Legislature(2001 - 2002)

05/09/2002 08:35 PM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SB   4-FIREFIGHTER/EMT MUNI. PROP. TAX EXEMPTION                                                                              
[Contains discussion of HB 6.]                                                                                                  
CO-CHAIR MEYER announced  that the first order  of business would                                                               
be  CS  FOR SENATE  BILL  NO.  4(RLS)  am,  "An Act  relating  to                                                               
optional exemptions from municipal  property taxes on residential                                                               
property and limiting  an optional exclusion or  exemption to the                                                               
assessed value of $10,000 for  a residence in a municipality with                                                               
a  total  bonded  indebtedness that  equals  or  exceeds  $15,000                                                               
multiplied by  the number of  residents in the  municipality; and                                                               
providing for an effective date."                                                                                               
Number 0114                                                                                                                     
REPRESENTATIVE SCALZI  moved to adopt Version  22-LS0190\E, Cook,                                                               
5/7/02,  as  the working  document.    No objection  was  stated.                                                               
[Version E was treated as adopted.]                                                                                             
CO-CHAIR MEYER informed  the committee that Version  E raises the                                                               
taxation  exemption amount  from $5,000  to $10,000.  He reminded                                                               
the committee  that at  the last hearing  the committee  had been                                                               
discussing   Amendment  2,   which   was  ultimately   withdrawn.                                                               
Amendment 2 reads as follows:                                                                                                   
     Page 1, line 13 - page 2, line 2                                                                                           
          Delete "in a municipality with a level of total                                                                   
     bonded  indebtedness  that  equals or  exceeds  $15,000                                                                
     multiplied   by  the   number  of   residents  in   the                                                                
SENATOR GENE  THERRIAULT, Alaska State Legislature,  testified as                                                               
the  sponsor of  SB 4.   He  pointed out  that the  Department of                                                               
Revenue  put  together a  spreadsheet  [regarding  the impact  of                                                               
including  or  excluding  the  North  Slope  Borough].    Senator                                                               
Therriault turned  to the  fiscal notes.   The fiscal  notes were                                                               
originally  written  such  that  if  the  borough  increased  the                                                               
property tax  exemption and  suffered a  loss, [the  fiscal notes                                                               
showed both]  the amount the  borough would have to  increase the                                                               
mill rate to  merely recoup the loss and the  potential impact of                                                               
that to  the state  treasury.  The  calculation to  merely recoup                                                               
the loss is fairly minimal.   However, the oil and gas properties                                                               
of  the  North  Slope  Borough are  vast;  the  borough  assessed                                                               
valuation is over $10 billion.   The Senate was concerned that if                                                               
the  additional $5,000  property tax  exemption was  granted, the                                                               
mill rate would be raised  to completely erode the aforementioned                                                               
exemption.  Therefore, the property  owner would pay the same tax                                                               
bill and [the  borough] would more than recoup the  loss from the                                                               
property tax.  Senator Therriault explained:                                                                                    
     That slight increase in the  millage rate that it would                                                                    
     take to  erode that  and make  it net  zero to  you the                                                                    
     residential property taxpayer -  when you multiple that                                                                    
     by the $10  billion of assessed valuation,  you can see                                                                    
     in  the  last column  there  [of  the spreadsheet]  the                                                                    
     potential  impact.    ...I  think  he  [Mr.  Dickinson,                                                                    
     Department of Revenue] did the  calculation [as] if you                                                                    
     made the  entire $15,000 of property  tax exemption net                                                                    
     zero.  The impact to  the state treasury from the North                                                                    
     Slope Borough alone would be over $11 million.                                                                             
SENATOR THERRIAULT said  that if the calculation was  made on the                                                               
complete $15,000, then adding $5,000  would be one-third of that.                                                               
Under the companion  bill, HB 6, with an increase  in the millage                                                               
rate to  make the net impact  to the residential payer  net zero,                                                               
the impact  would potentially be  over $100 million to  the state                                                               
treasury.   Senator Therriault  pointed out  that places  such as                                                               
Fairbanks, Kenai, and  Valdez have a mix  of residential property                                                               
and small  business owners, which  help keep the millage  rate in                                                               
check.   Such a dynamic doesn't  really exist in the  North Slope                                                               
Borough because  so much of  their property tax base  consists of                                                               
oil and  gas properties.   Therefore,  there isn't  pressure from                                                               
the local community to keep the millage rate in check.                                                                          
Number 0583                                                                                                                     
REPRESENTATIVE GUESS  inquired as  to the difference  between the                                                               
fiscal note for the new valuation  versus the fiscal note for the                                                               
alternative method.                                                                                                             
SENATOR THERRIAULT  said it was  difficult to decide what  to put                                                               
on the fiscal  note because the decision isn't  controlled by the                                                               
legislature [but rather by the local government].                                                                               
REPRESENTATIVE  GUESS requested  that the  Department of  Revenue                                                               
explain  the model  presented  via  the department's  spreadsheet                                                               
entitled, "Effect  on Oil  Gas Property  Tax (AS  43.56) Revenues                                                               
from  Using Higher  Mill Rates  to Recoup  the Effect  of Certain                                                               
