Legislature(1997 - 1998)
02/26/1997 08:05 AM House CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSSB 29(FIN) - STATE AID TO MUNICIPALITIES & UNORG. BOR. Number 128 CHAIRMAN IVAN indicated that the committee would address CSSB 29(FIN), "An Act relating to certain programs of state aid to municipalities and recipients in the unorganized borough; and providing for an effective date." SENATOR JOHN TORGERSON came forward to testify on CSSB 29(FIN) as sponsor to this legislation. He stated that this was not a new piece of legislation. It passed both the Senate and the House last year in the form of SB 20. It came back to the Senate for concurrence and time ran out due to the end of session. This bill has received broad based support from both bodies. He then read the sponsor statement into the record. "This legislation changes the name of the Revenue Sharing program to 'Priority Revenue Sharing for Municipal Services,' changes the Municipal Assistance Fund to the Safe Communities Fund and requires that payments from the Safe Communities Fund be used for prioritized purposes. These prioritized purposes are: (1) Police protection; (2) Fire protection and emergency medical services; (3) Water and sewer not offset by user fees; (4) Solid waste management; and (5) Other services the governing body determines to have the higher priority. "Communities that receive this fund must now put in their notice to the tax payers the amount of money that's coming from the Safe Communities Fund. This bill also revises how appropriations to the Safe Communities Fund are allocated. In the event appropriations continue to be reduced, allocations to, and the resulting payments from, the base account will be reduced proportionately to all communities. In the past, this account was 'held harmless' and appropriation reductions were taken entirely from the per capita account. This resulted in an inequitable reduction of payments to communities. "This bill also increases the minimum entitlement to $40,000. This is basically the amount of money that goes to the smaller communities, the amount in the past was $25,000 and this basically shows the commitment from the state to these communities of what it would cost to operate a small government. These appropriations of $40,000 are reduced downwards as have been done with other communities in the past." SENATOR TORGERSON continued that Revenue Sharing and Municipal Assistance has two different payment dates from the department, one being, July 30, and the other February 1. This moves the date of February 1, back to July 31, to make one payment which is why there is a relatively large fiscal note that shows a loss of interest from the CBR moving almost $30 million up six months. Number 402 REPRESENTATIVE FRED DYSON asked who the net losers would be with this redistribution of the funds. SENATOR TORGERSON stated that the only part that they're losing is to bring the $25,000 up to $40,000. All of the communities participate in this to some degree, depending on the amount of money they receive. Anchorage receives the largest payment because it's the largest community, plus, they put in the majority of the money along with some of the other larger communities. The amount of money it takes for them to transition to the $40,000 is about $210,000. To offset this expense they've moved the payment back and they're taking a guess that if these communities had this additional money moved up for six months and they invested this in their investment pools, they would make an amount of money equal to or a little greater than the amount of the transition. SENATOR TORGERSON noted that the long answer is that nobody loses if they make this assumption about investing the money. If they spend the money right away then it's a different story. He noted that there are well over 100 municipalities that have agreed to this bill and it's been in the making for many years on how to transition this money and how to accomplish all the goals the legislation attempts. He didn't know of any communities in the Revenue Sharing Program that oppose this legislation. Number 595 REPRESENTATIVE REGGIE JOULE asked for clarification of how this bill differed from the one proposed last year and asked specifically about Section (b) on page seven that reduces the amount to the smaller communities. SENATOR TORGERSON responded that Section (b) clarifies language in Section 13. He stated that it was always the intent of this legislation to reduce this payment to all communities equally. There wasn't a fair distribution of this as to how reductions were made unless this bill passes. The language that was originally in the bill under Section 13 was basically the same as subparagraph (a) and speaks to payments reduced as the entitlement is reduced. He had the department make a run on what this actually did with a ten percent reduction. Instead of reducing the minimum entitlement from $40,000 to $36,000, this actually reduced the minimum entitlement from $40,000 down to approximately $39,600. He noted that this was like a one one-hundredth of a percent reduction instead of a ten percent reduction. This was clearly not what Section 13 meant, it meant that they would share in reductions equally. Number 733 REPRESENTATIVE JOE RYAN stated that in his experience with revenue sharing is that it was used for road service and fire service areas. He asked if this was still the case. SENATOR TORGERSON