Legislature(2003 - 2004)
04/27/2004 09:02 AM Senate FIN
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* first hearing in first committee of referral
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= 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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