Legislature(2017 - 2018)CAPITOL 106

03/23/2017 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Location Change --
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved HB 166 Out of Committee
-- Public Testimony --
         HB 156-MUNI TAX EXEMPTION: ECON DEVEL PROPERTY                                                                     
8:32:13 AM                                                                                                                    
CO-CHAIR  FANSLER  announced that  the  final  order of  business                                                               
would be HOUSE BILL NO. 156,  "An Act relating to a municipal tax                                                               
exemption or deferral for economic development property."                                                                       
8:32:34 AM                                                                                                                    
REPRESENTATIVE CATHY  TILTON, Alaska State Legislature,  as prime                                                               
sponsor,  introduced HB  156.   She explained  that HB  156 is  a                                                               
reintroduction  of House  Bill 370,  which was  sponsored by  the                                                               
House  Community  and  Regional Affairs  Standing  Committee,  on                                                               
which  she served  as  chair, in  the  Twenty-Ninth Alaska  State                                                               
Legislature.  She said the  bill would provide a nonmonetary tool                                                               
for municipalities to incentivize  new economic development.  The                                                               
proposed   legislation   would    amend   current   statute   [AS                                                               
29.45.050(m)] to  offer greater flexibility to  municipalities to                                                               
determine  their  property  tax  policies.   She  explained  that                                                               
although the statute has been in  place since 1993, it has rarely                                                               
been  used because  of its  restrictive  nature.   Representative                                                               
Tilton   said  projects   that   have  been   created  under   AS                                                               
29.45.050(m) include  the Alaska  Brewery in  Juneau and  the MTA                                                               
Sports Center  in Palmer.   The rigidity  of the  current statute                                                               
makes  its  use  difficult  for   "larger  dollar  projects"  and                                                               
"capital incentive-type projects."                                                                                              
8:34:31 AM                                                                                                                    
HEATH HILYARD,  Staff, Representative Cathy Tilton,  Alaska State                                                               
Legislature,  presented  HB  156   on  behalf  of  Representative                                                               
Tilton, prime  sponsor.   He reiterated the  key points  given by                                                               
Representative Tilton  in her brief  introduction.   He explained                                                               
that the aforementioned restrictive  nature of AS 29.45.050(m) is                                                               
that  it  allows a  municipality  only  a five-year  deferral  or                                                               
exemption and  "follow-up, five-year extension."   He paraphrased                                                               
one  intent  of HB  156,  which  is  described in  the  sponsor's                                                               
statement  as  follows  [original punctuation  provided]:    "The                                                               
proposed legislation  would remove  the time  limitation mandated                                                               
by  statute and  authorize  local governments  to determine  time                                                               
periods appropriate for specific  projects and according to their                                                               
own needs and objectives."                                                                                                      
MR.  HILYARD referred  to [paragraphs  (1), (2),  and (3),  of AS                                                               
29.45.050(m)] which  describe "economic development  property" as                                                               
["real or personal property"] that:                                                                                             
     (1) has not previously been taxed as real or personal                                                                      
     property by the municipality;                                                                                              
          (2) is used in a trade or business in a way that                                                                      
          (A) creates employment in the municipality;                                                                           
        (B) generates sales outside of the municipality                                                                         
     of goods or services produced in the municipality; or                                                                      
          (C)  materially reduces  the importation  of goods                                                                    
     or services from outside the municipality; and                                                                             
          (3)  has  not  been  used in  the  same  trade  or                                                                    
     business  in  another  municipality for  at  least  six                                                                    
     months   before  the   application   for  deferral   or                                                                    
     exemption is  filed; this paragraph  does not  apply if                                                                    
     the property was used in  the same trade or business in                                                                    
     an  area  that has  been  annexed  to the  municipality                                                                    
     within six  months before the application  for deferral                                                                    
     or exemption  is filed; this  paragraph does  not apply                                                                    
     to inventories.                                                                                                            
8:37:01 AM                                                                                                                    
MR.  HILYARD showed  a slide  that illustrates  that currently  a                                                               
municipality can  choose to exempt  the entirety of  the property                                                               
tax  on an  applicable property  for five  years, but  after year                                                               
five  cannot   exempt  any  portion  of   property  assigned  for                                                               
education.   The proposed legislation  would allow  the exemption                                                               
[to  continue  beyond  five  years]   for  the  entirety  of  the                                                               
property, and the  power to make that decision would  be given to                                                               
the local governments.   He clarified that HB 156  would not free                                                               
municipalities  from their  obligation  to  fund education;  they                                                               
would just  have to  find some other  way to pay  for it  if they                                                               
chose to allow the exemption.                                                                                                   
8:39:13 AM                                                                                                                    
CO-CHAIR   PARISH  anticipated   that  HB   156  may   result  in                                                               
[competition between] municipalities.                                                                                           
MR. HILYARD responded  that could be possible,  although that was                                                               
not the case  in speaking with the Municipality  of Anchorage and                                                               
the  City of  Seward last  year.   He said  he does  not see  any                                                               
projects  of that  nature  on  the horizon.    In  response to  a                                                               
follow-up question,  he said HB  156 would eliminate  the initial                                                               
five-year  period  and  five-year  extension;  local  governments                                                               
would  determine  a time  certain;  and  the obligation  to  fund                                                               
education would remain.  He  agreed with Co-Chair Parish that one                                                               
option  to  fund education  could  be  to  raise taxes  on  other                                                               
businesses and property owners in the area.                                                                                     
8:41:47 AM                                                                                                                    
REPRESENTATIVE   RAUSCHER   asked   if  the   State   of   Alaska                                                               
micromanages  the ability  of  municipalities  to exempt  certain                                                               
MR. HILYARD  noted that  there are  numerous exemptions  and they                                                               
are listed under  AS 29.45.050, subsections (a) through  (x).  He                                                               
said subsection  (m) is essentially  "an investment  optional tax                                                               
exemption rather than  a charitable optional tax  exemption."  He                                                               
clarified that all  the exemptions listed under  AS 29.45.050 are                                                               
REPRESENTATIVE  RAUSCHER said  he  finds it  odd  that the  state                                                               
micromanages the business of municipalities to such a degree.                                                                   
8:43:08 AM                                                                                                                    
REPRESENTATIVE SADDLER said he  had considered the aforementioned                                                               
possibility  of  two municipalities  competing,  but  he said  he                                                               
