Legislature(2003 - 2004)
01/20/2004 08:00 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 241-MUNICIPAL PROPERTY TAX EXEMPTION [Contains discussion of SB 36.] [Tape didn't record for the first 30 seconds, but no testimony was lost.] Number 0067 CHAIR WEYHRAUCH announced that the first order of business was HOUSE BILL NO. 241, "An Act relating to optional exemptions from municipal property taxes on residential property." Number 0110 SHARALYN WRIGHT, Staff to Representative Mike Chenault, Alaska State Legislature, presented HB 241 on behalf of Representative Chenault, sponsor. She informed the committee that HB 241 has two provisions, one of which is to give municipalities an option to provide an exemption on residential property taxes. It does not affect taxes levied in a service area. Under current law, municipalities may exempt up to $10,000 of the assessed value on any single residential property. She listed the five municipalities that offer this exemption: Bristol Bay Borough, Kenai Peninsula Borough, Fairbanks Northstar Borough, North Slope Borough, and the City of Valdez. The second provision is to increase the tax exemption on real property from $10,000 to $20,000 for volunteer firefighters or emergency medical services personnel. She deferred further statements to Gary Superman, Vice President, Kenai Peninsula Borough Assembly, who was participating via teleconference. CHAIR WEYHRAUCH asked Ms. Wright who really wanted this bill, that is, what are some of the more factual developments regarding why this bill came about. He asked why this bill is coming before the legislature now as opposed to earlier. MS. WRIGHT, in response, said the Kenai Peninsula Borough Assembly passed a resolution in 2003 that requested [Representative Chenault] submit this bill. She said she thought Mr. Superman is more qualified to answer that question. CHAIR WEYHRAUCH asked Ms. Wright if the [five boroughs previously mentioned] had any comments to make about the bill. MS. WRIGHT remarked, "None that we've been apprised of." She said the bill only gives the municipalities the authority, and it is her understanding that everyone has to have a vote of the people before that can increase. She said it only gives the municipalities the authority to do so. Number 0380 REPRESENTATIVE HOLM said he served on the Fairbanks Northstar Borough Assembly, and Ms. Wright is correct. He said he'd recently had a discussion about this [same subject], and in that discussion he was told the second part of this bill is important because it will provide the ability to give a reduction for volunteer firefighters for taxation. He said this is no different than what is done for senior [citizens]. Representative Holm said it is his understanding that Title 29 does not allow "us" to give any exemptions as boroughs, without the state's authority. He remarked, "We really care about this, but we care about it because of the fact that we can't do it under Title 29, as I understand it." CHAIR WEYHRAUCH said he has two issues with the bill, one of which is the State of Alaska's "fiddling" with municipal exemptions. The other issue is in regard to the [possible] long-term impact to other communities by doing this. He asked if the Alaska Municipal League (AML) has looked at this from a more global perspective, and whether it has any analysis or comment. MS. WRIGHT answered not that she is aware of. She said one of the prime parts of this bill is that it gives incorporated municipalities the authority to do this, not any of the villages; therefore, it would impact the state's urban areas. Ms. Wright said passing HB 241 does not mandate that this happen, rather it gives the local assembly the authority to be able to do this. She said Representative Holm correctly pointed out that Title 29 does not "give us that authority" at this point. Municipalities would have the option to do it if there is a tax surplus, if people have a disaster, or for whatever reason, she explained. CHAIR WEYHRAUCH asked about increases in the exemption amounts. He asked if there was any reason that those increased exemption amounts were picked, and if there is a study that exists that justifies those numbers. MS. WRIGHT deferred the question to Mr. Superman. She said it was not something the sponsor was involved in. Number 0660 CHAIR WEYHRAUCH said that when the legislature addresses the permanent fund dividend (PFD), it never seems to be able to say no to anyone who requests a PFD check to be sent out of state. He asked why this kind of exemption is limited to firefighting services and medical services. He asked why this exemption does not include people [in other capacities]. MS. WRIGHT stated her belief that the Kenai Peninsula Borough already gives tax exemptions to volunteer firefighters. She suggested this may be part of an emotional response to