Legislature(2001 - 2002)
04/24/2002 02:00 PM Senate CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 365-MUNICIPAL IMPROVEMENT AREAS
KRISTY TIBBLES, legislative assistant to Senator Ben Stevens,
introduced SB 365 and read the following into the record:
Current statute allows a municipality to issue bonds
for the redevelopment of blighted areas funded only by
the tax revenues generated by the increased tax base
that occurs as a result of the development. This
financing tool is referred to as tax increment
financing.
Senate Bill 365 has been introduced to provide greater
flexibility for municipalities to finance public
improvements to blighted areas.
Senate bill 365 is written to essentially do three
things:
It clarifies statute so that municipalities may use tax
increment financing (TIF) with general obligation bonds
or revenue bonds, or a combination of both. The
current provision is silent, leaving the matter to
judicial interpretation.
It allows the tax increment financing to be used to
improve both public improvements and private
improvements of blighted areas.
It also creates the definition of "improvement area"
which broadens the earlier restriction that tax
increment financing be used only with blighted areas,
to give municipalities a better and more flexible
financial tool.
This enhancement in statute will allow and encourage
municipalities to shape development of town centers as
outlined in Anchorage's 2020 Comprehensive Plan.
The municipality supports SB 36
SENATOR AUSTERMAN asked for an explanation of proposed amendment
#1.
MS. TIBBLES replied there is a companion bill in the House and
the municipality of Anchorage suggested removing "or private" on
page 1, line 6.
SENATOR AUSTERMAN made a motion to adopt amendment #1. There
being no objection, amendment #1 was adopted.
He said his question was in reference to how far the taxing
ability could be taken. Reading on page 2, subsection (b),
beginning on line 2 it doesn't talk about obligating the
municipality that has issued the bonds. When it says, "and other
area" it made him wonder whether they could go to a different
area to collect revenue if they weren't able to collect enough
tax in the "improved" area.
STEVE VAN SANT, state assessor, said he too was a bit concerned
about that language and Mr. Pfeffer could offer explanation.
MARK PFEFFER testified via teleconference. He said he was
currently working on a town center plan in Anchorage and had been
working with the municipality of Anchorage on this bill.
CHAIRMAN TORGERSON asked whether Devon Mitchell was on line.
DEVON MITCHEL, debt manager for the State of Alaska, explained
the ability to pledge taxing authority of a community would be up
to that community. The local assembly or council would determine
whether or not they wanted to pursue a general obligation bond or
revenue bond for the particular improvement or area they wanted
to improve. If they decided on a general obligation bond there
would have to be a vote of the general population of that
community. If it were a revenue bond then they would pledge the
incremental tax-- the increase in tax that you would get from the
improvement as well as the increased property values in that
area. He said they probably have to pledge an additional "back
stop" to give investors sufficient security, but that would be a
local decision.
CHAIRMAN TORGERSON rephrased Senator Austerman's question. With
respect to a revenue bond, if the property is worth $500.00
because it is blighted and with the improvements you think it'll
rise to $1,000.00, you can pledge the $500.00 and that's the
definition of a tax increment in this bill.
MR. MITCHELL said that's correct. The community might choose to
pledge something in addition to that, but that would be a
community-by-community evaluation to determine whether or not
investors were secure enough with the increase in property tax
value and increased tax collection as their security of
repayment.
CHAIRMAN TORGERSON then asked whether it was correct that the
general obligation (GO) bond pledges the full faith and credit of
the municipality because it's an area wide vote.
MR. MITCHELL said GOs do pledge the full faith and credit of the
municipality, but they would plan to use the additional revenues
received from the improved area's increased tax collection.
SENATOR AUSTERMAN said he didn't get an answer to his question
regarding values when using the revenue bond in an improvement
area. If the incremental tax proved not to be enough and revenue
bonds were the mechanism, couldn't they tax other entities or
bring money in from other parts of the borough to help with
payment?
MR. MITCHELL replied that would depend on how the community
decided to structure the revenue bond. However, an investor would
be buying a rather high risk or speculative bond if all that was
pledged was the incremental increase in taxes that might result
after the area was improved. Knowledgeable investors would
require either additional compensation for the risk or a greater
pledge than the incremental increase.
SENATOR AUSTERMAN asked for verification that there would be no
state liability since this is strictly a municipal issue.
MR. MITCHELL replied there is no way this could tie back to the
State of Alaska.
CHAIRMAN TORGERSON asked if it wouldn't be the bondholders that
would assume the risk rather than the municipality.