Property Tax Exemptions."                                                                                                       
Number 0741                                                                                                                     
DAN  DICKINSON, Director,  Tax Division,  Department of  Revenue,                                                               
testified via teleconference.  He  related his understanding that                                                               
the committee  wanted him  to focus on  the different  numbers in                                                               
the last  column of the  spreadsheet.   He explained that  if the                                                               
alternative method,  excluding the North Slope  Borough, was used                                                               
with the current version of SB  4, then the $1.4 million would be                                                               
used in  the fiscal note.   However, if the language  was changed                                                               
such that the  North Slope Borough could take  advantage of this,                                                               
then  the fiscal  note  would  increase to  $12.7  million.   Mr.                                                               
Dickinson directed attention  to the third block of  text down on                                                               
the spreadsheet and pointed out  that it's based on an additional                                                               
$5,000 exemption, which  has be recouped against the  rest of the                                                               
[value]  of  the home,  $85,000.    He  noted  that he  used  the                                                               
assumption of  $100,000 value for  the home.  Therefore,  in that                                                               
sense  it already  includes the  $10,000  being exempt.   If  the                                                               
$100,000 for the average home  is wrong, then the correct average                                                               
home [valuation]  will drive  the figures.   For example,  if the                                                               
average home is worth less, then  the fiscal note impacts will be                                                               
driven up  because the mill rate  will have to be  increased more                                                               
to offset  the $5,000  against the smaller  base.   Mr. Dickinson                                                               
recalled Senator Therriault's earlier  point that the actual base                                                               
of residences in the North Slope Borough is fairly small.                                                                       
MR. DICKINSON turned  to column B of the  spreadsheet and pointed                                                               
out  that  the  effect  of the  current  $10,000  exemption  only                                                               
amounts  to $2.3  million,  which suggests  that  there are  only                                                               
about  237 homes  that are  able to  take advantage  of the  full                                                               
amount of the credit.                                                                                                           
Number 0976                                                                                                                     
REPRESENTATIVE  GUESS  requested  that  Mr.  Dickinson  walk  her                                                               
through the entire  spreadsheet and the assumptions  used for the                                                               
current fiscal note and the  alternative, but only relating to SB
MR. DICKINSON  began with  column A,  which illustrates  that the                                                               
total assessed  value in  the four  boroughs taking  advantage of                                                               
the $10,000  exemption.   The numbers  illustrate that  the North                                                               
Slope  is  three  times  the  size  of  the  Fairbanks  or  Kenai                                                               
Peninsula, and one-tenth  of the size of Valdez.   In response to                                                               
Representative  Guess, Mr.  Dickinson  confirmed that  it is  all                                                               
property,  but  he  wasn't  sure if  the  personal  property  was                                                               
included  in  those  figures.     However,  the  numbers  include                                                               
residential,  commercial, and  oil and  gas property.   Column  B                                                               
specifies  the   value  of  the  $10,000   exemption  that  those                                                               
municipalities/boroughs  are  currently   taking,  which  is  the                                                               
effect on  their tax base.   Therefore,  the current tax  base is                                                               
the difference  between [column A  and column B].   Mr. Dickinson                                                               
related his  belief that  the total  assessed value  includes the                                                               
senior citizens' and the disabled veterans' exemption.                                                                          
MR. DICKINSON continued  with column D, which  expresses the mill                                                               
rate as  a percentage.   Column E  merely multiplies  the current                                                               
tax base by the mill rate  which results in the amount of revenue                                                               
a  particular  municipality  raises from  their  property  taxes.                                                               
Column F,  which is the first  place where there is  a difference                                                               
between SB  4 and HB 6,  determines how much the  exemption would                                                               
be if  it were  $15,000 instead  of $10,000.   Although  it's not                                                               
going to be  a precise comparison, as an order  of magnitude it's                                                               
a reasonable way to determine  the increase in the exemption that                                                               
would occur if the exemption was  raised to $15,000 under SB 4 or                                                               
$40,000 under HB 6.  Column  G simply takes the new exemption and                                                               
subtracts it  from the  total assessed value  listed in  column A                                                               
and the result is the new  tax base given the new exemption rate.                                                               
The new  tax base is then  divided by the amount  of revenue that                                                               
would be  raised under  the current  tax base  in order  derive a                                                               
mill rate  [as expressed in column  H].  He pointed  out that the                                                               
mill rate increases in all cases  because when there is a smaller                                                               
base, a slightly higher percentage  rate must be charged in order                                                               
to result  in the  same [revenue].   Column  I subtracts  the old                                                               
mill  rate  from   the  new  rate  in  order   to  determine  the                                                               
incremental rate,  that is  how much  additional millage  will be                                                               
charged.   Column  J specifies  the tax  base, which  is from  AS                                                               
43.56 properties.   The  AS 43.56  properties base  in Fairbanks,                                                               
Kenai, and Valdez  is significantly less than  the total assessed                                                               
value whereas  it doesn't change much  for the North Slope.   The                                                               
new incremental rate is then multiplied  by the tax base in order                                                               
to determine  the effect on the  AS 43.56 property base  from the                                                               