thinks  HB  156  would  return   more  discretion  and  power  to                                                               
municipalities,  and he  opined  that  "government's good  that's                                                               
close to the people."                                                                                                           
8:44:08 AM                                                                                                                    
REPRESENTATIVE  DRUMMOND said  she  thinks the  Matanuska-Susitna                                                               
(Mat-Su)  Borough   is  the  property  taxing   entity  north  of                                                               
Anchorage, and the Cities of  Palmer, Wasilla, Houston, et cetera                                                               
have  sales tax  in place.    She asked,  "Since this  is an  act                                                               
relating to a  municipal tax exemption or deferral,  does it only                                                               
apply to municipalities  or ... may boroughs  also take advantage                                                               
of this ... exemption?"                                                                                                         
MR. HILYARD offered his understanding  that HB 156 would apply to                                                               
any  municipality that  levies property  taxes,  whether city  or                                                               
8:46:51 AM                                                                                                                    
REPRESENTATIVE WESTLAKE said Representative  Drummond had asked a                                                               
good question,  and he  said he  would like  to know  if boroughs                                                               
need to be specified in the proposed legislation.                                                                               
8:47:18 AM                                                                                                                    
SUSIE  SHUTTS, Attorney,  Legislative Legal  Counsel, Legislative                                                               
Legal   Services,  Legislative   Affairs  Agency,   Alaska  State                                                               
Legislature, responded  that under  HB 156, the  use of  the word                                                               
"municipality" would include cities and boroughs.                                                                               
8:48:02 AM                                                                                                                    
MARTY  MCGEE,  Section   Manager/State  Assessor,  Municipal  and                                                               
Community Policy and Research Section,  Division of Community and                                                               
Regional  Affairs (DCRA),  Department  of  Commerce, Community  &                                                               
Economic Development (DCCED), talked  about the change to statute                                                               
that  would be  made under  HB  156.   He said  AS 29.45.050  (m)                                                               
pertains to optional  exemptions.  He said, "The  basic theory on                                                               
taxation  is that  all property  is subject  to taxation,  except                                                               
that which  is excluded or  exempted by  law."  He  said optional                                                               
exemptions are the choice of  local governments.  He related that                                                               
the fiscal note provided by  his division shows no fiscal impact.                                                               
He  said, "Property  exempted under  the optional  exemptions ...                                                               
would be  added back  into the full  value determination,  but it                                                               
does effect the school funding format."                                                                                         
8:50:45 AM                                                                                                                    
REPRESENTATIVE SADDLER asked if,  in general, giving an exemption                                                               
to one property  tax payer shifts the burden  of providing public                                                               
services to other tax payers.                                                                                                   
MR. MCGEE answered that's correct.                                                                                              
REPRESENTATIVE SADDLER  surmised that  the local  authority would                                                               
take  that  into  consideration   to  ensure  that  the  economic                                                               
development  opportunities outweighed  any costs.   He  asked Mr.                                                               
McGee to  confirm Representative Drummond's previous  remark that                                                               
the  City of  Palmer  and  the City  of  Wasilla  are not  taxing                                                               
authorities in the Matanuska-Susitna (Mat-Su) Borough.                                                                          
MR. MCGEE  responded that the  taxing authority belongs  with the                                                               
borough;  local  city  governments  have  the  authority  to  add                                                               
millage or,  in certain cases, exemptions.   He said the  City of                                                               
Wasilla  currently has  no specific  millage associated  with its                                                               
operation but has  had in the past  and could in the  future.  In                                                               
response  to  a  comment   by  Representative  Saddler  regarding                                                               
competition  between municipalities,  he  said it  is common  for                                                               
competition  to happen.   For  example, he  mentioned competition                                                               
between  the airports  in Anchorage  and Fairbanks,  in terms  of                                                               
looking  for  which  airport  would  offer the  best  deal  on  a                                                               
REPRESENTATIVE SADDLER  offered an example to  illustrate that in                                                               
the heat of a bidding  competition, those involved in the bidding                                                               
may lose sight of  the fact that they may be  foregoing tax for a                                                               
long time (by offering exemptions).                                                                                             
8:53:18 AM                                                                                                                    
CO-CHAIR PARISH  asked Mr.  McGee for  clarification as  to where                                                               
under HB 156 there would be  an increased obligation to the state                                                               
for school funding.                                                                                                             
MR. MCGEE explained that if  a local government chooses to expand                                                               
an  optional exemption,  the value  of the  property exempted  is                                                               
added back to the full value  determination, which is part of the                                                               
school  funding  formula.   [Mr.  McGee  offered further  comment                                                               
pertaining to a bill version that was not before the committee.]                                                                
8:54:45 AM                                                                                                                    
MR. HILYARD, in response to  Co-Chair Fansler, clarified that Mr.                                                               
McGee had  been referring to  a potential amendment  package that                                                               
was discussed  in Representative Westlake's office  but would not                                                               
at   this   time,   and   most    likely   never,   be   offered.                                                               
Notwithstanding that,  he offered  his understanding that  he and                                                               
Mr. McGee were  still essentially saying the same thing:   HB 156                                                               
would  not  free  municipalities  from  the  obligation  to  fund                                                               
education;  it  would  simply  provide  that  if  a  municipality                                                               
chooses  to  exempt  the  portion  of  property  tax  that  funds                                                               
education, then  it would have to  find another way to  fund that                                                               
education obligation.                                                                                                           
8:55:59 AM                                                                                                                    
MR.  MCGEE  retracted  any  comments   he  had  made  related  to                                                               
amendments to a version of HB 156  that had not been offered.  He                                                               
stated,  "The part  ... which  is functional  is that  the school                                                               
funding  millage is  now removed,  and the  local government  can                                                               
exempt  that portion  of the  millage -  the tax  associated with                                                               
economic exemption development  projects.  It still  has a fiscal                                                               
impact, but I can't calculate it in current (indisc.)."                                                                         
8:56:51 AM                                                                                                                    
MR. HILYARD,  in response to  Co-Chair Parish, said under  HB 156                                                               
the  shipyard would  not  have  the exemption.    He offered  his                                                               
understanding  that Representative  Westlake's amendment  package                                                               
he did  not offer would  have provided  for an exemption  for the                                                               
shipyard,   but  because   there   would  have   been  a   fiscal                                                               