other things that "we" have no control over. She deferred the question to Mr. Superman, and she said she is not absolutely certain of the facts behind this particular exemption. CHAIR WEYHRAUCH asked if it was appropriate for local legislators, local bodies, and local people to identify what exemptions they may want as opposed to a legislature figuring out what sort of exemptions may exist. He asked why this is not opened up to everyone so the municipalities could decide. MS. WRIGHT offered her belief that this was a choice that should be made on a local level, and she said it was something that the [Kenai Peninsula Borough Assembly] had requested. CHAIR WEYHRAUCH asked if she was referring to the global exemption choice or just these specific exemptions. MS. WRIGHT, in response, said these specific exemptions. She said the supporting documents and resolution were passed by the Kenai Peninsula Borough Assembly on 04/01/03. Ms. Wright deferred the question about the reasoning behind the bill to Mr. Superman. Number 0900 REPRESENTATIVE GRUENBERG said it seemed to him that the main thrust of the bill was to increase the amount of the exemption, although the fiscal note completely omits any discussion of that. REPRESENTATIVE HOLM said this bill only has to do with the taxation of the borough and of people within the borough. He said it has nothing to do with the state. REPRESENTATIVE GRUENBERG said the analysis in the fiscal note omits any mention of that. He said that, as a matter of policy, when the administration prepares a fiscal note, it should analyze the piece of legislation in front of it. Representative Gruenberg said he is choosing this bill because it seems that this particular fiscal note doesn't talk about the main part of the bill. Number 1020 STEVE VAN SANT, State Assessor, Division Of Community Advocacy, Department of Community & Economic Development (DCED), in response to a question from Chair Weyhrauch, said the fiscal note from DCED is a zero fiscal note, and that it is his belief that the Department of Revenue has a fiscal note that shows a possible impact of close to $2 million. He said that impact comes from the possibility of all [five] municipalities increasing the exemption from $10,000 to $50,000. He remarked, "It could take about $2 million from oil and gas revenues that currently go to the state and put them back" ... Mr. Van Sant said this bill basically shifts the tax burden from residential properties to other properties. REPRESENTATIVE HOLM said it is his understanding that the shifting of the burden of that taxation is not specifically enumerated because "we have no idea where they would be able to do that or when they would do it at any given point in time." MR. VAN SANT, in response, said that's correct. He said [it isn't clear] whether [municipalities] are going to increase the exemption, and the only thing that the Department of Revenue could do was give an estimate. He said if it was increased to the total amount, it could [total] $1.8 million. CHAIR WEYHRAUCH told Mr. Van Sant that the committee did not have [the Department of Revenue's] fiscal note. Number 1154 MS. WRIGHT said this issue is being worked on, and the $1.8 million fiscal note is not correct and was not supposed to be discussed today. Number 1188 REPRESENTATIVE LYNN asked if there was anything at all in HB 241 that could set some kind of precedent that could lead to the elimination of the current senior property tax exemption and/or the disabled veteran's property tax exemption. MS. WRIGHT said it is not the intent of this piece of legislation to do anything like that. She said to the best of her knowledge it's not attached, and it does not and will not affect any senior exemption at all. Number 1264 REPRESENTATIVE GRUENBERG asked, on behalf of Representative Berkowitz who could not attend the committee meeting, if Ms. Wright could please explain why there is a restriction on this exemption with respect to funding special services in [lines 6-8 of the bill]. He asked for the reason behind the exemption for special service areas. MS. WRIGHT said it was her understanding that this exemption would not affect the taxes for special services areas. REPRESENTATIVE GRUENBERG said he understands what the bill does, the question is why. MS. WRIGHT said it is her belief that "we" can't do that by law. She deferred the question to Mr. Superman. Ms. Wright remarked, "We can't, without an additional special vote, affect the [millage] rate that affects those special services areas." REPRESENTATIVE GRUENBERG said if that's the case, the question is if [the legislature] is giving the municipality the power to exempt one type of tax, why not a tax for these other purposes if they so choose. He said it would seem to be in line with the policy behind the bill. Representative Gruenberg said he