Legislature(1999 - 2000)
02/25/1999 01:38 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 54-MUNICIPAL TAXES ON DETERIORATED PROPERTY
CHAIRMAN MACKIE announced SB 54 to be up for consideration.
SENATOR TIM KELLY, sponsor, noted that the companion bill to SB 54
moved out of the House State Affairs committee this morning with
some amendment language that he was proposing for this bill.
MR. DOUG SALIK, staff to Senator Tim Kelly, explained that the
first amendment on page l, line 13 is a verbiage correction. It
deletes "only" and replaces it with "any". Page 1, line 14, to
delete "attributable to that part" and page 2, line 1, to delete
"and the deferral attributed to that part ends" go together. Mr.
Van Sant and Mr. Pat Carlson, both state assessors, made those
suggestions.
SENATOR KELLY moved to adopt amendment #1. There were no
objections and it was so ordered.
MR. SALIK said he believed there were other concerns about the
bill, but he would let Mr. Marlow address them.
Number 311
MR. MARK MARLOW, Alaskan electrician, supported SB 54. He
presented the committee with a rendering of the building utilizing
this law. He said permit fees had been paid this past Monday and
he hoped they could start work this summer.
MR. MARLOW said the McKay building isn't the only building that
would use this law, but it has served the purpose in other states,
especially in the older parts of the country. As older buildings
become obsolete and dysfunctional, this law could be used to
provide incentive to revitalize an area or building so that it is
useful and producing taxes, and not causing a blight on the
community.
CHAIRMAN MACKIE asked what relationship Mr. Marlow had to the
project.
MR. MARLOW answered that he is redeveloping the building as an
apartment house.
SENATOR KELLY asked if the building was going to be the same as
shown in the picture, with more glass.
MR. MARLOW explained that the building would be insulated from the
outside, because the fluid nature of concrete causes movement with
temperature changes. The core of the building will stay a constant
temperature, but the outside of the building actually creeps about
two inches up and down between winter and summer, creating cracks
in the sheetrock. Insulating the outside of the building will keep
the whole building the same temperature, helping to preserve the
interior of the building.
SENATOR DONLEY said that people in Anchorage are excited about this
project, but his questions concern accountability over what has
happened with the building over the last 10 years. He asked Mr.
Marlow if he owns the building now.
MR. MARLOW answered he created a limited liability company that
bought the building from the estate of Harvey Sullivan and Duane
Hinson, operating as Hinson Associates.
SENATOR DONLEY commented that he was probably familiar with the
history of the previous owners and the city's struggle with them
during which the city probably chalked up hundreds of thousands of
dollars worth of legal fees. He asked if the city had been
reimbursed for all the legal fees from the previous owners.
MR. MARLOW answered that he didn't think so.
SENATOR DONLEY asked how much he paid for the building.
MR. MARLOW answered about half a million dollars.
SENATOR DONLEY asked if he knew what the former owners paid for the
building.
MR. MARLOW responded that he hadn't seen a record, but heard that
they paid $25,000.
SENATOR DONLEY said that was his concern. He wanted some
accountability for what the community had to go through.
MR. MARLOW said he appreciated Senator Donley's concern, but he is
not the one who did it. He is offering solutions.
SENATOR KELLY asked if this law had been available before, would
the former owners have developed the building.
MR. MARLOW answered that anything is possible, but that he couldn't
speak for the former owners. This type of incentive works well in
other parts of the country. Part of the anticipated success of
this project at this point is the fact that the statistical vacancy
rate for rental housing in downtown Anchorage is zero. A study
done by an outside marketing and research firm for the lender
indicates that this building, when it's done, will be full in four
months.
SENATOR DONLEY asked how much would he have been willing to pay for
the building without the legislation that was passed.
MR. MARLOW answered the amount he paid had more to do with
negotiating with the current owners, not the economics of the
project. The purchase agreement was made in advance of the passage
of this law.
Number 400
SENATOR DONLEY asked if the agreement had a clause or any reference
to legislation in it on a change of the tax status.
MR. MARLOW replied that he wouldn't have completed the purchase
until the bill passed, because the project isn't feasible without
the legislation.
SENATOR DONELY asked what year he negotiated the sale agreement.
MR. MARLOW replied last year, after the Governor signed the law.
SENATOR DONELY asked in his dealings with the city, had they ever
mentioned their past expenses for the building and who is liable.
