Legislature(2001 - 2002)
03/19/2001 09:09 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 4(CRA)
"An Act relating to a mandatory exemption from municipal
property taxes for certain residences; and providing for an
effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
SENATOR GENE THERRIAULT, sponsor, stated the intent is to offer
more flexibility for establishing and setting local property taxes
and tax relief. He noted that current statutes contain a provision
to allow local governments to offer a ten-percent property tax
exemption for residents with property within the government's
boundaries by "a package of an ordinance" that is voted on by the
general populous.
Senator Therriault shared that the Senate Community and Regional
Affairs committee substitute proposes to increase that amount to a
total cap of $50,000 worth of valuation. He referred to a proposed
committee substitute, 22-LS0190\P, saying it reduces this amount to
$40,000. He also noted the proposed committee substitute addresses
a concern that was raised by service areas in the Fairbanks North
Star Borough (FNSB). He explained if the local government exercised
an increased residential property tax exemption, the revenue to the
service area would decrease. To rectify this, he said, the
proposed committee substitute would adjunct the service area mil
rate from the residential property tax exemption. Therefore, he
said as the local government chose to shift the property tax
exception, there would be no impact on the amount of money
generated by the service areas. He noted that many service areas in
the Fairbanks area operate on "very thin budgets" and that it was
not his intent to impact them.
Senator Therriault addressed a concern raised by Senator Torgerson
in the Senate Community and Regional Affairs Committee that there
would be adverse impact to the state treasury. Senator Therriault
explained the issue regarding communities that have a portion of
the Trans Alaskan Pipeline passing through it, referring to a
drawing showing the service area and borough. [Copy on file.] He
stated that the local property tax is credited against the oil and
gas property taxes owed to the state treasury. He stated that the
total cap on oil and gas properties is 20-mils.
Senator Therriault noted that some boroughs, such as the FNSB, are
considering alternate revenue sources such as a sales tax or user
fees. However, he stressed that the service area does not have
those options to shift lost revenues and could only collect
property taxes. He proposed excluding the extra mils intended for
the service areas from the residential property tax exemptions. He
concluded that this would mitigate Senator Torgerson's concerns.
Senator Therriault then noted that Section 1 of the proposed
committee substitute is added to provide senior citizens and
veterans tax exemptions, which he said are in current statute. He
detailed that a residence owned by a senior or veteran that
receives the property tax exemption and that is sold during the
calendar year to a buyer that does not qualify for the exemption,
is still exempted from the tax during that year. He said the local
government has no method to collect property taxes from the new
owner for the remainder of the year. He stated that the proposed
committee substitute allows local governments to assess and collect
property taxes from the new owner for the partial year. He pointed
out that this language is permissive and does not require the local
government to comply.
Senator Wilken moved to adopt CS SB 4, 22-LS0190\P as a working
draft.
Co-Chair Donley objected. He stated that he prefers the Senate
Community and Regional Affairs committee substitute.
Co-Chair Kelly asked if the reason Co-Chair Donley objected is
because the language in version "P" is "not strong enough" to
preclude the possibility that state revenues would drop because of
the exemption.
Co-Chair Donley affirmed that was one of his concerns.
Co-Chair Kelly shared that concern.
Senator Therriault spoke to Section 1 of version "P" that allows
the local government to assess part of the annual tax if the
property transfers from a senior citizen to a person who does not
qualify for a tax exemption. He elaborated the original version of
the bill states, "shall" and the proposed language reads "may".
Senator Therriault next addressed Section 2 of the proposed
committee substitute, saying it "offers a tool." He explained that
this provision does not mandate the local government increase the
personal property tax exemption. He stated that the local
governments have the option of offering a tax break to residential
property owners and recoup the lost revenue "anyway they see fit."
He noted the amount was set in statute in 1974, and has not been
increased since then.
