Legislature(1999 - 2000)
03/20/2000 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. 227
"An Act relating to the limitation of levy of municipal
ad valorem taxes in home rule and general law
municipalities; and providing for an effective date."
This was the first hearing for this bill in the Senate
Finance Committee. Co-Chair Torgerson stated his intent for
the Committee to learn about the upcoming ballot initiative,
99PTAR - An Act providing property tax and assessment
relief, which this bill would amend if both measures were
adopted into statute.
STEVE VAN SANT, State Assessor, Division of Municipal and
Regional Assistance, Department of Community and Economic
Development testified via teleconference from Anchorage
about what the initiative would accomplish. He said the
initiative would provide that the assessors will assess
property at its market value until 2002 when assessments
could be increased but only by two percent annually. He
stated that the only exceptions to this was when a property
sells or in the case of new construction. He was uncertain
whether a major remodel would constitute a change in
assessment.
Mr. Van Sant listed the second implication of the initiative
as a provision that would require a reassessment for
properties that decrease in value in order to "follow that
decrease down."
Mr. Van Sant stated the initiative also requires that
municipalities may not levy an ad valorem tax for any
purpose in excess of one-percent, which he explained was a
change from the current three-percent provision. He detailed
that a one-percent ad valorem equaled ten mils and three-
percent ad valorem equaled thirty mils.
Mr. Van Sant continued that the bonded indebtedness is
included in the ten-mil cap under the provisions of the
initiative. Currently, he said bonded indebtedness was
outside of the thirty-mil ceiling. He elaborated that the
average mil rate in the state in 1999 was about 15 1/2 mils.
He noted that several municipalities were under the ten mils
but that several others were over.
Mr. Van Sant pointed out a typographical error in the
initiative language made by the measure's sponsor that
nonetheless would change the municipalities' ability to
assess business inventory based on a monthly assessment as
opposed to the current January 1 assessment date. He relayed
a question by an Anchorage Assembly Member to a state
assessor about changing the city's methodology to the
average monthly basis because most retailers tried to reduce
most of their inventory as of January 1 and pay less tax.
Mr. Van Sant shared that currently, statute requires that
"all taxes will be at the same rate." This initiative
changes that language, he stated so theoretically, a city
could charge a different rate to different property uses,
such as commercial property versus personal property. He
gave an example of the Kenai Peninsula Borough that might
decide to charge commercial facilities at ten mils and
residential property at five mils. He said the problem was
the ten-mil cap remained.
Mr. Van Sant told the Committee that statute does not
require property sales to be reported to an assessor, which
would make it difficult to track such transactions in order
to reassess property values. He stated that he has heard the
argument claiming that the passage of the initiative would
reduce the amount of staff needed in the assessor's office.
He disagreed, saying that tracking property ownership
transactions would require a great deal of effort. He added
that the initiative still required the assessor to assess
property to determine the increased or decreased value every
year with the restriction of only raising the assessed value
by two-percent per year.
Mr. Van Sant relayed another question he has been asked
about how much money the state would realize out of oil and
gas revenues if the measure passed. His answer was that for
the first 5 years, there would not much new revenue from oil
and gas. He explained that the North Slope and Valdez
garnered the most revenues from "AS.43.56 properties," the
oil and gas property. Most of that revenue from the North
Slope goes to pay dept service, he noted and if the
initiative passed, he predicted that Valdez would realize
revenues that would have been received anyway.
Co-Chair Torgerson noted the initiative allows a
differential rate for commercial and personal property. He
asked if the ten-mil provision applied to the total or to
each category. He wondered if an average could be applied
thus allowing a tax of 15 mils on commercial property and
only five mils on personal property so long as the total of
the jurisdiction was ten mils.
Mr. Van Sant responded that no more than ten mils could be
charged because the total amount any local government could
charge was ten mils. He did point out that in certain areas
of the state governed by both a city and a borough
government, the mil rate could be as high as 20 with each
governing unit allowed ten mills. He gave an example of the
City of Kenai, which could levy ten mils and the Kenai
Peninsula Borough, which could levy another ten mils on the
same property that was within both jurisdictions. This was
allowed under the current thirty mils statutes, but he
stressed this has never been realized. He warned that with
the other ramifications of the initiative, twenty mils could
begin to be levied where possible.
