Legislature(2015 - 2016)BARNES 124
03/29/2016 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| Overview: Community Services Block Grant | |
| HB370 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 370 | TELECONFERENCED | |
HB 370-MUNICIPAL TAX EXEMPTIONS
8:36:06 AM
CHAIR TILTON announced that the final order of business would be
HOUSE BILL NO. 370, "An Act relating to municipal tax
exemptions."
8:36:48 AM
REPRESENTATIVE SEATON moved to adopt the proposed committee
substitute (CS) for HB 370, Version 29-LS1551\H, Shutts,
3/25/16, as a work draft.
CHAIR TILTON objected for discussion purposes.
8:37:50 AM
HEATH HILYARD, Staff, Representative Cathy Tilton, Alaska State
Legislature, on behalf of the House Community and Regional
Affairs Standing Committee, sponsor of HB 370, on which
Representative Tilton serves as chair, stated that the proposed
legislation would amend AS 29.45.050, which pertains to optional
municipal tax exemptions for economic development projects. He
explained that the current statute is too narrow for
municipalities to effectively use, particularly for larger
economic development projects.
MR. HILYARD said Version H has a "tightened" title. Other
changes were recommended by Legislative Legal and Research
Services to restructure some provisions. He directed attention
to [inserted] language on page 2, lines 13-18, and [deleted]
language on page 3, lines 3-10, and he said, "Essentially what
is now Section 1 was previously ... Section 3 of the existing
statute." The most significant change, he explained, is that
the original bill version provided that the tax exemption could
exist for only five years; Version H would require
municipalities to determine on a case by case basis how long
they want to extend the property tax exemption for projects they
want to incentivize. He said there were testifiers via
teleconference and in the room who could testify regarding the
proposed legislation.
8:40:15 AM
REPRESENTATIVE DRUMMOND observed that the designated time period
was up to five years, and she asked if there would be a limit
under Version H on what the time period could be.
MR. HILYARD clarified that the new language [on page 2, line 3,
of Version H], states simply, "a designated time period";
therefore, it would be up to each municipality to determine what
time period of necessary for a particular project.
8:40:46 AM
REPRESENTATIVE HUGHES directed attention to language [beginning
on page 1, line 10, through page 2, line 1], which read as
follows:
The municipality may provide for renewal of the
exemption under conditions established in the
ordinance. However, [UNDER RENEWAL,] a municipality
that is a school district may only exempt for more
than five years all or a portion of the amount of
taxes if that amount exceeds the amount levied on
other property for the school district.
REPRESENTATIVE HUGHES, regarding the use of the word "However",
asked, "Is the exemption per school district somehow tied to the
economic development concept also or is it separate?"
MR. HILYARD deferred to Ron Long from the City of Seward.
8:41:56 AM
RON LONG, Assistant City Manager, City of Seward, in response to
Representative Hughes' question, related that the City of Seward
does not have a school district; its schools are managed by the
Kenai Peninsula Borough. He offered his understanding that
"this relates to the local effort requirement throughout
statutes for municipalities that have school districts," and he
said that protection needs to be built in "so as not to affect
the calculation for determining the ... required local
contribution to education."
REPRESENTATIVE HUGHES surmised then that there would be no
economic development component in which the school must
participate, but rather there would be just a five-year limit.
MR. LONG responded that is correct according to his
understanding.
8:43:05 AM
REPRESENTATIVE SEATON queried whether there was anyone available
to address the issue of school districts and property tax.
Referring to the language previously highlighted by
Representative Hughes, he said he was trying to figure out "if
that's meaning 50 percent or we're talking about tax rates."
MR. HILYARD deferred to Chris Shutte.
8:43:55 AM
CHAIR TILTON removed her objection to the motion to adopt the
proposed committee substitute (CS) for HB 370, Version 29-
LS1551\H, Shutts, 3/25/16, as a work draft. There being no
further objection, Version H was before the committee.
CHAIR TILTON opened public testimony on HB 370.
