Legislature(1997 - 1998)
04/24/1998 01:07 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 324 - MUNICIPAL LIEN FOR UTILITY IMPROVEMENTS Number 0025 CHAIRMAN GREEN said the committee would hear HB 324, "An Act relating to liens for municipal assessments for certain utility improvements." Before the committee was CSHB 324(L&C). Number 0050 DAVID STANCLIFF, Legislative Assistant to Representative Scott Ogan, Alaska State Legislature, presented CSHB 324(L&C) on behalf of the prime sponsor, Representative Ogan. He informed the committee that Representative Ogan had received telephone calls from his constituents last year from older citizens in the Valley who were not able to hook up, did not want to hook up, and could not meet the assessments being levied on them as a result of the Enstar gas pipeline projects that have been expanding in the Valley. He pointed out that they talked to the borough and the borough told them that they would like to grant some sort of deference to the older citizens, but they don't have clear statutory to do that. Representative Ogan introduced this bill originally to accomplish that purpose. He said they started out with a conservative approach, which would have affected many local improvement districts (LID) in the state with regard to funding and bonding. He explained that the House Labor and Commerce Committee changed the approach of the bill to simply enable local governments to grant relief, if they so choose, to people who couldn't afford the assessment by deferring down the line until the property finally changed hands, and at that time the assessment would be satisfied. CHAIRMAN GREEN asked if there would be any possibility that the ordinance would be such that there would be interest accrual that at the end of this time, ten years from now, the debt would be so large that they would automatically have to take over possession of a person's house. MR. STANCLIFF responded that, absent any legislative direction contrary to that, there is always a possibility that local government may set up a system that does in fact do that. CHAIRMAN GREEN asked if that has ever happened before. MR. STANCLIFF replied it has never happened. He commented that if this committee wants to consider further language to prevent that, it would be a policy call. However, at this point, Representative Ogan just wants to gain the authority. He noted that they received a letter from the Older Persons Action Group who initially had concerns with this bill because they thought it applied to property taxes, which it does not. The bill applies specifically to LID assessments and the Older Persons Action Group has since asked for that letter back and has sent Representative Ogan's office another letter supporting HB 324. Number 0259 REPRESENTATIVE CON BUNDE referred to property taxes stating that at some time it could eat up the price of the property. He said a person can get their taxes deferred for a while, but someone has to pay. His concern is that when a development like this is done, the money is spread out over all the people who would benefit. He said if the legislature allows the municipalities to exempt a person, it would accrue some kind of expense and then the municipalities would go back to the legislature saying it's a nonfunded mandate because they would tell the municipalities that they have to rebate. CHAIRMAN GREEN said the word "may" probably would avoid that being an unfunded mandate. REPRESENTATIVE BRIAN PORTER advised the committee that this bill is not a mandate, and it is a "may" and it leaves the opportunity for the municipalities to set up whatever system they like. He said he would be very surprised if the municipalities picked the option of accruing interest. He said, "I think the more of these kinds of things that we can provide, and I'd be happy to add to this the local option for senior property tax exemption, but I know that that wouldn't probably be appreciated by the sponsor, but those kinds of things need to be optional within the cities. They're the ones that are faced with paying those amounts or not having the revenue." He indicated he believes this is a very good proposal. REPRESENTATIVE NORMAN ROKEBERG noted that Representative Bunde brought up a point that he thinks can be solved by any deferral of the amounts of assessment. He said there are various different devices that a municipality can use, one of which would be to set up either a sinking fund inside of the amount of the gross assessed area, or they could actually pay that amount to make it equitable to the other assessees in the area. He said then they'll have a lien on the property which could go back into the general fund to reimbursement them for that whenever that property was alienated and the lien follows with the title of the land. Eventually, at a certain point, the municipality would be reimbursed for that amount. He doesn't think it will create an undo burden because there are several financial mechanisms that could be put in place to overcome that problem. He expressed that the bill is narrow in scope because it's specifically regarding the property of a primary residence. He indicated this bill is a good one that compromised everything and that it should have the support of the committee. REPRESENTATIVE JEANETTE JAMES apologized for being late and asked if there was a particular