higher mill rate.   Mr. Dickinson posed a situation  in which the                                                               
state  tax is  at 20  mills  but allows  a credit  for any  local                                                               
property taxes.   In  such a situation,  if local  property taxes                                                               
increase, the  state's revenue from this  source decreases dollar                                                               
for  dollar.   For SB  4, in  summary, if  all four  boroughs are                                                               
included, [the effect on AS  43.56 collections under the new mill                                                               
rate] would amount  to $238,000.  If the $21,000  effect from the                                                               
North Slope  Borough is subtracted,  the result is $216,000.   He                                                               
noted that these [figures] were rounded to the nearest $100,000.                                                                
Number 1441                                                                                                                     
REPRESENTATIVE KERTTULA  inquired as to why  a homeowner property                                                               
exemption  automatically places  the impact  against the  oil and                                                               
gas property.  Why can't that impact be split, she asked.                                                                       
MR. DICKINSON answered that the  statute requires that a locality                                                               
tax its  residential, commercial, and  oil and gas  properties at                                                               
the same rate.   In further response  to Representative Kerttula,                                                               
Mr. Dickinson  said he  didn't know  precisely what  other states                                                               
do.  He said that Alaska is  unusual because it has a single mill                                                               
rate and  allows for a credit  for the local municipalities.   He                                                               
related his belief that typically  one would find states in which                                                               
the legislature would establish  one rate for commercial property                                                               
and  one rate  for  industrial property,  and  often the  farming                                                               
property  is given  a higher  exemption/lower rate.   "The  point                                                               
there is they  are looking at the  state as a whole  and what you                                                               
don't have  is a town  or a municipality that's  fortunate enough                                                               
to  have a  very  large  industrial complex  in  it, asking  that                                                               
complex to bear the entire  burden and exempting the homeowners,"                                                               
he  explained.   However,  a state,  as  Alaska illustrates,  can                                                               
decide that  one industry can  bear the  burden.  In  response to                                                               
Co-Chair  Meyer, Mr.  Dickinson  agreed that  this  has been  the                                                               
situation in Alaska  for some time, since the  early 1970s before                                                               
the Trans-Alaska  Pipeline System  (TAPS) was put  in place.   In                                                               
the early  1970s, the local  mill rates  were 7-8 mills  and thus                                                               
the state  was picking  up approximately  two-thirds of  the tax,                                                               
not the much smaller portion that it is now.                                                                                    
CO-CHAIR  MEYER surmised  then that  a community  such as  Valdez                                                               
could exempt all the residents from  any taxes and merely tax all                                                               
the commercial properties.                                                                                                      
MR. DICKINSON agreed, and pointed  out that roughly two-thirds of                                                               
Valdez'  property value  resides  in the  marine  terminal.   The                                                               
maximum  rate by  a different  law is  30 mills.   Therefore,  if                                                               
Valdez simply raised  the mill rate to 30 mills  and exempted all                                                               
residential  property, the  budget of  the City  of Valdez  would                                                               
remain about the same.                                                                                                          
Number 1711                                                                                                                     
MR. DICKINSON continued the review  of the spreadsheet and turned                                                               
to the  alternative method,  which begins with  a column  for the                                                               
current  mill rate.   The  next column,  column E,  specifies the                                                               
amount of  the proposed exemption.   He  said that the  title for                                                               
column E, "Amount  saved by each homeowner  taking exemption," is                                                               
inaccurate.   Column F is the  amount being saved by  a homeowner                                                               
taking  the  additional  exemption,  assuming that  there  is  no                                                               
change in  the mill rate.   The next column specifies  that after                                                               
the $15,000  exemption is  utilized on  a $100,000  home, $85,000                                                               
worth of [value]  would be left to tax.   Therefore, the question                                                               
is  what mill  rate  would  be necessary  so  that the  homeowner                                                               
notices no difference  between taking the exemption  and paying a                                                               
higher mill  rate.  Mr.  Dickinson said that no  municipality can                                                               
design a  system to accomplish  the aforementioned with  a single                                                               
mill rate  because the higher the  value of the home,  the easier                                                               
it will be to make up the  $5,000 exemption.  "In other words, if                                                               
you  have a  fixed  exemption  but the  tax  is  calculated as  a                                                               
percentage, you're  going to have  to make the  average homeowner                                                               
come out ...  neutral - you can't do it  for every homeowner," he                                                               
specified.   Mr. Dickinson returned  to the question of  how much                                                               
money is necessary against the $85,000  of value left in the home                                                               
to make up  [the difference in the exemption].   The answer is an                                                               
incremental  nine-tenths of  a mill,  he  said.   That amount  is                                                               
determined by dividing the amount  saved, [the estimated value of                                                               
the proposed  exemption to the  homeowner], into the  amount that                                                               
remains taxable.  The new  incremental mill rate is multiplied by                                                               
the AS  43.56 tax base.   Because the incremental mill  rates are                                                               
higher than the  current fiscal note analysis, all  of the values                                                               
increase.   Therefore, if  the AS  43.56 tax  base is  large, the                                                               
