Legislature(1997 - 1998)
03/18/1998 03:24 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 399 - EXEMPT/DEFERRAL DETERIORATED PROPTY TAX Number 0005 CHAIRMAN ROKEBERG announced the committee's next order of business was HB 399, "An Act relating to an optional exemption from, and deferral of payment of, municipal taxes on deteriorated property, and defining 'deteriorated property' for purposes of the exemption or deferral; and providing for an effective date." Number 0021 REPRESENTATIVE RYAN, the bill sponsor, presented HB 399. He noted it was a four-paragraph bill which would add a tool to Title 29, indicating that the states of West Virginia, Missouri, Arizona, Florida, and New York have done the same thing. He said it basically "puts another tool in the box" of a municipality; it is an option, nothing requires the municipality to do anything. Representative Ryan noted this is related to deteriorated property, indicating this type of property was found quite a bit in the Lower 48 because of rent control. He said owners could not maintain buildings so they took the rent, letting the buildings deteriorate until completely unserviceable, and then walked away. He gave the example of Detroit, Michigan, noting the whole downtown area had blocks and blocks of shells of buildings that were once good apartment and office buildings, commenting that it looked like Berlin after World War II. He indicated municipal governments have added a tax incentive to encourage people to renovate these types of buildings, making the structures useful again. If the building was torn down, the resulting lot lacking any improvements might generate $50 or $60 in property taxes annually, but if the building was renovated, the improvements would be there, and the property value increased substantially. The taxes and assessments would then correspondingly go up. Number 0189 REPRESENTATIVE RYAN indicated the governing body receives revenue, the neighborhood improves, and so forth; and the structure of the arrangement would be entirely up to the municipality. The governing body would have to pass an ordinance and would be acting somewhat like a banker. The property owner would come in saying, "Here's what I'd like to do, and here's what I need." The governing body would then reach an agreement with the property owner. He noted there would be a great deal of latitude; it could be done up to five years and could be renewed under conditions established by ordinance. Representative Ryan indicated there was really not a downside because nobody would be required to do anything, it would just be a tool allowing the governing body the latitude to improve the community. He commented about the large amount of information in the bill packet, referring to a "chiding" from the chairman that perhaps he had not had his staff work hard enough in the past. Representative Ryan noted there were plenty of examples from other jurisdictions where this had been done, letters of support, and a resolution in favor from the Municipality of Anchorage assembly. The sponsor statement read: The intent of this bill is to authorize local municipalities to provide for tax exemption for improvements to deteriorated real property. The concept is based on other states' local economic revitalization tax programs. Local municipalities will have the flexibility of allowing renovations of real property in order to increase the value of that real property, for tax purposes. Number 0331 REPRESENTATIVE COWDERY mentioned a locked-up, pink building in downtown Anchorage in relation to this legislation, noting he assumed taxes were currently being paid on it. REPRESENTATIVE RYAN commented he thought the estate of McKay (ph) and Sullivan (ph) was. REPRESENTATIVE COWDERY said he thought Sullivan (ph) had bought the property, and he asked if HB 399 would encourage that development if "they were encourageable." Number 0372 REPRESENTATIVE RYAN answered that, correspondingly, the "L" Street Towers, just next to 501 "L" Street, was an exact duplicate of the McKay (ph) building. REPRESENTATIVE COWDERY indicated he was in Anchorage when both buildings were built, and during the 1964 earthquake. Number 0387 REPRESENTATIVE RYAN stated that then the building should be structurally sound. He said, according to some information he had received, someone from the state of New Jersey bought the building for $25,000 from the bank in Seattle and surreptitiously removed the asbestos, which, he said, was now in the borough landfill. He indicated the building was now a much more attractive renovation prospect and would be a prime example of how a deteriorated property could be brought back into use. He noted there were a number of options - it could be an office building, condos, et cetera. It would produce an income and would certainly beautify the neighborhood. Representative Ryan said he thinks the municipality owns a couple of adjacent lots so that property would also increase in value. Number 0466 REPRESENTATIVE HUDSON said he was assuming the current statutes precluded this from happening. Number 0477 REPRESENTATIVE RYAN referred to Title 29, Section 45.050, optional exemptions and exclusions, indicating he been unable to find a exemption relating to "private property." He reiterated that this would be