didn't see anything in Kenai Peninsula Borough Resolution 2003-035 that would request this kind of an exemption for special services. He asked, "How did that get in here from this resolution." MS. WRIGHT deferred the question to Mr. Superman. CHAIR WEYHRAUCH said the committee was not going to go into the fiscal note prepared by the Department of Revenue. He stated his understanding that the fiscal note from [DCED] is what is before the committee. MS. WRIGHT said the last fiscal note is something that was brought up recently and is not something that [the sponsor] has had the opportunity to discuss with the Department of Revenue. Number 1535 REPRESENTATIVE SEATON brought attention to page 2, line 4. He said it was his understanding that in addition to the $50,000 exemption in the first provision, there could be two additional exemptions per household of $20,000 each in the second provision, which would be a total of $90,000 in property tax exemptions that the municipality could apply. MS. WRIGHT said she thought his understanding was incorrect, but she would defer the question to Mr. Superman. She said she thought that was a cumulative effect, and if [Representative Seaton's understanding] is correct, it's not the intent of the bill. REPRESENTATIVE SEATON said he would like it clarified that the bill isn't saying that volunteer firefighters get $20,000 when everybody else gets $50,000. REPRESENTATIVE GRUENBERG said this goes back to "the fiscal note that cannot be named." He said this seems to be the last committee of referral and normally if there is a fiscal note of any consequence, the bill has to go to the House Finance Committee. Representative Gruenberg said it sounds like there is a fiscal note in progress somewhere. He said, as matter of procedure, if [the fiscal note] subsequently becomes attached and is passed from the last committee of referral onto the "floor," how can [the committee] be sure that the bill would then go to the House Finance Committee. He said he had never seen this [happen]. Number 1678 CHAIR WEYHRAUCH said Representative Lesil McGuire had a bill last year that gave an exemption to the Peace Corp; it passed out of committee without a fiscal note and, before it went to the floor, it picked up a fiscal note. He said [the bill] was given a House Finance Committee referral and then went to the floor; therefore, it has happened. He added that it happened to one of his bills as well. REPRESENTATIVE GRUENBERG asked if the leadership would pick that [bill] up and refer it. CHAIR WEYHRAUCH said every time it does "we" unfortunately get another referral. REPRESENTATIVE GRUENBERG remarked, "We won't escape." CHAIR WEYHRAUCH said it didn't escape in those two instances, but he didn't know if anyone would guarantee it wouldn't escape in a instance. MS. WRIGHT said she appreciated Representative Gruenberg's concern about [the fiscal note]. She said [the sponsor] wasn't happy when the Department of Revenue came in with a fiscal note three days ago, and she didn't think the department had a good understanding of what this bill does. Ms. Wright said she wasn't sure if it was clear [to the department] that it wasn't very fair to [surprise the sponsor] with a fiscal note three days before a hearing. She said although she deeply appreciated the committee's time, [the bill] needed to get a hearing in this committee, and that is exactly what was done. CHAIR WEYHRAUCH indicated that the reason for calendaring this [bill] as soon as possible is because it gives the agency some time to do the work. MS. WRIGHT remarked, "Exactly." Number 1794 GARY SUPERMAN, Vice President, Kenai Peninsula Borough Assembly, noted that he had [testified last year] on SB 36, which is basically the Senate's [version] of this bill, although it is a little bit different. He said Representative Chenault fit the verbiage in the bill that excludes the service area taxation. Mr. Superman said he thought the reason that [HB 241] is much more complete than [SB 36] is that the intent is to allow that exemption to come off the borough's general government services mill rate levy. For instance, he said the Nikiski borough has a six and a half mill levy for general borough government services. In addition, there are numerous service areas that are tacked on to it. Those service areas throughout the boroughs are instituted by a vote of the people. He said the intent is not to take those much needed service revenues and deplete them from their current budgets. MR. SUPERMAN explained that the Kenai Peninsula Borough currently has a unique situation in comparison to some other boroughs; although he is not intimately involved in what the general fund balances are in other boroughs. He said the Kenai Peninsula Borough currently has anywhere from $20-$23 million in its fund balance. He noted that he expected those