implication, "the amendment was not put forward."                                                                               
MR. MCGEE said in general  he agrees with Mr. Hilyard's comments.                                                               
He  said,  "If ...  all  value,  including that  associated  with                                                               
education, is  exempt by  local option,  then that  value's added                                                               
back in  the full value  determination and there isn't  [a] shift                                                               
from the  borough to the state  government.  If the  exemption is                                                               
mandatory,  then   there  is  a   shift  from   local  government                                                               
obligation to state obligation."                                                                                                
CO-CHAIR PARISH  offered his understanding  that HB 156  does not                                                               
include mandatory obligations.                                                                                                  
MR.  HILYARD confirmed  that  HB 156  pertains  to only  optional                                                               
8:59:20 AM                                                                                                                    
REPRESENTATIVE  SADDLER asked  Mr.  Hilyard to  clarify the  term                                                               
economic development property.                                                                                                  
MR.  HILYARD  noted that  the  language  in  HB 156  relating  to                                                               
economic development  property is found  on page 2,  beginning on                                                               
line 11,  and considers whether the  property would be used  in a                                                               
way  that would  create  employment, generate  sales, reduce  the                                                               
importation of  goods or services from  outside the municipality,                                                               
or  ultimately  add  back  to   the  property  tax  base  at  the                                                               
conclusion of  the exemption deferral.   He said it  is important                                                               
to remember  that the issue  is not  just about exemption;  it is                                                               
also about  deferral.   He said  the idea  is to  provide maximum                                                               
flexibility  to  municipalities  to work  with  private  business                                                               
partners  "to  make  a  package  that  makes  sense."    He  said                                                               
municipalities  would  have to  consider  that  [an exemption  or                                                               
deferral]  could "pass  back  for  a time  being  onto the  other                                                               
existing property tax  payers," but the prime  sponsor thought it                                                               
would be better  for the local governments to  make that decision                                                               
rather than the state.                                                                                                          
REPRESENTATIVE  SADDLER asked  if  there is  any formal  analysis                                                               
that over time there would be a  net benefit to a community or if                                                               
that was something that would just be felt organically.                                                                         
MR. HILYARD responded that the  current statute is so narrow that                                                               
it  has  not  been  utilized   enough  to  provide  an  analysis.                                                               
Nevertheless, he  suggested asking the  City & Borough  of Juneau                                                               
if  the investment  for the  Alaskan Brewing  Company was  a wise                                                               
decision.   In  response to  a follow-up  questions, he  said one                                                               
example of  a best  case scenario  under HB 156  would be  a port                                                               
expansion for the  City of Seward.  He  offered his understanding                                                               
that  a representative  from the  Municipality  of Anchorage  was                                                               
available to testify, and that  that municipality could have used                                                               
this  legislation to  advance the  "Dave &  Buster" project.   He                                                               
said the  intent of HB  156 is for  municipalities to be  able to                                                               
have significant investment infrastructure projects.                                                                            
9:03:14 AM                                                                                                                    
REPRESENTATIVE  RAUSCHER  asked how  [HB  156]  would affect  the                                                               
MR. HILYARD deferred to Ms. Shutts or Mr. McGee.                                                                                
MR. MCGEE  said the aforementioned  practice of  different taxing                                                               
jurisdictions   competing   for  economic   development   project                                                               
historically has not had a  good economic result for communities;                                                               
therefore, it is  in the best interest of the  state to avoid the                                                               
potential for competition.  He said  that is one reason the state                                                               
makes  its tax  laws  uniform and  provides  the opportunity  for                                                               
local governments to  choose what they will and  will not exempt.                                                               
He said  the primary obligation  of boroughs has always  been the                                                               
funding of education,  so there is concern that the  tax base for                                                               
education be supported.                                                                                                         
9:05:29 AM                                                                                                                    
REPRESENTATIVE SADDLER directed attention  to language on page 2,                                                               
beginning  on  line 11,  of  HB  156, [which  describes  economic                                                               
development property as real or  personal property] "that has not                                                           
been used in  the same trade or business  in another municipality                                                           
for at  least six months  before the application for  deferral or                                                           
exemption  is  filed".     He  questioned  the   reason  for  the                                                           
distinction of six months.                                                                                                      
9:06:08 AM                                                                                                                    
MR. MCGEE  responded that he  had administered this  exemption in                                                               
Anchorage for 20  years, and the interpretation  of that specific                                                               
language was problematic,  because it is unclear in  statute.  He                                                               
said obviously land  cannot be moved and it is  difficult to move                                                               
buildings.  He continued:                                                                                                       
     The logic  is that  if there's  an existing  industry -                                                                    
     you know, facilities, real  estate associated with that                                                                    
     industry  - that  a  new person  coming  in, trying  to                                                                    
     start up  in the same  industry, with the same  type of                                                                    
     building doesn't get a tax  advantage over the existing                                                                    
     tax credits.   That's the way it's  been interpreted in                                                                    
     practice, but the  language of the bill  is awkward and                                                                    
     has been problematic for 20 years that I'm aware of.                                                                       
REPRESENTATIVE  SADDLER said  he  is trying  to envision  whether                                                               
there might be a circumstance  under which a developer may expand                                                               
across  the borders  of  two municipalities  and  how that  might                                                               
affect the  application of  this exemption.   For  example, there                                                               
may be a pipeline or railroad  that is subject to taxation in one                                                               
municipality but not another.                                                                                                   
9:07:54 AM                                                                                                                    
MR. MCGEE  said the  products pipeline for  Tesoro goes  from the                                                               
Kenai Peninsula  to the Port of  Anchorage.  He said  it has been                                                               
handled in a  straightforward manner, but there  is the potential                                                               
that the City of Kenai could  decide to exempt its portion of the                                                               
pipeline while  Anchorage would tax  its portion.  He  said there                                                               
have always  been issues regarding  the valuation of one  part of                                                               
an infrastructure  over another.   He said Alaska's  boroughs are                                                               
large enough  that borders  are not  issues as  is common  in the                                                               
Lower 48.                                                                                                                       