Senator Therriault emphasized that there would be little impact to
the state treasury. He elaborated that because of the failed
property tax cap ballot proposal, he did not think that local
governments would provide a tax exemption for some residents then
raise the overall mil rate. He expressed that this would shift the
tax burden from residents to businesses and rental property, which
he did not think local governments would want to do. He suggested
that if local governments proposed this, there would be opposition
from business owners and renters and such a measure would require
voter approval.
SFC 01 # 46, Side B 09:56 AM
Senator Wilken addressed Co-Chair Donley's objection. Senator
Wilken stressed that without Section 2 of the proposed committee
substitute, "the bill is essentially dead." He shared that the FNSB
was attempting to respond to the failed ten-mil property tax cap
ballot measure from the previous election. He expressed his desire
for the legislature to assist local governments in their revenue
efforts. He listed two things that would not happen in the FNSB. He
said the assembly would not increase mil rates to make up for this
exemption nor would it drastically reduce services to respond to
lost revenues. He predicted the legislation would encourage local
governments to consider alternative revenue sources. He estimated
there is a "significant amount of people" who "think we ought to
spread the burden" of government funding to more than just property
owners.
Co-Chair Donley requested the Department of Revenue comment before
the Committee adopt the committee substitute. He opined that this
legislation is a "substantive issue" and a "major policy
consideration" as far as it affects the state's ability to collect
revenue.
Co-Chair Kelly noted an attempt was underway to reach a
representative of the department to join the meeting.
Co-Chair Donley pointed out there are other boroughs that may "find
this an opportunity to significantly increase their ability to tax
oil and gas property or other properties that may be at the expense
of the state." Because of this, he stressed there are other
considerations besides the FNSB.
Senator Therriault addressed the fiscal note, saying the original
fiscal note projected a possible impact of $1.6 million on the
state treasury if all local governments that currently exercise the
$10,000 property tax exemption took full advantage of the
provisions in the bill and increased the exemption to $50,000. He
stressed that he does not think this would happen and instead,
local governments would consider other revenue sources. He also
noted the proposed committee substitute reduces the exemption
amount to $40,000 in part to address these concerns. He understood
Co-Chair Donley's desire to hear from the Department of Revenue,
but Senator Therriault did not think the department could
accurately predict the impact to the state treasury since the
language is permissive rather than mandatory.
Senator Therriault stated that local governments and the state
could offset reduced revenues with a sales tax, user fees or
cutting expenditures and increased efficiencies.
Senator Ward shared that currently the Kenai Peninsula Borough
(KPB) taxes the refineries and the petroleum industry in Nikiski.
Nikiski, he pointed out, does not have a local service area with
the exception of fire service and there has been debate whether to
form some type of local government. He asked what would be the
impact if a local service area in Nikiski were not formed and the
revenue needed to be increased in that area. He predicted the local
government would increase taxes to the petroleum industry to offset
the lost revenue. He stressed this would actually impact the
employees of the industry.
Senator Therriault responded saying if local government decided to
raise the mil rate on those oil and gas properties, it would have
to raise those property taxes on all property including houses and
stores. He explained that oil and gas properties could not be taxed
at a different rate than other properties. He continued that if a
service area formed and levied a one-mil property tax to provide
for the service area functions, exercising of the exemption option
of this committee substitute would not impact the revenues derived
from the one-mil tax.
Senator Ward shared that it was unclear whether the community of
Nikiski was ready to form a service area. He asked if the service
area were not formed and the borough chose to implement the
exemption, if the petroleum industry would have to pay.
Senator Therriault answered this would be correct if the borough
decided to increase the general government mil rate.
Senator Ward remarked that the KPB seems to consider this first.
Senator Therriault repeated that a mil rate increase would raise
taxes for all property owners and that the matter would have to go
before the voters.
Senator Ward thought the KPB would decide to reduce services
instead of raising the mil rate.
Senator Green wanted to know if there is any crossover implication
to the education foundation funding formula and whether the
Department of Education and Early Development should be consulted.