amount significantly increases as  illustrated by the North Slope                                                               
Borough's number.  All the  numbers increase, which is the result                                                               
of the  amount of the incremental  mill rate in column  I and the                                                               
amount in the  tax base.  When including all  four boroughs under                                                               
the alternative method, the effect  on AS 43.56 collections would                                                               
be  $12.7 million  whereas  without the  North  Slope Borough  it                                                               
would amount  to almost $1.4  million.   He noted that  these are                                                               
maximums.   Furthermore,  under HB  6 and  its $40,000  exemption                                                               
there would be  other limitations with regard to  the North Slope                                                               
Borough and possibly Valdez.                                                                                                    
CO-CHAIR MEYER asked if the  $200,000 fiscal note attached to the                                                               
current bill would remain accurate.                                                                                             
MR. DICKINSON  remarked that "as-if"  exercises are  difficult to                                                               
characterize as good or bad.                                                                                                    
Number 2050                                                                                                                     
REPRESENTATIVE KERTTULA inquired  as to why the  homeowner has to                                                               
be held harmless.                                                                                                               
MR. DICKINSON explained  that if the exemption  were increased to                                                               
$5,000, the homeowner  has now had the benefit.   The alternative                                                               
method analysis assumes that the  $5,000 exemption wasn't used to                                                               
provide a  benefit to the  homeowner but is  going to be  used to                                                               
hold  the homeowner  harmless and  raise additional  revenue from                                                               
the AS 43.56 property.  Although  the technical term may be "hold                                                               
harmless,"  it's  actually  not  allowing the  advantage  of  the                                                               
$5,000 exemption  to flow to  the [homeowner] but  rather raising                                                               
the average  tax so  that there  is no notice  that there  was an                                                               
SENATOR  THERRIAULT posed  a situation  in which  an individual's                                                               
tax bill  is $100.   With an  additional exemption, the  tax bill                                                               
decreases  to  $80   and  the  borough  raises   the  mill  rate.                                                               
Therefore, the  borough gives the  individual $20 and  then takes                                                               
it  back  [via the  mill  rate].   The  same  is  true for  every                                                               
property payer in the borough.                                                                                                  
REPRESENTATIVE KERTTULA  identified the [dilemma] as  how to keep                                                               
[the borough] from getting the $20 back from the homeowner.                                                                     
SENATOR  THERRIAULT answered  that  the borough  raises the  mill                                                               
rate  that it  controls  so  that by  "taking  advantage of  this                                                               
thing,  you don't  see  any [lessening]  of  your property  tax."                                                               
That is,  the overall mill  rate has  been raised such  that it's                                                               
net zero to [the homeowner].   However, in the process of raising                                                               
the overall  millage rate  on all  properties, including  oil and                                                               
gas properties,  a large amount  of money  has been swept  in [to                                                               
the borough] from the state treasury.                                                                                           
REPRESENTATIVE  KERTTULA surmised  then  that "net  zero" to  the                                                               
homeowner  means  that  the  homeowner   gets  nothing  for  [the                                                               
MR. DICKINSON replied  yes.  He explained, "The  math is designed                                                               
so that the average homeowner sees  no net effect."  However, the                                                               
amount of revenue increases and  thus there may be more services,                                                               
et  cetera.   Mr. Dickinson  reiterated  that this  is a  maximum                                                               
effect, but noted that [the  effect] could be less depending upon                                                               
the reaction of each community.                                                                                                 
Number 2272                                                                                                                     
REPRESENTATIVE SCALZI  turned to  column I  and pointed  out that                                                               
the highest  millage of the  four communities is the  North Slope                                                               
Borough with  a rate of  0.111 percent.   However, the  effect to                                                               
personal property  in the  North Slope  Borough under  the $5,000                                                               
exemption wouldn't be as much  as the other municipalities.  "And                                                               
having a larger tax base of  $10 billion, it would seem that that                                                               
number would be the lowest instead  of the highest, as far as the                                                               
increased  millage.   Because you  don't  need that  much in  the                                                               
North Slope  to neutralize  the effect  as far  as the  amount of                                                               
homes that  are up there,"  he said.  He  inquired as to  why the                                                               
0.111 percent is the highest.                                                                                                   
MR.  DICKINSON  explained  that  the analysis  is  based  on  one                                                               
$100,000 home  in the North  Slope Borough.  Therefore,  the size                                                               
of the base  doesn't matter in this analysis  for the alternative                                                               
method.  He  explained that the 0.111 percent  is derived because                                                               
$94 on $85,000  must be recouped.   The  incremental mill rate to                                                               
accomplish  the aforementioned  is driven  by the  fact that  the                                                               
North Slope Borough's mill rate is the highest of the three.                                                                    
REPRESENTATIVE SCALZI said that  the analysis seems inaccurate if                                                               
it's based on one individual home  rather than the true amount of                                                               
homes for which this would be applicable.                                                                                       
MR.  DICKINSON  reiterated  that   these  are  "as-if"  analyses.                                                               
Although  he said  he is  very comfortable  with the  fiscal note                                                               
analysis, which looks at the  total revenue, he acknowledged that                                                               