9:09:01 AM                                                                                                                    
MR. HILYARD  concurred that the  language in statute  is awkward.                                                               
He offered some background information  pertaining to its origin.                                                               
He  said the  proposed language  on page  2, lines  11-16, [which                                                               
includes  the   mention  of   the  six-month   provision]  "would                                                               
discourage a situation where ...  a business might be offered the                                                               
exemption in  one municipality;  another municipality  could come                                                               
along six  months later  and offer an  even sweeter  property tax                                                               
exemption  and   draw  that  away  from   the  existing  original                                                               
municipality."  He said that is  conjecture, but he can "see that                                                               
language envisioning that circumstance."                                                                                        
REPRESENTATIVE  SADDLER suggested  that  if it  is existing  law,                                                               
then "if it ain't really broke that bad - don't fix it."                                                                        
9:11:36 AM                                                                                                                    
REPRESENTATIVE  SADDLER   asked  if  there  were   any  potential                                                               
projects to which  the Municipality of Anchorage  might apply the                                                               
proposed legislation.                                                                                                           
9:12:29 AM                                                                                                                    
CHRIS  SCHUTTE,  Director,  Office   of  Economic  and  Community                                                               
Development (OECD),  Municipality of Anchorage, called  HB 156 an                                                               
exciting piece of  legislation for Anchorage.   The proposed bill                                                               
would  modify  the optional  property  tax  exemption portion  of                                                               
state statute that  would give the Municipality  of Anchorage the                                                               
flexibility in  creating some community and  economic development                                                               
incentives that  will help it  achieve some of its  community and                                                               
economic development  goals.   Regarding the  previous discussion                                                               
about  creating competition,  he  said it  is entirely  possible,                                                               
though  "largely not  what we're  interested in,  in the  City of                                                               
Anchorage."    He  noted  that there  were  other  entities  from                                                               
Anchorage signed up to testify.                                                                                                 
MR. SCHUTTE said  one area of focus  for OECD is to  find ways to                                                               
help projects  within the Municipality  of Anchorage  "get across                                                               
the  finish  line."    He  said  there  are  a  number  of  local                                                               
businesses that are  looking for opportunities for  growth.  Some                                                               
of the challenges  inherent in developing in  Anchorage include a                                                               
shortage of  easily developable land  and a need to  get creative                                                               
in  redevelopment,  also  called   infield  development,  in  the                                                               
9:14:52 AM                                                                                                                    
MR. SCHUTTE said the proposed  legislation would give the City of                                                               
Anchorage the  authority to create  local incentives  specific to                                                               
the  community's  needs,  for  example,  to  encourage  mixed-use                                                               
development  in-field sites  in the  city that  are difficult  to                                                               
develop or  for economic development  projects that have  a long-                                                               
term payout  for the  community but don't  quite "pencil  out" in                                                               
the  short  term.   He  gave  an  example  of the  Odom  Beverage                                                               
Distribution Company  - a  national company  with Alaska  roots -                                                               
that  is  looking   to  consolidate  to  a   single  location  in                                                               
Anchorage.  The  company has found land on a  former concrete and                                                               
gravel  site,  but  it  is  not  in  good  condition.    If  this                                                               
legislation had  already been enacted,  it could have  helped the                                                               
project in the amount of  $4.5 million.  Without the legislation,                                                               
the  company had  to consider  the long-term  benefits and  costs                                                               
that  could put  the  project out  of reach.    Mr. Schutte  said                                                               
another  example  is  the  Cook   Inlet  Housing  Corporation  in                                                               
Anchorage, where the  cost for housing is high,  and the proposed                                                               
legislation  could help  the city  incentivize  certain types  of                                                               
development, such as dense development  that builds up instead of                                                               
out, and  thus make better utility  of the land that  is left and                                                               
to encourage that outcome through incentives.                                                                                   
MR. SCHUTTE  said OECD is  excited to see  HB 156 supported.   He                                                               
said it  is step one  of a two-step  process; the second  step is                                                               
the work  with the  local community  to truly  identify community                                                               
development  goals and  objectives  and to  craft  a program  and                                                               
criteria specific to local needs.                                                                                               
9:17:47 AM                                                                                                                    
REPRESENTATIVE DRUMMOND  questioned how an operation  such as the                                                               
aforementioned Dave & Buster's would  have met the requirement of                                                               
this  bill   had  it   passed  previously.     She   offered  her                                                               
understanding  that Dave  & Buster's  is  an entertainment  place                                                               
built in a mall.                                                                                                                
MR. SCHUTTE  responded that one  of the most  valuable components                                                               
of the bill  is on page 2, beginning on  line 27, in subparagraph                                                               
(C), which read as follows:                                                                                                     
                         (C)  an  exemption or  deferral  on                                                                
     the property  enables a significant  capital investment                                                                
     in physical infrastructure that                                                                                        
                              (i)  expands the  tax base  of                                                                
     the municipality; and                                                                                                  
                              (ii)  will  generate  property                                                                
     tax revenue after the exemption expires                                                                                
MR.  SCHUTTE said  the language  would  allow the  city to  craft                                                               
incentivizing language  that would  help properties  redevelop or                                                               
develop   by   offsetting   some  of   the   mandatory   physical                                                               
infrastructure expenses.   He offered information  regarding Dave                                                               
& Buster's as follows:                                                                                                          
     What ended up  happening is they ...  were not required                                                                    
     to  do   the  off-site  infrastructure   we  originally                                                                    
     predicted  they would  need to  do,  but originally  it                                                                    
     looked  like  there  was  going  to  need  to  be  some                                                                    
     upgrades  to both  sewer, transportation  network -  so                                                                    
     the  road  network,  et  cetera  -  lots  of  off-site,                                                                    
     public-facing  infrastructure needs  that unfortunately                                                                    
     ...  fell  to  the  project itself  since  it  was  the                                                                    
     trigger for  these mandatory upgrades.   At the  end of                                                                    
     the day, it  worked out to where Dave  & Buster's would                                                                    
     not  require that,  so this  particular  clause of  the                                                                    
     bill would  not have  been triggered.   But  ... that's                                                                    