situation that prompted the sponsor to introduce this legislation. MR. STANCLIFF said credit is due to a very thorough and dedicated constituent, Katherine Hamilton (ph). He informed the committee she is a long-time Alaskan and that her husband passed away some years ago. She has a modest home, still chops her own wood and takes care of herself, and was incensed that she was going to have to spend $6,000 because Enstar built a gas line across her property and she couldn't afford it. He explained that they received several telephone calls from other people who couldn't afford the assessment up front and the borough informed Representative Ogan's office that they had no authority to set up a system to defer or deal with indigent people or people in need who asked them to do something about it. REPRESENTATIVE JAMES referred to the gas line Mr. Stancliff was talking about and asked if the gas line was put in by an LID as opposed to purchasing any kind of an easement on private property. MR. STANCLIFF answered in the affirmative. REPRESENTATIVE BUNDE said, "I understand this is permissive and maybe I can impose on Representative Rokeberg's expertise, but it costs "X" amount of dollars to put this in when they assess the various people if people pay a prorated share. If you have some people that the municipality opts out, do they raise the prorated share for the other people that are affected by this, or does the municipality somehow eat the cost and pick it up later?" Number 0725 CHAIRMAN GREEN said what he thinks Representative Rokeberg is saying is that there are several options and that might be one. They could do it either way they wanted to. REPRESENTATIVE BUNDE said it's not a nonfunded mandate on the municipality; it's a potential nonfunded mandate on people that could be in an LID. REPRESENTATIVE JAMES stated that this is a standard procedure that she's seen happen in lots of areas. She commented that the municipalities would be very careful when they did this to be sure that the people who know that they have an exemption knows what the cost is. REPRESENTATIVE ROKEBERG reiterated that there are several financial mechanisms, one of which would be for the (indisc.) pay the money out and then (indisc.) for it later, that way any of the other individuals assessed would not have to pay an unallocated share of that gross amount under the project. He said the legislature has kind of seeded some authority to the private sector to create these LIDs. CHAIRMAN GREEN indicated that his concern about having a proration among the other assessees is that you get into sales of those properties, not the one that's not paying. He stated he thinks it would kind of get mired up on payback. REPRESENTATIVE ROKEBERG said given the recordation system in most of the judicial districts and how it works is that this would be a lien against the property which would travel with the title, so any time there was alienation or sales of that, then there wouldn't be a payoff. REPRESENTATIVE ETHAN BERKOWITZ asked when the assessment becomes due, when the property ceases to be owned by the resident, who pays for it? CHAIRMAN GREEN noted that Representative Rokeberg talked about a variety of ways that can be instituted from a partial assessment to others, to holding it in reserve, to the municipality holding that in abeyance as a lien against the property in future payments. He said there are several different ways that that could be handled, and the question that was probably as important or more is, "Does that withheld payment accrue interest?" REPRESENTATIVE BERKOWITZ gave an example that when grandparents pass on property to grandchildren, they are not necessarily in a position that they can afford the house so they've got to sell the family homestead in order to make back taxes. He said he's seen family farms and homes go that way and it seems to him that "too bad" is just not the answer they should leave folks with. Number 1132 CHAIRMAN GREEN referred to Representative Berkowitz's example and said if they didn't have that option, at least they have an option. If ten years earlier the grandparents couldn't have paid the assessment, they would have lost the homestead ten years earlier. This bill at least defers it until the time that maybe the grandchildren could come up with the money. REPRESENTATIVE BERKOWITZ said, "If, for example, there's a dispensation for elderly residents so they don't have to pay even though they might have the means to pay. They choose to accept this deferral; they pass on. Then this lien attaches at the same time inheritance taxes come due on everything, that's a big sock for someone to swallow. When you're inheriting a $100,000 house with $5,000 worth of deferred payments on it, the estate taxes - I want to say 40 percent, or something extremely high - so you've got to come up with $40,000 to cover the estate tax, plus $5,000 to cover this deferred assessment; $45,000 is a sizeable chunk of change even for someone who's not young and getting started." CHAIRMAN GREEN asked Representative Berkowitz what he would suggest as a way around the problem he just described. Just ignore the tax? REPRESENTATIVE BERKOWITZ replied that the problem of inheritance tax isn't something that the committee can solve, but it's something they shouldn't ignore either. CHAIRMAN GREEN explained that the CSHB 324 doesn't