8:44:39 AM
CHRIS SHUTTE, Director, Office of Economic and Community
Development (OECD), Municipality of Anchorage, in response to
the question from Representative Seaton, stated that OECD is
thrilled to see the proposed legislation. He explained that for
a number of years his office has struggled with how to implement
AS 29.45.050(m) and has "come up short." He said the proposed,
relatively simple changes would provide the opportunity to be
more proactive in the community development effort. He offered
the example of a proposed distribution facility that is being
brought forward by the Odom Corporation, which has two
distribution facilities in Anchorage and is looking to combine
them into a simple site. Because of the scarcity of suitable
large industrial land in Anchorage, the site that the Odom
Corporation has selected is less than desirable and would
require tremendous amounts of infrastructure and investment to
bring on line. The facility will cost $48-$49 million, and the
corporation must invest up to $4 million just to improve the
underlying infrastructure. He stated that for that project and
a number of others in Anchorage, that amount of infrastructure
investment can make or break particular projects, and there are
no tools in place for the city to proactively partner with some
of its private sector investors to facilitate that
infrastructure investment.
MR. SHUTTE said the changes being proposed under Version H would
allow the Municipality of Anchorage to create local incentives
that allow the city to participate in these infrastructure
investments, which in turn foster increased private sector
development investment in the community. He said being able to
offset some of the infrastructure investment up front through
the tax abatements that would be allowed through the proposed
legislation would provide an opportunity to create "an exciting
and dynamic program" that could not only facilitate development
with existing investors in Anchorage, but also encourage
investors outside Anchorage and the state of Alaska to do
business with the Municipality of Anchorage.
8:47:59 AM
REPRESENTATIVE DRUMMOND asked Mr. Shutte to describe more
particularly how the Odom Corporation would use the tax
exemption proposed under HB 370.
MR. SHUTTE answered that the Municipality of Anchorage would
enact local ordinance; it would create the criteria by which the
Odom Corporation and others would demonstrate the need, the
economic impact, and the return on investment (ROI) for any
particular project so that the city has a strong sense of the
value of its investment. He said the investment would typically
come through a tax abatement - a reduction in the corporation's
taxes - over a set amount of time to recoup the upfront
investment that the Odom Corporation is required to spend for
the infrastructure. For example, if the corporation has a
requirement for $3-$4 million-worth of roads and sewer work, the
city would tailor a tax abatement such that over five or six
years most of, if not all, the upfront investment could be
recouped by the corporation through reduced property taxes. In
response to follow-up questions, he said the abatement is not a
permanent tax reduction, but rather is designed to offset the
initial investment and to help lessen the upfront capital outlay
of the corporation and allow it to be spread out over a longer
period of time. He said the time it takes the city to replenish
or refund the infrastructure investment on the Odom
Corporation's behalf would be the duration of the tax abatement,
and after that period of time the taxation would resume at its
full level.
8:51:23 AM
REPRESENTATIVE SEATON offered his understanding that Mr. Shutte
was not talking about tax deferral.
MR. SHUTTE confirmed Representative Seaton was correct; [the tax
abatement] would be a partial or total exemption of a total of
the capital investment.
REPRESENTATIVE SEATON surmised that the abatement could apply
not just to the roads and infrastructure, but also to the
development of the project itself.
MR. SHUTTE answered that as currently worded, [Version H]
focuses on the actual physical infrastructure required for a
potential development. He offered his understanding that it
would be up to the individual municipalities, once they enact
their local ordinances, "to determine the extent of that." He
said for Anchorage, the focus would be on public infrastructure
that services the sight rather than the actual development of
the building or project itself.
REPRESENTATIVE SEATON asked Mr. Shutte, "You're not reading this
- the bill the way it is - as limiting it to that; it could be
the entire project. Is that correct?"
MR. SHUTTE offered his understanding that was correct and that
it would be up to the individual jurisdictions "to set the
criteria or the definitions."
8:53:52 AM
REPRESENTATIVE HUGHES asked how specific the ordinances would
be. For example, one entrepreneur is going to start a winery
and another is going to start a brewery. She asked if a city
council, preferring beer to wine, could chose to give the
exemption to the brewery but not to the winery. She explained
her concern was regarding whether cities would be picking
winners and losers or if the ordinance would encompass any
developing business that met the criteria under the proposed
legislation.
MR. SHUTTE answered that he thinks that would be an issue for
individual municipalities to address. For Anchorage, the
criteria used to evaluate projects would be much more
quantitative rather than qualitative. He said he did not think
it would be fair for a council to determine who to give an
exemption to, based solely on the product or service provided.
He said, "The end goal is to look at this as an investor would
look at it, so that the decisions that are being made by the
local assembly or the local government ... are directed by the
numbers rather than the qualitative aspects."
