Legislature(2003 - 2004)

04/27/2004 09:02 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                                                                                                                                
     SENATE BILL NO. 136                                                                                                        
     "An  Act increasing  an optional  exclusion  or exemption  from                                                            
     municipal taxation for residential property."                                                                              
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken stated  that  this bill,  sponsored  by the  Senate                                                            
Community  &  Regional  Affairs  Committee,   would  increase,  from                                                            
$10,000  to  $50,000,  the  amount  a  municipality  may  exempt  in                                                            
residential property taxation.                                                                                                  
                                                                                                                                
Co-Chair  Green moved  to adopt  the Version  23-LS0440\D  committee                                                            
substitute as the working document.                                                                                             
                                                                                                                                
Co-Chair Wilken explained  that the Version "D" committee substitute                                                            
would lower the proposed  municipality tax exemption from $50,000 to                                                            
$20,000.                                                                                                                        
                                                                                                                                
There  being no  objection, Version  D  was ADOPTED  as the  working                                                            
document.                                                                                                                       
                                                                                                                                
MARY  JACKSON,  Staff  to Senator  Tom  Wagoner,  noted  that  while                                                            
Senator  Wagoner is no  longer a  member of the  Senate Community  &                                                            
Regional Affairs  Committee, he continues his involvement  regarding                                                            
this  legislation and,  in  that manner,  supports  language in  the                                                            
Version "D" committee substitute.  In addition, she noted that he is                                                            
also supportive of two forthcoming amendments.                                                                                  
                                                                                                                                
Amendment #2:  This amendment inserts  new language into  the bill's                                                            
title, on page one, line two following "property" as follows.                                                                   
                                                                                                                                
     and  to an exemption  from and deferral  of municipal  property                                                            
     taxes on certain types of deteriorated property.                                                                           
                                                                                                                                
In addition,  new bill  sections are  inserted in  the bill  on page                                                            
one, following line eight as follow.                                                                                            
                                                                                                                                
     Sec. 2. AS 29.45.050(o) is amended to read:                                                                                
           (o) A municipality may by ordinance partially or totally                                                             
     exempt  all  or  some  types  of  deteriorated   property  from                                                            
     taxation  for up to  10 [FIVE] years  beginning on or  any time                                                          
     after   the   day  substantial   rehabilitation,   renovation,                                                             
     demolition,  removal, or  replacement of  any structure  on the                                                          
     property  begins.   A municipality   may  by  ordinance  permit                                                            
     deferral  of  payment   of  taxes  on  all  or  some  types  of                                                            
     deteriorated property  for up to five years beginning on or any                                                            
     time  after the  day  substantial rehabilitation,  renovation,                                                             
     demolition,  removal, or  replacement of  any structure  on the                                                          
     property  begins.  However, if  the ownership  of property  for                                                            
     which  a deferral  has  been granted  is transferred,  all  tax                                                            
     payments  deferred under  this subsection  are immediately  due                                                            
     and  the deferral  ends, or, if  ownership of  any part  of the                                                            
     property is transferred,  all tax payments are immediately due.                                                            
     The amount  deferred each year  is a lien on that property  for                                                            
     that  year. Only  one exemption  and only one  deferral  may be                                                            
     granted to the same  property under this subsection, and, if an                                                            
     exemption  and a  deferral are  granted to  the same  property,                                                            
     both may  not be in effect on the same portion  of the property                                                            
     during  the   same  time.  An  ordinance  adopted   under  this                                                            
     subsection  must include specific eligibility  requirements and                                                            
     require a  written application for each exemption  or deferral.                                                            
     In  this   subsection,  "deteriorated   property"  means   real                                                            
     property  that is commercial property not used  for residential                                                            
     purposes  or that is  multi-unit residential  property  with at                                                            
     least  eight  residential  units,  and that  meets  one of  the                                                          
     following requirements:                                                                                                  
          (1) within the last five years, has been the subject of                                                             
     an  order  by  a  government  agency  requiring  environmental                                                           
     remediation  of the property  or requiring  the property  to be                                                          
     vacated,  condemned, or demolished  by reason of noncompliance                                                             
     with laws, ordinances, or regulations;                                                                                     
          (2) has a structure on it not less than 15 years or age                                                               
     that  has undergone  substantial  rehabilitation,  renovation,                                                             
     demolition, removal,  or replacement, subject to any conditions                                                          
     prescribed in the ordinance; or                                                                                            
          (3) is located in a deteriorating or deteriorated area                                                                
     with boundaries that  have been determined by the municipality.                                                            
                                                                                                                                
