Legislature(1995 - 1996)
03/09/1995 01:38 PM CRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HCRA - 03/09/95 HB 185 - MUNICIPAL PROPERTY EXEMPTIONS CO-CHAIR IVAN brought up HB 185 and stated as a sponsor of this bill, it wasn't his intent to move the bill, but to hear testimony from interested parties, as well as comments from committee members. CO-CHAIR IVAN invited Tom Wright, his legislative aide, to present HB 185 on his behalf. Number 052 TOM WRIGHT, Legislative Assistant to Representative Ivan, referred to Representative Kott's comments concerning unfunded mandates. HB 185 addresses senior citizens/disabled veterans property tax exemption. The findings section outlines the goal of this bill and one of the problems. The cost of the senior citizens/disabled veterans tax exemption program for fiscal year 1995 was $16,000,800 and the state reimbursed municipalities only $1.5 million for fiscal year 1995; an underfunding of about $15 million. When the program was last fully funded, in 1985, there were 5,418 taxpayers eligible. For fiscal year 1995, there are 12,197 taxpayers eligible. One reason why Representative Ivan introduced this bill was to get discussion on the table regarding unfunded mandates. There have been a number of issues brought before the legislature concerning federal unfunded mandates. This issue on a state level was the senior citizens' property or disabled veterans' property tax exemption is an unfunded mandate. He stated he has done quite a bit of research regarding this bill and there was also a bill introduced by Governor Hickel last year, HB 66, that almost made it through the system. Representative Ivan has had discussions with various senior groups and with various veterans groups and it is currently his intention to exempt the disabled veterans and keep the current program in place. Mr. Wright stated the disabled veteran portion did not make up a very large part of the exemption and it was the chairman's wish to keep that exemption in place. Another aspect not included in this bill is a renter rebate program which is another part of this exemption. It is the equivalency of the property tax exemption. It was Mr. Wright's understanding that Kevin Ritchie, executive director of the Alaska Municipal League (AML), had extensive discussions with some of the senior groups, in particular the American Association of Retired Persons (AARP), with regard to this exemption. Concessions were made that Mr. Wright didn't wish to discuss because he wasn't involved in those negotiations. He stated that Kevin Ritchie from AML was present, as was a representative from senior groups and disabled veterans groups. He said there were witnesses on teleconference wishing to testify. Number 125 CO-CHAIR IVAN asked for questions or comments from the committee. Number 129 MR. WRIGHT said that it would be better if Kevin Ritchie, from the AML, testified first to discuss these negotiations before the public testified. Number 137 KEVIN RITCHIE, Executive Director, Alaska Municipal League (AML), said the AML has placed this most problematic issue, unfunded mandates for municipalities, before the legislature to make it a local option. The AML has always maintained the member communities had intended to provide a program on the local level. Recently, the AML met with representatives from senior and disabled veteran groups and the conclusion of those discussions was that the disabled veterans did not support a reduction in the program. The AARP, however, representing a large number of Alaskan seniors, offered a compromise that the AML believes fulfills the goals of the AML and the AARP which is to reduce the mandatory exemption from $150 thousand down to $75 thousand. Currently, the average exemption in the state of Alaska on housing for seniors under this program, is $87,266. This doesn't mean there would be a $50 thousand decrease in the cost of the program but for the larger municipalities, the net decrease in the subsidy would be about 25 percent of what they now pay, if this compromise were to become law. This amount is offset by a larger increase to school foundation formula funding because the assessed value taxed in the communities across the state would increase by around $300 million. Mr. Ritchie said this was a true compromise and the AARP suggested this was a real problem for municipalities. The municipal governments currently have to carefully balance the resources they have to best meet the needs in their own communities. He stated there were many other needs that could be as pressing that were not being well met, so HB 185 was an attempt to balance the needs and resources of communities to come up with a compromise that worked for both parties. He said he had been in communication with the AML legislative committee and board, and the AML has yet to present this to all the municipalities. He believed coming before the committee was a good introduction to this and the AML intended to get in detailed conversations with all the municipalities in the league. Number 199 REPRESENTATIVE ELTON asked if it was acceptable to cut $150 thousand to $75 thousand, and did it then mean the local option language would come out and would it still be a mandated state program? Number 206 MR. RITCHIE said it would be a mandated state program up to $75 thousand and then there would be an option above that amount. The nuance was to encourage municipalities to keep the exemption the same if they desired. In general, optional exemptions if they are granted by a municipality, still are required to be counted when the government figures up the foundation funding. Mr. Ritchie's