REPRESENTATIVE HUGHES asked Mr. Shutte to confirm that he
envisions the local ordinance could be written to support
certain businesses or in a way that would accommodate any
business that fit the city's criteria.
MR. SHUTTE reiterated that it would be up to the local
government to determine how it would like to structure its
incentive program. He added that from a community development
standpoint, having the flexibility to craft either a broad
program or a neighborhood program has positive appeal, but he
opined that the ultimate decision should be up to the individual
jurisdiction.
8:57:02 AM
REPRESENTATIVE DRUMMOND remarked that it is difficult to ask
questions about a theoretical project. Notwithstanding that,
she speculated that under HB 370 the Odom Corporation would be
allowed to build the roads and do drainage and sewer work around
its project that would normally be done by the municipality's
Department of Public Works, and it would be able to pay for it
by means of the tax abatement. She asked if that was also Mr.
Shutte's understanding.
MR. SHUTTE answered yes. He said, "This is essentially
municipally required infrastructure ...." He explained that a
lot of times the private sector investor is required to develop
publically owned pieces of infrastructure as part of its
development agreement. He indicated that the Municipality of
Anchorage has witnessed this requirement be a "make-or-break"
for certain deals. Mr. Shutte stated that because of the way
the tare system works, for the utilities in particular, the
"cost causer" is the "cost payer." He explained, for example,
that [Anchorage Water & Wastewater Utility] (AWWU) cannot
proactively create water and wastewater infrastructure in
anticipation of a future development, because the cost has to be
borne by the cost causer; therefore, the responsibility for
spending the money on the infrastructure ultimately falls to the
private sector developer.
MR. SHUTTE said the proposed legislation is a tool that would
allow the municipality to partner, in essence, with the private
sector developer in exchange for the temporary tax relief to the
private sector. The municipality, at the end of the tax
abatement, would still acquire the public infrastructure. He
concluded, "It's essentially a tool that will allow us to
further build out our city and our infrastructure."
REPRESENTATIVE DRUMMOND mentioned the construction of the new
Natural Pantry [in Anchorage]. She offered her understanding
"that firm" was required to shoulder the burden of building the
entire road used by people to access the U.S. Post Office, a
library, and to travel through a neighborhood. She asked, "Is
this the kind of public infrastructure that this statute would
support in the future?"
MR. SHUTTE answered that is correct. He said often there is
significant capital requests placed on private sector developers
to meet the municipality's development standards. In the case
of the Natural Pantry, [the developer] had to improve the street
to a higher standard and connect it to existing transportation
network in order to move forward with development.
REPRESENTATIVE DRUMMOND said she had heard a lot of grumbling
when "they were required to build that public infrastructure."
She asked if [that developer] would, [under HB 370], be allowed
to retroactively apply for a tax abatement.
MR. SHUTTE offered his understanding that the proposed
legislation would only apply to future development.
9:02:20 AM
CHAIR TILTON asked Mr. Shutte if he was able to address
Representative Seaton's previous question about the language in
the bill regarding school districts.
MR. SHUTTE responded no, but suggested that Mr. McGee would be
able to address the question.
9:02:48 AM
MARTY McGEE, State Assessor, Division of Community and Regional
Affairs (DCRA), Department of Commerce, Community & Economic
Development (DCCED), responded as follows:
This particular portion of the existing law has never
been tested in court, and there isn't much in the way
of legislative intent to understand the meaning of the
original language. The interpretation has been that
it's intended to protect the school districts' source
of revenue, so that these exemptions don't reduce the
amount of required local contribution, but hold it
stable, even though the new development is subject to
the exemption .... The language is not very clear as
to exactly what was intended or how to interpret the
specific language in the existing code.
Also, to add any optional exemption, the exempt
value's added back to the full value of determination,
which is then a component of the required local
contribution for schools. ... That's true in any of
the optional exemptions and true ... of everything
exempted under the proposed changes to the current
code.
9:04:43 AM
REPRESENTATIVE SEATON said he is confused. He said, "If it gets
added back into the school district formula, then it's not
applicable there." He continued:
And so, I'm not sure why there's a 50 percent -- I
mean, I think it's 50 percent. ... As I read page 1
..., you can exempt ... all or a portion of it if it
exceeds the amount levied on other property of the
district. ... Is your reading of that ... the new
development is more than 50 percent of the tax base or
are we talking about the tax rate would be less than
that levied on other property in the school district?
