Legislature(2001 - 2002)
01/31/2001 01:35 PM Senate CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
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SB 48-MUNICIPALITIES:INCORP/PROPERTY VALUATION
CHAIRMAN TORGERSON closed that portion of the meeting and moved to
SB 48. He asked Senator Wilken, bill sponsor, to come forward to
give an overview. He acknowledged that the meeting was on
teleconference for listen only.
SENATOR WILKEN said that SB 48 tries to answer two broad questions:
1. Why is Alaska the only state in the nation that has an
unorganized borough?
2. What is the validity of the $125 million that has gone into
the educational operations of the unorganized borough in the
last six years?
Number 509
SENATOR WILKEN then delivered the following sponsor statement for
SB 48.
Last year the Department of Education and Early
Development distributed over $21 million in General Fund
money to fund K-12 educational programs in 19 Regional
Educational Attendance Area (REAA) school districts from
which no local match dollars were required from its local
residents to help support their children's educational
needs. Meanwhile, citizens residing in Alaska's organized
municipal school districts were required by state law to
contribute $144 million local dollars to support their
local education.
The reason for this apparent unfair disparity in state
law is simple; residents of an REAA school district live
within a community or area of our state that does not
have the authority to levy or collect taxes and,
therefore, cannot be mandated by the State to contribute
any local dollars towards education. Senate Bill 48
recognizes this unequal level of personal responsibility
and establishes a procedure to analyze the readiness of
the people in unorganized Alaska to establish a system of
local government with the powers of taxation and thereby
the capability of assisting in funding the K-12 education
of their children.
This legislation acknowledges that, while all communities
of Alaska are perhaps not financially able to sustain a
borough government, some areas of the state may very well
have developed the capacity to operate boroughs or may
meet applicable standards for annexation to current
boroughs. Senate Bill 48 directs the Department of
Community and Economic Development to annually present to
the Local Boundary Commission a list of areas in the
unorganized borough that reasonably appear to satisfy
existing standards for borough incorporation or
annexation.
The Local Boundary Commission will consider and then
select from this list areas that may warrant
incorporation or annexation. The Department of Community
and Economic Development will then draft an incorporation
or annexation petition for the selected area, hold local
public meetings, and finalize and file the petition. Upon
receipt of the final petition, the Local Boundary
Commission will hold additional local public meetings and
either accept or reject the petition as conforming or not
conforming to existing applicable incorporation
standards.
If, after a thorough review, the Local Boundary
Commission accepts the incorporation or annexation
petition, the decision will be submitted to the
Legislature for an additional legislative review. If the
Legislature does not reject the recommendation within a
prescribed period of time, the new borough or annexation
is approved.
It is important to note that SB 48 merely creates a new
option in which a petition for borough incorporation or
annexation is originated. After the petition is filed,
the Local Boundary Commission will follow a process for
legislative review that has been in place since
statehood. That is, the current standards for
incorporation will be followed as well as the current
procedural requirements currently in state law. The
selected area population must be suitably large,
homogenous, and demonstrate the stability to support
borough government before it is considered for
incorporation or annexation.
Delegates to the Alaska State Constitutional Convention
clearly envisioned in art. X that organized boroughs
would be established wherever citizens were ready for and
capable of assuming the responsibilities of local
government. Senate Bill 48 assists in the formation of
these boroughs. With the creation of an organized
borough, its citizens will be empowered to contribute
local dollars to supplement State funding for the
operation of their schools, assist in the financing of
new schools, and through cost efficiencies, be able to
direct more local funds toward student instruction. In
other words, the new borough residents will have an
opportunity to improve their local educational system
with their own local dollars.
Senate Bill 48 continues a process that began some 40
years ago with the passage of the Borough Act of 1961. A
stronger, financially sound educational system throughout
all areas of the State will be one of the major
benefactors of this legislation.
I respectfully request your consideration and support of
SB 48.
Number 539
SENATOR WILKEN briefly addressed materials in the bill sponsor
packet. The first page is a two-section memo from Legal Services
outlining what the bill would do. The next two pages show a chart
titled "The Structure of Local Governments in Alaska." It shows the
options for organization for both organized and unorganized
boroughs such as home rule cities, first-third class cities or
boroughs and unified municipalities. It is good reference material
as the bill works its way through the legislature. The third
section is a two-part chart titled "Legislative Review Annexation
Process and Proposed New Option for Borough
Incorporations/Annexations." This was included to make it clear
that there is a process by which an area of the state can be
considered for incorporation. Areas under consideration must pass a
test in order to be successfully incorporated. There is
constitutional encouragement for an organized Alaska and Senator
Wilken believes local governments are most satisfactory.