looking at this with only one  home could be a shortcoming of the                                                               
[alternative method] analysis.                                                                                                  
REPRESENTATIVE SCALZI  noted his belief that  basing the analysis                                                               
on one home is inaccurate.                                                                                                      
MR. DICKINSON explained that the  result is that [the North Slope                                                               
Borough] would  raise $11  million more in  new revenue  save the                                                               
the  $20,000 the  borough would  keep so  that the  one homeowner                                                               
wouldn't  feel  the  effect  of the  increased  exemption.    Mr.                                                               
Dickinson reiterated  that the  fiscal note  method looks  at the                                                               
actual size of the exemption as it's spread across all homes.                                                                   
REPRESENTATIVE  SCALZI  posited that  if  $20,000  is all  that's                                                               
necessary to  raise [the  mill rate to  zero out  the exemption],                                                               
then the $11 million isn't necessary.                                                                                           
MR. DICKINSON agreed, and clarified  that the $11 million doesn't                                                               
suggest that the revenue is  being replaced but rather it ensures                                                               
that  the average  homeowner  doesn't notice  the  effect of  the                                                               
Number 2552                                                                                                                     
SENATOR   THERRIAULT   surmised  that   Representative   Scalzi's                                                               
question assumes that  the local government would  only raise the                                                               
millage  to recoup  the  lost revenue  suffered  by allowing  the                                                               
exemption.  He  returned to his $100 tax bill  example from which                                                               
the local  government suffers a  $20 loss  in revenue due  to the                                                               
exemption.  Therefore, the question  becomes:  how much would the                                                               
local  government  have to  raise  the  millage rate  across  all                                                               
property classes  in order to  recoup that lost revenue.   Across                                                               
all  [property classes]  the individual  with the  $100 tax  bill                                                               
would [receive the $20 exemption]  and the local government would                                                               
take back $1 from that individual  and the other $19 from all the                                                               
businesses.     Senator   Therriault  pointed   out  that   local                                                               
government isn't merely  trying to recoup the  lost revenue [from                                                               
this exemption].  The local government  is also trying to make it                                                               
net zero  to the property  owner and thus  the mill rate  will be                                                               
raised  high  enough  that  the   $20  exemption  the  individual                                                               
receives will  be taken back.   Furthermore, that same  mill rate                                                               
will  be placed  on all  the businesses  too.   In Fairbanks  and                                                               
Kenai, there isn't much motivation  to do that because [this will                                                               
impact] many  residential property  owners and  small businesses.                                                               
However, on  the North Slope  Borough almost all the  property is                                                               
oil  and gas  property, which  means  that every  dollar that  is                                                               
collected from those oil and gas  properties is a dollar from the                                                               
state treasury.                                                                                                                 
Number 2686                                                                                                                     
REPRESENTATIVE  GUESS surmised  that the  first analysis  answers                                                               
the  question  of  how  much  the mill  rate  would  need  to  be                                                               
increased in  order to keep  revenues harmless, while  the second                                                               
analysis  answers  how  much  the  mill rate  would  need  to  be                                                               
increased  in  order  to   keep  residential  property  taxpayers                                                               
SENATOR THERRIAULT agreed.                                                                                                      
MR.  DICKINSON agreed,  but specified  that  the second  analysis                                                               
refers to the average homeowner.                                                                                                
REPRESENTATIVE GUESS pointed out  that this [legislation] extends                                                               
a  current   program,  and  inquired   as  to  the   reaction  of                                                               
municipalities to this program.                                                                                                 
SENATOR THERRIAULT  answered that the current  millage rates tell                                                               
the  story.    Those  communities with  tremendous  oil  and  gas                                                               
properties are at the cap and  thus divert dollars from the state                                                               
REPRESENTATIVE GUESS noted, "And those  who wouldn't want a sales                                                               
Number 2761                                                                                                                     
REPRESENTATIVE GUESS  turned to  the alternative  method analysis                                                               
and related her  understanding that the numbers are  based on the                                                               
entire $15,000 exemption rather  than the difference.  Therefore,                                                               
she questioned  why the final  analysis doesn't divide  the final                                                               
numbers  by  three  because the  actual  difference  between  the                                                               
$10,000 and $15,000 exemption is one-third.                                                                                     
SENATOR THERRIAULT said  that he misspoke earlier  with regard to                                                               
the  amounts in  the  final column.   The  amounts  in the  final                                                               
columns are calculated only on the additional $5,000.                                                                           
MR. DICKINSON agreed.   "Again, the numbers are going  to show up                                                               
both in  column E  and column  G ... it's  the total  effect from                                                               
adding the $5,000 to what is there."                                                                                            
SENATOR  THERRIAULT  surmised  then   that  amounts  wouldn't  be                                                               
divided by  three.  Using  the $15,000 in the  calculations would                                                               
mean that the property owner would  now lose the benefit from the                                                               
$10,000 for years  and years, which he didn't  believe was likely                                                               
