intent of HB 156 is for municipalities to be able to
have significant investment infrastructure projects.
9:03:14 AM
REPRESENTATIVE RAUSCHER asked how [HB 156] would affect the
state.
MR. HILYARD deferred to Ms. Shutts or Mr. McGee.
MR. MCGEE said the aforementioned practice of different taxing
jurisdictions competing for economic development project
historically has not had a good economic result for communities;
therefore, it is in the best interest of the state to avoid the
potential for competition. He said that is one reason the state
makes its tax laws uniform and provides the opportunity for
local governments to choose what they will and will not exempt.
He said the primary obligation of boroughs has always been the
funding of education, so there is concern that the tax base for
education be supported.
9:05:29 AM
REPRESENTATIVE SADDLER directed attention to language on page 2,
beginning on line 11, of HB 156, [which describes economic
development property as real or personal property] "that has not
been used in the same trade or business in another municipality
for at least six months before the application for deferral or
exemption is filed". He questioned the reason for the
distinction of six months.
9:06:08 AM
MR. MCGEE responded that he had administered this exemption in
Anchorage for 20 years, and the interpretation of that specific
language was problematic, because it is unclear in statute. He
said obviously land cannot be moved and it is difficult to move
buildings. He continued:
The logic is that if there's an existing industry -
you know, facilities, real estate associated with that
industry - that a new person coming in, trying to
start up in the same industry, with the same type of
building doesn't get a tax advantage over the existing
tax credits. That's the way it's been interpreted in
practice, but the language of the bill is awkward and
has been problematic for 20 years that I'm aware of.
REPRESENTATIVE SADDLER said he is trying to envision whether
there might be a circumstance under which a developer may expand
across the borders of two municipalities and how that might
affect the application of this exemption. For example, there
may be a pipeline or railroad that is subject to taxation in one
municipality but not another.
9:07:54 AM
MR. MCGEE said the products pipeline for Tesoro goes from the
Kenai Peninsula to the Port of Anchorage. He said it has been
handled in a straightforward manner, but there is the potential
that the City of Kenai could decide to exempt its portion of the
pipeline while Anchorage would tax its portion. He said there
have always been issues regarding the valuation of one part of
an infrastructure over another. He said Alaska's boroughs are
large enough that borders are not issues as is common in the
Lower 48.
9:09:01 AM
MR. HILYARD concurred that the language in statute is awkward.
He offered some background information pertaining to its origin.
He said the proposed language on page 2, lines 11-16, [which
includes the mention of the six-month provision] "would
discourage a situation where ... a business might be offered the
exemption in one municipality; another municipality could come
along six months later and offer an even sweeter property tax
exemption and draw that away from the existing original
municipality." He said that is conjecture, but he can "see that
language envisioning that circumstance."
REPRESENTATIVE SADDLER suggested that if it is existing law,
then "if it ain't really broke that bad - don't fix it."
9:11:36 AM
REPRESENTATIVE SADDLER asked if there were any potential
projects to which the Municipality of Anchorage might apply the
proposed legislation.
9:12:29 AM
CHRIS SCHUTTE, Director, Office of Economic and Community
Development (OECD), Municipality of Anchorage, called HB 156 an
exciting piece of legislation for Anchorage. The proposed bill
would modify the optional property tax exemption portion of
state statute that would give the Municipality of Anchorage the
flexibility in creating some community and economic development
incentives that will help it achieve some of its community and
economic development goals. Regarding the previous discussion
about creating competition, he said it is entirely possible,
though "largely not what we're interested in, in the City of
Anchorage." He noted that there were other entities from
Anchorage signed up to testify.
MR. SCHUTTE said one area of focus for OECD is to find ways to
help projects within the Municipality of Anchorage "get across
the finish line." He said there are a number of local
businesses that are looking for opportunities for growth. Some
of the challenges inherent in developing in Anchorage include a
shortage of easily developable land and a need to get creative
in redevelopment, also called infield development, in the
community.