SENATOR WILKEN quoted from state statute saying, "Borough
incorporation must be in the best interest of the state." It is
state law that "Borough residents must be socially, culturally and
economically interrelated and integrated. Population must be large
and stable enough to support a borough government. Boundaries must
conform to natural geography and include all areas necessary for
development. There must be adequate human and financial recourses
to provide services. There must be adequate facilities to allow
communities to develop an integrated rural government." This is the
checklist to determine whether or not an area should be nominated
and presented for organization.
The next page is titled "Profile of the Unorganized Borough" and
shows a map of the state with unorganized areas highlighted and
lists information on unorganized areas.
Number 574
SENATOR WILKEN said that a frequently used argument against
organization is that there is no tax base, no way for people in
unorganized Alaska to provide some sort of help for education. He
said that he had three sheets in the packet to show that perhaps
there is a way. The first is a bar chart titled "General Fund
Contribution Regional Educational Attendance Areas FY 97-FY 02." It
shows what the unorganized areas cost in terms of contributions of
general fund money over the last six years. The chart shows that
roughly, $125 million in general fund money has been spent to
operate schools in the REAAs. This represents about 21 percent of
the budget.
SENATOR WILKEN then showed a 10-year REAA School Capital Funding
History chart. It shows about $200 million for capital spending in
unorganized Alaska. He noted that there has been minimal or no
local contribution on behalf of the residents of the REAA in
unorganized Alaska.
SENATOR WILKEN believes there is an asset base to support
educational funding. He produced a November 16 classified
advertisement from an unorganized area showing that there are homes
in that area that are offered for sale for more than $200,000. He
said that this isn't an amorphous area that has no commerce.
The next two sheets titled "REAA Wages and Average Employment (FY
1999) & (FY 2000)" show that $388,546,000 was earned by 15,848
workers in 1999 in certain REAA census areas. These are wages
reported under law to the Department of Labor. These are only
earned wages, not barter, trade, or dividend earnings. In 2000 the
figures were similar. Although the workers may not always live in
the unorganized area, the paycheck is earned in that area.
Number 535
SENATOR WILKEN summarized the positive aspects of the Equity in
Education Funding Act as:
1. Alaskans who are able to fund education should do so.
2. Existing state law regarding borough incorporation remains
in place as an option.
3. Local citizen participation in education is increased.
4. More money is available statewide to increase the
Education Funding Formula.
5. Proactive steps are taken to fulfill the intent of art. X
of the state constitution.
He considers the upfront costs to be the only drawback. However,
it is his hope that the long-term costs are carefully considered
and the short-term costs accepted.
SENATOR WILKEN thanked the committee for hearing the bill and
said that he was available for questions.
SENATOR PHILLIPS asked what percent of total state enrollment was
represented by the REAA group.
SENATOR WILKEN said it was about eight percent and that several
years ago 21 percent of the general fund budget went to eight
percent of the students.
SENATOR LINCOLN said that the majority of her district is
unorganized. There is concern in her district because larger
communities are looking at extending into her district by pulling
those areas into their borough. Of major concern to her is the fact
that the people won't have the opportunity to vote on the issue,
other than to testify. A few people will make the decision for many
and she is uncomfortable with this option. She wondered why the
bill wasn't written so that the issue could go to a vote.
SENATOR WILKEN responded that he wasn't any fonder of government
than the next individual. He suggested that if you went to any
organized area and asked if you like government or not, the answer
would most likely be no. With this in mind, it's not practical to
think that individuals would vote to bring in government when there
has been none. However, 83 percent of the people of Alaska live
under boroughs that were imposed on them. Just four percent of the
people in Alaska living in organized Alaska live under voluntary
local government. He takes great faith in the fact that the LBC has
shown sensitivity to local control, that there are five people from
across the state from each judicial district that have no political
agenda and are working for the betterment of the state. He
recognizes that it is sometimes difficult for individuals to accept
personal responsibilities that government brings.