responded that within this legislation, under a section which escaped him, they can spend this money on anything they want that has a high priority. He noted that there are certain provisions that give formulas for services performed such as roads, etc. REPRESENTATIVE RYAN stated that there was an arcane system which the administration used to appropriate special monies for larger municipalities and then Department of Community and Regional Affairs has a companion system for the smaller communities. He noted that when the smaller communities percentages are bumped up, the larger communities loose a proportionate percentage. SENATOR TORGERSON responded that this was the purpose of the present legislation. This is actually revenue neutral in regards to general fund monies. They are taking the money that it costs to transition from the $25,000 to the $40,000 which basically comes out of all communities. The intent of Section 13 is that after bringing the fund up to $40,000, if there are further reductions, they would share these reductions equally. He noted previously the brunt of the reductions would come out of the larger communities. Number 947 REPRESENTATIVE JOULE asked what drove this pot of money, what generated this program. He asked how this amount was set and what determines it. Under what circumstances would this amount decrease? SENATOR TORGERSON responded that oil revenues funded this program and noted that this fund was subject to appropriations through the operating budget. If there is a ten percent reduction, theoretically all programs receive a ten percent reduction. Number 1040 GEORGE WUERCH, Chairman, Legislative Committee, Alaska Municipal League, testified via teleconference from Anchorage on SB 29. He outlined for the committee that they would present a three part presentation beginning with Executive Director, Kevin Ritchie in Juneau. Number 1094 KEVIN RITCHIE, Staff Director, Alaska Municipal League came forward to present testimony regarding SB 29. He initially gave some background on the Safe Communities bill. The Safe Communities bill is not only the name of the bill, but also the most important goal that both state and municipal governments share which is making our communities better and safer. He referred to a visual graph to show the committee how the state and municipalities work together towards this goal. MR. RITCHIE stated that the graph was a representation of consolidated state and local government revenues including the revenues from municipalities collected through taxes and fees, and also the revenues from oil. In essence, what it takes to deliver services to the people of the State of Alaska, both municipal and state government, about half of the money comes from oil revenues. Seventeen percent of the money it takes to run state government comes from local taxes, essentially through sales and property taxes. Another 17 percent of what it takes to provide government services comes from fees and charges primarily charged by municipal governments. The biggest items would be water and sewer charges, fees for airports, etc. Seven percent comes from other state fees and taxes. Obviously oil revenue is the largest revenue for the state. MR. RITCHIE then referred to a second chart which reflected what municipalities do exactly. Thirty-three percent of municipal budgets goes to education which is a major factor in the state budget. Twenty-eight percent goes to infrastructure development in municipalities, including bonding for public improvements and other types of services. Some of the other major categories are transportation, health and public services, utilities and public safety activities. These trends are characteristic of all municipalities. The Safe Communities bill addresses both small and large municipalities. Of the 82 smallest communities in the state, they were able to get figures from the Department of Community and Regional Affairs. Approximately two-thirds of all of these small municipalities provide for road maintenance, health services, water and sewer, police services, etc. One-third of these communities have garbage or land fills and also expend money for fire fighting. The type of services present in the larger communities also exist in the small communities as well. MR. RITCHIE noted that the point they wished to make was that the Alaska Municipal League and the state of Alaska are partners in providing services to the people of Alaska. When a tax is charged either on a local level or on the state level, obviously, the same people pay the freight for this. Part of the reasoning behind the Safe Communities bill is to give tax payers in municipalities somewhat of a share of the oil revenues which the state has. Many areas of the state have experienced very rapid growth and property tax over the past ten years and he referred to a chart in the committee's packets which shows a relationship between tax increases and municipal assistance and revenue sharing. Number 1351 MR. WUERCH stated that he was accompanied by the President of the Alaska Municipal League, Rosemary Hagevig in Anchorage. Mr. Wuerch is also an assembly member in Anchorage. He spoke very briefly to why they were asking the committee to support this legislation and noted how this would be the closest they would see to a consensus bill this session. This does have broad base support. MR. WUERCH continued that during the campaign season AML sent out a survey