an option, nobody would have to do anything. REPRESENTATIVE HUDSON indicated he liked the legislation. Number 0541 CHAIRMAN ROKEBERG confirmed that there were no teleconferenced witnesses for HB 399. He asked Representative Ryan if this bill had been a request from the Municipality of Anchorage, or where it had come from. Number 0577 REPRESENTATIVE RYAN indicated it had been suggested by an individual in Anchorage, noting he had examined it and did not see where it could hurt anyone. Number 0588 CHAIRMAN ROKEBERG confirmed it had not been on the Municipality of Anchorage's list of priorities. Number 0595 REPRESENTATIVE RYAN commented that Representative Hudson's district, Juneau, would be prime for something like this since a lot of the housing had been constructed in the 1920s. Number 0605 CHAIRMAN ROKEBERG confirmed that HB 399 would provide the moratorium for real property taxes so those monies could be redirected to upgrading the properties and things of that nature, indicating he was familiar with the McKay (ph) building. REPRESENTATIVE COWDERY mentioned the "L" Street apartments. CHAIRMAN ROKEBERG noted that, questioning what the other building had been called. He commented it had formerly housed Channel 2, and that he had gone to dances there in high school. SHIRLEY ARMSTRONG, Legislative Assistant to Representative Norman Rokeberg, noted it was the McKinley (ph) building. Number 0654 CHAIRMAN ROKEBERG commented that the "rebar" and (indisc.) steel in the very heavy concrete might be in jeopardy because damage from the 1964 earthquake had not been repaired. Number 0666 REPRESENTATIVE COWDERY commented he had been in that building within the last five years and it was not structurally sound. REPRESENTATIVE HUDSON confirmed Representative Cowdery was referring to the McKay (ph) building. REPRESENTATIVE COWDERY answered in the affirmative. Number 0706 CHAIRMAN ROKEBERG stated to the committee that Steve Van Sant had signed up to testify on HB 399 via teleconference but was no longer on-line. Chairman Rokeberg asked Representative Ryan if he had spoken with the state assessor about this. REPRESENTATIVE RYAN's reply was indiscernible. Number 0747 STEVE VAN SANT, State Assessor, Division of Municipal and Regional Assistance, Department of Community and Regional Affairs (DCRA) signed up to testify via teleconference from Anchorage on HB 399 but had to leave before the bill was heard. KIM METCALFE-HELMAR, Special Assistant, Office of the Commissioner, Department of Community and Regional Affairs, came forward to testify. She stated she would read Mr. Van Sant's testimony into the record, and would be happy to forward any questions to him. Mr. Van Sant's statement read: HB 399 would allow municipalities to exempt or defer, in whole or in part, property taxes on the value of deteriorated property for a period of up to five years and allow renewal after the initial period. "Deteriorated property" has three definitions under the proposed legislation; 1) property that's been the subject of an order by a government agency requiring the property to be vacated, condemned or demolished by reason of non-compliance with laws, ordinances or regulations. Under existing law, property is to be valued at its full and true value, which is synonymous with the term "market value." If a property is suffering from the condition described in Section 1, the assessed value should also be reflective of that condition under existing law. In other words, the value, if carried on the assessment roll, should be minimal. The second definition: 2) property on which a structure or other improvement not less than 15 years of age has undergone substantial rehabilitation, renovation, or replacement, subject to conditions prescribed in the ordinance; This subsection appears to offer an exemption for property over 15 years old which has been renovated or replaced. No definition is given for what constitutes a renovation or substantial rehabilitation, however, it appears that someone remodeling a home could qualify under this exemption. The exemption also appears to be an after the fact exemption in that it is given after the condition of deterioration has been removed. This exemption will place additional tax burdens on other taxpayers for the revenue lost due to the property's renovation, even though it is receiving the same services. The last definition: 3) property located in a deteriorating or deteriorated area with boundaries that have been determined by the municipality. This subsection does not define the term, "deteriorating or deteriorated area", but could exempt property within that area. This could have the effect of exempting property which may not be deteriorated as defined in the previous two definitions, but may just happen to be in the area. Again, this shifts the tax burden to other taxpayers who are receiving the same municipal services as the affected property. Number 0906 MS. METCALFE-HELMAR noted the next subject of Mr. Van Sant's testimony had been brought up in the committee's questioning. Under existing statutes a municipality may exempt the increase of property taxes if the increase is directly attributable to new maintenance, repair or renovation, AS 29.45.050(f). And a municipality may exempt certain "economic development" property