Legislature(1999 - 2000)
04/20/1999 08:09 AM House CRA
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 200 - MUNICIPAL PROPERTY TAX EXEMPTIONS CO-CHAIRMAN HARRIS announced that the first order of business before the committee would be HOUSE BILL NO. 200, "An Act relating to exemptions for municipal property taxes for certain primary residences; relating to property tax equivalency payments for certain residents; and providing for an effective date." TOM WRIGHT, Legislative Assistant for Representative Porter, Alaska State Legislature, informed the committee that he was testifying on behalf of the House Finance Committee. Mr. Wright explained that the senior citizen, disabled veteran property tax exemption is an unfunded mandate for local governments. This tax exemption was last funded in 1985 and is not funded in the fiscal year (FY) 2000 budget proposal. This legislation, HB 200, would allow each local government the option to tax property owned by disabled veterans or senior citizens, the program would not be mandatory. This would allow local communities to develop their own priorities and funding obligations providing maximum local choice. Mr. Wright noted that the committee should have a committee substitute (CS) which would provide that any property made exempt pursuant to AS 29.45.050 would not count towards the property tax base in calculating funding for education. The change is necessary in order to prevent added costs to municipalities choosing to continue this exemption. The committee packet also includes the funding history of this tax exemption, information from the Department of Community & Regional Affairs and the Office of the State Assessor. The committee packet also includes a letter from the Alaska Municipal League (AML) which notes that this exemption has been a priority for AML for many years. CO-CHAIRMAN HARRIS asked if the priority for the AML is to maintain the exemption program. MR. WRIGHT noted that Julie Krafft from the AML could better answer the question. He said that it has been a priority to allow the local municipalities to decide whether to allow this option. Number 0378 REPRESENTATIVE MURKOWSKI asked if Mr. Wright had reviewed Tam Cook's memorandum. MR. WRIGHT said that he had glanced at Ms. Cook's memo. REPRESENTATIVE MURKOWSKI pointed out that Ms. Cook said that she did not know of any reason to treat the provisions regarding the determination of full and true value differently, but suggested checking with the Department of Education and the Department of Community & Regional Affairs. Representative Murkowski asked if Mr. Wright knew what the problem is to which Ms. Cook refers. MR. WRIGHT deferred to Mr. Van Sant. Number 0532 WAYNE STOTT, Commander, American Legion Post 13, Sitka, Alaska, testified via teleconference from Sitka. Mr. Stott opposed HB 200 which he said discriminates against disabled veterans. This tax exemption was earned by the disabled veterans. He urged the committee to vote against HB 200. CO-CHAIRMAN HARRIS asked if Mr. Stott understood that HB 200 gives the municipalities the option to charge senior citizens and disabled veterans property taxes. MR. STOTT said that he understood that. In further response to Co-Chairman Harris, Mr. Stott stated that the property tax exemption should be given to all veterans. LAWRENCE WIDMARK, Former Commander, American Legion Post 13, Sitka, Alaska, testified via teleconference from Sitka. Mr. Widmark opposed HB 200. He said that he supported Mr. Stott's comments. Mr. Widmark suggested maintaining the disabled veteran property tax exemption. Number 0780 DAN KECK, Chair, State Legislative Committee, AARP, testified via teleconference from Sitka. Mr. Keck indicated that HB 200 was "dangling a carrot in front of municipalities for taking away municipal assistance and revenue sharing and this is a way they can get some of that money back." Should that money be taken from the most deserving in Alaska, Alaska's senior citizens and disabled veterans? He recommended that the committee take a hard look at HB 200 and ask if this is the direction Alaska wants to go. With regard to the comment that this is a priority of the AML, Mr. Keck pointed out that last year's AML handbook did not take a stand on this issue. He felt that perhaps, some AML members have taken this as a priority. Mr. Keck reiterated the need to thoroughly review HB 200. Mr. Keck said, "We don't want to try to balance the budget on the backs of senior citizens and disabled veterans." PATRICK MOY, Southeast District Commander, testified via teleconference from Sitka. He informed the committee that he was speaking on behalf of all veterans in Southeast Alaska. Mr. Moy opposed HB 200. He pointed out that many are on a limited income and therefore do not have money to pay the property tax. Number 1023 CARL CROSMAN testified via teleconference from Fairbanks. Mr. Crosman opposed HB 200. He discussed living outside of rural Fairbanks when there were not many services, although there were property taxes. Mr. Crosman stated that as people retire, they often spend more time improving their houses which is like a bank account because when people die, the house is returned to the tax rolls at a higher tax rate. Mr. Crosman noted that often this tax exemption is planned as part of a person's retirement package. MARY CURRY testified via teleconference from the Mat-Su Valley. Ms. Curry opposed HB 200. She informed the committee that it had been explained to her that the more affluent people would be impacted by HB 200. However, Ms. Curry felt that the trickle-down effect would result. She noted that she and her husband were on a