to candidates and found very broad base support for this legislation. Seventy-eight percent of the candidates said they would support this type of legislation and eighty-nine percent of them said that the state should be concerned about its budget actions regarding local state taxes and services. They also supported stabilizing the funding for municipal revenue sharing. MR. WUERCH stated that the Safe Community bill targets use of funds for the most basic public safety and health services enumerated in the bill itself. This legislation makes everybody's neighborhoods safe. He referred to a chart in their packets reflecting a ten year trend entitled, "Comparison of State Operating Budge vs. State Revenue Sharing/Municipal Assistance Funding, FY 1985 - FY 1997." He referred to this as the "ski-jump chart." It shows one line that rapidly descends to the right, another line above it is relatively flat. He regretted to say that it's the revenue sharing that has dropped nearly seventy percent over this time frame while the state operating budget has stayed relatively flat. Number 1444 MR. WUERCH further explained the impact of this trend by referencing the next chart, entitled, "Comparison of Decreases in Municipal Assistance/Revenue Sharing vs Increases in Municipal Sales & Property Taxes." This chart reflects a continuing increase in municipal sales and property taxes which local jurisdictions have had to adopt in order to make up for the decreases in reductions in state provided municipal assistance and revenue sharing. He pointed out that these trends are very adverse to safe local communities and they hoped the committee would support them in these efforts. Lastly he noted the Municipal League has a broad base support of all of their nearly 134 members in adopting this model. MR. WUERCH closed by saying that there are four fundamental legs which this bill provides. One, this legislation clearly sets out that the fund will be called the Safe Community Fund and spells out the priorities that these kinds of dollars should be spent on, basic public safety and health services. Secondly, it creates a minimum floor at the on-set for a small community. He noted the conversation between Representative Dyson and Senator Torgerson about "net losers," and quoted Senator Torgerson as having said, "you take a little over $200,000 from the larger communities and you reallocate that to the smallest of the communities to make sure everybody has the minimum floor on year one of $40,000. The larger communities can make up that off-set by investing the funds early in the year and retaining the interest." He stated that this was an intriguing opportunity as a legislature because the revenue stream from early investment does not appear as a cost on their appropriations. This revenue stream can defer to the local communities and make this minimum possible. He stated that this was the heart and basis of their broad based consensus that on year one they start with $40,000 for the smallest communities and have the early payment. MR. WUERCH referenced leg number three, the hold harmless clause which outlines that everyone shares in any future cuts, as well as in future gains. Lastly, by advancing the payment dates from the old municipal assistance paid on February 1, to July 31, all of the monies would then go to the local government on July 31 and communities could either wisely manage this cash flow by avoiding interest payments on bills due or investing them for dividends earned. Number 1665 CAROLYN FLOYD, Mayor, Kodiak; President of Alaska Conference of Mayors; Member, Board of Directors, Alaska Municipal League, testified via teleconference from Kodiak on SB 29. She stated that Mayor Jerome Selby was also present with her in Kodiak. The Alaska Conference of Mayors and the AML represents 135 municipalities across the state. They also represent approximately 97 percent of the citizens of Alaska. They've been working on this bill and urge the committee to adopt SB 29. MAYOR FLOYD stated that both the Conference of Mayors and the AML are consensus organizations. In the case of Senate Bill 29 the active support of all of their members was achieved by carefully balancing the interests of their members from the largest to the smallest communities. They've been concerned about this and have worked hard on it. SB 29 is truly balanced and benefits all of the people. She noted that both the legislature and the municipalities have made strong commitments to creating safe communities and developing strong local economies. They believe that SB 29 is an important component in both of these efforts. Number 1737 MAYOR FLOYD noted that the title "Safe Communities" of this legislation accurately describes how communities use their revenue sharing fund. During the last ten years, municipal revenue sharing has been cut nearly 70 percent. Almost every community has faced significant reductions in services simply to keep living within their means. Having safe communities is the number one goal of Alaska's cities and boroughs. Secondly, SB 29 is designed to create a program that will serve Alaska for many years. Communities are Alaska's basic economic building block. If new businesses are to be attracted and expansion of existing businesses encouraged, local taxes must be stabilized on businesses and on individuals. This cannot be done unless municipal revenue sharing is stabilized as well as basic other