Legislature(2011 - 2012)HOUSE FINANCE 519
02/22/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB279 | |
| HB56 | |
| HB216 | |
| HB264 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 56 | TELECONFERENCED | |
| + | HB 216 | TELECONFERENCED | |
| + | HB 253 | TELECONFERENCED | |
| + | HB 264 | TELECONFERENCED | |
| *+ | HB 302 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 279 | TELECONFERENCED | |
HOUSE BILL NO. 264
"An Act allowing a deferral of municipal property
taxes on the increase in the value of real property
attributable to subdivision of that property; and
providing for an effective date."
2:57:06 PM
REPRESENTATIVE CATHY MUNOZ, SPONSOR, explained that HB 264
would give municipalities the option to provide an
incentive to develop land for housing by deferring for up
to five years a property tax increase directly related to
the subdivision of a piece of property into three or more
lots. She elaborated that there was a limited land base in
Juneau, which resulted in limited new housing
opportunities. She detailed that when a developer purchased
a piece of land and began the subdivision process as soon
as the surveying and planning paperwork was filed the
property was reassessed at a rate that could be between 5
and 10 times the predevelopment cost before any work had
occurred on the property. She stressed that the issue was
an incredible disadvantage and disincentive for new housing
development especially in communities faced with limited
housing opportunities.
Representative Munoz continued to explain the legislation.
The bill would provide municipalities the flexibility to
defer increases in property taxes on subdivided parcels
until a lot was sold or until a residential or commercial
building was constructed on a plot of land. The local
government would be allowed to adopt an optional deferral
for all or a portion of the subdivided property and could
decide the terms of paying the tax deferral. She
communicated that supporters of the legislation believed
that it would provide an incentive for developing privately
owned property by holding taxes at the undeveloped land
value until improvements occurred that led to the
development or sale of the parcel. The land would then be
more valuable and capable of generating more revenue for
the local community.
Representative Munoz delineated that the purpose of the
bill was to encourage land development and more housing
opportunities and to let local governments decide whether a
property tax deferral would benefit the community. She was
sensitive to the concerns of local municipalities related
to exemption legislation and the passing on of unfunded
liabilities to cities; the bill would not impose the burden
on local municipalities. The sponsor had worked closely
with the Alaska Municipal League (AML). She expounded that
the deferral was optional and that property taxes would
ultimately be due when the property was sold or developed.
She informed the committee that the assistant state
assessor and others were available to testify.
Co-Chair Stoltze appreciated the process that had led to
the bill. He had been slightly disappointed that the bill
only included a deferral, but he understood that it had
been crafted carefully.
3:01:18 PM
Vice-chair Fairclough MOVED CSHB 264(CRA) as a working
document before the committee.
BILL ROTECKI, MEMBER, KETCHIKAN GATEWAY BOROUGH ASSEMBLY,
spoke in support of the legislation. He discussed that the
issue had come up as a suggestion when the borough had done
an economic development survey that included the housing
industry. He explained that local builders would be more
inclined to subdivide parcels before selling them if taxes
could be deferred for five years or until the property was
sold. He relayed that Ketchikan would face a housing
shortage if the local shipyard was awarded the contract to
build new state ferries or if new mining opportunities
arose. He elaborated that building housing to meet the
needs of any of the possibilities would take time. The
borough did not want individuals moving to the community to
have to commute from another location due to a lack of
housing options. He opined that under the legislation the
municipality would most likely gain rather than lose. He
furthered that the community could not lose tax revenue
that it did not already have, but the revenue would be
generated if the subdivision of property occurred.
3:04:30 PM
ALAN WILSON, CHAIRMAN, JUNEAU AFFORDABLE HOUSING
COMMISSION, voiced support for the bill. He relayed that
the Juneau Assembly had established the Juneau Affordable
Housing Commission in 2007 to address local housing issues.
The commission had worked on multiple items including
comprehensive planned issues, density overlays, free gravel
for site improvement, and other. He relayed that the
commission had looked at tools utilized by communities in
the Lower 48 that allowed them to develop a region or to
target specific types of housing; the deferral of property
taxes had been a strategy used by other communities.