to happen.                                                                                                                      
REPRESENTATIVE GUESS inquired as to  why this isn't an evaluation                                                               
of the entire $15,000 [exemption].                                                                                              
SENATOR THERRIAULT said it's not.   He explained that the $85,000                                                               
is present because  the value of the home that  still remains for                                                               
tax purposes  is necessary  so that there  could be  something to                                                               
apply the millage rate.                                                                                                         
REPRESENTATIVE  GUESS  pointed  out  that  the  first  evaluation                                                               
refers  to the  change  in  the millage  rate  while [the  second                                                               
evaluation]  refers to  the impact  to the  entire millage  rate.                                                               
Those are two different questions.                                                                                              
MR. DICKINSON  highlighted that column  I, in both cases,  is the                                                               
incremental mill rate required to solve the question.                                                                           
REPRESENTATIVE  GUESS inquired  as to  how that  can be  the case                                                               
when the current evaluation of a  home is $90,000.  She said that                                                               
she didn't understand how the entire $15,000 is being evaluated.                                                                
MR. DICKINSON  pointed out that  column D [under  the alternative                                                               
method] already includes  the effect of the $10,000.   If $15,000                                                               
were placed in column E  [under the alternative method], then the                                                               
value to  the proposed  homeowner would  be the  total exemption,                                                               
which would be  roughly three times the numbers  specified.  Then                                                               
the homeowner's taxes  would be raised to the point  that the new                                                               
taxes  under  this analysis  would  take  away the  $10,000  they                                                               
currently have.                                                                                                                 
Number 2967                                                                                                                     
REPRESENTATIVE  GUESS  announced that  she  understood  now.   If                                                               
there is concern  with regard to the oil and  gas property taxes,                                                               
why didn't  the Senate see  the need  to exclude Valdez  as well,                                                               
she asked.                                                                                                                      
SENATOR  THERRIAULT  recalled  that  Valdez  is  already  at  the                                                               
maximum [cap].   He said that he didn't believe  Valdez could use                                                               
the mechanism in  the same manner.  Furthermore, the  oil and gas                                                               
properties in Valdez are magnitudes  less than those in the North                                                               
Slope Borough.                                                                                                                  
MR. DICKINSON  informed the committee  that there is  an informal                                                               
maximum of 20  mills.  That maximum is informal  because up to 20                                                               
mills, the companies aren't really going to ...                                                                                 
TAPE 02-26, SIDE B                                                                                                              
MR. DICKINSON pointed out that in  law [the maximum] is 30 mills.                                                               
In the  area between 20  mills and  30 mills, things  become more                                                               
complex.   He noted that there  is some debate in  the Department                                                               
of  Revenue  and  the  Department  of  Law  over  the  [following                                                               
interpretation].   If the  City of  Valdez were to  go to  a mill                                                               
rate  of 21,  the  credit would  eat into  the  amount the  state                                                               
receives from  the pipeline in  the unorganized  boroughs because                                                               
most of  that property is pipeline  property.  In other  words, a                                                               
taxpayer who  has property inside  and outside Valdez  could take                                                               
the credit outside  of Valdez against the Valdez  area.  Although                                                               
part of that  would be offset the way it  is now, an organization                                                               
that has  spill clean up  equipment, for example, only  in Valdez                                                               
would  feel the  pain  when  Valdez rose  above  20  mills.   Mr.                                                               
Dickinson  indicated  that  [Valdez]  could  [increase  its  mill                                                               
rate].  He agreed with  Senator Therriault's observation that the                                                               
mill rate, in  general, seems to be directly  proportional to the                                                               
amount of oil and gas in that jurisdiction.                                                                                     
Number 2941                                                                                                                     
REPRESENTATIVE GUESS  continued with  the assumption that  no one                                                               
goes over 20  mills and pointed out that the  North Slope Borough                                                               
only  has  a  small  ways  to  go  [before  reaching  20  mills].                                                               
Furthermore,  the   assumption  of   0.111  percent   [under  the                                                               
alternative  method] would  put  the North  Slope Borough's  mill                                                               
rate to 30.                                                                                                                     
MR.  DICKINSON  clarified  that the  North  Slope  Borough  would                                                               
increase to about  20 mills [under SB  4].  In the  HB 6 analysis                                                               
Valdez would  be at  30 mills.   Mr.  Dickinson pointed  out that                                                               
there are other factors going on  in the North Slope.  He related                                                               
his belief  that the bonding  and rating agencies are  probably a                                                               
major influence on the mill rate.                                                                                               
REPRESENTATIVE  GUESS asked  why the  Senate didn't  send over  a                                                               
more accurate fiscal  note if the reason for  excluding the North                                                               
Slope  Borough  was  because  of  the  potential  problem.    She                                                               
estimated  that  the fiscal  note  should  have been  about  $1.4                                                               
million rather than $200,000.                                                                                                   
SENATOR THERRIAULT said  that the fiscal note could  have been an                                                               
[indeterminate]  with pages  of explanation  because of  the many                                                               