9:14:52 AM
MR. SCHUTTE said the proposed legislation would give the City of
Anchorage the authority to create local incentives specific to
the community's needs, for example, to encourage mixed-use
development in-field sites in the city that are difficult to
develop or for economic development projects that have a long-
term payout for the community but don't quite "pencil out" in
the short term. He gave an example of the Odom Beverage
Distribution Company - a national company with Alaska roots -
that is looking to consolidate to a single location in
Anchorage. The company has found land on a former concrete and
gravel site, but it is not in good condition. If this
legislation had already been enacted, it could have helped the
project in the amount of $4.5 million. Without the legislation,
the company had to consider the long-term benefits and costs
that could put the project out of reach. Mr. Schutte said
another example is the Cook Inlet Housing Corporation in
Anchorage, where the cost for housing is high, and the proposed
legislation could help the city incentivize certain types of
development, such as dense development that builds up instead of
out, and thus make better utility of the land that is left and
to encourage that outcome through incentives.
MR. SCHUTTE said OECD is excited to see HB 156 supported. He
said it is step one of a two-step process; the second step is
the work with the local community to truly identify community
development goals and objectives and to craft a program and
criteria specific to local needs.
9:17:47 AM
REPRESENTATIVE DRUMMOND questioned how an operation such as the
aforementioned Dave & Buster's would have met the requirement of
this bill had it passed previously. She offered her
understanding that Dave & Buster's is an entertainment place
built in a mall.
MR. SCHUTTE responded that one of the most valuable components
of the bill is on page 2, beginning on line 27, in subparagraph
(C), which read as follows:
(C) an exemption or deferral on
the property enables a significant capital investment
in physical infrastructure that
(i) expands the tax base of
the municipality; and
(ii) will generate property
tax revenue after the exemption expires
MR. SCHUTTE said the language would allow the city to craft
incentivizing language that would help properties redevelop or
develop by offsetting some of the mandatory physical
infrastructure expenses. He offered information regarding Dave
& Buster's as follows:
What ended up happening is they ... were not required
to do the off-site infrastructure we originally
predicted they would need to do, but originally it
looked like there was going to need to be some
upgrades to both sewer, transportation network - so
the road network, et cetera - lots of off-site,
public-facing infrastructure needs that unfortunately
... fell to the project itself since it was the
trigger for these mandatory upgrades. At the end of
the day, it worked out to where Dave & Buster's would
not require that, so this particular clause of the
bill would not have been triggered. But ... that's
how sometimes a redevelopment project or a development
project within an existing facility might trigger one
of the clauses.
REPRESENTATIVE DRUMMOND noted that Mr. Shutte had mentioned that
Odom Beverage Distribution Company had found that road and
utility work would have put their consolidation project out of
reach. She offered her understanding that the Natural Pantry,
which built a store at Thirty-Sixth and A Streets, [in
Anchorage], had to build the access road around the U.S. Post
Office, even though it was not part of their property. She
asked if the proposed legislation would have helped the Natural
Pantry, if it had been in place at that time.
MR. SCHUTTE answered that is correct. He said because of the
location of the Natural Pantry, a number of mandatory public
infrastructure upgrades were required, the cost of which fell to
the project itself. He estimated that the road was $1.5 million
of unanticipated costs, and that is something that could have
been absorbed through a property tax abatement or deferral plan
that would be allowed under HB 156.
REPRESENTATIVE DRUMMOND questioned whether a retroactivity
clause could be added to HB 156 that would help businesses such
as [the Natural Pantry] after the fact.
MR. SCHUTTE emphasized his reluctance in trying to establish the
criteria for retroactively granting property tax abatement or
referrals.
REPRESENTATIVE DRUMMOND said, "Okay, then I don't want to get
you in trouble."
9:21:53 AM
REPRESENTATIVE SADDLER stated his understanding that under HB
156, cities would have the option whether or not to grant
exemptions or deferrals. He further expressed his understanding
that "there's no specific requirement of a detailed finding that
the net financial benefits of a property tax exemption under
this bill would ever have to provide a net benefit in terms of
tax revenue." He said, "Tax revenue is not the only or even the
most important measure of the benefits of a law." He asked Mr.
Shutte, "In your purview, are the gaining of jobs - economic
activity, giving people something to do, less tangible benefits
of this kind of law - might those have a more effective or more
beneficial economic development impact than solely the measure
of increasing property tax or deferral of property taxes?"