services such as education. Number 1824 REPRESENTATIVE RYAN said his only concern was with the road service areas with contributed mill rates with portions of money from the state used to off-set for road maintenance. He wanted to make sure this service would be maintained under this legislation. MR. RITCHIE referred to the third page of a handout and explained that the state revenue program would basically be untouched by this bill. All of the mechanisms that were in place, including separate entitlements for roads, would remain in place as it was. The area which this legislation primarily affects is the municipal assistance side. It further targets the money. Instead of getting a distribution into the general fund, the "safe communities" bill prioritizes the use of funds for public safety, fire, health, etc. Number 1915 REPRESENTATIVE DYSON referred to the income stream depicted on a chart. He noted that there was no federal component reflected. He asked if this was part of other state revenues as indicated, "a ten percent price lot there, that..." MR. RITCHIE responded, yes. REPRESENTATIVE DYSON then noted that on page seven of a handout, the upper portion entitled, "Increase in Municipal Sales and Property Taxes." He stated that if he's reading this correctly, it's gone down precipitously in this last year, but his guess was this was not true. MR. RITCHIE stated that this chart was inaccurate in that when they reproduced it they didn't have the figure for this year, but there has been no decline. The figures for this past year went up about five percent over the past year. The Department of Community and Regional Affairs puts out an annual tally of the total property and sales tax collected by municipalities. Number 1978 JEROME SELBY, Mayor, City of Kodiak, testified via teleconference from Kodiak on SB 29. He spoke to the state of the municipalities statewide. It gave him no pleasure to say that municipalities are not in great shape. This bill is desperately needed to bring stability to the communities. He noted the six villages within the Kodiak Island Borough. Four of them are in deep financial trouble which simply has everything to do with the 70 percent reduction in municipal assistance and revenue sharing over the last ten years. He noted that this is why the minimum entitlement within this legislation is so critical. They've studied very hard to come up with a minimum amount that it takes to "keep the doors open, pay the light bill, pay the heat bill, have a part-time clerk who can answer the mail, answer the telephone, occasionally maybe even plow a road and hopefully be able to fix the sewer system when it breaks." The figure they came up with to do this is $40,000. Number 2070 MAYOR SELBY noted that several communities have dissolved over the last two or three years. Several others are on the verge and seriously considering this option. The communities need the legislature's help. The governor has proposed another two and 1/2 percent cut to their funding for this next fiscal year. He asked the committee not to honor this cut. He asked them to level fund these communities for FY 97 to FY 98 because this is the other critical piece, in addition to this bill, that they're considering to bring stability to the small communities. Fifty to sixty percent of the communities in the state of Alaska are heavily dependent upon these two things happening, the legislature adopting this bill and to stop the hemorrhage of the seventy percent cuts they've had over the last ten years to stabilize their funding so they can stay in business, to focus on developing Alaska for the people who live here, rather than just survive. Number 2157 LAMAR COTTON, Deputy Commissioner, Department of Community and Regional Affairs came forward to testify on SB 29. He stated that he concurs with comments made by the sponsor and the Alaska Municipal League. He noted that all the parties involved have worked for about three or four years on this legislation and he mentioned the diverse characteristics of the communities to consider. This legislation is very complex and they recognize that it's not perfect. He stated there were enough positive components to go ahead with it. The idea of some base of $40,000 is an improvement over what's in place presently. MR. COTTON referred to the "hold harmless" clause and said he felt it clearly discriminated against communities that didn't have a business tax in place or a small business tax in place back in 1978 when this was "the year" this legislation was based on. This is 1997 and he noted some of the changes which have taken place since then. Initially, the Administration had some heartburn about this early date, but stated that this was part of a broader package to make this work. In short, the Administration does support the bill. It does help communities whether large or small. It's a good example of the state and cities working together in order to transition from less state money. Number 2266 REPRESENTATIVE DYSON asked Mr. Wuerch about the municipality of Anchorage not having a net loss with this bill. He asked if this was Mr. Wuerch's understanding. MR. WUERCH responded that yes this was and he assured him that both the Mayor and the Assembly support this legislation. The way this is possible is by early funding. This does take them from the negatives of shifting money to the small communities into the black again by the benefits of investing