recommendation would be that if people chose to maintain the program between $75 to 150 thousand, those communities were not penalized by having more assessed value included in the foundation formula. Number 221 CO-CHAIR IVAN asked if there were any questions. He invited Rupe Andrews from Juneau to testify. Number 256 RUPE ANDREWS said he was representing the AARP and there wasn't much more he could add to the comments made by Kevin Ritchie. Representatives from the AARP and Kevin Ritchie have sat down and discussed and negotiated this. The AARP is a victim of a public policy that had good intentions in the beginning and allowed seniors to remain in their own homes as long as possible in the face of a circuit breaker policy. It has worked well for 20 years but AARP does recognize that municipalities have a problem. The government needs to share some of that burden the municipalities are facing and the AARP has developed this compromise of a 50 percent downward movement to $75 thousand of the first appraised value. Mr. Andrews said the AARP thought this would target the lowest income group, but they wouldn't fall through the cracks; it's a safety net and he believed it was a fair way to negotiate this. Number 280 REPRESENTATIVE VEZEY asked in Mr. Andrews' discussions and negotiations, what exactly was the problem. Representative Vezey said he assumed it dealt with municipal revenues. He hadn't checked out many municipalities, but their assessed valuations had steadily risen in the past ten years. This meant revenues were steadily rising. He wasn't aware of any that had any significant changes in their mill rates. He stated revenues have been rising, perhaps not as fast as inflation of certain costs of providing government services, but he asked what the particular problem was. Number 299 MR. ANDREWS said originally, the problem was the seniors who were on fixed incomes watched the acceleration of property values and corresponding tax rates and were really concerned they would lose their property. They are faced with an option of selling and leaving Alaska, moving in with children or doing something else and this was their concern. Number 308 REPRESENTATIVE VEZEY said this was a problem from the seniors' perspective, but what was the problem from the municipal perspective. Number 310 MR. ANDREWS said the original intent of the legislature was to reimburse municipalities, but since then there may have only been one year when it was ever fully funded. He stated it has been underfunded for the vast majority of time it has been in existence which is now causing a financial burden on the municipalities. Number 317 REPRESENTATIVE VEZEY said he'd started looking at assessment rolls and looked at his own personal property tax records and then looked at the municipality as a whole. He stated the senior property tax exemption was an unfunded mandate and has been for seven to eight years, but revenues have been rising. He's looked at very few and he questioned whether they were the exception or whether municipal revenue has been rising. Number 329 MR. ANDREWS said he could only speak for the Juneau Borough and say that it has been rising. He mentioned his own home had increased $37,000 in the last 3 years. Number 334 REPRESENTATIVE VEZEY said his personal residence taxes and the assessed value had gone up 250 percent in the last 12 years. Two years ago, the legislature looked at a similar bill, and Representative Vezey had concerns because they were dealing with an unfunded mandate. He stated he didn't like unfunded mandates. He is of the opinion municipalities are crying wolf in that they want more money. There isn't a shortage as there is more revenue money coming in, but they still want more and Representative Vezey said he wasn't sure that he wanted to balance this request on the back of the seniors. If monies were going down, he could see the need to change policy. Number 346 MR. ANDREWS said he couldn't speak to this. He would have to take the word of the AML in this case and from the other members that testified two years ago. Even though the revenues may be going up, municipalities are still experiencing a burden. Number 352 CO-CHAIR IVAN asked Kevin Ritchie to answer the question. Number 356 MR. RITCHIE replied the answer was largely the tax increase people see on their local level due to cutbacks and state funding in areas like the senior citizen property tax exemption and in areas like municipal assistance and revenue sharing. Municipal assistance and revenue sharing has been cut back 55 percent in the last 9 years. To Anchorage, this means about three mills of property tax is replacing the state funding, while not counting the fact that inflation has been a big factor since that time. One reason being, the changes in the basic agreement municipalities had with the state, and the funding has gone way down and the mandates have gone way up. Mandates are in a whole lot of different areas. When Mr. Ritchie was the manager of the Juneau municipality, the municipal assistance would go down every year and the funding for senior citizen property tax exemption would go down. When the commensurate cuts were made in the departments, each one said they couldn't up-keep certain things due to lack of funding. There isn't really a choice in those types of situations, but much of what's been seen across the state has actually been the municipality getting more to do from the state and less money to do it than was part of the original agreement. Number 383 REPRESENTATIVE VEZEY said if we were to change the legislative policy and fund our senior and disabled veterans property tax exemption