fixed income and if the tax exemption was eliminated they would probably have to sell their home as would many seniors in the area. MARY CARLTON, testifying via teleconference from the Mat-Su Valley, informed the committee that she would be speaking on behalf of Irene Fandrich. Ms. Carlton indicated that Ms. Fandrich recently moved to Alaska from California where she saw the struggles faced by seniors. The exemption of seniors from property tax in Alaska seemed great. She further indicated that Ms. Fadrich believed that not having the property tax exemption would cause real hardships for many Alaskan seniors, many of whom are on a fixed income. Number 1402 ELEANOR RIENDL testified via teleconference from the Mat-Su Valley. She informed the committee that she has lived in Alaska since 1962 and have paid a lot of taxes in that time. Ms. Riendl discussed the history of the permanent fund program. She noted that nothing has changed on her land since 1973 because she has not had the money to do anything. However, her taxes have increased from $25 a year to $2500 a year. She noted that three years ago she held three jobs in order to make ends meet. Ms. Riendl informed the committee that she would be eligible for relief from property taxes in a little over a year. Ms. Riendl offered the committee the following deal: "You find me a job at age 64 that pays a working wage ... and then you can pass this little bill." EILEEN JOHNSON, Pioneer, testified via teleconference from the Mat-Su Valley. She informed the committee that she and her children were brought to Alaska by her husband, a disabled veteran. Ms. Johnson said, "The legislature along with Governor Tony Knowles has completely exempted the oil industry from taxes while still making big profits. And the result, shortfall. The state house is more concerned about profit margins of ARCO and BP than the pocket books of Alaskans. So with this selling out of Alaska's revenue, what is the first proposal to cover the loss and fix the budget. Simple, tax the citizens, raid the permanent fund, cut monies from education, from [the Department of] Health & Social Services. Oh yeah, let's cut property tax relief from the disabled and the disabled veterans and the elderly. Yeah, and then while we're at it, let's just give ourselves a raise of five percent. Are you or are you not elected to be our public servant? Common sense says to me in running my household ... that when income is down you economize, not figure out [how] to raid the bank." Number 1728 STEVE VAN SANT, State Assessor, Department of Community & Regional Affairs, testified via teleconference Anchorage. He noted that he had not seen the CS, but by making this an optional exemption the 4 mill equivalency concern should be addressed. Mr. Van Sant noted that discussions with various municipalities have lead to the notion of expanding the tax exemption to disabled persons. Therefore, the committee may want to expand HB 200 to allow the municipalities to expand the program to include disabled individuals and make the exemption needs based. CO-CHAIRMAN HARRIS inquired as to how much the larger areas would gain from charging property taxes to senior citizens, veterans and disabled veterans. MR. VAN SANT informed the committee that if these currently exempted individuals were taxed, $24.6 million would be generated statewide. Charging property taxes to those individuals would generate the following in the following areas: Anchorage - $13.7 million, Fairbanks - $3.2 million, Mat-Su Valley - $2.6 million, Juneau - $1.3 million, and Kenai - $1.6 million. Mr. Van Sant, in response to Co-Chairman Harris, clarified that money would be generated if every person currently eligible for the exemption was charged. He informed the committee that the program has grown at a rate of about 10 percent over the past five or so years and that growth rate is expected for at least the next few years. At the same level of exemption as currently, Mr. Van Sant projected that the program would generate $29 million by 2001. Mr. Van Sant noted that municipalities have expressed interest in expanding the program or tightening it based on needs. REPRESENTATIVE MURKOWSKI assumed that if the municipalities expanded the exemption to disabled individuals, the municipality would follow the guidelines established by the Disability Determination Center. She asked if Mr. Van Sant was referring to those individuals qualifying for social security due to disability. MR. VAN SANT commented that the definition of disability was discussed last year. It was difficult to develop a statewide definition. Currently, the Kenai Peninsula Borough does have a disability exemption in place. Mr. Van Sant believed the definition should be left up to the local municipalities rather than imposing a statewide mandate. He offered to work with the committee on the language if that was desired. REPRESENTATIVE MURKOWSKI asked if Mr. Van Sant had read the proposed CS as not giving the municipality the option to provide the exemption based on need. MR. VAN SANT reiterated that he has not seen the proposed CS, but he assumed the only change was to Title 14 issues on the full value. Discussions last year determined that the existing language did not specify that a municipality had the authority to offer the exemption based on economic need. Mr. Van Sant suggests that the language be clear in order to avoid any concern regarding whether the municipality has the authority to offer the exemption based on economic need. Number 2161 GERALD DORSHER, Appointed Legislative Officer, Veterans of Foreign Wars, expressed concern with HB 200. He stressed that