Carrying costs over time was a burden to developers and
could result in a loss of property.
Mr. Wilson communicated that HB 264 was the first tool in
the toolbox that private developers could utilize directly.
The commission viewed the tax deferral as an economic
development tool versus a housing tool; however, anything
that would help address Juneau's housing vacancy rate that
was currently less than 1 percent would be beneficial.
Co-Chair Stoltze thought the problem was about a cash flow
issue; builders did not want to put out cash prior to
making money. Mr. Wilson replied in the affirmative.
Vice-chair Fairclough asked whether the commission had
asked the city assessor's office why the price of property
was increased immediately after it was subdivided and
whether it would consider stair-stepping the tax increase.
Mr. Wilson answered that the commission had asked the local
assessor why tax costs could not be deferred. The response
had been that according to state statute all property must
be valued fairly. He explained that a ten acre parcel could
be valued below a one acre parcel, but once the ten acre
property was subdivided the value and desirability of the
parcels increased.
Co-Chair Stoltze noted that there were a number of strong
state assessor laws. Mr. Wilson agreed.
3:09:09 PM
JOHN HARRINGTON, MEMBER, KETCHIKAN GATEWAY BOROUGH,
PLANNING COMMISSION AND ECONOMIC DEVELOPMENT ADVISORY
COMMITTEE, spoke in favor of the legislation. He relayed
that the entities had interviewed local business sectors
who had been developing economic development action plans.
The borough assembly had adopted approximately one-third of
the plans, one of which was the same proposal encompassed
in the bill. The assembly had been told that the proposal
was not legal under current law; therefore, the
introduction of the bill had received broad support.
Co-Chair Stoltze asked whether the borough had separate
property tax levies from the Cities of Ketchikan or Saxman.
Mr. Harrington replied in the negative.
Vice-chair Fairclough believed that the legislation
impacted several groups including the homebuilders and the
homeowners. She surmised that the homeowner would pay a
smaller amount of taxes depending on how quickly they
purchased a lot on a subdivided property and created a
different type of ownership from one where liens would be
placed on each lot based on tax deferred by the year. She
provided a scenario in which a ten acre lot was divided
into 10 parcels; only one of the lots sold in the first
year. She asked whether under the scenario the homeowner
would only be responsible for one year of deferred taxes in
their purchase price.
Mr. Harrington replied in the affirmative.
Vice-chair Fairclough had concerns about how the
repercussions of a developer that went bankrupt would
impact homestead property owners that carried the note
themselves. In the event of the bankruptcy she wondered
whether the homesteader would be responsible for any
deferred taxes on the subdivided parcel. She was concerned
that if a bank was responsible that it would be second in
line to the government take.
Mr. Harrington replied that he was not the appropriate
person to answer the question. He added that the situation
in the Ketchikan Gateway Borough involved landowners
interested in subdividing their properties. He explained
that the typical situation involved remaining land on
subdivided property that was developed at a later time and
did not match the look of the prior development. He
believed that it made much more sense to allow the
landowner time to implement a plan for the entire
development and to proceed systematically.
3:14:38 PM
Vice-chair Fairclough agreed, but surmised that the
homeowner could have $10,000 of additional costs built into
a property they were purchasing depending on the amount of
the deferred property tax. She understood that the bill
made the process easier for developers and that cities
would receive their share as well, but she had questions
remaining related to the homeowner.
Co-Chair Stoltze noted that subdivision costs were a big
revenue generator for the Municipality of Anchorage.
3:15:57 PM
FRED MORINO, MANAGER, D.J.G. DEVELOPMENT, JUNEAU, supported
the legislation. He believed the bill would provide a
positive economic impact statewide for homeowners,
municipalities, and developers.
3:16:37 PM
DAVE HANNA, OWNER, JLC PROPERTIES, JUNEAU, voiced support
for the bill. He referred to communication with
representatives from several banks who saw the bill as a
great incentive for development. He had worked with
multiple homebuilding associations including Alaska General
Contractors and everyone had been in favor of the proposal.