dynamics to evaluate.                                                                                                           
REPRESENTATIVE GUESS  passed out  an amendment for  the committee                                                               
to review.                                                                                                                      
Number 2812                                                                                                                     
SARA FELIX, Assistant Attorney  General, Civil Division (Juneau),                                                               
Department of  Law, informed the  committee that she  was present                                                               
in place of Marjorie Vandor.                                                                                                    
REPRESENTATIVE GUESS  highlighted the question as  to whether the                                                               
exclusion  of one  specific  borough  would raise  constitutional                                                               
MS.  FELIX noted  that  the bill  doesn't  specifically exempt  a                                                               
borough, [although that  may be the effect].   Ms. Felix reported                                                               
that  it  seems  that  the analysis  under  an  equal  protection                                                               
challenge would  be judged  under the  lowest level  of scrutiny.                                                               
As  long as  the  state has  a reasonable  basis  for having  the                                                               
distinction in  the bill, it  should survive an  equal protection                                                               
[challenge].    She   pointed  out  that  this   is  an  optional                                                               
exemption.   "As  long  as there's  a  reasonable state  interest                                                               
underlying this  bill and there's  no discriminatory  intent, ...                                                               
we think that it would be Okay," she said.                                                                                      
CO-CHAIR   MEYER   asked  if   Ms.   Felix   believes  there   is                                                               
discriminatory intent as the bill is currently drafted.                                                                         
MS. FELIX answered  that she had no reason to  believe such.  She                                                               
clarified that she's merely stating  the standard in the case law                                                               
she reviewed.                                                                                                                   
REPRESENTATIVE KERTTULA asked if there  has been any situation in                                                               
which different rates have been used for different properties.                                                                  
MS. FELIX pointed  out that Alaska Statute says that  oil and gas                                                               
property can't  be taxed  at a higher  rate than  other property.                                                               
Within that constraint, Ms. Felix  supposed that differential tax                                                               
rates   could  be   established   as  long   as   there  was   no                                                               
discrimination  against  oil  and   gas  property.    In  further                                                               
response to  Representative Kerttula, Ms. Felix  agreed that it's                                                               
within the legislature's purview to  decide to change the statute                                                               
specifying that oil  and gas property can't be taxed  at a higher                                                               
rate than other property.                                                                                                       
Number 2645                                                                                                                     
REPRESENTATIVE GUESS moved that  the committee adopt Amendment 1,                                                               
which reads as follows:                                                                                                         
     Page 1, line 11 to page 2, line 2,                                                                                         
     Delete  "exclusion  or  exemption  authorized  by  this                                                                    
     subsection  may  not  exceed   the  assessed  value  of                                                                    
     $10,000 for any one residence  in a municipality with a                                                                    
     level  of  total  bonded indebtedness  that  equals  or                                                                    
     exceeds $15,000  multiplied by the number  of residents                                                                    
     in the municipality.  Otherwise, an"                                                                                       
     Page 2, lines 6-7,                                                                                                         
     Delete ";or (2) the assessed value of $10,000"                                                                             
REPRESENTATIVE SCALZI objected.                                                                                                 
REPRESENTATIVE GUESS explained  the she didn't like,  as a policy                                                               
matter,  excluding areas.    The current  law  [for the  existing                                                               
exemption] extends  to all boroughs,  and therefore she  said she                                                               
believes  that an  extension of  the exemption  should be  to all                                                               
REPRESENTATIVE  SCALZI  announced  his agreement,  in  principle,                                                               
with  the  amendment.    Furthermore, he  noted  that  he  wasn't                                                               
comfortable with the [fiscal] analysis.   However, he deferred to                                                               
the  experts in  the  taxation department  with  regard to  their                                                               
comments  that   [including  the   North  Slope   Borough]  would                                                               
potentially create  a significant  impact to the  state treasury.                                                               
Upon learning  that SB 4  has a  committee referral to  the House                                                               
Finance Committee, Representative Scalzi  announced that he would                                                               
object to moving the [current version] of the bill.                                                                             
CO-CHAIR MEYER  noted his agreement with  Representative Scalzi's                                                               
comments.   He  related  his  belief that  "this"  won't have  an                                                               
adverse  impact  on those  living  in  the North  Slope  Borough,                                                               
although it  could potentially have  a large impact on  the state                                                               
REPRESENTATIVE KERTTULA questioned why  homeowners in one part of                                                               
the  state should  be allowed  to pay  less, held  harmless, than                                                               
other homeowners.   She  mentioned her  concern of  a potentially                                                               
discriminatory  effect with  this  legislation.   Therefore,  she                                                               
announced her support of the amendment.                                                                                         
Number 2439                                                                                                                     
SENATOR THERRIAULT encouraged the committee  to not lose sight of                                                               
the  volunteer section,  which would  accrue to  the North  Slope                                                               
Borough.   Furthermore, the [volunteers]  would keep  the current                                                               