     how sometimes a redevelopment  project or a development                                                                    
     project within  an existing facility might  trigger one                                                                    
     of the clauses.                                                                                                            
REPRESENTATIVE DRUMMOND noted that  Mr. Shutte had mentioned that                                                               
Odom  Beverage  Distribution  Company  had found  that  road  and                                                               
utility work  would have put  their consolidation project  out of                                                               
reach.   She offered her  understanding that the  Natural Pantry,                                                               
which  built  a   store  at  Thirty-Sixth  and   A  Streets,  [in                                                               
Anchorage], had  to build  the access road  around the  U.S. Post                                                               
Office,  even though  it was  not part  of their  property.   She                                                               
asked if the  proposed legislation would have  helped the Natural                                                               
Pantry, if it had been in place at that time.                                                                                   
MR. SCHUTTE  answered that is  correct.   He said because  of the                                                               
location  of the  Natural Pantry,  a number  of mandatory  public                                                               
infrastructure upgrades were required, the  cost of which fell to                                                               
the project itself.  He estimated  that the road was $1.5 million                                                               
of unanticipated  costs, and  that is  something that  could have                                                               
been absorbed through  a property tax abatement  or deferral plan                                                               
that would be allowed under HB 156.                                                                                             
REPRESENTATIVE  DRUMMOND   questioned  whether   a  retroactivity                                                               
clause could be  added to HB 156 that would  help businesses such                                                               
as [the Natural Pantry] after the fact.                                                                                         
MR. SCHUTTE emphasized his reluctance  in trying to establish the                                                               
criteria  for retroactively  granting property  tax abatement  or                                                               
REPRESENTATIVE DRUMMOND  said, "Okay,  then I  don't want  to get                                                               
you in trouble."                                                                                                                
9:21:53 AM                                                                                                                    
REPRESENTATIVE  SADDLER stated  his understanding  that under  HB
156,  cities  would have  the  option  whether  or not  to  grant                                                               
exemptions or deferrals.  He  further expressed his understanding                                                               
that "there's no specific requirement  of a detailed finding that                                                               
the  net financial  benefits of  a property  tax exemption  under                                                               
this bill  would ever have to  provide a net benefit  in terms of                                                               
tax revenue."  He said, "Tax revenue  is not the only or even the                                                               
most important measure  of the benefits of a law."   He asked Mr.                                                               
Shutte,  "In your  purview, are  the gaining  of jobs  - economic                                                               
activity, giving  people something to do,  less tangible benefits                                                               
of this kind of  law - might those have a  more effective or more                                                               
beneficial economic  development impact  than solely  the measure                                                               
of increasing property tax or deferral of property taxes?"                                                                      
MR.  SCHUTTE answered  that  the  power under  HB  156 to  exempt                                                               
taxation  would  fall  to  local   jurisdictions,  as  would  the                                                               
requirement  that they  craft their  own  criteria for  measuring                                                               
success.   He said the City  of Anchorage has not  done this yet,                                                               
but  it  would  have  clearly established  criteria  as  well  as                                                               
metrics  for evaluating  any proposal  for tax  abatement or  tax                                                               
deferral so that  the city can measure both  the long-term impact                                                               
on  the  community, as  well  as  the long-term  benefit  through                                                               
increased  property taxation,  jobs,  growth  in other  receipts,                                                               
such as personal property tax,  businesses that keep inventories,                                                               
or  businesses that  would "trigger  any one  of the  other taxes                                                               
locally."   He said he  thinks that each jurisdiction  would have                                                               
to do  its own  due diligence  and have  its own  methodology for                                                               
evaluating proposals as they are  submitted in order to take into                                                               
account all of the underlying economic benefit.                                                                                 
9:24:17 AM                                                                                                                    
BILL   POPP,   President/CEO,  Anchorage   Economic   Development                                                               
Corporation (AEDC),  testified in support  of HB 156.   He stated                                                               
that AEDC  believes HB 156  would provide an important  tool that                                                               
has been  missing from the  tool box in  terms of the  ability of                                                               
Anchorage to attract  new lines of investment  in businesses that                                                               
currently do  not exist  in the  city.  He  said he  has numerous                                                               
years of experience  with the related state statute;  when he was                                                               
a member  of the Kenai  Peninsula Borough Assembly in  the latter                                                               
half of the  '90s, he sponsored and supported the  adoption of an                                                               
economic   development  code,   in  addition   to  the   existing                                                               
ordinances of Kenai,  that mirrors the language [of  HB 156], and                                                               
he  offered  his  understanding  that "it  has  never  been  used                                                               
effectively in the  history of that ordinance."   He posited that                                                               
that points to the failure of  the current statute in its ability                                                               
to do what  was intended.  He offered his  understanding that the                                                               
Municipality of Anchorage has had  no successful use of the state                                                               
statute either through its own municipal code.                                                                                  
MR. POPP said when looking  at the national landscape of economic                                                               
development strategies, there  is a mixed bag of  tricks in terms                                                               
of incentives throughout the  country; however, those communities                                                               
that  are  thoughtful  in their  use  of  transparent  incentives                                                               
targeted to incur new economic  development and create jobs and a                                                               
new  tax base  have balanced  and  successful results.   He  said                                                               
successful  programs often  include  full details  of a  proposed                                                               
project  - including  construction and  operation costs,  dollars                                                               
invested,  jobs  created,  direct  and  indirect  impact  to  the                                                               
community offering  the incentive -  and they report  annually to                                                               
the government  and community during  the life of  the incentive,                                                               
in terms of how they are  proceeding and how successful they are.                                                               
He said another element is  the inclusion of claw-back provisions                                                               
in the event  that the development does not  perform as proposed.                                                               
Mr. Popp  stated that successful business  attraction efforts are                                                               
not  lead  by  incentives;  incentives   are  "a  last  piece  of                                                               
discussion in the overall dialogue  between companies looking for                                                               
a  location  [in  which]  to invest  and  communities  trying  to                                                               
attract that investment."                                                                                                       
MR. POPP continued as follows:                                                                                                  
     Incentives help  with the bottom  line if  the proposed                                                                    
     project  is challenged  by economics.   And  we believe                                                                    
     that  this  tool is  vital  in  Anchorage's ability  to                                                                    