MR. SCHUTTE answered that the power under HB 156 to exempt
taxation would fall to local jurisdictions, as would the
requirement that they craft their own criteria for measuring
success. He said the City of Anchorage has not done this yet,
but it would have clearly established criteria as well as
metrics for evaluating any proposal for tax abatement or tax
deferral so that the city can measure both the long-term impact
on the community, as well as the long-term benefit through
increased property taxation, jobs, growth in other receipts,
such as personal property tax, businesses that keep inventories,
or businesses that would "trigger any one of the other taxes
locally." He said he thinks that each jurisdiction would have
to do its own due diligence and have its own methodology for
evaluating proposals as they are submitted in order to take into
account all of the underlying economic benefit.
9:24:17 AM
BILL POPP, President/CEO, Anchorage Economic Development
Corporation (AEDC), testified in support of HB 156. He stated
that AEDC believes HB 156 would provide an important tool that
has been missing from the tool box in terms of the ability of
Anchorage to attract new lines of investment in businesses that
currently do not exist in the city. He said he has numerous
years of experience with the related state statute; when he was
a member of the Kenai Peninsula Borough Assembly in the latter
half of the '90s, he sponsored and supported the adoption of an
economic development code, in addition to the existing
ordinances of Kenai, that mirrors the language [of HB 156], and
he offered his understanding that "it has never been used
effectively in the history of that ordinance." He posited that
that points to the failure of the current statute in its ability
to do what was intended. He offered his understanding that the
Municipality of Anchorage has had no successful use of the state
statute either through its own municipal code.
MR. POPP said when looking at the national landscape of economic
development strategies, there is a mixed bag of tricks in terms
of incentives throughout the country; however, those communities
that are thoughtful in their use of transparent incentives
targeted to incur new economic development and create jobs and a
new tax base have balanced and successful results. He said
successful programs often include full details of a proposed
project - including construction and operation costs, dollars
invested, jobs created, direct and indirect impact to the
community offering the incentive - and they report annually to
the government and community during the life of the incentive,
in terms of how they are proceeding and how successful they are.
He said another element is the inclusion of claw-back provisions
in the event that the development does not perform as proposed.
Mr. Popp stated that successful business attraction efforts are
not lead by incentives; incentives are "a last piece of
discussion in the overall dialogue between companies looking for
a location [in which] to invest and communities trying to
attract that investment."
MR. POPP continued as follows:
Incentives help with the bottom line if the proposed
project is challenged by economics. And we believe
that this tool is vital in Anchorage's ability to
attract new investment to our community, not so much
in the existing lines of business, such as retail or
restaurants, national chains - things like that, but
more in terms of bringing in new lines of business,
such as the work we are doing in partnership with the
international airport system trying to attract new
lines of business that put things on airplanes here in
Anchorage. With the incredible asset that we have at
the airport of five to six hundred wide-bodied jets a
week, an incentive could be very valuable when we're
trying to bring in new lines of business that are
looking to put things on airplanes and taking
advantage of the logistics supply chain that we have
here but where our project economics are incredibly
challenged by our high cost of doing business, our
still relatively tight labor markets, the cost of
finding locations and building up those locations to
service the business - all of these different factors
can come into play when [an] incentive could be the
final piece of the puzzle that helps tip the economics
of the project into a profitability state, which would
then generate the economic activity through the
investment and the jobs created.
MR. POPP expressed AEDC's hope that the House Community and
Regional Affairs Standing Committee would pass HB 156 forward
and that the legislature would ultimately pass the proposed bill
to support local municipalities in dealing with the economic
challenges of the state and to expand their economies in the
future.
9:29:15 AM
CO-CHAIR PARISH asked what the longest municipal tax exemption
duration is that Mr. Popp would anticipate.
MR. POPP answered that the duration is not necessarily the key
element, although there needs to be some flexibility in that
regard. He said there are some projects of a significant nature
that could require 10 to 20 or more years, depending on costs
and challenges. Conversely, he said he believes there are many
projects that could benefit from just a 3- to 5-year incentive.
He said he thinks the "sweet spot" in terms of length of
incentive must be decided through discussions between the
community and the entity seeking the incentive, and there needs
to be a balancing of the overall economics.