ignore it, it doesn't even address it. It's talking simply about improvements that the person who has the property either is elderly or not capable financially of paying. REPRESENTATIVE BERKOWITZ he said if the municipality wants to defer the tax, that just passes the tax burden onto someone else. If the municipality wants to excuse the tax, that's something else. He said to excuse a tax burden is a decision the municipality should make. He stressed that inheritance tax isn't something the legislature can "tinker" with, but when both taxes are due simultaneously, it's a problem for a lot of people. Number 1230 REPRESENTATIVE JAMES said people who are economically disadvantaged and not able to pay the LID certainly aren't going to have an estate that would be having inheritance tax on it. She stated that there's a huge exemption for inheritance tax. She referenced LIDs stating that her understanding is that the cost of that is generally comparable to the improvement on the property, and that's the reason people want these kinds of things. She commented that she is not in favor of doing any kind of excusing because you excuse the person who can't pay, but you don't excuse the property because the property is improved by the LID. That's the point of having one in the first place. She stated that the argument to excuse them is not a good argument and it is still up to the municipality and this bill can deal with it any way they want to, therefore, she doesn't know why the legislature should care. CHAIRMAN GREEN pointed out it has been mentioned in committee on a number of occasions that they should not micro-manage municipal affairs, which this legislation does not do. He said it just allows the municipalities to do their own thing. Number 1338 REPRESENTATIVE PORTER made a motion to move CSHB 324(L&C) out of committee with individual recommendations and the attached zero fiscal note. REPRESENTATIVE BERKOWITZ objected. He said the discussion he has heard in committee today seems to combine the elderly and economically disadvantaged, which is not what the legislation says. He pointed out that it says "elderly or economically disadvantaged." He indicated that's why the tax bill that comes due upon a person's death is particularly important. He said the legislature does a lot to promote family values, and family properties is an important component. He said, "And if we're setting up a situation where families are forced to get rid of family property in order to pay back taxes or back assessments, I have a hard time reconciling it with the family values we talk about all the time." Number 1401 CHAIRMAN GREEN stated if the word "and" was put in, then you've got to qualify both ways, and that certainly could reduce the number of people who either would be economically disadvantaged or are elderly and living.... He said, "You're saying they've got to be old and broke, and that may be too high of a standard." REPRESENTATIVE PORTER emphasized that the intent of the bill is not being communicated. He explained that the intent is to forestall an economically disadvantaged person or an elderly person who may not be at poverty level from losing their property. He said the threshold for inheritance tax is quite high and he doesn't think that anyone who would fall under this category would have inheritance tax as a consequence in their estate. He stated, "If they're elderly, they're not going to have a big amount of this build up because they're going to die. If they're disadvantaged, then we're going to save their property for them. It's an LID, which isn't a whole lot, which increases the value of the property as been discussed, so if you inherit it you should pay that off because the value that you just inherited is higher." Representative Porter stressed that the whole idea of the bill is to provide a safeguard against a person losing their property. REPRESENTATIVE BERKOWITZ commented that that's admirable, but only half of the problem has been solved. REPRESENTATIVE ROKEBERG pointed out that the threshold for any inheritance tax under the Internal Revenue Code (ph) has been raised to $625,000 and will go up on a ratchet basis in the future up to a cap of well over $1 million. He said anyone who goes over that wouldn't need this provision. He said, "If you have an exemption here, this would be the form of what we talked about in terms of you could perceive it as a mandate." He indicated he doesn't believe that is the message that the sponsor or the committee wants to send. He referred to Representative James comments about improving the valuation of the property with the improvement. He said it depends on the scope of the improvement, the size of the property and other factors that could be variable, so it's not necessarily a one-to-one valuation increase. In total, there is an enhancement of the property, which he feels would more than not generally offset, in particular, gas lines and utility lines. Number 1617 CHAIRMAN GREEN asked for a roll call vote on the motion made by Representative Porter. Representatives Bunde, James, Porter, Rokeberg, and Green voted in favor of the motion. Representative Berkowitz voted against it. Representative Croft was absent. Therefore, CSHB 324(L&C) moved from the House Judiciary Standing Committee on a vote of 5-2.
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