Co-Chair Torgerson did not know why different mil rates
could not be charged by category if the provision allowed a
differential rate.
Mr. Van Sant conceded that Co-Chair Torgerson's comment was
an argument that could be made. Mr. Van Sant also pointed
out that the initiative read that many service areas could
be lost because, under the total ten-mil cap, these areas
would push the levy over the ten-mil cap. Something would
have to give, he warned, either the service area or revenues
for local government.
Co-Chair Torgerson then asked about bonded to indebtedness
and if the witness had a legal opinion on whether or not
voter approved debt would fall under the cap of the
jurisdiction. He was unsure if the mill rate cap was
constitutional.
Mr. Van Sant had not yet received a legal opinion specific
to Co-Chair Torgerson's concerns but predicted there would
be many legal questions to be resolved including this
matter. He shared that the consensus was to wait and see
what happened with the election and address the concerns if
the measure were adopted.
Senator Phillips asked under what authority could an
unincorporated resident vote on a measure that would affect
only incorporated residents. He relayed that he was
receiving complaints from constituents saying that residents
of unincorporated areas had no business voting on this
initiative. Mr. Van Sant said there were legal questions
about this as well, but that the ability to tax was a
statewide ability and the proposed tax limit was a statewide
limit rather than for a particular local government.
Co-Chair Torgerson suggested the Legislature's legal council
could give some advice on these concerns.
Senator Phillips requested a written legal opinion from the
Division of Legal Services.
Senator Wilken questioned whether this initiative would
actually be approved and placed on the ballot. Mr. Van Sant
was unaware of any challenge to placing initiative on the
ballot.
SENATOR KIM ELTON testified that under the current system,
local voters could vote whether to raise or lower their mil
rate cap. Under the provisions of the initiative, he
stressed the only local choice would be whether to lower the
tax rate below ten mils.
Senator Elton then addressed SB 227 before the Committee
saying it would make two significant amendments to the
initiative. First, he said it would allow local voters to
set a higher mil rate for their community. Secondly, he
continued the bill would remove from the initiative, a
portion of the provision that states future bonded debt must
be held under the ten-mil cap. He explained that the deleted
portion would be debt for schools so that when a school bond
is placed on the ballot, voters don't' have to chose between
schools and other essential services, such as public safety.
Senator Elton agreed with the Alaska Municipal League
position that voters in other parts of the state have no
right to set tax rates for communities they don't reside in
without recourse by local voters.
Senator Elton stated that the initiative creates a
significant constitutional problem. He referred to Article
10 Section 1.
Tape: SFC - 00 #54, Side A 10:36 AM
Senator Elton warned that the initiative would discourage
communities from consolidating. He used Ketchikan as an
example, telling of discussions to merge the borough
government and the city government. If the initiative passed
and the two governments consolidated, he stated that local
government would have lost its ability to tax at a higher
than ten-mil rate.
He detailed the backup information that included legal
opinions from the Division of Legal Services. [Copy on file]
One opinion addressed the legislature's ability to amend the
language of an initiative.
Co-Chair Torgerson asked if that opinion actually said the
legislature could amend initiative language. Senator Elton
affirmed.
Senator Elton continued that the other opinion speaks of
whether an effective date of a bill could be predicated upon
the passage of an initiative. The Division of Legal Services
gave the opinion that the legislature has that ability as
well. Senator Elton noted this was not an unusual provision
reminding the Committee of the Frank Initiative that was
predicated upon voter approval of a capital move.
Co-Chair Torgerson asked if the legislature has a history of
amending the language of an initiative. Senator Elton was
unsure.
There was some discussion about previous campaign finance
reform issues.
Senator Elton continued detailing the backup material that
showed different communities, their current tax rates and
the effects of the mill rate cap.
Co-Chair Torgerson asked if the sponsor's intent with this
legislation was to amend the law if the initiative were
adopted but not to change the initiative itself. Senator
Elton affirmed.
KEVIN RITCHIE, Executive Director, Alaska Municipal League
testified about the negative affects the initiative would
have on municipalities. He stressed that local taxation is a
local issue. He added that most of the larger communities in
the state already had established tax caps. He listed those
boroughs and municipalities that have charter or voter
established tax caps.
Mr. Ritchie compared the initiative to Proposition 13 that
was adopted several years before in the State of California.