MR. McGee offered his interpretation that [under Version H], the
tax rate would change for the area. He said in terms of public
infrastructure there is the potential that the special service
area would be created, which would change the tax rate. He said
he cannot explicitly answer Representative Seaton's question,
because the law is not clear and has never been tested. He
said, "The language, to me, could be improved, but I don't know
the intent." He said normally, when talking about a levy, the
discussion is about the amount of tax - not the tax rate.
However, both components could be included in that term.
REPRESENTATIVE SEATON proposed that the committee may wish to
clear up the language, considering that even the state's
assessor could not determine "whether we're talking about the
tax rate or the tax amount."
9:06:56 AM
REPRESENTATIVE DRUMMOND asked which municipality in Alaska is
also a school district.
REPRESENTATIVE SEATON offered that Juneau is, and he indicated
that in Anchorage there are municipal boroughs that also are
school districts.
CHAIR TILTON suggested that Representative Drummond could get an
answer from Kathie Wasserman, whose testimony would be
forthcoming.
9:07:29 AM
JOHN BITNER, Vice President, Anchorage Economic Development
Corporation (AEDC), testified in support of HB 370. He said,
"As an economic development organization in the Southcentral
area for over 30 years, we're always excited to get new tools in
the economic development tool box." He said Mr. Shutte did a
great job of explaining the excitement of municipalities over
the proposed extension of the timeline for the property tax
exemption. He said AEDC works with a variety of private sector
businesses - over 230 companies make up its membership - and the
corporation has heard repeatedly over the past years the
difficulties that have arisen when trying to make deals,
particularly for new construction in the Anchorage area. He
said giving local governments the ability and power to tailor
economic development tools and tax reductions to a specific
level of economic development needs in their communities is "a
wonderful way to incentivize growth on a local level, without
impacting the state budget."
9:08:59 AM
MR. BITNER, in response to a question from Representative
Seaton, said his understanding of the proposed legislation is
that it would be up to the local government to determine the
scope of the exemption. He said he does not know if there would
be any upward limitations on that scope, but nothing he read in
the language limited the application to utilities.
REPRESENTATIVE SEATON asked Mr. Bitner, "Would the intent of
your group be that this should be to public infrastructure and
that being abated, or would it be other elements of the project,
as well?"
MR. BITNER answered that the goal of AEDC has always been to
generate and expand new businesses, and whatever tools can be
used to accomplish that will be supported, as long as it is part
of a fiscally responsible solution. He said in this case, when
looking at national trends and incentives of this kind that are
implemented in the Lower 48, in the short term the municipality
or local government has a reduced tax income from the property,
but benefits in the long term from newer construction and
expanded infrastructure, utilities, and transportation. He said
it would be up to the local governments to determine their risk
profile and tolerance to reduced tax rolls, which he indicated
is what makes the proposed legislation interesting.
9:12:31 AM
MR. LONG observed that the proposed legislation would introduce
two new provisions. First, it would remove the five-year
limitation on the original term of the exemption or deferral,
which recognizes that a five-year initial limit is not something
that a larger, more capital-intensive project can build into a
business plan with any certainty about its renewal. He said the
proposed provision would remove the uncertainty. He noted that
the second new provision would be to add an additional level of
protection, which would require that at the end of the deferral
or exemption, the project expands the tax base, thus increasing
tax revenue to the local government. He offered his
understanding that the requirement for it to be public
infrastructure is not in existing language and is not built into
the bill language, but, as Mr. Shutte pointed out, is a creative
use for finding a way to offset some costs.
MR. LONG suggested there may be projects developed in
municipalities that don't require a public infrastructure
component or there may be a project that already has all the
public infrastructure "at its doorstep" and needs only to
develop the private side. He stated, "The exemption here or the
deferral is for taxable property that is private property, and
then the local government would need to pass the needs test in
the eye of their public ... to find the right measure that's ...
politically and socially acceptable locally." He opined that
that determination is best made at the local level. He stated
the City of Seward's support for HB 370. He reminded the
committee that other than the two provisions he outlined,
everything else mentioned in the bill is part of already
existing statute.
9:15:15 AM
REPRESENTATIVE SEATON, regarding expanding the five-year time
period, said, "Previously the bill has up to five years and then
the municipality may provide for renewal." He asked, "If we're
doing something that may be a 20-year tax deferral or tax
exemption, is there a need to retain this renewal exemption here
if we eliminate the five years?"