MR. MARLOW answered no; and thought they considered it a cost of
doing business.
SENATOR DONLEY wished Mr. Marlow good luck. He sees a problem
with someone buying a dilapidated piece of property for $25,000,
which costs the taxpayers of the city a lot of money over six
years, then doing nothing to fix it up, and then selling it to Mr.
Marlow for half a million dollars because the legislature passed
some favorable special piece of legislation.
MR. MARLOW said he understands Senator Donley's frustration, but
this law isn't being passed specifically for him. The McKay
Building redevelopment will be the recipient of this tool, but as
Alaska grows, there will be other buildings.
SENATOR KELLY inserted that the law they passed last year was a
national statute that had been enacted in other places dealing with
dilapidated housing and neighborhoods. They made the law pertain
to commercial buildings or multi-family units only, feeling that
Alaska didn't have the same kinds of problems. The good news is
that there aren't many blighted urban areas in Alaska, but the
older we get, the more likely they'll be.
SENATOR DONLEY asked if Mr. Marlow hired a lobbyist to work on this
last year.
MR. MARLOW answered no, and he didn't know of anyone else working
on it.
SENATOR LEMAN applauded Mr. Marlow's efforts with the building and
said his own preference would be to rename the building with its
original name, the McKinley Building.
MR. MARLOW responded that the new name hadn't been chosen and he
assured them that it would have a whole different image - something
the whole community could be proud of again. Their projected
completion date is late summer of 2000.
Number 538
MR. STEVEN VAN SANT, State Assessor, said he agreed with Senator
Kelly that if any portion of the property is transferred, any
deferred taxes would become immediately due.
On page 1, lines 6 and 7 he noted the phrase "beginning on or any
time..." might allow an exemption to begin in the middle of the
year with prorated taxes. Mr. Van Sant said that our Supreme Court
has determined that exemptions begin on January 1. A property is
either fully taxable or exempt on that date. He wanted to see
further discussion of this issue.
A third concern is the ability a municipality has to collect
interest on deferred taxes (not exempt taxes). He suggested using
an eight percent rate because that is what is used for the
agriculture deferment. He added that he appreciates what Mr.
Marlow is doing with the building.
CHAIRMAN MACKIE noted that the House didn't do anything with Mr.
Van Sant's suggestions and asked if he supported the legislation
as it is currently written.
MR. VAN SANT answered that the interest was not included. They
discussed the beginning of the language on lines 6 and 7 and
everyone agreed that an exemption did not begin in the middle of
the year, but would be at the beginning of the assessment year. He
said they could live with the bill the way it is currently written,
however.
MR. CHARLES WOHLFORTH, representing the Anchorage Assembly
regarding the McKay Building, said he has tried to deal with this
problem for the entire six years he has been on the Assembly. It
is a real drag on the economic vitality of the east side of
downtown and it was one of the reasons that area has a lot of
problems. Ever since he joined the Assembly, they have been trying
to get control of the building to have it torn down. They have not
succeeded and Mr. Marlow came forward last year. If the building
was condemned, they would still have to spend $2.4 million to tear
it down and then they would have an empty lot.
MR. WOHLFORTH explained that Mr. Marlow proposed giving up 10 years
of taxes on a project which wouldn't exist at all without the tax
exemption. It would get it off their backs, so they are not giving
up that much.
SENATOR KELLY asked Mr. Wohlforth the estimated worth of 10 years
of taxes.
MR. WOHLFORTH answered he thought it would come to around $2
million, with $1 million being paid when the building is sold.
TAPE 99-5, SIDE B
Number 590
SENATOR KELLY asked how much it would cost to tear the building
down.
MR. WOHLFORTH answered that the estimates have ranged from a low of
$2.4 to a high of $3 million.
CHAIRMAN MACKIE asked if he had any comments on Anchorage's
liability issue.
MR. WOHLFORTH replied that he hated to see anyone benefit from this
situation, but pragmatically speaking, they would be getting out of
the situation for a lot less money than they expected. The
litigation has been going on for a long time and will continue. He
didn't think those costs were recoverable. They had thought about
simply paying off the owner, because it would have saved the city
a lot of money. This solution is a lot more appealing than that
would have been.
SENATOR DONLEY asked how many years the building had been empty.
MR. WOHLFORTH replied about 12 years. Mr. McKay let it run down
and then it was taken over by the bank in the 1980s.