9:30:58 AM
MR. POPP, in response to a request for clarification from
Representative Saddler, explained that he had previously meant
that both Anchorage and Kenai had a set of municipal ordinances
that mirrored state statute but had had no success in "deploying
that particular language for an economic development project."
He said he is aware of a couple projects that have been done in
Anchorage using "the deteriorated property statute and code of
ordinance that has been adopted within the municipality," but he
said those have been challenging because he opined it was not
the right path, although it was the only path available. He
said a much cleaner process could have occurred if there had
been more effective economic development language in state
statute that could then have been mirrored in municipal code of
ordinances. In response to a follow-up question, he said if HB
156 passes, he would partner with the Municipality of Anchorage
to develop an ordinance if that is the will of the
administration and the assembly, and AEDC would be in favor of
having the discussion to determine whether or not a code of
ordinance could be adopted to "make this tool available." He
surmised other communities would do the same.
REPRESENTATIVE SADDLER expressed support for HB 156 as a good
thing for the state and its communities, and he thanked Mr.
Hilyard and the bill's prime sponsor for bringing it forward.
9:34:08 AM
JEFF JUDD, Executive Vice President, Real Estate, Cook Inlet
Housing Authority (CIHA), characterized HB 156 as a valuable
tool to municipalities to encourage and fund infrastructure
costs associated with economic development opportunities. The
proposed legislation would allow local governments to tailor
funding mechanism as needed. He said public infrastructure
improvements, such as road improvements, water, sewer, storm
drainage, are the burden of local jurisdictions, which will fund
those improvements eventually. The proposed legislation would
allow private developers the opportunity to fund those projects
at a lower rate, and the result is that projects could get done
now rather than five or ten years from now when the local
government has the funding to complete the projects.
MR. JUDD noted that CIHA has approximately 13 properties in the
Spenard neighborhood, in Anchorage, between Spenard and Thirty-
Sixth Avenue where there is a redevelopment effort involving
housing and retail areas occurring. He said acquiring the
properties involved purchase from individual owners, demolishing
older properties, and significantly improving public roads and
water, sewer, and drain facilities to meet current code. The
cost of that upgrade is approximately $1 million, which can make
a project like this unfeasible without some type of public
support. Mr. Judd indicated that the effort being pursued would
result in "total development outcome of approximately $20
million on these sites," with a public infrastructure cost of
approximately $1 million, which - short of incentives and other
tools that the local government might be able to provide - would
likely result in an unfeasible project - at least in the short
term. He concluded that HB 156 would provide the opportunity
for municipalities to abate the property taxes for a period of
time determined by the local government, and this would allow
developers to monetize the abated taxes in the form of private
debt, which would then fund the public infrastructure.
9:39:36 AM
REPRESENTATIVE DRUMMOND expressed delight in the progress of
CIHA's project, which she said she sees every time she goes
home.
9:40:27 AM
CO-CHAIR PARISH offered his understanding that "this wouldn't be
an exemption available if ... you were going into competition
with other preexisting businesses." He said it seems like
housing is being offered in the Anchorage area, although perhaps
not in sufficient quantity. He asked Mr. Judd, "Would you be
providing a substitute (indisc.) service housing to ... other
businesses in that area?"
MR. JUDD said he does not think so. He said vacancy rates in
Anchorage are low. He noted that much of CIHA's housing was
built in the '60s, '70s, and '80s and is reaching the end of its
useful life in terms of quality, energy efficiency, and
affordability. He echoed Mr. Popp's remark that the opportunity
for economic development is in large part a function of [having]
quality, affordable, diverse housing in a community. In large
part, he said, the homes in Anchorage that have been constructed
over the last 20 years are single family homes that are "often
times beyond the financial means of ... the workers ... who are
going to be working at these economic development facilities."
The housing that has been made available is in limited supply
based on "limited funding resources ... versus the cost to
actually develop those developments." Mr. Judd concluded his
response as follows:
I don't view ... the opportunity to utilize this bill
perhaps for housing development or mixed use
development that includes housing and
retail/commercial spaces - I don't really view it as
competition to the exiting stock, because simply the
types of housing ... or mixed use facilities that are
likely to be developed are not those that are
otherwise being created in Anchorage presently, just
simply due to the economics and the unviability of
those sorts of housing developments.
