Legislature(1999 - 2000)
04/24/2000 05:35 PM 248
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 248-AIDEA: BONDS & RURAL DEVELOPMENT CHAIRMAN RICK HALFORD called the Conference Committee on SB 248 to order at 5:35 p.m. Present were Representatives Phillips, Joule and Barnes, and Senators Wilken, Adams and Chairman Halford. Chairman Halford announced that the purpose of the meeting was to provide an initial overview of the differences between the House and Senate passed versions of SB 248. He asked a member of the House to provide an analysis of the section added to the House version. REPRESENTATIVE GAIL PHILLIPS explained that the primary change made by the House Finance Committee was the addition of Section 1 to HCS CSSB 248(FIN). Section 1 says that a private interest in an Alaska Industrial and Development Export Authority (AIDEA) facility may not be taxed by a municipality. Therefore, a non-exclusive use facility that AIDEA helped to fund that makes payments in lieu of taxes cannot be taxed by a municipality. Second, a retroactive effective date of January 1, 1999 was added to apply to a ruling made by the tax assessor effective January 1, 1999. She noted this section primarily affects Cominco's Red Dog Mine. CHAIRMAN HALFORD asked if the payment in lieu of taxes equals about the same amount that would have otherwise been generated. MR. KEITH LAUFER, AIDEA, stated the payment in lieu of tax agreement that Cominco has with the Borough was entered into some years ago. It was based on the value of the mine, which was the only thing contemplated to be taxable at the time. REPRESENTATIVE BARNES informed committee members that agreement went into effect in 1985. MR. LAUFER said the agreement has been amended since 1985 at least once but the assumption has always been that the road and the port were not taxable. When the parties entered into the agreements and looked at the various funding requirements for the Borough, they did not contemplate including those two things on the tax roll. REPRESENTATIVE PHILLIPS noted that anyone else who wants to operate in that area would be able to use those facilities also. CHAIRMAN HALFORD said he assumes the answer is that the payment in lieu of taxes does not include any value that could be assigned to the road. He asked whether this applies to the road and the buildings. MR. LAUFER answered it applies to the road and all of the facilities of the port. CHAIRMAN HALFORD asked whether the primary part of the port is the large building. MR. LAUFER said it is. The port contains load-out facilities, conveyors, dock facilities, two large storage buildings, limited housing facilities for employees and tanks. CHAIRMAN HALFORD commented that in thinking about other applications, it is easy to see why a road that is open to the public is less apt to be a taxable item than housing or a warehouse. REPRESENTATIVE PHILLIPS remarked that it is feasible that the whole Arctic coal project, if it comes to pass, could enter into negotiations for use of those facilities. Number 373 CHAIRMAN HALFORD asked how this same standard - a non-exclusive use agreement between some kind of financing authority that allows the financing authority to design and build an asset to the user's specifications that is nontaxable - would apply to other arrangements. He thought the logical thing to do is to let the tax assessor appeal process occur. REPRESENTATIVE BARNES asked the testifier to identify himself. MR. KEITH LAUFER stated that he is the Financial Legal Affairs Manager for AIDEA. REPRESENTATIVE BARNES asked whether any other AIDEA projects will be affected by the ruling of this tax assessor. MR. LAUFER said no. REPRESENTATIVE BARNES asked if this is the only such project that the tax assessor has reached out to. MR. LAUFER replied the other facilities that AIDEA has are exclusive facilities, for example, the FedEx facility is on the tax roll. The FedEx facility has a payment in lieu of taxes arrangement but it is included on the tax roll as an exclusively operated facility by Federal Express. The DeLong Transfer System is the only facility that he can think of that has a non-exclusive use arrangement. REPRESENTATIVE BARNES said that in 1985 the DeLong Mountain Transfer System was exempt from taxation. The Northwest Arctic Borough had just founded itself. She cannot understand why the tax assessor has reached out to this particular project at this particular time. Number 592 MR. LAUFER said he cannot speak for the tax assessor. CHAIRMAN HALFORD asked if he was referring to the state tax assessor. REPRESENTATIVE PHILLIPS said that is correct. CHAIRMAN HALFORD asked what department the state tax assessor works in. MR. LAUFER replied the Department of Community and Economic Development. CHAIRMAN HALFORD surmised that the concern that has been brought forward is the effect not on Cominco but on the full and true value determination as it applies to the education foundation formula. He asked if anyone present could speak to that issue. SENATOR WILKEN said, as he understands the issue, the difference between the assessor's amount and the other value is about $156 million. Because of the way the foundation formula works, that would have a $615,000 effect on the foundation formula. If that beneficial interest is not considered taxable, then the foundation formula will pay $615,000 to that Borough. If it is considered taxable and is added to the Borough's tax base, the Borough would have to pick up the $615,000 as its part of the foundation formula based on the assessed value. REPRESENTATIVE BARNES asked if this is something new. SENATOR WILKEN said it came to his attention when the assessor called his office. He had worked with the assessor on assessed values during the SB 36 hearings. The assessor heard what happened in the House and asked Senator Wilken about it. That is how he got involved. Number 742 REPRESENTATIVE PHILLIPS clarified that the tax assessor made the determination by himself last year without taking into consideration the payment in lieu of taxes issue. SENATOR WILKEN suggested asking the assessor to address these questions. He added that he is unaware of the status of the appeal of the assessor's decision. REPRESENTATIVE PHILLIPS read the following statement: Prior to 1999, a non-exclusive right to use an AIDEA-owned and operated public facility was not considered to constitute a taxable property interest. For the first time in 1999, such use rights were treated as taxable property by the state assessor. REPRESENTATIVE BARNES said it sounds like the state assessor went out looking for revenue sources because it seems absurd that unless there was something in the law to base it on, he reached out and decided to tax the DeLong Mountain Transfer System. That system is still owned by AIDEA as a public facility until the bonds are paid off. She recalled, from working on the original Cominco legislation, that World War II bonds were used as collateral to support the bonding of that facility through AIDEA. CHAIRMAN HALFORD said the next step is to talk to the assessor. REPRESENTATIVE PHILLIPS asked that the committee review the other revisions. CHAIRMAN HALFORD commented that he has no problem with the issue but he wants to know what the impact will be on the rest of the state because, with regard to the education foundation formula, what goes to one place cannot go to another. REPRESENTATIVE BARNES remarked that she has made up her mind on this issue because the DeLong Transfer System is a public facility and the bonds have not yet been paid off. REPRESENTATIVE PHILLIPS noted the legislature would have to make some major changes to existing state law if it proceeds otherwise. CHAIRMAN HALFORD said his understanding is that facility will remain a public facility after the bonds are paid off. MR. LAUFER said that is correct. REPRESENTATIVE BARNES noted the bonds are being paid off by private interests. CHAIRMAN HALFORD announced that he would try to schedule another meeting tomorrow and adjourned the meeting at 5:50 p.m.