funds to be depleted in the "not too distant future." Mr. Superman said the reason that this [bill] was brought forward was to essentially provide another "tool" to work in the borough's own budgetary process. He said the borough had seen an increase in taxable assess valuation for the last 5-6 years. MR. SUPERMAN said it averages a 5 percent increase per year with that valuation, which equates to approximately a couple hundred million dollars per year in total valuation. He said a consequence of that is that there has been a considerable increase in tax liability for those homeowner's within the borough. Some people have seen their tax rates, for all intents and purposes, double within that time period, he explained. Mr. Superman said as a reflection of that, the borough is seeing its board of equalization rolls fill up more as time goes by. He said last year was the fullest schedule he'd seen, and he'd been on the assembly for two terms, once in the late 1980s and again more recently. Number 2030 MR. SUPERMAN said he thought there would be more requests for some kind of a tax relief at the local level, which doesn't mean if this bill is passed that it is a done deal. He said it essentially brings it back to the assembly to put it back out to the public for a vote. He remarked, "Whether you think that's a done deal or not if it went to a vote, I don't know; I don't make assumptions anymore." Mr. Superman said he thought it would become a political debate at the assembly level. He reiterated his belief that the main purpose of the bill is to provide the borough with another tool, and he said the borough is seeing more liability at the local level. MR. SUPERMAN said a proposition passed this year for a hospital in the borough, which will increase the [millage] another half a mill. He explained that there will be a proposition going out in a special election in March that will ask the people to vote on a half a mill increase to fund co-curricular activities within the school district. He said this is something that is outside the cap, and a lot of residents are beginning to see some very harmful effects with their tax bills. Mr. Superman said he had always been a proponent of trying to keep taxes at a steady rate for a couple of different purposes. Mainly, he said it helps economic growth and helps people to move to the area. It helps people to raise their children in the area and put those children in local schools. He noted that the borough is in desperate need of schools at this time. MR. SUPERMAN said a big plus is a good, fair tax rate, and if the borough does not have this tool at its disposal, he thought residents would see some horrendous climbing in their tax bills. He said the AML has supported this in the past, but he couldn't say whether it was in the policy statement this year. Mr. Superman said Senator Gene Therriault had introduced a bill in 2000 that essentially had the same effect as this bill, and although that bill did not pass it is something that has been "tossed around" for some time now. He noted that there had been a few legislators who have tried to push it through. Number 2200 REPRESENTATIVE HOLM asked Mr. Superman if it is his opinion that HB 241 allows these potential exemptions without affecting the individual landowner's options of voting themselves a tax liability for whatever services that they want to pay for. MR. SUPERMAN indicated he did not understand the question. REPRESENTATIVE HOLM said Title 29 [provides] the [borough] with the opportunity to tax itself for whatever it wants done within that service area. He indicated that [HB 241] is "over" the broad taxation power of a borough under Title 29. Representative Holm said in this case "we're" not changing that, or "we're" specifically saying in HB 241, which was not in SB 36, that service areas are exempted from this limitation of taxation. MR. SUPERMAN said that is the intent here, although it may require some additional verbiage to make that perfectly clear. CHAIR WEYHRAUCH called attention to the proposed language in lines 6-8 of the bill, and he asked Mr. Superman what "special services" meant. MR. SUPERMAN said it is his belief that that's just an illusion of the services that the service area provides, whether it's recreational services, senior services, or fire services. He said [the language] is just alluding back to the services. Number 2309 REPRESENTATIVE SEATON said it was his understanding, for example, that if there was a half a mill in library service tax or fire service tax, with the $50,000 exemption to the borough tax, that would not apply. He asked if, at some rate, a half a mill in service area taxes might equal or exceed the six-mill borough property tax. MR. SUPERMAN, in response, said correct; that could happen. He said [Kenai] is very close to that in some areas of the