SENATOR WILKEN went on to say that if the constitutional suggestion
to organize continues to be disregarded, the option remains to take
the process, as it is today, with a vote. However, if that isn't
done, there has to be a process by which it is accomplished. That
is SB 48, which provides another way to choose government.
Number 45
SENATOR LINCOLN said she was certain that would be debated further.
She then asked if there has been consideration given to the amount
of federal monies brought in by the REAAs that would be lost to the
state if they were in a borough. She referenced payment in lieu of
taxes (PILT) money in particular. She said there was also money
coming in that wouldn't necessarily be lost, such as revenue
sharing, the national forest receipts, fisheries business tax
program and landing tax monies. However, the PILT monies brought in
by the REAAs would no longer be available if they were in a
borough.
SENATOR WILKEN was not aware of any monies that would be lost by
choosing local government. He asked Senator Lincoln to provide her
list and he would address it. He wanted to know if PILT money is
874 money.
SENATOR LINCOLN said PILT money is payment in lieu of taxes. Delta
Junction, for example, has $235,433 contributed that wouldn't be
there if they are forced into a borough.
SENATOR LINCOLN said that there are areas such as Deltana that did
petition for consideration in a borough. They apparently didn't
meet the guidelines but the commission did review and accept a
number of communities that wanted annexation or consideration for
borough status. She doesn't believe that communities are choosing
to not organize because someone else is paying the tab; it is
because they can't afford to do so.
SENATOR WILKEN couldn't speak to the Deltana situation other than
that there were some provisions in the petition that weren't in the
best interest of the state. He went on to say that SB 48 allows
people to help their schools with local governance.
SENATOR WILKEN told members that education reform studied about
three years ago used LBC analysis of the worth of certain areas and
came up with a rough estimate of property values, given other
assets available to that particular area of the state. That area is
now a second-class city and doesn't assume responsibility for their
education. If you took the assessed value and divided it by the
number of students you would have had the fifth richest borough in
the state in terms of asset value per student. That area has the
ability to fund education but has chosen not to do that. He said
that those that can't afford shouldn't and those that can afford
should.
SENATOR LINCOLN asked about improving local educational systems
with local dollars. She thought that money brought in by borough
formation would go into the general fund and then legislators would
determine how that money is distributed.
SENATOR WILKEN said that was correct and that the educational lobby
is one of the strongest. He would support every dollar coming from
unorganized Alaska to help fund education would be a dollar that
goes to education.
SENATOR LINCOLN asked if educational dollars could be tracked
carefully enough to ensure that every dollar collected from a
specific area would be returned to that area for education.
SENATOR WILKEN said it was difficult to track the dollar that way
but that the hypothetical community would not lose any educational
dollars because of the legislation. Local communities will get more
money through 874 and through more money in the formula.
SENATOR LINCOLN said that was more a question of improving their
quality of education because of additional dollars coming into the
community.
Number 384
SENATOR WILKEN said there were two ways to improve education.
First, more money is put in and more accountability is expected and
capital and operations improvements are expected. Second is the
link between the parent's checkbook and the child in school. He
believes that people care more about their schools when they are
contributing to them financially.
SENATOR KELLY was also interested in loss of funds if unorganized
areas were to become organized.
CHAIRMAN TORGERSON said that "there is a potential reclassification
of an allocation of funds to an unorganized area to one that is
organized, such as the fish tax, may go to a larger group versus a
smaller focus group that hasn't organized, depending on the
boundaries. PILT payments won't be lost but they will lose the
classification of having PILT money come into the total unorganized
borough and then being hypothetically, mechanically or
mathematically divided by the department. It will be given to the
organized area of the new borough based upon geographical
boundaries and how much federal land is located with in those
boundaries." There could be a loss, but not directly related to
this but by directly relating a different allocation formula.
Communities are still eligible for the same thing.
Number 365
SENATOR WILKEN said that there is a suggestion that the 874 money
is a local contribution and that is the unorganized area's
contribution to education. Understanding 874 money is a subject for
another day but he is ready to discuss it.
CHAIRMAN TORGERSON invited Senator Fischer, a member of the
Constitutional Convention, to come forward for testimony.
MR. VIC FISCHER, a former Alaska Senator, said that SB 48 was an
important step toward implementing Local Government Article of the
Alaska Constitution. He gave a bit of background from
Constitutional Convention days, 35 years ago next week. At that
time, Alaska had no regional structure of governance. In passing
the Organic Act in 1912, Congress specifically said that
territories could not establish counties. The purpose of this was
to avoid any possibility of taxes being levied on mining properties
and fish plants.