Senator Therriault did not think there would be an impact on
education funding, noting that the Department of Education and
Early Development has not submitted a fiscal note to the bill.
NADINE HARGESHIEMER, Fairbanks North Star Borough, testified via
teleconference from Fairbanks in support of the bill. She relayed
the increased exemption option would be helpful as the borough
seeks alternative sources of revenue. She informed that the FNSB
operates under a revenue cap. She noted the formation of an
alternative revenue commission to investigate sources of revenue.
She expressed the intent is to match any additional revenue against
reductions to residential property taxes.
Ms. Hargeshiemer stated that service areas have separate tax rates
borough-wide and if the residential tax exemption was applied to
service areas, those areas would lose revenue. As a result she said
the burden could be placed on commercial entities and undeveloped
parcels that would not qualify for the exemption. She remarked that
the borough does not want to do this nor would it be "politically
palatable." Therefore, she said omitting the service areas from the
property tax exemption the mil rates would not need to be raised
for the commercial and other nonresidential property.
Ms. Hargeshiemer next pointed out that current state law allows the
borough to tax the Alyeska Pipeline up to 20 mils. She said that if
the borough's mil rate is less than 20, the difference goes to the
state.
Ms. Hargeshiemer then addressed the impact of this legislation on
education funding, saying the FNSB is required by law to provide at
least four mils but actually provides 8.83 mils. She stated that
she did not see how this residential property tax exemption would
impact education funding since the borough currently provides more
than double the requirement.
Ms. Hargeshiemer recognized there might be other issues with
different boroughs, but pointed out the tax exemption is optional
and requires voter approval. She expressed the FNSB funds the
existing level of services "in a way that makes sense for
everybody."
Senator Therriault referenced a letter addressed to him from the
Alaska Municipal League dated February 7, 2001 in support of the
bill. [Copy on file.]
Co-Chair Donley noted the Department of Revenue fiscal note does
not apply to the proposed committee substitute and Senator Green's
request for input from the Department of Education and Early
Development. He stated that he would like an analysis of the
committee substitute from both departments.
Co-Chair Kelly asked if the four-mil requirement for education
funding is based on the assessed value of the borough property
regardless of any exemptions.
Senator Wilken answered that the four-mils is based on the state
assessed full and true value before exemption.
STEVE VAN SANT, State Assessor, Division of Community and Business
Development, Department of Community and Economic Development,
testified via teleconference from Anchorage as the drafter of the
original Department of Revenue fiscal note. He affirmed that the
fiscal note assumed the exemption would increase to $50,000 and
also assumed that all municipalities currently operating with a
residential exemption would adopt the maximum $50,000 exemption. He
continued that the fiscal note also assumed that the municipalities
with oil and gas properties would increase their mil rate to make
up for the lost revenues and thus cause a reduction of state
revenue of $1.6 million. He stressed this assumes that no other
revenue would be used by local municipalities. He qualified that if
Fairbanks instituted a sales tax there would be a reduction on the
state impact.
Mr. Van Sant addressed the possible effect on education funding
summarizing that this legislation would not have a major impact.
Mr. Van Sant then spoke to the provision in Section 1 regarding
exempt residents selling their residence in the middle of the year
to a nonqualified buyer. He interpreted the language to read that
the senior citizen would not get an exemption in that year.
Co-Chair Donley maintained his objection. He supported the change
from "shall" to "may" in Section 1 but suggested it could be
addressed as an amendment. He also suggested that Section 2 be
considered as an amendment rather than in a committee substitute.
AT EASE 10:14 AM / 10:16 AM
Senator Wilken WITHDREW his motion to adopt the committee
substitute, Version "P" as a working draft. There was no objection.
Co-Chair Kelly requested the sponsor work to address the concerns
raised.
Senator Therriault agreed to meet with members in order to
understand the concerns, but expressed that most of the concerns
are addressed in the proposed committee substitute or by the local
voter control.
Co-Chair Kelly ordered the bill HELD in Committee.
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