05/06/2005 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS

    HB 217-FULL & TRUE VALUE OF TAXABLE MUNI PROP (TITLE AM)                                                                
                                                                                                                              
2:05:27 PM                                                                                                                    
                                                                                                                                
CHAIR GARY  STEVENS announced  HB 217 to  be up for  consideration                                                              
and asked Mr. Wright to come forward.                                                                                           
                                                                                                                                
TOM WRIGHT,  Staff to Speaker John  Harris, advised that  he would                                                              
defer testimony  to Mr. Fellman  who works out of  Speaker Harris'                                                              
Delta office.                                                                                                                   
                                                                                                                                
2:06:56 PM                                                                                                                    
                                                                                                                                
PETE   FELLMAN,  Staff   to  Speaker   John   Harris,  spoke   via                                                              
teleconference  to  explain  that  communities  that  are  forming                                                              
boroughs  with   oil  and  gas  properties  within   the  proposed                                                              
boundaries might  not want to tax  property as a means  of raising                                                              
revenue. Under  HB 217, such  communities could exclude  the value                                                              
of oil  and gas  properties from  the total  value of the  borough                                                              
property.  This would  allow those  communities  to explore  other                                                              
forms of taxation  to raise revenue needed to  operate the borough                                                              
and to pay the required 4 -mills to fund schools.                                                                               
                                                                                                                                
HB 217  would provide opportunity  and choice to  communities that                                                              
want to  form local  government.  The opportunity  is to form  and                                                              
fund affordable  boroughs and  the choice is  to raise  revenue in                                                              
new and creative ways, he said.                                                                                                 
                                                                                                                                
2:08:32 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS called on Mr. Van Sant.                                                                                      
                                                                                                                                
STEVE   VAN  SANT,   State  Assessor,   Department  of   Commerce,                                                              
Community   &   Economic  Development   (DCCED),   testified   via                                                              
teleconference to  concur with the  previous statement. If  HB 217                                                              
were  to pass,  the  value  of oil  and  gas properties  would  be                                                              
excluded  from a  municipality's  full value  if the  municipality                                                              
elected not to levy a property tax.                                                                                             
                                                                                                                                
In  the  proposed  Deltana Borough  there  is  approximately  $200                                                              
million in  oil and  gas properties for  which the state  receives                                                              
20-mills or  about $4 million. If  that property were  included in                                                              
the borough's  full valuation, 4-mills  or $800,000 would  have to                                                              
be raised  for the  required education  contribution. It  wouldn't                                                              
be easy to raise  that amount of money with just  sales tax so the                                                              
borough would almost be forced into levying a property tax.                                                                     
                                                                                                                                
He pointed  out that it's more  than likely that the  property tax                                                              
levy would be more  than just 4-mills. If the levy  were 10-mills,                                                              
then the  borough would  take almost  $2 million  in revenue  that                                                              
the state is already receiving.                                                                                                 
                                                                                                                                
In the instance  of a detachment from a borough,  the bill directs                                                              
DCCED to place the  valuation at the level it was  two years prior                                                              
to  the detachment.  The reason  for  this is  that the  education                                                              
formula uses the prior two years for funding.                                                                                   
                                                                                                                                
2:10:45 PM                                                                                                                    
                                                                                                                                
CHAIR  GARY  STEVENS  asked  if  he sees  this  bill  as  being  a                                                              
detriment to borough formation.                                                                                                 
                                                                                                                                
MR. VAN SANT replied  not at all. In fact DCCED  believes it would                                                              
assist in borough  formation. Most people in the  Deltana area are                                                              
very  clear that  they don't  want a  property tax.  HB 217  would                                                              
allow a  borough to  form without  forcing a  property tax  on the                                                              
residents. "To me it's an incentive," he said.                                                                                  
                                                                                                                                
2:11:31 PM                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS called on Mr. Hallgren.                                                                                      
                                                                                                                                
PETE HALLGREN, City  Administer, City of Delta  Junction, reported                                                              
that  the   city  has  sponsored   the  Deltana   Borough  Charter                                                              
Commission and  it is nearly ready  to submit a  borough formation                                                              
petition to  the LBC for review  and permission to  circulate. The                                                              
hope is  that this  will lead to  a public  election in  which all                                                              
citizens in the area participate.                                                                                               
                                                                                                                                
As previously stated,  the Trans Alaska Pipeline  System (TAPS) is                                                              
valued  at $200  million in  the proposed  borough. The  statutory                                                              
tax level  is 20-mills so  the state receives  about $4  million a                                                              
year  from  the pipeline.  Upon  borough  formation, the  City  of                                                              
Delta Junction  would like  to dissolve and  turn its  assets over                                                              
to the new borough to avoid redundant local government.                                                                         
                                                                                                                                
Local  governments craft  services  and a  tax  structure to  meet                                                              
local conditions.  Currently four  boroughs have no  property tax,                                                              
two  boroughs have  a  raw  fish tax,  the  Denali  Borough has  a                                                              
mineral  severance tax  and a bed  tax, and  the Northwest  Arctic                                                              
Borough  has a goldmine  PILT agreement,  which  pays over  95% of                                                              
the borough's tax income.                                                                                                       
                                                                                                                                
State statute  requires a 4-mill  education contribution  based on                                                              
the value  of all  taxable property  in a  borough. He  reiterated                                                              
Mr. Van  Sant's testimony saying  that the proposed  borough would                                                              
be forced to levy  a property tax if it is  required to contribute                                                              
4-mills or $800,000 on the value of TAPS.                                                                                       
                                                                                                                                
Instead   of  a  property   tax,  the   Deltana  Borough   Charter                                                              
Commission  would like to  propose to  the local  voters a  mix of                                                              
funding sources.  That would include a  fuel and energy  tax and a                                                              
goldmine PILT agreement with the POGO Mine.                                                                                     
                                                                                                                                
We  view this  bill as  an enhancement  to  potential new  borough                                                              
formation  throughout  the  unorganized borough,  he  said.  Local                                                              
areas would  be free to craft  measures that would fit  the people                                                              
and  businesses  that  are  being taxed  better  than  a  straight                                                              
property  tax. "In the  proposed Deltana  Borough, non-passage  of                                                              
this bill would  cost the state  at least $800,000 a year  in lost                                                              
revenue  when  we  were  forced  to  enact  a  property  tax,"  he                                                              
concluded.                                                                                                                      
                                                                                                                                
CHAIR GARY STEVENS noted there was no further testimony.                                                                        
                                                                                                                                
2:16:13 PM                                                                                                                    
                                                                                                                                
SENATOR  WAGONER  motioned  to   report  HB  217  (title  am)  and                                                              
attached   fiscal    notes   from   committee    with   individual                                                              
recommendations. There being no objection, it was so ordered.