SENATOR DONLEY expressed his concern for the future, now that the
law is in place, would be to keep it from being used as an
incentive to other folks to go out and buy large deteriorated
properties and, then, essentially blackmail the city into giving
them a tax break to develop them.
MR. WOHLFORTH said several things make that unlikely to happen.
One is that there aren't any other buildings that are comparable to
the McKay Building, both in terms of the political will and desire
to get rid of it and the extreme blight it imposes on the
community.
He also said that if you owned a deteriorated property, you would
be able to use this program as much as the buyer would. He hoped
people would use it if there was an opportunity to improve those
properties and bring them on to the tax rolls in a positive way.
SENATOR DONLEY asked if the City was attempting to recoup any of
its costs from the building's former owners.
MR. WOHLFORTH said that their legal department hadn't informed him.
Number 542
SENATOR DONLEY asked what Mr. Wohlforth thought about a provision
in the law stating if someone is selling, they couldn't make more
than 100 percent profit and any excess would revert to the local
government.
MR. WOHLFORTH replied that he would be concerned over any change in
the law that would be complex and unworkable.
SENATOR DONLEY asked why the City didn't just condemn the building
and then sell it to Mr. Marlow.
MR. WOHLFORTH answered that the City did condemn the building and
that's what the litigation was about. The problem was that
typically in condemning a building, you have to show that it is
dangerous or a safety hazard. This building is solid 40 or 50-
year-old concrete. The ordinance that was passed in the beginning
was amended to say buildings abandoned and vacant for a certain
period of time could be condemned. That has to be litigated all
the way to the Supreme Court to determine if that was a valid
reason for condemning a property. That is what's going on now.
SENATOR DONLEY asked if they would finish the appeal now that Mr.
Marlow owns the building.
MR. WOHLFORTH said he thought that case would no longer be pursued
now that the Building Board has the issue.
MR. PAT CARLSON, Kodiak Assessor, expressed concern that in small
communities it might be easy for a major commercial entity to get
the Assembly to buy into something like this. He wanted the
structure to be there to enforce the exemption and deferral to
ensure that the promises that made by property owners come true.
MR. CARLSON also noted that the economic development clause in AS
29.50.50(m) requires specific eligibility requirements be
stipulated in the written application process. He thought that
language would be applicable to this ordinance, also.
In the case of deferred taxes, they may become a lien on the
property. There has been litigation in the past regarding specific
language in property tax liens. There are problems because
personal and real property may not be foreclosed in the same
manner. The language would ensure that deferred taxes are
immediately recorded as a lien on the property.
SENATOR KELLY wanted Mr. Marlow to respond to the lien idea.
MR. MARLOW responded that the way he sees it, this is a state
statute that specifically says municipalities "may" do some things.
They are not required or compelled to. Property taxes are
collected and/or exempted or deferred by state law. Municipalities
don't have carte blanche to do what they want with property taxes
inside their domain. The Municipality of Anchorage took this tool
and passed ordinances that specifically address Mr. Carlson's
concerns. This bill simply gives the municipality a tool to pass
an ordinance with those safeguards in it. In the Municipality of
Anchorage, the ordinance specifically requires performance before
the exemption and deferral kick in. With respect to the lien on
the deferred portion, he didn't have the ordinance before him, but
in his discussions with the municipal attorney, language was put in
the ordinance that insures it's a matter of public record that the
deferred property taxes is owed, so at the point of closing it can
be collected.
SENATOR KELLY said that one of the things they were nervous about
last year was that other cities and boroughs in the state that
weren't as sophisticated as Anchorage were protected. He
understands that Anchorage is protected, but Mr. Carlson wants
protection in statute so that all municipalities throughout the
state have to protect themselves. He is always concerned about
political pressure on the local level to do some type of deal for
a tax exemption. He thought putting a lien on the property would
be straightforward.
MR. MARLOW asked if a property was normally under a lien for taxes.
He didn't disagree that there should be a public record of the tax
status.
Number 444
MR. CARLSON commented that typically the tax authority is called to
see if there are any taxes outstanding, but the recording of a lien
makes things real clear, like a street assessment.
CHAIRMAN MACKIE thanked Mr. Carlson for his comments and said
Senator Kelly wanted to work on an amendment on this issue before
it gets to the floor of the Senate.
SENATOR LEMAN moved to pass CSSB54(L&C)and the accompanying fiscal
note from committee with individual recommendations. There were no
objections and it was so ordered.
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