MR. LONG responded that he would agree that there is no need to
retain it. He said, "If it is up to the local municipality to
determine the initial terms, it would be up to them to determine
subsequent terms if needed."
9:16:26 AM
KATHIE WASSERMAN, Alaska Municipal League, testified that AML
supports HB 370. She outlined a couple issues that are
important to AML. The first, she said, is local control. She
said AML believes municipalities are best situated to make
decisions that will affect them and their tax payers. She said
that is why the proposed legislation is inviting, because it
would give that local control. Further, she said that "in light
of some of the bills that were dropped yesterday by Senate," she
thinks municipalities need "every single tool they can get."
She said she thinks municipalities will not be able to invite
much economic development "if we are totally broke."
MS. WASSERMAN echoed Mr. Long's comments about language in the
bill being in current statute, and she concurred with Mr.
McGee's statement about the language being confusing, but
remarked that that is how current statute read. To
Representative Seaton, she said, "Back to this full and true
value that we talked about on another bill, it's all to make
sure that the school contribution is dealt with in a way where
it's clear to us. This is not necessarily clear, but I think
that was the intent." Regarding Representative Drummond's
question about school districts, she said all 18 boroughs in
Alaska have control over their schools and have school boards,
"so, those are the municipalities they're talking about." She
added that there are also "about 20-something first-class cities
in the unorganized borough, which also have school districts,"
for example, the City of Craig, the City of Pelican, the City of
Klawock, and the City of St. Mary's.
9:19:08 AM
REPRESENTATIVE SEATON asked Ms. Wasserman if she thinks the
proposed legislation should include a renewal time related to
the municipalities being given the ability to make exemptions.
MS. WASSERMAN answered that she sees no reason to make a date,
because she opined that should be the call of the community,
which knows what it can afford. She expressed certainty that if
a municipality does not do something correctly, then their
voters will respond.
CHAIR TILTON closed public testimony on HB 370 after
ascertaining no one wished to testify.
9:20:58 AM
The committee took an at-ease from 9:21 a.m. to 9:23 a.m.
9:23:12 AM
REPRESENTATIVE HUGHES said she thinks there are still questions
that need to be answered in Section 1. She said she believes
the committee wants to ensure the bill will allow the economic
development exemption option that is the intention of the
proposed legislation; therefore, she expressed concern about
moving HB 370 out of committee before that issue has been
addressed.
9:23:49 AM
REPRESENTATIVE SEATON offered his understanding that Mr. McGee,
as state assessor, had said that "although this is exempt, it is
part of the tax base for ... the school district, but it's
unclear in here." He said he would like the committee to "bring
back an amendment" that clearly states that the money that is
exempt would still be used for "the calculation of ... local
required effort." He said he thinks such an amendment would
clear up both existing and modified language, and it would be
helpful before HB 370 is sent to the House floor. He said,
"We've got this other thing that's superfluous in there now -
that they may provide for a renewal - when we've taken away the
five-year timeframe." He indicated that the amendment he
desires would address language on page 1, lines 10-11, and on
page 2, lines 3-4. He opined that would clarify [existing]
statute.
9:25:29 AM
REPRESENTATIVE HUGHES offered concern about the clarity of HB
370 in that she understands the House Community and Regional
Affairs Standing Committee is the only committee of referral for
the proposed legislation.
9:26:00 AM
REPRESENTATIVE SEATON clarified that some testimony addressed
public infrastructure; but HB 370 is not limited to public
infrastructure. He reviewed that HB 370 would address local
options, wherein local governments would determine time frames
and decisions could include economic development properties
having deferrals, as shown on page 2 of Version H, or
exemptions, as shown on page 1. He said there would be, under
HB 370, a tremendous amount of flexibility for local
communities, which he appreciates.
[HB 370 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| CS HB 370, H.pdf |
HCRA 3/29/2016 8:00:00 AM |
HB 370 |
| AS 29 45 050 Current Language.pdf |
HCRA 3/29/2016 8:00:00 AM |
HB 370 |
| 42 USC 9901 Sec 676 Application and Plan.pdf |
HCRA 3/29/2016 8:00:00 AM |
Community Development Block Grants |
| DRAFT FFY 17 CSBG State Plan.pdf |
HCRA 3/29/2016 8:00:00 AM |
Block Grants |