He addressed that AML had concerns but the entity believed
that given the bill's flexibility the proposal was tailored
to suit every city's needs; communities could use the
deferral as a tool to encourage development. The bill was
more than a cost saving measure; it could be used to steer
the desired development. He detailed that the incentives
could be offered to a developer who was willing to create
the lot sizes the city wanted or to include features like a
bus stop or a park.
Mr. Hanna believed the bill would help developers who were
"hanging out to dry." He explained that the development of
a subdivision was a drawn out, expensive process. He
communicated that people typically did not enter the
business without a good incentive and a healthy demand for
lots. He pointed to building cycles that occurred and
relayed that some developers looking to take advantage of a
good market were experiencing a significant financial
burden because the subdivision process was lengthy and the
market and demand fell before the lots could be sold. The
taxes were a tremendous disincentive for development and he
believed lessening the burden would be good for the
economy. He had submitted an example showing that if a
subdivision had been bought two years earlier than it
normally would have, it would be a net revenue increase to
the municipality because taxes were higher on houses than
on raw land.
3:20:48 PM
Vice-chair Fairclough asked which financial institutions
had been communicated with. Mr. Hanna replied that the
institutions included Alaska Pacific Bank, True North
Federal Credit Union, and First Bank in Ketchikan.
Co-Chair Stoltze remarked there had been a large housing
development planned in one of his precincts until the
economy had taken a downturn. He observed that the bill had
far reaching impacts.
Vice-chair Fairclough was supportive of the concept before
the committee, but she reiterated her concern about
homeowners in her district that were dealing with the
ramifications of a bankruptcy. She believed the proposal
was an excellent idea and that the sponsor had created
flexibility in the way the state would pass the law;
however, she wanted a more detailed understanding of the
bankruptcy process in order for municipalities to factor it
into their implementation of the law.
Mr. Hanna relayed that based on conversations with the
state and local assessor's offices he understood that
municipalities could take a second position if desired. He
elaborated that the tax liability by law could stay with
the owner of record, but the municipality could also choose
to defer the liability to prevent it from transferring to
another person in the event of a bankruptcy.
Vice-chair Fairclough understood that the flexibility
existed, but she guessed that in her municipality the
government would take its cut first. She shared that when
the government took its cut on a foreclosure or bankruptcy
it meant that the Anchorage property tax payers would be
accepting the burden and risk. She believed the state
framework in the bill worked fine, but the devil was in the
details related to who the responsible party was if the
developer went bankrupt.
3:24:30 PM
Co-Chair Stoltze CLOSED public testimony.
Representative Munoz read from a letter she had received
from Juneau commercial banker Jerry Kromer:
From a lending perspective the increased cash outflow
needed to carry the property taxes on the full final
value of the lots without being matched to the timing
of the cash inflow when the lots are sold creates
greater risk to the lender. Risk is compensated in two
ways: higher rates for borrowing and/or lower loan
amounts, each of which adds to the costs to the end
purchaser of the lot and higher housing or commercial
prices without real increased benefit to the developer
or to the lender. Through the higher costs and
reductions in the amount of development that could
have been done, the taxing authority is in my opinion
getting less revenue through less eventual
development.
Representative Wilson asked whether the tax deferral
stopped at the beginning of a housing project or upon
completion. Representative Munoz answered that the tax
liability would be due when the lot sold within the initial
five year period or it would require the building to be
completed if there was not a building permitting process.
Representative Wilson noted that there was not a permitting
process in Fairbanks and asked for verification that the
developer would not pay the deferred tax until the house
was completed.
Representative Munoz replied that either the sale of the
lot or the construction of the building would occur before
the tax deferral ended.
Co-Chair Stoltze referred to the zero fiscal note.
Co-Chair Thomas MOVED to report CSHB 264(CRA) out of
committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSHB 264(CRA) was REPORTED out of committee with a "do
pass" recommendation and with one new zero fiscal note from
the Department of Commerce, Community and Economic
Development.