     attract new  investment to our  community, not  so much                                                                    
     in the  existing lines of  business, such as  retail or                                                                    
     restaurants, national  chains -  things like  that, but                                                                    
     more in  terms of  bringing in  new lines  of business,                                                                    
     such as the  work we are doing in  partnership with the                                                                    
     international  airport  system  trying to  attract  new                                                                    
     lines of business that put  things on airplanes here in                                                                    
     Anchorage.  With  the incredible asset that  we have at                                                                    
     the airport of  five to six hundred  wide-bodied jets a                                                                    
     week, an  incentive could be  very valuable  when we're                                                                    
     trying  to bring  in  new lines  of  business that  are                                                                    
     looking  to   put  things   on  airplanes   and  taking                                                                    
     advantage of  the logistics supply  chain that  we have                                                                    
     here  but where  our project  economics are  incredibly                                                                    
     challenged  by our  high cost  of  doing business,  our                                                                    
     still  relatively  tight  labor markets,  the  cost  of                                                                    
     finding locations  and building  up those  locations to                                                                    
     service the  business - all of  these different factors                                                                    
     can come  into play  when [an]  incentive could  be the                                                                    
     final piece of the puzzle  that helps tip the economics                                                                    
     of the project into  a profitability state, which would                                                                    
     then  generate   the  economic  activity   through  the                                                                    
     investment and the jobs created.                                                                                           
MR.  POPP expressed  AEDC's  hope that  the  House Community  and                                                               
Regional  Affairs Standing  Committee would  pass HB  156 forward                                                               
and that the legislature would  ultimately pass the proposed bill                                                               
to  support local  municipalities  in dealing  with the  economic                                                               
challenges  of the  state and  to expand  their economies  in the                                                               
9:29:15 AM                                                                                                                    
CO-CHAIR PARISH  asked what the  longest municipal  tax exemption                                                               
duration is that Mr. Popp would anticipate.                                                                                     
MR. POPP  answered that the  duration is not necessarily  the key                                                               
element,  although there  needs to  be some  flexibility in  that                                                               
regard.  He said there are  some projects of a significant nature                                                               
that could  require 10 to  20 or  more years, depending  on costs                                                               
and challenges.   Conversely, he said he believes  there are many                                                               
projects that could  benefit from just a 3-  to 5-year incentive.                                                               
He  said  he thinks  the  "sweet  spot"  in  terms of  length  of                                                               
incentive  must  be  decided   through  discussions  between  the                                                               
community and the  entity seeking the incentive,  and there needs                                                               
to be a balancing of the overall economics.                                                                                     
9:30:58 AM                                                                                                                    
MR.  POPP,  in  response  to a  request  for  clarification  from                                                               
Representative Saddler,  explained that  he had  previously meant                                                               
that both Anchorage  and Kenai had a set  of municipal ordinances                                                               
that mirrored state statute but  had had no success in "deploying                                                               
that particular  language for  an economic  development project."                                                               
He said he is  aware of a couple projects that  have been done in                                                               
Anchorage using  "the deteriorated  property statute and  code of                                                               
ordinance that has been adopted  within the municipality," but he                                                               
said those  have been  challenging because he  opined it  was not                                                               
the right  path, although  it was  the only  path available.   He                                                               
said  a much  cleaner process  could have  occurred if  there had                                                               
been  more  effective  economic  development  language  in  state                                                               
statute that could  then have been mirrored in  municipal code of                                                               
ordinances.  In  response to a follow-up question, he  said if HB
156 passes, he  would partner with the  Municipality of Anchorage                                                               
to   develop  an   ordinance  if   that  is   the  will   of  the                                                               
administration and  the assembly, and  AEDC would be in  favor of                                                               
having  the discussion  to determine  whether  or not  a code  of                                                               
ordinance could  be adopted  to "make this  tool available."   He                                                               
surmised other communities would do the same.                                                                                   
REPRESENTATIVE SADDLER  expressed support  for HB  156 as  a good                                                               
thing  for the  state and  its  communities, and  he thanked  Mr.                                                               
Hilyard and the bill's prime sponsor for bringing it forward.                                                                   
9:34:08 AM                                                                                                                    
JEFF  JUDD, Executive  Vice President,  Real  Estate, Cook  Inlet                                                               
Housing  Authority (CIHA),  characterized  HB 156  as a  valuable                                                               
tool  to  municipalities  to encourage  and  fund  infrastructure                                                               
costs associated  with economic  development opportunities.   The                                                               
proposed  legislation would  allow  local  governments to  tailor                                                               
funding  mechanism  as needed.    He  said public  infrastructure                                                               
improvements,  such as  road  improvements,  water, sewer,  storm                                                               
drainage, are the burden of  local jurisdictions, which will fund                                                               
those improvements  eventually.   The proposed  legislation would                                                               
allow private  developers the opportunity to  fund those projects                                                               
at a lower  rate, and the result is that  projects could get done                                                               
now  rather than  five  or  ten years  from  now  when the  local                                                               
government has the funding to complete the projects.                                                                            
MR. JUDD noted  that CIHA has approximately 13  properties in the                                                               
Spenard neighborhood,  in Anchorage, between Spenard  and Thirty-                                                               
Sixth  Avenue where  there is  a  redevelopment effort  involving                                                               
housing  and  retail areas  occurring.    He said  acquiring  the                                                               
properties involved purchase  from individual owners, demolishing                                                               
older properties,  and significantly  improving public  roads and                                                               
water, sewer,  and drain  facilities to meet  current code.   The                                                               
cost of that upgrade is  approximately $1 million, which can make                                                               
a  project  like this  unfeasible  without  some type  of  public                                                               
support.  Mr. Judd indicated  that the effort being pursued would                                                               
result  in  "total  development   outcome  of  approximately  $20                                                               
million on  these sites,"  with a  public infrastructure  cost of                                                               
approximately $1 million,  which - short of  incentives and other                                                               
tools that the local government might  be able to provide - would                                                               
likely result  in an unfeasible project  - at least in  the short                                                               
term.   He concluded  that HB 156  would provide  the opportunity                                                               
for municipalities  to abate the  property taxes for a  period of                                                               
time determined  by the  local government,  and this  would allow                                                               