this money in the projected five and 1/4 percent interest for six months to come up with this balancing. This would put them in the black at year one. REPRESENTATIVE DYSON asked that if, in the unlikely situation of the entire appropriation being decreased, if there was a mechanism that takes the $40,000 minimum down proportionately as well. SENATOR TORGERSON pointed out that this was what Representative Joule spoke about in Section 13 of the bill. He said it was always the intent that the municipalities would share in the reductions equally. Number 2349 CHAIRMAN IVAN offered amendment number O-LS0218\B.1 which read as follows: Page 7, line 16: Delete "$29,402,300" Insert "the amount appropriated to the fund for fiscal year 1998" Page 7, line 18: Delete "$29,402,300" Insert "the amount appropriated to the fund for fiscal year 1998" REPRESENTATIVE OGAN objected for discussion purposes. Number 2380 CHAIRMAN IVAN stated that this amendment deletes the specific amount for minimum entitlements and inserts the amount appropriated for fiscal year 1998. This amendment assures the minimum entitlement of $40,000 for at least the first year of the program. In future years, if the amount appropriated is less than the fiscal year 1998 appropriations, fundings to small municipalities would be made on a prorata basis. If the amount appropriated equals what is in the bill for fiscal year 1998, then the amendment becomes a moot point. He wanted to make sure that small communities receive a minimum entitlement for at least the first year of the program. TAPE 97-11, SIDE B Number 008 SENATOR TORGERSON noted that this amendment outlined that whatever the reductions would be in revenue sharing this year, these communities that are the minimum entitlement communities would be held harmless from these reductions. This amendment was offered on the Senate side and he opposed it then, as now, since he doesn't know what this amount of reduction will be. This is a fragile document. It took a lot of work to get consensus from everyone. There are no communities which are opposed to this. He noted that if they want to begin to hold harmless certain groups from this, then they are going to have problems maintaining this consensus. It's unfortunate that they go to $40,000 this year when there might be a reduction in the same year. The governor has proposed a reduction of two and 1/2 percent. This is an unfortunate circumstance to this bill. SENATOR TORGERSON stated that this legislation does bring the communities up to $40,000. What the amendment would do is guarantee communities $40,000 regardless of appropriation levels. Number 058 REPRESENTATIVE OGAN asked what the total cost of this amendment would be. SENATOR TORGERSON stated that the department estimated about $50,000 at the two and 1/2 percent reduction. He's heard anything from zero to 20 percent reductions. He has no idea what these will be. This amendment essentially asks the larger communities to be held harmless and pay this amount. He said he can't support doing this. Number 103 MR. WUERCH spoke to the amendment. The AML believes that the $40,000 starting point in the year one was the basis of their consensus with their membership. They do support this amendment because it updates the agreements that were reached, the consensus last year to the same set of conditions as a consensus this year. Senator Torgerson is right to say that this is an ever moving target, but they believe that it's their responsibility to represent to the committee the agreements reached with their membership, which is that on year one, whatever that year is, there is a $40,000 floor. Number 139 REPRESENTATIVE RYAN noted that his concern is that if there has to be a substantial reduction in revenue sharing and municipal assistance because of budget priorities and constraints, he asked then if the Municipality of Anchorage is willing to take a rather fair hit and be gracious enough to give this money to the smaller communities. He asked how this would affect potential mill rates in his own municipality. MR. WUERCH stated that the short answer is, that they have bought into this concept, but the longer answer is that they really have to look at what the consequences of not having this agreement are. The consequences are, that if a severe reduction does come, they face an ever increasing trend to dissolve local governments in the rural areas. Once this happens, this loss has to be made up by the state legislature because that's how they operate. In the absence of local government, the state steps in. This would be doubling the pressure on the cuts for Anchorage. In Anchorage's self- interest it's important to keep local governments alive and healthy in the smaller communities so that there isn't an even bigger bite out of the apple, leaving them just the core. Number 219 REPRESENTATIVE OGAN maintained his objection. A roll call vote was taken. Representatives Ogan, Sanders and Ryan objected to amendment O-LS0218\B.1. Representatives Kookesh, Joule, Dyson and Ivan voted in favor of this amendment. This amendment O-LS0218\B.1 was adopted. REPRESENTATIVE OGAN moved and asked unanimous consent to move CSSB 29 (FIN) as amended out of committee with individual recommendations and accompanying zero fiscal note. Hearing no objection, HCSCSSB 29 (CRA) was moved out of the House Community and Regional Affairs Committee.
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