program, it wouldn't be an unfunded mandate. The AML's revenues wouldn't go up because the government would take at least as much, if not more, out of municipal assistance. If this occurred, he asked what would municipalities be asking for then. Number 391 MR. RITCHIE said municipal assistance and revenue sharing partially covers all of the unfunded mandates the state has placed upon municipalities at this time. There was a 143-page report that had been put out by the Legislative Research Agency listing all of the unfunded mandates the state put on municipalities. Mr. Ritchie stated there were hundreds of unfunded mandates that exist and that's part of what cities do. If the government were to take the money from municipal assistance and revenue sharing and put it into the senior citizen property tax exemption program, it would be taking money to cover one unfunded mandate and creating more unfunded mandates somewhat currently covered by municipal assistance or revenue sharing. He said this doesn't solve that particular problem. Number 408 REPRESENTATIVE VEZEY said the government was just trading dollars, not creating more. He stated he hadn't researched all the local municipality problems and still hasn't looked into or looked across the whole state, but he's just looked at a few specific municipalities. He said that gross revenues to municipalities have been up steadily and their budgets have been up steadily and he believed it was keeping up with inflation. He stated he was starting to believe the government was blaming the wrong people. Number 420 CO-CHAIR AUSTERMAN said the government wouldn't be faced with the problem if it didn't have the mandate. He said the municipality should have the responsibility of deciding whether their citizens want to pay this or whether the municipality wants to tax the citizens to pay it. Co-Chair Austerman said the government didn't allow them that opportunity because they mandated it would happen this way and then the government had to give money to take care of the mandate. He said it was the same basic theme the state government was having with the federal government. Even though government tax rates are going up, the inflation rates go up, the cost of living goes up, the cost of operations goes up and all the costs are not following along with each other. Number 432 MR. ANDREWS said the problem with local option is, seniors would be treated unequally around the state. One municipality may not grant any exemption whereas another may grant a large exemption. Number 438 MR. RITCHIE pointed out the AML was not in favor of discontinuing all exemptions for seniors or disabled veterans. The whole issue concerned local option as Co-Chair Austerman commented. Those paying the bill are local communities and the concept would be the $75 thousand continue as a mandatory exemption, which philosophically isn't what the AML wants, because they pay most of that bill. He stated there would be an option, community by community, and whether to provide assistance above $75 thousand per residence or not. The AML fully expects some communities would continue the current program which is one reason why the AML wants language that doesn't hurt municipalities who decide to grant this option all the way up. This would simply allow citizens within a community paying the bill to decide. Number 454 REPRESENTATIVE VEZEY said the total cost of this program is currently up to an estimated $16 million. If the government were to fund that as a state legislature it would not be an unfunded mandate. The government could do away with municipal assistance which he believed was about $62 million, leaving about $40 million to work with. Number 461 MR. RITCHIE said it would create another unfunded mandate. Number 462 REPRESENTATIVE VEZEY asked if municipal assistance was currently an unfunded mandate. Number 463 MR. RITCHIE replied that municipal assistance pays for the unfunded mandates the state has put on municipalities by statute. Number 466 REPRESENTATIVE VEZEY answered this would be carrying the argument to the point that the government owes the municipalities for their existence. Number 468 MR. RITCHIE said the theory basically is the wealth of the state, which originated in the northern oil fields. The state takes that money and spreads the wealth around to the various communities in the state providing state services. He stated it would be a different state if all that wealth remained in the north. Municipalities are the agents, the creations of the state, to provide services on a local level. To provide for some consistent services throughout the state, municipal assistance and revenue sharing is one way this occurs. He said if the funding were not there with 55 percent cuts in municipal assistance and revenue sharing, small communities are choosing to want some discretion on how they govern themselves and they are getting a burden they can't accept. Communities that dissolve are allowing the state to provide all those services for them and have less determination in what takes place. The Local Boundary Commission (LBC), in writing their recent report to the legislature, said the Mat-Su Borough had been penalized by becoming a borough because their deal concerning appropriated money for certain projects wasn't there anymore. The municipal assistance and revenue sharing is the way the state spreads some of the wealth from the oil fields to ensure some level of services is provided throughout the state. Mr. Ritchie again stated that many unfunded mandates were partially funded by municipal assistance and revenue sharing. Number 497 CO-CHAIR IVAN said he wanted to