He said the Constitutional Convention Committee on Local Government
essentially had a blank slate. They looked at other states, Canada
and Finland for guides. They set certain parameters and the borough
concept was developed.
The Constitutional Convention had in mind that, upon statehood,
there would be a gradual evolution of regional governments. The
state had a major interest in effective local government in terms
of furthering the purpose of maximum local government with minimal
overlapping and separate taxing jurisdictions and as a means of
regionalizing and decentralizing the state roll. The entire state
was to be divided into separate regional borough units.
There were provisions for organized and unorganized boroughs. The
single unorganized borough is essentially unconstitutional under
the state constitution. The concept was that there would be
unorganized boroughs all over the state that would gradually
organize, voluntarily, by local initiative. The state would provide
incentives and support for organization. The expectation was that
people would want this kind of regional self-government process.
Number 280
MR. FISCHER said that the 1964 Mandatory Borough Act provides that
only boroughs and cities can exercise local government and taxation
powers and that special districts will be dissolved. This meant
that independent school districts, outside of cities, could no
longer exist. The State of Alaska told schools that bonds could no
longer be sold because the districts didn't exist constitutionally.
In the eight situations where there were independent school
districts, the legislature said "Thou shalt have boroughs." and
that is how those original boroughs were organized. It was by state
mandate. Although it was expected that areas would organize, the
state could exercise its authority and mandate organization of the
boroughs.
Number 249
MR. FISCHER told members that when oil wealth came to the state
there were proposals to do what was discussed in the convention to
regionalize the entire state and use the organized and unorganized
areas as a means of sharing the expected wealth coming to the
state. He said the pipeline hadn't been built yet and that, for a
variety of reasons that he wouldn't go into, this didn't happen.
MR. FISCHER commented specifically of SB 48 saying that he is
concerned about the title of the bill. Rather than Equity in
Funding Education, he thought it preferable to call it a local
government act. The existence of the eight boroughs established
under mandate is not under question today. Something that seems
controversial now, will be part of the Alaska scene in ten to
twenty years. Another area of concern is that the language and
explanations of this legislation must not give the impression that
it is punitive in nature.
MR. FISCHER said that the legislature does have an alternative. It
is the assembly for the unorganized borough, for all the service
areas and all the REAAs and could go out and establish a property
tax in the unorganized areas.
SENATOR LINCOLN said she continues to struggle with the idea that
the 60 legislators determine the fate of the unorganized area and
wondered what the framers had in mind.
MR. FISCHER said that they did not have in mind that the
legislature would sit in joint session as the assembly of the
unorganized borough. The evolution was seen as the state being
divided into regions. Each region would move toward maximum self-
government that it could support and accommodate. There would be
local participation in the provision of services to the area. Each
region would be looked at separately with much local input. The
assembly was written in to fill a void until there was local
participation organized.
SENATOR KELLY asked about mining properties and fish processing
plants.
MR. FISCHER said that Congress imposed taxation restrictions on the
mining and fishing properties in territories. Counties could not be
formed in territories becoming states making it clear that taxes
could not be collected from these areas.
CHAIRMAN TORGERSON said they would return to Mr. Waring for his
comments of SB 48.
Tape 01- 2 side A
Number 72
MR. WARING opened by saying that he would skip most of his prepared
remarks. He then referred members to the two handouts. The first
lays out the background considerations for reform of existing
legislation. The second is a time line showing the series of
actions involved from beginning to conclusion of a petition
process.
MR. WARING moved to page three of his prepared remarks expressing
the commission's view of its role in implementing SB 48.
First, in the view of the Commission, SB 48 is not the
second coming of the 1963 Mandatory Borough Act, or any
similar legislation. Unlike the Mandatory Borough Act, SB
48 authorizes a measured, case-by-case evaluation of
proposed incorporations. Each petition will be evaluated
on its merits. Proposals that do not meet the standards
will not be approved. And, as under current law, even if
a petition meets statutory standards, the Commission can
reject the petition if there are sound public policy
grounds to do so.