these veterans have served their country and put their lives on the line for freedom enjoyed in Alaska. These disabled veterans must be helped to continue enjoying their freedom to stay in their homes and stay in Alaska. He acknowledged that there are budget cuts for the city with regard to the revenue sharing. Mr. Dorsher felt that if this tax exemption is left up to the municipalities, the municipalities will eliminate the exemption. The veterans and the disabled veterans of Alaska need to be protected from the loss of the property tax exemption. REPRESENTATIVE DYSON asked if Mr. Dorsher was inferring that giving the municipalities the option to offer the property tax exemption would be tantamount to eliminating the exemption. MR. DORSHER replied yes. The AML has been working on this issue for several years. With regard to the comment that the change would go to a local vote, Mr. Dorsher pointed out that no local vote was occurring now. Number 2340 JULIE KRAFFT, Director, Member Services, Alaska Municipal League, supported HB 200. Ms. Krafft noted that the AML would like to see changes that would ensure that the municipalities are not penalized under the school funding formula and provide the broadest possible discretion to work with the seniors, veterans and the public in order to design a program that meets the needs of individual communities. She explained that in 1973, the Alaska State Legislature passed legislation requiring municipalities to exempt senior citizens from local property taxes up to an assessed value of $150,000. The program required the state to reimburse municipalities for tax revenues lost to their communities due to the exemption. Although the exemption is mandated by state law, the state has not provided funding for the exemption since 1985 which has resulted in all other municipal tax payers bearing that additional tax burden. She pointed out that reimbursement for the program was zeroed out in 1996 and now costs municipal tax payers nearly $25 million. Furthermore, the program is growing by $2-$3 million per year and has increased 400 percent since 1990. MS. KRAFFT informed the committee that over the years, AML has supported changes to the program in order to provide local tax payers an option as to how the program is managed. Ms. Krafft stated, "Our first choice is the state fully fund its exemptions by reimbursing municipalities." She acknowledged that in the face of the current budget situation that would probably not happen. Ms. Krafft understood that HB 200 would allow municipalities by a vote of the people to make the property tax exemption to senior citizens and disabled veterans an optional program. At this time, AML does not know of any community that wishes to entirely eliminate the program. She noted that municipalities would be allowed to change the program in order to slow its growth. For example, the municipalities could reduce the exemption amount, base the program on need, defer the taxes, or a combination thereof. She pointed out that none of those changes would reduce the present cost of the program to tax payers, but would only slow future growth. Ms. Krafft stated that HB 200 should be part of a long-range fiscal plan to control costs, although no money will be saved next year. Ms. Krafft stressed, "While we support decisions on tax exemptions to be made at the local level, ... we are unaware of any community that plans to eliminate the program." She noted that those communities with a tax cap will not see increased revenue, but will merely spread the tax burden among more tax payers. Additionally, HB 200 will not make up for cuts to state revenue sharing programs. REPRESENTATIVE MURKOWSKI said that Ms. Krafft's conversations with municipalities have not found any that are planning to eliminate this program which should provide assurances to those concerned. Representative Murkowski inquired as to the feedback Ms. Krafft has received regarding how municipalities intend to address this. MS. KRAFFT said that she did not know of any one particular direction municipalities will choose. Ms. Krafft indicated that the needs based or economic limit approach would probably rise to the top. She mentioned that a few years ago, the AML worked out an agreement with the AARP to reduce the exemption amount to $75,000. She reiterated that this must go to a vote of the people. Number 2613 REPRESENTATIVE MURKOWSKI asked if the AML has had discussions on this issue with the disabled veterans' and senior citizen's organizations. MS. KRAFFT said there have not been any discussions with those organizations this year. This legislation just came out last week which has left AML scrambling. Ms. Krafft stated that AML would be happy to work with these organizations. She expected that if HB 200 passes, the local groups will meet with the municipalities to work it out individually. REPRESENTATIVE MURKOWSKI recognized that this is an educational process. She interpreted much of the testimony as believing that the state is cutting this program which is not what HB 200 would accomplish. This legislation would provide this program to the municipalities as an option in order to fit the municipality. Representative Murkowski commented that misperception can be dangerous. She hoped that there will be much conversation and education on the matter. MS. KRAFFT agreed. MR. WRIGHT said that he was encouraged by the suggestions from Mr. Van Sant and Ms. Krafft which he would bring before the Co-Chairs of the House Finance Committee. CO-CHAIRMAN HARRIS announced that HB 200 would be held to Thursday's meeting.
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