hear from witnesses before continuing. He invited Mr. Daw to testify. Number 504 GENE DAW, member of VFW, DAV, and AARP, expressed his interest in HB 185. He said as the bill was written, veterans would oppose it but with the supplement suggested by the AML, he believed the veterans could go along with that, being that disabled veterans would stay status quo. Mr. Daw's understanding was if one went along with the supplement, HB 185 would stay at a status quo and the only thing that would change would be the amount of the exemption from $150 thousand down to $75 thousand for senior citizens. He believed Representative Vezey had a good idea. He listed four categories of people such as little children born with a disability or into a poor family, poor people, disabled veterans and senior citizens. He said he has had the opportunity to live in all those stages. He said it is tough to break out when one is in those categories. He compared our state to other states and said it was well-to-do, but the state needed to look at its priorities and not put the squeeze on these four categories of people looking for security. Number 570 REPRESENTATIVE KOTT asked Mr. Daw if he fell within the category that would allow for this tax exemption. Number 575 MR. DAW answered yes, but he did not sign up until he retired two years ago. He has worked in the state for 30 years and could have taken advantage of this tax exemption all along, but he figured as long he could work, meeting his budget, he could pay his taxes. He thought there were many veterans too proud to beg. Number 596 REPRESENTATIVE KOTT believed this was the point he wanted to bring out. He didn't know how the government could correct it. He'd had a phone call during the debate last year on this matter from a man working in civil service who had been medically retired, drawing a pension from the military. His wife was a school teacher and he was worried about his tax exemption for his $300 thousand home. Representative Kott would much rather see the legislature eliminate this category and take that pool and shift it over to people who really need it. Number 610 CO-CHAIR IVAN asked if there were any more questions or comments. He invited Lamar Cotten to testify. Number 614 LAMAR COTTEN, Deputy Commissioner, Department of Community and Regional Affairs (DCRA), said in general, the DCRA agrees with the concept because it's consistent with the position that municipalities should be given a maximum amount of flexibility when it came to raising revenues, in deciding issues at a local level. It also addresses the issue of underfunded mandates, since the state pays about 6 percent of the funds for the exemption. The other provision the DCRA liked in the bill allowed the exemption to be based on financial need and be provided by ordinance. He thought it consistent with the DCRA's position of allowing municipalities the discretion to devise or determine how they want to address the issue of exemptions through local taxes. His last point was the DCRA had not looked at or discussed the compromise between the AARP and the AML. Number 632 REPRESENTATIVE VEZEY asked if state revenues had been trending down for a number of years. He didn't have the opportunity to look into these figures but he asked about municipalities and their revenues. Number 637 MR. COTTEN answered that the reductions in municipal assistance and revenue sharing over the last eight years has affected municipalities. He said one couldn't address communities as a whole. He said there were areas in Southwest Alaska which have gone through an economic boom and the government has grown to meet some of the demands and needs of those changes. He stated other communities, due to economics and internal political decisions to cap their tax mechanisms, have not grown as much. He agreed with Representative Vezey's observation that valuations have increased and mill rates are probably floated with inflation rates. The expenditures have increased but the level of services have not gone up. Mr. Cotten thought this was a good question because it went back to more of the fundamental questions about who was providing basic services to the state and the transition when locals take on those services or simply do without. He thought there wouldn't be a statewide pattern because the state is different by regions and subregions. He stated economics will have driven the size of government. Number 664 CO-CHAIR IVAN invited any more questions or comments from the committee members. He noted this bill would be held in committee and scheduled for the next week. Number 670 REPRESENTATIVE ELTON said his inclination would be to leave the status quo, but he would be surprised if municipalities came in and said they were willing to take a cut. In the testimony he has heard from many different areas he thought the general desire was to hold the status quo or give the municipality more. Representative Elton would be willing to go for the compromise because it was offered and it is the first time he has heard of such a compromise. Number 679 CO-CHAIR AUSTERMAN stated he felt a different trend in the state. He thought people were starting to realize that Alaska has been a wealthy state, able to afford luxuries, but people are starting to realize these luxuries cost money. He said the cost of paving roads and taking care of other mandated and necessary things are just as important and citizens are starting to realize that as a state, we need to pay our way. Number 687 CO-CHAIR IVAN invited questions or comments. He said he would submit a committee substitute to take out disabled veterans from the legislation.