Legislature(1999 - 2000)

04/24/2000 05:35 PM 248

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                            
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                                                            
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                                                            
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                                                            
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                                                            
REPRESENTATIVE PHILLIPS said that is correct.                                                                                   
CHAIRMAN HALFORD asked  what department the state tax assessor works                                                            
MR.  LAUFER  replied  the  Department  of  Community   and  Economic                                                            
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                                                            
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                                                            
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                                                            
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                                                             
CHAIRMAN HALFORD announced that he would try to schedule another                                                                
meeting tomorrow and adjourned the meeting at 5:50 p.m.                                                                         

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