CO-CHAIR PARISH repeated for Mr. Judd the question he had asked
Mr. Popp regarding adequate length of exemption.
MR. JUDD answered that the answer depends upon the nature and
scale of the development. For example, a project requiring
three to four acreage and an over $20 million budget, including
extension of utilities and road systems, with a cost of $1
million toward infrastructure, would likely require a 10- to 15-
year abatement of taxes to provide adequate time to repay the
debt. Notwithstanding that example, he pointed out that there
may be a smaller scale project that would require a longer-term
exemption - it would all depend upon the availability of the
existing adjacent infrastructure.
9:45:32 AM
CO-CHAIR FANSLER noted that since public testimony had not been
noticed on HB 156, he would open public testimony at the next
hearing on HB 156, Tuesday, [March 28, 2017].
9:45:41 AM
CO-CHAIR PARISH asked if a future assembly or governing
authority in a municipality could shorten the duration of an
exemption.
MR. MCGEE indicated it may depend upon the original language in
the resolution that created the exemption, but said in general
the answer is no. He explained, "The decision of the prior body
would be binding to future bodies for the duration of the
specific (indisc.) set out in the resolution that created the
exemption. In response to a follow-up question, he said he is
not aware of any small companies applying for or receiving this
type of exemption.
9:47:09 AM
REPRESENTATIVE SADDLER asked for clarification regarding a
reference in HB 156 to the Alaska Native Claims Settlement Act
(ANCSA).
MR. HILYARD noted that the reference to ANCSA occurs on page 2,
line 9, and is part of existing statute. He deferred to Ms.
Shutts for further explanation.
9:47:55 AM
MS. SHUTTS said she was not certain why that particular
provision exists in statute, but she offered to find out and let
the committee know.
9:48:21 AM
REPRESENTATIVE TALERICO offered his understanding ANCSA
established a 10-year tax exemption for all ANCSA transferred
land, from the beginning of the taxable property or business,
for the first 10 years, and he surmised the purpose of having
that language in statute is to make everyone aware of that
exemption.
9:48:58 AM
CO-CHAIR PARISH pointed to [proposed provisions in Section 1,
subsection (m), paragraph (1) and paragraph (2), subparagraphs
(A) through (C)], on page 2, lines 11-31, of HB 156, which read:
(1) that has not been used in the same
trade or business in another municipality for at least
six months before the application for deferral or
exemption is filed; this paragraph does not apply if
the property was used in the same trade or business in
an area that has been annexed to the municipality
within six months before the application for deferral
or exemption is filed; this paragraph does not apply
to inventories; or
(2) to which one or more of the
following applies:
(A) the property has not
previously been taxed as real or personal property by
the municipality;
(B) the property [2] is used in a
trade or business in a way that
(i)[A] creates employment in
the municipality;
(ii)[B] generates sales
outside of the municipality of goods or services
produced in the municipality; or
(iii)[C] materially reduces
the importation of goods or services from outside the
municipality;
(C) an exemption or deferral on
the property enables a significant capital investment
in physical infrastructure that
(i) expands the tax base of
the municipality; and
(ii) will generate property
tax revenue after the exemption expires [AND
CO-CHAIR PARISH asked, "Is that the current interpretation of
the bill? Because I see that now we're switching it to a
district war clause where any one of the following applies."
MS. SHUTTES responded that there is currently a subsection (m)
in statute that defines economic development properties. She
noted that paragraph (1), on lines 11-16, has the same language
as found on page 3, lines 1-8 [bracketed to shows that it will
be deleted]. She highlighted the "or" on page 2, line 16, and
she said that one or more of the following subparagraph
provisions would, [under HB 156], apply from paragraph (2).
CO-CHAIR PARISH asked how things stand now under current
statute.
MS. SHUTTS answered that subparagraph (C) is all new language,
which would, under HB 156, change the requirements currently
under statute regarding economic development property. She
noted that language on page 2, lines 7-8, names "economic
development property" as real or personal property, and that
includes developed property, and following that language are the
ways in which the term can be defined.