     Sec. 3.  The uncodified law of  the State of Alaska  enacted in                                                            
     sec.  2, ch. 8, SLA  1999, as amended  by sec. 1, ch.  102, SLA                                                            
     2002, is amended to read:                                                                                                  
          Sec. 2. AS 29.45.050(o) is repealed July 1, 2010 [2006].                                                            
                                                                                                                                
     New language underlined [DELETED TEXT BRACKETED]                                                                         
                                                                                                                                
Senator B. Stevens moved for the adoption of Amendment #2.                                                                      
                                                                                                                                
Co-Chair Wilken objected for explanation.                                                                                       
                                                                                                                                
Senator  B.  Stevens  pointed  out that,  while  the  amendment  was                                                            
drafted to the  original version of the bill, it would  apply to the                                                            
Version  "D"  committee  substitute.   Amendment  #2  would  provide                                                            
additional  options to municipalities  as a result of the  following                                                            
three changes:  it would add the language  "demolition and  removal"                                                            
to the qualifying language;  would increase the tax exemption period                                                            
from  five years  to  ten years;  and  would  address environmental                                                             
remediation issues  that would require a property  to be vacated. He                                                            
also  noted that  the amendment  would  allow a  municipality,  on a                                                            
case-by-case  basis,  to expand  the property  qualification  period                                                            
from five years to seven years.                                                                                                 
                                                                                                                                
JEFF JUDD,  Director of  Operations, Cook  Inlet Housing  Authority,                                                            
testified via teleconference  from an offnet site and spoke in favor                                                            
of the bill; particularly  language would allow local property taxes                                                            
to be deferred  for up to  ten years. The  bill would enhance  local                                                            
communities,  non-profits and other  entities efforts to  revitalize                                                            
deteriorated properties.  Absent these kinds of options, the expense                                                            
associated  with improving deteriorating  properties would  be cost-                                                            
prohibitive. In  addition, in the long term, the resulting  gains in                                                            
assessed  values and corresponding  increased  property taxes  would                                                            
benefit local  municipalities and offset any lost  tax revenue. This                                                            
legislation   is  really   about  "economic   development  and   the                                                            
opportunity  to  create  healthy  neighborhoods,   vibrant  business                                                            
district environments,  quality affordable  housing development  and                                                            
ultimately  improved   property  assessed  values   and  higher  tax                                                            
revenues  for local  governments."  His organization  welcomes  this                                                            
taxation  exemption and  deferral  legislation, as  it would  enable                                                            
them to continue their efforts to revitalize deteriorated sites.                                                                
                                                                                                                                
Co-Chair Green asked for  confirmation that the bill would allow for                                                            
site improvement during the ten-year taxation exemption period.                                                                 
                                                                                                                                
Mr. Judd concurred.                                                                                                             
                                                                                                                                
Co-Chair   Green  asked   whether   the  tax   abatement  would   be                                                            
discontinued were no work undertaken.                                                                                           
                                                                                                                                
Mr.  Judd replied  that the  local  government would  establish  the                                                            
taxation  abatement/exemption   rehabilitation   parameters   within                                                            
existing and proposed law.                                                                                                      
                                                                                                                                
Senator  Bunde asked  whether municipalities  could  spin the  local                                                            
options provided by this amendment as "unfunded mandates."                                                                      
                                                                                                                                
Senator  B. Stevens  responded  no,  as the  municipality  would  be                                                            
required to approve  and establish the parameters  pertinent to each                                                            
abatement project.                                                                                                              
                                                                                                                                
HOWARD LEVINE,  Director of Development, Venture Development  Group,                                                            
testified via teleconference  from an offnet site and spoke in favor                                                            
of the bill  as "it would be the catalyst  for the redevelopment  of                                                            
under-utilized  and blighted  areas within  Alaska." Increasing  the                                                            
allowable  abatement period  from five years  to ten years  would be                                                            
beneficial  to developers  and property  owners.  The challenges  of                                                            
coordinating rehabilitation  activities are expensive and absent tax                                                            
abatement, the cost would  be prohibitive. His company would utilize                                                            
the  components   provided  by  this  legislation   to  enhance  its                                                            
redevelopment  projects. He  thanked the  Committee for considering                                                             
the bill.                                                                                                                       
                                                                                                                                