I want to assure the legislature and other interested
parties that the commission does not have a mission to
foster boroughs for the sake of boroughs. We don't see
any purpose in worsening the standing of local government
in rural Alaska by prematurely creating borough
governments that are destined to fail. In this regard, I
will point to the commission's record. The record shows
that in recent years the commission has rejected several
petitions to incorporate boroughs or annex unorganized
areas to boroughs because those petitions did not meet
applicable standards. Commission staff, with commission
concurrence, also returned two incorporation petitions
that were deficient in content.
The commission recognizes that some rural regions do not
have the economic and financial resources needed to fund
borough governments. The fiscal note that accompanies
this bill reflects the concern that any borough
established under SB 48 has a solid chance for success.
The only new cost identified in the fiscal note, apart
from already mandated organization grants, is the expense
of conducting a thorough and independent analysis of the
fiscal viability of each proposed borough.
Establishment of borough governments has been a matter of
conflict for as long as Alaska has been a state. With
that contentious history, it is easy to lose sight of the
fact that borough governments have played an enormously
positive role in Alaska's development. Boroughs have been
our main tool to influence economic development for
community benefit. For example, it is hard to believe
that urban and rural communities affected by oil pipeline
construction, oil and gas and mining development,
management of forestry and fishing resources, growing
energy demands, growth in tourism, and rapid urbanization
would have managed better without borough government.
Likewise, boroughs have been the means to fund and
deliver better public services, accountable to local
residents. In most matters, local government governs
best.
Finally, let me note that the proposed legislation does
remove one major disincentive to borough government.
Section 1 (a) excludes locally untaxed oil and gas
property from calculation of the required local
contribution to education. Otherwise, SB 48 does not
address other significant disincentives that have proven
difficult to reform. The proposed legislation simply
accepts those disincentives as a matter of fact, and
leaves them to be addressed elsewhere.
In closing, the commission has done its best to meet its
goal of an approach that is uniformly fair, accountable,
and within the framework of existing law. We believe the
proposed approach:
uniformly implements the standards for borough
incorporation in existing law, but respects the
diverse circumstances in different rural regions;
provides checks and balances; and
is modeled on existing law and minimally changes
law.
MR. WARING said that concluded his remarks and that he would be
happy to answer any questions.
SENATOR LINCOLN noted that in the fiscal note there were provisions
for a financial consultant for each petition. She wondered whether
there would be increased commission activity if the bill were to
pass in current form.
MR. WARING did not presume that there would be and additional
workload for the commission members but that was difficult to
predict since they have no control over the number of petitions
submitted each year. Additionally, if there are expenses it is
because they are doing work they are supposed to be doing.
SENATOR LINCOLN asked that figures for reduction of capital match,
50 percent reduction of fisheries tax and PILT monies be provided
for the next meeting.
MR. WARING said they could be provided.
CHAIRMAN TORGERSON asked if there were any questions or other
testimony.
ALLEN TESCHE, Local Boundary Commission member, came forward to
address several fundamental policy issues that had been raised in
the current legislation.
The first fundamental policy issue concerns the right of
individuals to vote on organization. When the Mandatory Borough Act
was adopted in the mid 1960's, it was in response to the fact that
the pace of forming local governments was slow. The legislature had
to step in and force the organization and incorporation of local
governments. Many times this was against the will of the people.
Although the right of people to vote is important and should be
guarded, it is important to have a system to bring about the
creation of new local governments when people are unable to look at
the situation with a long range time frame. What may be distasteful
today may be an accepted and desirable fact in 50 years.
The second question asks whether local government should be forced
on people when it would effect economic strain. He wanted committee
members to refer to page 32 of the annual report provided by LBC
staff to committee members. This outlines the list of standards
that are gone through to determine whether or not a particular area
meets the test for incorporation. Among the standards, the most
important is the ability of the local community, through its
economy, its people, and its resources, to support local
government. It is not the desire of the commission to bring about
the formation of local government, which ultimately fails. He
referred to the Adak petition discussed earlier and said that a
primary question was "Was there enough of a local economy to
support people who, in turn, would support local government?".
Ultimately, the decision was yes, but not until much study had been
undertaken.
MR. TESCHE thanked the committee for the opportunity to address the
questions raised by the committee.
CHAIRMAN TORGERSON said that the issue would be brought up again
and that there would be a Saturday meeting providing the public an
opportunity to testify.
There being no further business before the committee, meeting was
adjourned at 3:35 p.m.
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