9:53:15 AM
REPRESENTATIVE TALERICO expressed appreciation for HB 156 and
opined that "local government is the best government" because it
is closest to the people that are most affected by it. He
offered his understanding that Title 29 was established years
ago to create a guideline but not to be a static document.
Adjustments can be made to suit local governments as they
change. He said most local governments are established to the
point of having their public process in order and making local,
economic decisions. He emphasized his support of the proposed
legislation. Representative Talerico pointed to language on
page 2, line 27, which read, "an exemption or deferral on the
property", and he asked if there was ever any consideration of
adding language pertaining to payment in lieu of taxes - "a spot
kind of between the deferral and between the exemption that
might give a municipality even more flexibility for that?"
9:55:39 AM
MR. HILYARD answered that payment in lieu of taxes had, as yet,
not been part of the consideration; however, he said that does
not mean the bill sponsor would be opposed to it - the issue
could be open to discussion.
REPRESENTATIVE TALERICO referred to early comment questioning
whether there may be a project taxed at different rates by
different municipalities, and he stated that the Trans-Alaska
Pipeline System fits that description.
9:57:19 AM
CO-CHAIR PARISH expressed concern that one assembly could bind
future assemblies for an indeterminate period of time. He said
he could conceive of a situation in which a small town desperate
for jobs, would ratify a 99-year exemption for a business. He
said being part of the legislature, he views the inability of
one legislature to bind future legislatures as a valuable trait.
He said he is also concerned that [HB 156] will "tip the playing
field in favor of large businesses over small businesses,"
because the large businesses tend to have good lobbyists. He
said he would be happy to work with the bill sponsor to address
those concerns.
9:59:17 AM
REPRESENTATIVE SADDLER noted that contributions of lobbyists are
"severely constrained by law in most cases."
9:59:32 AM
REPRESENTATIVE DRUMMOND said she thinks the committee has heard
from numerous communities that [HB 156] is a missing tool in
their tool boxes. She noted that the prior bill was introduced
at the end of the two-year legislature, late in the session, so
it did not go anywhere. She expressed hope that HB 156 would
progress, and she stated her support for the proposed bill. She
offered her belief that local municipalities have the ability to
make economic development decisions, and the public will give
its feedback if it thinks a municipality is about to make an
error in giving too large an exemption to a project.
10:00:48 AM
CO-CHAIR FANSLER announced that HB 156 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 156 Fiscal Note CED.pdf |
HCRA 3/23/2017 8:00:00 AM |
HB 156 |
| HB 156 Legal Memorandum School Funding Language.pdf |
HCRA 3/23/2017 8:00:00 AM |
HB 156 |
| HB 156 Municipal Tax Exemption Explanation.pdf |
HCRA 3/23/2017 8:00:00 AM |
HB 156 |
| HB156 Comparison.pdf |
HCRA 3/23/2017 8:00:00 AM |
HB 156 |
| HB0156A.pdf |
HCRA 3/23/2017 8:00:00 AM |
HB 156 |
| HB156_AEDC Support.pdf |
HCRA 3/23/2017 8:00:00 AM |
HB 156 |
| HB156_CityofSeward Support.pdf |
HCRA 3/23/2017 8:00:00 AM |
HB 156 |
| HB 156 Sponsor Statement.pdf |
HCRA 3/23/2017 8:00:00 AM |
HB 156 |
| HB 166 Support Letter 3-22-17.pdf |
HCRA 3/23/2017 8:00:00 AM |
HB 166 |
| HB 166 Sponsor statement.pdf |
HCRA 3/21/2017 8:00:00 AM HCRA 3/23/2017 8:00:00 AM |
HB 166 |
| HB 166 lttrs supporting.pdf |
HCRA 3/21/2017 8:00:00 AM HCRA 3/23/2017 8:00:00 AM |
HB 166 |
| HB0166A.PDF |
HCRA 3/21/2017 8:00:00 AM HCRA 3/23/2017 8:00:00 AM |
HB 166 |
| HB 166 Fiscal Note CED.pdf |
HCRA 3/21/2017 8:00:00 AM HCRA 3/23/2017 8:00:00 AM |
HB 166 |