Co-Chair Wilken removed his objection.                                                                                          
                                                                                                                                
There being no further objection, Amendment #2 was ADOPTED.                                                                     
                                                                                                                                
Amendment  #1: This amendment  inserts the  following language  into                                                            
Section  1, subsection  (a)  of  the bill  on  page one,  line  six,                                                            
following the word "election."                                                                                                  
                                                                                                                                
     An exclusion or exemption authorized by this subsection may be                                                             
     applied with respect to taxes levied in a service area to fund                                                             
     the special services.                                                                                                      
                                                                                                                                
Co-Chair  Wilken  moved  to  adopt Amendment  #1  and  objected  for                                                            
explanation.                                                                                                                    
                                                                                                                                
Ms. Jackson informed the  Committee "that current statute is silent"                                                            
regarding the  taxation application of this exemption  in regards to                                                            
service  areas.  Therefore,  it  was  determined  by  the  House  of                                                            
Representatives  that language clarifying that a municipality  would                                                            
have  the  decision-making   authority  in  this  regard  should  be                                                            
included in the bill.                                                                                                           
                                                                                                                                
Ms. Jackson  explained  that the  Version "D"  committee  substitute                                                            
would allow a  municipality to provide a $20,000 tax  exemption on a                                                            
$100,000 house.  The $80,000 balance  would be taxable at  the local                                                            
mill rate. This amendment  would allow, by a vote of local residents                                                            
on an ordinance  presented by the local governing  assembly, whether                                                            
or not to collect  the mill rate supporting, for example,  emergency                                                            
services  in that  area, based  on the  full $100,000  value of  the                                                            
house or the $80,000 value of the house.                                                                                        
                                                                                                                                
Co-Chair Wilken removed his objection.                                                                                          
                                                                                                                                
There being no further objection, Amendment #1 was ADOPTED.                                                                     
                                                                                                                                
Co-Chair Wilken asked whether  the Department of Revenue spreadsheet                                                            
titled "Estimated State  Revenue Loss Due to Increased Allowance for                                                            
Residential  Exemption"  [copy on file]  dated January  20, 2004  is                                                            
current.                                                                                                                        
                                                                                                                                
RANDY  HOFFBECK,   Petroleum   Property  Assessor,   Tax   Division,                                                            
Department of  Revenue, testified via teleconference  from an offnet                                                            
site and replied that it is.                                                                                                    
                                                                                                                                
Co-Chair Wilken, noting  that the spreadsheet contains actuals based                                                            
upon a $10,000  exemption as well as projections for  both a $20,000                                                            
and $50,000  exemption, asked  upon which  of those projections  the                                                            
$389,182 "Estimated increased cost to state" is calculated.                                                                     
                                                                                                                                
Mr.  Hoffbeck  replied  that the  amount  is  based on  the  $20,000                                                            
exemption projection.                                                                                                           
                                                                                                                                
Co-Chair Wilken  expressed therefore that this spreadsheet  could be                                                            
recognized as the basis for a fiscal note.                                                                                      
                                                                                                                                
Mr. Hoffbeck concurred.                                                                                                         
                                                                                                                                
Co-Chair Wilken asked that  the Department of Revenue further refine                                                            
the spreadsheet so that the presentation is clearly defined.                                                                    
                                                                                                                                
Mr. Hoffbeck agreed.                                                                                                            
                                                                                                                                
Senator B. Stevens questioned  the reason for the Petroleum Property                                                            
Tax Division  of the  Department  of Revenue's  involvement in  this                                                            
process   as  the  bill   pertains  to   residential  property   tax                                                            
exemptions.                                                                                                                     
                                                                                                                                
Co-Chair Wilken  explained that any  change in the mill rate  of the                                                            
municipality  subject  to this  legislation  would  also affect  the                                                            
amount of money  the State might collect  via AS 43.56 (Oil  and Gas                                                            
Property).                                                                                                                      
                                                                                                                                
Senator  B. Stevens  acknowledged  the connection.  In addition,  he                                                            
understood  that the Municipality  of Anchorage is not specified  in                                                            
this  legislation,  as it  is not  one  of the  five municipalities                                                             
offering this tax exemption.                                                                                                    
                                                                                                                                