$10,000  exemption.   Senator Therriault  predicted that  if this                                                               
amendment is successful, then this legislation would [die].                                                                     
REPRESENTATIVE GUESS  asked if the  legislation would  survive if                                                               
Section 1 was deleted.                                                                                                          
SENATOR THERRIAULT replied that he didn't know.                                                                                 
REPRESENTATIVE MURKOWSKI  agreed with  the sponsor that  there is                                                               
great  value [with  the volunteer  section  of the  legislation].                                                               
Although she  acknowledged the concern everyone  should have with                                                               
the potential impact to the  state treasury, she also agreed with                                                               
Representative Kerttula.  She, too,  asked whether the section of                                                               
the bill that everyone agrees  on could move forward [without the                                                               
other section].                                                                                                                 
Number 2277                                                                                                                     
REPRESENTATIVE  GUESS withdrew  Amendment  1.   She, then,  moved                                                               
that the committee  adopt conceptual Amendment 2,  which reads as                                                               
     Delete Section 1.                                                                                                          
REPRESENTATIVE SCALZI objected.                                                                                                 
SENATOR  THERRIAULT pointed  out that  Section 1  is an  optional                                                               
tool   for  communities.     This   legislation  was   [initially                                                               
developed] from the property tax issue  that was on the ballot at                                                               
the last general election.   This legislation attempts to provide                                                               
local governments  with a  tool that  would save  [homeowners] on                                                               
their property  tax by implementing  a sales tax.   Therefore, he                                                               
didn't support eliminating  that tool on the basis  of the stated                                                               
concern.   Senator Therriault noted  his opposition  to Amendment                                                               
A roll  call vote was  taken.  Representatives  Murkowski, Guess,                                                               
and Kerttula  voted for the  adoption of conceptual  Amendment 2.                                                               
Representatives  Scalzi,  Morgan,  and Meyer  voted  against  the                                                               
adoption  of  conceptual Amendment  2.    Therefore, Amendment  2                                                               
failed by a vote of 3:3.                                                                                                        
Number 2152                                                                                                                     
REPRESENTATIVE GUESS moved that the committee adopt Amendment 1.                                                                
REPRESENTATIVE SCALZI objected.   Representative Scalzi said that                                                               
he  intended  to  meet  with  Steve  Van  Sant,  State  Assessor,                                                               
Department  of Community  & Economic  Development, to  review the                                                               
analysis  because   he  remained  uncomfortable  with   it.    He                                                               
explained that  if [he remained uncomfortable]  with the analysis                                                               
after talking  with Mr. Van  Sant, then  he would offer  the same                                                               
amendment to the House Finance Committee.                                                                                       
CO-CHAIR MEYER pointed out that  there is also the opportunity to                                                               
deal with this on the floor.                                                                                                    
REPRESENTATIVE KERTTULA  interjected that this is  where the work                                                               
should be  done on this  legislation.  She reiterated  her belief                                                               
that  it's  not  fundamentally correct  to  discriminate  against                                                               
residents of the state.                                                                                                         
REPRESENTATIVE  SCALZI agreed  that the  work should  be done  in                                                               
this committee.   "My problem is  that in erring, I  would rather                                                               
err  conservatively on  not  reducing the  state  coffers if  the                                                               
analysis is  correct," he said.   He said he didn't  want to slow                                                               
the bill,  and there is  the opportunity  to address this  in the                                                               
House Finance Committee  and on the House floor  if [the analysis                                                               
is incorrect].                                                                                                                  
The committee took a brief at-ease from 9:45 a.m. to 9:47 a.m.                                                                  
Number 1998                                                                                                                     
REPRESENTATIVE GUESS withdrew Amendment 1.   She moved to rescind                                                               
the committee's  action in failing to  adopt conceptual Amendment                                                               
[2].    There being  no  objection,  the committee's  action  was                                                               
REPRESENTATIVE GUESS  moved that  the committee  adopt conceptual                                                               
Amendment [2], which reads as follows:                                                                                          
     Delete Section 1.                                                                                                          
There being no objection, conceptual Amendment [2] was adopted.                                                                 
REPRESENTATIVE GUESS  suggested that  the committee zero  out the                                                               
fiscal note because  of the minimal fiscal impact  and because it                                                               
could help the legislation bypass the House Finance Committee.                                                                  
SENATOR THERRIAULT said that there is  still going to be a fiscal                                                               
note of some magnitude because of the volunteer exemption.                                                                      
CO-CHAIR  MEYER agreed  that  the legislation  should  go to  the                                                               
House Finance Committee.                                                                                                        
Number 1870                                                                                                                     
REPRESENTATIVE MURKOWSKI moved to report  HCS CSSB 4, Version 22-                                                               
LS0190\E,  Cook,  5/7/02,  as  amended   out  of  committee  with                                                               
individual  recommendations  and  the accompanying  fiscal  note.                                                               
There being no  objection, HCS CSSB 4(CRA) was  reported from the                                                               
House Community and Regional Affairs Standing Committee.                                                                        

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