developers to  monetize the abated  taxes in the form  of private                                                               
debt, which would then fund the public infrastructure.                                                                          
9:39:36 AM                                                                                                                    
REPRESENTATIVE  DRUMMOND expressed  delight  in  the progress  of                                                               
CIHA's  project, which  she said  she  sees every  time she  goes                                                               
9:40:27 AM                                                                                                                    
CO-CHAIR PARISH offered his understanding  that "this wouldn't be                                                               
an exemption  available if  ... you  were going  into competition                                                               
with  other  preexisting businesses."    He  said it  seems  like                                                               
housing is being offered in  the Anchorage area, although perhaps                                                               
not in  sufficient quantity.   He asked  Mr. Judd, "Would  you be                                                               
providing  a substitute  (indisc.) service  housing to  ... other                                                               
businesses in that area?"                                                                                                       
MR. JUDD  said he does  not think so.   He said vacancy  rates in                                                               
Anchorage are  low.   He noted  that much  of CIHA's  housing was                                                               
built in the '60s, '70s, and '80s  and is reaching the end of its                                                               
useful  life   in  terms  of  quality,   energy  efficiency,  and                                                               
affordability.  He echoed Mr.  Popp's remark that the opportunity                                                               
for economic development is in  large part a function of [having]                                                               
quality, affordable,  diverse housing in  a community.   In large                                                               
part, he said, the homes  in Anchorage that have been constructed                                                               
over the  last 20 years are  single family homes that  are "often                                                               
times beyond the  financial means of ... the workers  ... who are                                                               
going to  be working at  these economic  development facilities."                                                               
The housing  that has  been made available  is in  limited supply                                                               
based  on  "limited funding  resources  ...  versus the  cost  to                                                               
actually  develop those  developments."   Mr. Judd  concluded his                                                               
response as follows:                                                                                                            
     I don't view  ... the opportunity to  utilize this bill                                                                    
     perhaps   for   housing   development  or   mixed   use                                                                    
     development      that     includes      housing     and                                                                    
     retail/commercial spaces  - I don't  really view  it as                                                                    
     competition to  the exiting  stock, because  simply the                                                                    
     types of housing  ... or mixed use  facilities that are                                                                    
     likely  to   be  developed  are  not   those  that  are                                                                    
     otherwise  being created  in Anchorage  presently, just                                                                    
     simply  due to  the  economics and  the unviability  of                                                                    
     those sorts of housing developments.                                                                                       
CO-CHAIR PARISH repeated  for Mr. Judd the question  he had asked                                                               
Mr. Popp regarding adequate length of exemption.                                                                                
MR. JUDD  answered that  the answer depends  upon the  nature and                                                               
scale  of the  development.   For  example,  a project  requiring                                                               
three to four  acreage and an over $20  million budget, including                                                               
extension  of utilities  and  road  systems, with  a  cost of  $1                                                               
million toward infrastructure, would likely  require a 10- to 15-                                                               
year abatement  of taxes  to provide adequate  time to  repay the                                                               
debt.   Notwithstanding that example,  he pointed out  that there                                                               
may be a  smaller scale project that would  require a longer-term                                                               
exemption  - it  would all  depend upon  the availability  of the                                                               
existing adjacent infrastructure.                                                                                               
9:45:32 AM                                                                                                                    
CO-CHAIR FANSLER noted  that since public testimony  had not been                                                               
noticed on  HB 156, he  would open  public testimony at  the next                                                               
hearing on HB 156, Tuesday, [March 28, 2017].                                                                                   
9:45:41 AM                                                                                                                    
CO-CHAIR  PARISH   asked  if  a  future   assembly  or  governing                                                               
authority  in a  municipality could  shorten the  duration of  an                                                               
MR. MCGEE indicated  it may depend upon the  original language in                                                               
the resolution  that created the  exemption, but said  in general                                                               
the answer is no.  He  explained, "The decision of the prior body                                                               
would  be  binding to  future  bodies  for  the duration  of  the                                                               
specific (indisc.)  set out  in the  resolution that  created the                                                               
exemption.   In response to a  follow-up question, he said  he is                                                               
not aware of  any small companies applying for  or receiving this                                                               
type of exemption.                                                                                                              
9:47:09 AM                                                                                                                    
REPRESENTATIVE  SADDLER  asked   for  clarification  regarding  a                                                               
reference in  HB 156 to  the Alaska Native Claims  Settlement Act                                                               
MR. HILYARD noted  that the reference to ANCSA occurs  on page 2,                                                               
line 9,  and is  part of  existing statute.   He deferred  to Ms.                                                               
Shutts for further explanation.                                                                                                 
9:47:55 AM                                                                                                                    
MS.  SHUTTS  said  she  was   not  certain  why  that  particular                                                               
provision exists in statute, but she  offered to find out and let                                                               
the committee know.                                                                                                             
9:48:21 AM                                                                                                                    
REPRESENTATIVE   TALERICO   offered   his   understanding   ANCSA                                                               
established  a 10-year  tax exemption  for all  ANCSA transferred                                                               
land, from  the beginning  of the  taxable property  or business,                                                               
for the  first 10 years,  and he  surmised the purpose  of having                                                               
that  language in  statute  is  to make  everyone  aware of  that                                                               
9:48:58 AM                                                                                                                    
CO-CHAIR  PARISH pointed  to [proposed  provisions in  Section 1,                                                               
subsection (m),  paragraph (1)  and paragraph  (2), subparagraphs                                                               
(A) through (C)], on page 2, lines 11-31, of HB 156, which read:                                                                
                    (1) that  has not been used  in the same                                                                
     trade or business in another  municipality for at least                                                                
     six  months  before  the application  for  deferral  or                                                                
     exemption is  filed; this paragraph  does not  apply if                                                                
     the property was used in  the same trade or business in                                                                
     an  area  that has  been  annexed  to the  municipality                                                                
     within six  months before the application  for deferral                                                                
     or exemption  is filed; this  paragraph does  not apply                                                                
     to inventories; or                                                                                                     
                    (2)  to   which  one  or  more   of  the                                                                
     following applies:                                                                                                     
                         (A)    the    property   has    not                                                                