STEVE  VAN SANT,  State Assessor,  Division of  Community  Advocacy,                                                            
Department  of Community  and Economic Development,  explained  that                                                            
originally  the spreadsheet  was developed  to assist  the State  in                                                            
determining  the  amount  of  Oil  and Gas  revenue  that  would  be                                                            
affected  by the proposed  property tax exemption.  While there  are                                                            
five municipalities  currently offering this type  of exemption, the                                                            
spreadsheet  reflects only  four, as  the Bristol  Bay Borough  area                                                            
does not  have any  oil and gas  properties  within its boundaries.                                                             
Other communities could implement the exemption in the future.                                                                  
                                                                                                                                
Senator   B.  Stevens  asked   for  confirmation   that  only   five                                                            
municipalities currently grant this exemption.                                                                                  
                                                                                                                                
Mr.  Van  Sant  affirmed.  He  also  noted  that  the  exemption  is                                                            
currently limited to $10,000.                                                                                                   
                                                                                                                                
Senator  B.  Stevens  understood  that  other municipalities   could                                                            
implement this exemption.                                                                                                       
                                                                                                                                
Mr. Van Sant  affirmed that any municipality  could elect  to do so.                                                            
                                                                                                                                
Senator B. Stevens understood  therefore, that were this legislation                                                            
adopted, the  Municipality of Anchorage  could elect to implement  a                                                            
$20,000 property tax exemption.                                                                                                 
                                                                                                                                
Mr. Van Sant confirmed.                                                                                                         
                                                                                                                                
Senator  B.  Stevens commented  that  there  are  "tools  available"                                                            
through which tax relief could be provided to property owners.                                                                  
                                                                                                                                
Senator  Hoffman  asked  for confirmation  that,  were  the  $20,000                                                            
exemption allowed, the cost to the State would be $389,182.                                                                     
                                                                                                                                
Mr. Hoffbeck affirmed.                                                                                                          
                                                                                                                                
Co-Chair  Wilken  clarified   that  this  would  be  "the  potential                                                            
liability"  to the  State  were the  four  municipalities  currently                                                            
providing this exemption  to increase the exemption level to $20,000                                                            
and increase their mill rate to the maximum limit.                                                                              
                                                                                                                                
Mr. Van Sant clarified  that $389,182 would be the amount of revenue                                                            
lost to the  State were the four municipalities  to elect  to regain                                                            
the revenue lost  from the exemption by increasing  their local mill                                                            
rate. The Kenai  Peninsula Borough  also has a sales tax  that could                                                            
be utilized  to offset  its lost  revenue. Therefore,  the  $389,182                                                            
State revenue reduction would be a "worst case scenario."                                                                       
                                                                                                                                
Senator Bunde  asked whether  a revenue loss  to the State  would be                                                            
incurred were  the Municipality of Anchorage to provide  the $20,000                                                            
property tax exemptions.                                                                                                        
                                                                                                                                
Mr. Hoffbeck replied  that the overall effect on the  State would be                                                            
minimal  as the  oil and  gas property  within the  Municipality  of                                                            
Anchorage "is minuscule."                                                                                                       
                                                                                                                                
Senator Bunde,  referencing municipalities' concern  regarding State                                                            
revenue  sharing,  commented  that,  were  these  municipalities  to                                                            
increase their  exemption level and their mill rates  to the maximum                                                            
allowable  level,  it could  be likened  to  being a  State  subsidy                                                            
amounting   to  approximately   $100,000  for   each  of  the   four                                                            
communities.                                                                                                                    
                                                                                                                                
Mr. Hoffbeck  affirmed that  the amount would  vary between  $31,000                                                            
for the  North Slope Borough  and $133,000  for the Fairbanks  North                                                            
Star Borough.                                                                                                                   
                                                                                                                                
Co-Chair Green moved to  report the bill, as amended, from Committee                                                            
with individual recommendations and accompanying fiscal notes.                                                                  
                                                                                                                                
Senator Hoffman  voiced support for  the bill, as "it would  provide                                                            
more local control" to municipalities.                                                                                          
                                                                                                                                
Senator Bunde interjected "and more State money."                                                                               
                                                                                                                                
There  being  no  objection,  CS SB  136  (FIN)  was  REPORTED  from                                                            
Committee with  new zero fiscal note, dated April  28, 2004 from the                                                            
Department of  Revenue and new zero fiscal note, dated  February 11,                                                            
2004 from the Department of Community and Economic Development.                                                                 
                                                                                                                                

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