However, he pointed out that Alaska was not like California
in many ways and also that voters in the State of Idaho had
rejected a similar measure.
Mr. Ritchie detailed the impacts this initiative would have
on the State Of Alaska including that the loss in the first
year would add $125 to $150 million to the fiscal gap. He
shared that the reason the amount was not certain was
because of the uncertainty of whether the cap would be a
maximum of ten mils or a total of 20 mils depending on the
location of the property. According to the Department of Law
this matter would most likely be litigated because the
premise of a ten-mil cap in some places and a 20-mil cap in
others did not make sense, he said.
Mr. Ritchie continued with the impacts noting the two-
percent assessment increase restriction. He relayed that
California has had a 500 percent increase in property
values, which was the inspiration behind Proposition 13.
However, he noted that while Alaska sometimes has changes in
property values these are never increases, only decreases.
He referred to the economic difficulties in 1986 when
Anchorage property lost approximately 50 percent of the
assessed value. Since the property values have recovered, he
elaborated existing property owners would have essentially a
large tax break while others building new facilities or just
bought a new house would not. Therefore, he said the
individual tax burdens would be unequal.
Mr. Ritchie stated that the initiative's bond provision were
radical in that it would require all new bond provisions to
be included under the ten-mil property tax cap even if
approved by the local voters. He explained that this would
require communities to eliminate some teachers and education
programs to fund new school construction.
Mr. Ritchie described the impacts to each community,
specifically Anchorage and the municipality's current mil
rate of 17.9 that included a debt service of 3.25 mils and
the remainder going to other services. He noted that
previous debt service was exempt from the cap under the
provisions of the initiative, but noted that the deletion of
the remaining 4.9 mils over the cap would cost $73 million
dollars the next year. He calculated how this would affect
the school district funding.
Co-Chair Torgerson clarified that the initiative does not
prevent municipalities from imposing a different type of
tax. Mr. Ritchie answered that was correct.
Senator Phillips asked if the League planned to educate the
public on the repercussions of the initiative before the
election was held. Mr. Ritchie said it would.
Senator Green knew there were many people who were
discouraged by the cost of local government and their
property taxes. She asked what the implications of the
initiative would do to the real estate market saying she
thought it was onerous.
Mr. Ritchie responded that if the initiative passed, there
would be a strong incentive to not sell and to not build new
buildings. He doubted there would be much growth in the
construction industry.
Co-Chair Torgerson noted the bill's effective date is
January 1, 2001 and asked if the severability clause in the
legislation was standard with an initiative. Mr. Ritchie did
not know.
BONNIE WILLIAMS, Assembly Member, Fairbanks Northstar
Borough, Chair, Finance Committee testified via
teleconference from Fairbanks in support of the bill. She
encouraged the legislature to take a leadership role after
the session ended to get information regarding the
initiative to the voters.
Ms. Williams detailed the affect of the initiative on her
borough. It was noted that a written description of the
impacts was in the possession of the Committee. [Copy on
file] She stressed that the community would have to come up
with $16.9 million, lose road services, fire services and
that generally, the ten-mil rate cap was a potential
disaster for the borough. She noted that even if all
nonessential services were eliminated, such as libraries and
parks and recreation, only half of the needed money would be
saved. She said the obvious loser would be the local school
system because that was the only budget with adequate money
to fill the gap. She added that the local voters have always
supported funding for education and that the initiative
would take away the ability for local support.
Ms. Williams noted that the revenue tax had been in place,
which has worked well. She stated that the borough attorney
has advised the assembly that if the initiative passed both
the tax cap and the revenue cap would be in place and the
borough would not have an opportunity to obtain alternative
revenue sources.
Co-Chair Torgerson asked how many jurisdictions have revenue
caps. Mr. Ritchie listed the Fairbanks Northstar Borough,
the Municipality of Anchorage, the City and Borough of
Juneau, the Ketchikan Gateway Borough, Wrangell, Sitka,
Petersburg, the Kodiak Island Borough and possibly the Kenai
Peninsula Borough.
Co-Chair Torgerson stated that Ms. Williams' argument was
that other revenues could not be implemented without a
change to the local tax code, which would require local
voter approval.
Co-Chair Torgerson ordered the bill HELD in Committee.
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