Legislature(1995 - 1996)

03/09/1995 01:38 PM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                   
 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            
 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              
 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                
 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            
 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              
 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                      
 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            
 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                 
 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.                                                              

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