MR. MITCHELL agreed that if the municipality said they would only
pledge the incremental increase in taxes then the investors would
assume all the risk.
CHAIRMAN TORGERSON asked for the difference between this and the
Local Improvement District (LID) approach.
MR. MITCHELL replied it is his understanding that with the LID,
the people within a service area approve public improvements so
there is an increase in mil rate. When the public improvement is
completed not only do property taxes increase but payment is made
at the higher mil rate, which is a double hit. With the tax
increment, there is no increased mil rate. The tax from the
increased value of the property goes to repay the bonds.
CHAIRMAN TORGERSON referred to page 1, line 10 and asked whether
"payments made by borrowers of the proceeds of the bonds," meant
that it was anticipated that this money might go to a third party
other than the municipality.
MR. MITCHELL thought that by taking the words "or private" out of
the bill [amendment #1] removed that concern.
CHAIRMAN TORGERSON then referred to page 2, line 21 and asked
whether the words "and delinquencies in payment of real property
taxes;" meant that if someone didn't want to pay their municipal
property taxes, that area could be designated an improvement
area, which would artificially inflate the area so property
values would go up then that incremental amount would be pledged.
MR. MITCHELL said he reads that as providing a developer an
exemption to go in and improve the property because the increase
in value that will occur in that area is going to be used to pay
for those improvements rather than having to put your money into
a piece of property and the increased tax might not necessarily
go directly to the improvements that were made in that area.
CHAIRMAN TORGERSON understood that but didn't agree with Mr.
Mitchell's interpretation.
STEVE VAN SANT, State Assessor, explained there are certain
factors that determine what a blighted area is. One is an area
with excessive vacant land, another could be an area with
delinquent taxes, which could tend to make you believe that the
area is not desirable and people don't care if it is foreclosed
upon and taken over by the city. That's one factor that you look
at for a blighted area.
SENATOR PHILLIPS asked who requested the bill.
MS. TIBBLES replied Mr. Mark Pfeffer had been working with the
municipality and then presented the idea to Senator Stevens. He
was on line to answer any questions.
MR. PFEFFER replied his firm is currently involved in the
redevelopment of a town center area in the Muldoon area of
Anchorage. They support SB 365 and believe it enhances the
existing tax increment financing laws for redevelopment of
blighted areas. With relation to planning, social and financial
issues, redevelopment of blighted areas is difficult. Anchorage
has dealt with the planning issues through the implementation of
the Anchorage 20-20 plan. They have been with the municipality on
social issues involved. With regard to financial issues,
redevelopment usually involves a balance between private and
public investment. The existing TIF law recognizes this required
balance, but has some ambiguities that this bill would clarify.
This would primarily be the different forms of bonding and a
definition of what constitutes a blighted area.
SENATOR PHILLIPS told Mr. Pfeffer he didn't recall receiving a
sponsor request and Muldoon is in his Senate district. He asked
if there was a reason.
MR. PFEFFER replied there was no particular reason.
SENATOR PHILLIPS expressed displeasure because he wasn't
approached first.
MR. PFEFFER apologized.
SENATOR AUSTERMAN asked Mr. Pfeffer to respond to how the
amendment affected his project.
MR. PFEFFER said they believe that in other jurisdictions the TIF
laws have been used for private improvements, but they haven't
identified any specific private application at this point.
Without knowing which private improvements were appropriate, they
agreed with the municipality that "or private" should come. Once
they identify appropriate specific use, they might ask for that
to change.
GEORGE CANNELOS, Director of the Heritage Land Bank and Real
Estate Services for the Municipality of Anchorage, testified via
teleconference. He said the Muldoon Town Center would be their
first test case for a public private partnership.
He suggested adding ", or other forms of indebtedness." on page
1, line 8 after "general obligation bonds." Second, he suggested
a reduction in the extended definition of improvement areas
beyond the traditional notion of blighted areas.
CHAIRMAN TORGERSON asked Mr. Mitchell for his response to the
suggestion on page 1, line 8.
MR. MITCHELL replied he would agree that flexibility is always a
good thing.
CHAIRMAN TORGERSON asked him to list several other forms of
indebtedness for the record.
MR. MITCHELL said, "We heard certificate of participation, which
are a form of unique financing. There would be different lease
revenue bonds as a different form of lease financing so in
addition to a straight revenue bond where you have a revenue
stream that can be specifically pledged, if you have a situation
where you might have revenue streams that you can't pledge for
some reason, then it would apply for one of these other forms of
financing."
There was no further testimony.
CHAIRMAN TORGERSON announced he would hold the bill in committee
so they would have the opportunity to look at that language.
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