     previously been  taxed as real or  personal property by                                                                    
     the municipality;                                                                                                          
                         (B) the  property [2] is used  in a                                                                
     trade or business in a way that                                                                                            
                              (i)[A]  creates employment  in                                                                
     the municipality;                                                                                                          
                              (ii)[B]     generates    sales                                                                
     outside  of  the  municipality  of  goods  or  services                                                                    
     produced in the municipality; or                                                                                           
                              (iii)[C]   materially  reduces                                                                
     the importation  of goods or services  from outside the                                                                    
                         (C)  an  exemption or  deferral  on                                                                
     the property  enables a significant  capital investment                                                                
     in physical infrastructure that                                                                                        
                              (i)  expands the  tax base  of                                                                
     the municipality; and                                                                                                  
                              (ii)  will  generate  property                                                                
     tax revenue after the exemption expires [AND                                                                           
CO-CHAIR  PARISH asked,  "Is that  the current  interpretation of                                                               
the  bill?   Because  I see  that  now we're  switching  it to  a                                                               
district war clause where any one of the following applies."                                                                    
MS. SHUTTES  responded that there  is currently a  subsection (m)                                                               
in  statute that  defines economic  development properties.   She                                                               
noted that paragraph  (1), on lines 11-16, has  the same language                                                               
as found  on page 3, lines  1-8 [bracketed to shows  that it will                                                               
be deleted].   She highlighted the  "or" on page 2,  line 16, and                                                           
she  said  that  one  or   more  of  the  following  subparagraph                                                               
provisions would, [under HB 156], apply from paragraph (2).                                                                     
CO-CHAIR  PARISH  asked  how  things   stand  now  under  current                                                               
MS. SHUTTS  answered that subparagraph  (C) is all  new language,                                                               
which  would, under  HB 156,  change  the requirements  currently                                                               
under  statute  regarding  economic development  property.    She                                                               
noted  that  language  on  page 2,  lines  7-8,  names  "economic                                                               
development  property" as  real  or personal  property, and  that                                                               
includes developed property, and  following that language are the                                                               
ways in which the term can be defined.                                                                                          
9:53:15 AM                                                                                                                    
REPRESENTATIVE  TALERICO expressed  appreciation for  HB 156  and                                                               
opined that "local government is  the best government" because it                                                               
is  closest to  the people  that  are most  affected by  it.   He                                                               
offered  his understanding  that Title  29 was  established years                                                               
ago  to create  a  guideline but  not to  be  a static  document.                                                               
Adjustments  can  be  made  to suit  local  governments  as  they                                                               
change.   He said most  local governments are established  to the                                                               
point of having  their public process in order  and making local,                                                               
economic decisions.   He emphasized  his support of  the proposed                                                               
legislation.   Representative  Talerico  pointed  to language  on                                                               
page 2,  line 27, which  read, "an  exemption or deferral  on the                                                           
property", and  he asked if  there was ever any  consideration of                                                           
adding language pertaining to payment in  lieu of taxes - "a spot                                                               
kind  of between  the  deferral and  between  the exemption  that                                                               
might give a municipality even more flexibility for that?"                                                                      
9:55:39 AM                                                                                                                    
MR. HILYARD answered  that payment in lieu of taxes  had, as yet,                                                               
not been  part of the  consideration; however, he said  that does                                                               
not mean  the bill  sponsor would  be opposed to  it -  the issue                                                               
could be open to discussion.                                                                                                    
REPRESENTATIVE  TALERICO referred  to  early comment  questioning                                                               
whether  there may  be  a  project taxed  at  different rates  by                                                               
different  municipalities, and  he stated  that the  Trans-Alaska                                                               
Pipeline System fits that description.                                                                                          
9:57:19 AM                                                                                                                    
CO-CHAIR PARISH  expressed concern  that one assembly  could bind                                                               
future assemblies for  an indeterminate period of time.   He said                                                               
he could conceive of a situation  in which a small town desperate                                                               
for jobs,  would ratify a 99-year  exemption for a business.   He                                                               
said being  part of  the legislature, he  views the  inability of                                                               
one legislature to bind future  legislatures as a valuable trait.                                                               
He said he is also concerned  that [HB 156] will "tip the playing                                                               
field  in  favor  of large  businesses  over  small  businesses,"                                                               
because the  large businesses  tend to have  good lobbyists.   He                                                               
said he would  be happy to work with the  bill sponsor to address                                                               
those concerns.                                                                                                                 
9:59:17 AM                                                                                                                    
REPRESENTATIVE SADDLER noted that  contributions of lobbyists are                                                               
"severely constrained by law in most cases."                                                                                    
9:59:32 AM                                                                                                                    
REPRESENTATIVE DRUMMOND  said she thinks the  committee has heard                                                               
from  numerous communities  that [HB  156] is  a missing  tool in                                                               
their tool boxes.   She noted that the prior  bill was introduced                                                               
at the end  of the two-year legislature, late in  the session, so                                                               
it did  not go anywhere.   She expressed  hope that HB  156 would                                                               
progress, and she stated her support  for the proposed bill.  She                                                               
offered her belief that local  municipalities have the ability to                                                               
make  economic development  decisions, and  the public  will give                                                               
its feedback  if it  thinks a  municipality is  about to  make an                                                               
error in giving too large an exemption to a project.                                                                            
10:00:48 AM                                                                                                                   
CO-CHAIR FANSLER announced that HB 156 was held over.                                                                           

Document Name Date/Time Subjects
HB 156 Fiscal Note CED.pdf HCRA 3/23/2017 8:00:00 AM
HB 156
HB 156 Legal Memorandum School Funding Language.pdf HCRA 3/23/2017 8:00:00 AM
HB 156
HB 156 Municipal Tax Exemption Explanation.pdf HCRA 3/23/2017 8:00:00 AM
HB 156
HB156 Comparison.pdf HCRA 3/23/2017 8:00:00 AM
HB 156
HB0156A.pdf HCRA 3/23/2017 8:00:00 AM
HB 156
HB156_AEDC Support.pdf HCRA 3/23/2017 8:00:00 AM
HB 156
HB156_CityofSeward Support.pdf HCRA 3/23/2017 8:00:00 AM
HB 156
HB 156 Sponsor Statement.pdf HCRA 3/23/2017 8:00:00 AM
HB 156
HB 166 Support Letter 3-22-17.pdf HCRA 3/23/2017 8:00:00 AM
HB 166
HB 166 Sponsor statement.pdf HCRA 3/21/2017 8:00:00 AM
HCRA 3/23/2017 8:00:00 AM
HB 166
HB 166 lttrs supporting.pdf HCRA 3/21/2017 8:00:00 AM
HCRA 3/23/2017 8:00:00 AM
HB 166
HB0166A.PDF HCRA 3/21/2017 8:00:00 AM
HCRA 3/23/2017 8:00:00 AM
HB 166
HB 166 Fiscal Note CED.pdf HCRA 3/21/2017 8:00:00 AM
HCRA 3/23/2017 8:00:00 AM
HB 166