Legislature(2003 - 2004)
04/27/2004 09:02 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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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