borough now. REPRESENTATIVE SEATON, in regard to Mr. Superman's comment that Kenai's reserve account will be depleted in the near future, asked if the assumption is that if [revenues] didn't come from the state, [the Kenai Peninsula Borough] would be more likely to pass an increase in the millage rate than an elimination of this $50,000 individual residential property tax. Number 2385 MR. SUPERMAN remarked, "This, by no means, is any cut at our assessor within the borough - I think he does a fabulous job." He said there has been an increase averaging five percent across the board in the taxable assessed value within the peninsula. Mr. Superman noted that he is not speaking for the entire assembly, and he said he didn't know which way [the assembly] would go with regard to an increase in the general government mill rate. He indicated he was unsure whether the assembly was going to add the extra mill this year. Mr. Superman said, essentially, with that growth in "our" assessed valuation, it somewhat mitigates the loss with this extended exemption. He said this was passed unanimously on the consent agenda, and he thought it was the assembly's intent to try to keep the residents of Kenai in the borough. REPRESENTATIVE SEATON brought attention to the fiscal note, and he said it seemed to him, as a resident of the borough, that if the issue was put to a vote, he would be much more likely to increase the millage rate, which is going to basically apply to the oil assets within the borough instead of eliminating or reducing the exemption on individual houses. He said because Mr. Superman is anticipating the depletion of the [borough's] reserve account in the near future, it seems that that is a necessity, which would therefore shift the tax to the higher valued properties - the oil properties - and then would basically take that percentage away from the state's revenue. He asked if that assumption was correct. MR. SUPERMAN said he thought that is an assumption that he is really not making, although that is an assumption that some people are making. He said that within the borough there is an approximate $4 billion in assessed valuation, and just a little over $6 million of that is "4356" property. There are oil- related real properties that account for approximately 30 percent of that total. He said if the mill rate was increased, with that in mind, "they're" not going to be carrying the whole burden of this. Number 2757 CHAIR WEYHRAUCH asked if there is an inconsistency in Mr. Superman's comment that there is more liability at the local level and residents are looking for tax relief, but at the same time residents are voting [for] projects that increase their tax bills. He asked if that issue is being addressed through this bill. MR. SUPERMAN said there are always inconsistencies with public votes. CHAIR WEYHRAUCH said the committee would take this bill up again in a week and would hear from the Department of revenue. REPRESENTATIVE GRUENBERG said that, as a member of the House Special Committee on Ways and Means, he is extremely concerned. He said as he understands it, there is an impact on this because it will potentially shift the burden to property that would otherwise be taxed by the state and would thereby reduce the state's revenue at a time of a significant fiscal crisis in Alaska. Representative Gruenberg suggested that this bill should probably be heard by the House Special Committee on Ways and Means, and he may make that recommendation. He said he knows that Mr. Superman and [the Kenai Peninsula Borough's] taxpayers do not want to pay taxes, which nobody does, but [the legislature] has to look out for the state's interests too. Number 2633 REPRESENTATIVE SEATON brought attention to the exemption provisions in the bill. He asked if it is correct that the bill could possibly provide a $90,000 exemption. MR. SUPERMAN said he thought the intent was to make the "lid" at $50,000. He said he could appreciate Representative Gruenberg's comments that nobody likes to pay taxes, and he thought he was speaking for the people [in the Kenai Peninsula Borough] who do pay plenty of taxes. He said he personally pays plenty of taxes on his home and a couple of businesses. Mr. Superman said the intent is not to "divorce ourselves" from that liability and that obligation, but people are beginning to cry out for some type of local tax relief. He said he can understand the predicament that the state is in, and if the state continues off-loading to the lower levels, more of these types of request from the taxpaying constituency would be seen. Mr. Superman remarked, "All we are asking for is to have this tool ... at our disposal. Whether ... it will be used no one knows at this point; that is a political question." [HB 241 was heard and held.]
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