within the jurisdiction, AS 29.45.050(m). These statutes allow an exemption for which renovation action has taken place rather than the proposed bill which could conceivably allow an owner to sit on the property without any action for up to five years. Based on the fact that municipalities already have the exemption authority mentioned above, there is a question of whether or not this proposed legislation is necessary. If the legislature finds that it is, indeed, necessary, I ["Mr. Van Sant" stated by Ms. Metcalfe-Helmar on tape] would recommend that the property tax deferral be made available rather than the exemption. The deferral would assure the municipality of ultimately receiving the taxes on the property even if the property owner chose not to continue with renovation plans. With today's dwindling revenues, local municipalities need all the help they can get. A deferral of taxes would not be a total loss of these revenues. Number 0990 CHAIRMAN ROKEBERG confirmed that the committee had obtained a copy of the testimony. Number 1013 KEVIN RITCHIE, Executive Director, Alaska Municipal League, came forward to testify. He thanked the sponsor for bringing the bill forward and the spirit in which the bill was offered, noting it was offered as a voluntary property tax ordinance. He said the Alaska Municipal League policy statement says that generally voluntary property tax exemptions are acceptable, because they give the local people and community the option to decide. He said the exemption provided in HB 399 goes a bit farther than that by kind of providing an open framework so that the local community would have a lot of discretion to design something which would be most acceptable for that community. Referring to the economic development property tax exemption, he noted Juneau, for example, crafted a five-year progressive property tax exemption for construction of export industry capability. He said a downtown fish processor and a local brewery expanded, and were exempted 100 percent of their property tax increase on the new construction for five years and then that progressively decreased over a period of five years, but gave them the chance to get their feet on the ground. He said it was possible these companies might not have expanded without that incentive, or that at least they were much more eager to do so. Number 1104 REPRESENTATIVE HUDSON confirmed the Alaska Municipal League supported HB 399. MR. RITCHIE answered in the affirmative. Number 1113 REPRESENTATIVE RYAN stated he appreciated Mr. Van Sant's testimony, noting, however, that Mr. Van Sant presented a lot of suppositions. Representative Ryan brought the committee's attention to the first line of the bill, "A municipality may by ordinance partially or totally". If the municipality wants to "cut a deal," it has to answer to its voters for any loss of revenue for whatever kind of deal made; nothing at all would be mandated by this legislation. If a municipality chose to enter into something and it turned out to be a bad deal resulting in a property increase, he is sure the municipality would hear about it. He said they hear a lot of testimony from environmental organizations telling them the sky is falling because something could, or would, or perhaps might happen. He said so far he hasn't burned up from the hole in the ozone layer in 61 1/2 years and might survive another few years without doing so. Number 1190 MS. METCALFE-HELMAR noted that DCRA does not oppose HB 399; Mr. Van Sant simply wanted to point out concerns he had with the legislation. Number 1199 MR. RITCHIE commented that his reading of the bill leads him to believe the flexibility is there, as Representative Ryan stated, for a municipality to address all of those concerns. Number 1210 CHAIRMAN ROKEBERG stated he had been approached by the Municipality of Anchorage to introduce some bills. He commented that one was "Priority of Liens for Building Abatement and Demolitions," which would give a lien priority for dangerous buildings. Another one was "Real Property Tax Collection of Contaminated Property" which exempted the municipalities from taking title on (indisc.) foreclosures on contaminated properties, noting currently the state was exempt but the municipalities were not necessarily. Chairman Rokeberg asked if Representative Ryan would be interested in "tacking them on" to HB 399. Number 1265 REPRESENTATIVE RYAN stated HB 399 was a fairly simple bill, indicating he would like to transmit it to the Senate as soon as possible to see if it met with agreement there. He noted adding something else complicated the issue. Number 1276 CHAIRMAN ROKEBERG commented that they were in the same genre of municipal-type tax bills and that was his reason for bringing it up. He confirmed Representative Ryan's preference would be to keep it simple. REPRESENTATIVE RYAN answered in the affirmative, noting for the time being at least. Number 1293 REPRESENTATIVE HUDSON made a motion to move HB 399 out of the House Labor and Commerce Standing Committee with individual recommendations and the attached zero fiscal note, asking unanimous consent. Number 1309 CHAIRMAN ROKEBERG asked if there were any objections. Hearing none, he stated HB 399 was so moved.
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