Legislature(2001 - 2002)

02/07/2001 01:30 PM Senate CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                                                                                                                                
              SB   4-MUNICIPAL PROPERTY TAX EXEMPTION                                                                       
                                                                                                                              
CHAIRMAN  TORGERSON called  Senator  Therriault forward  to give  an                                                          
overview of the bill.                                                                                                           
                                                                                                                                
SENATOR THERRIAULT said  the bill was introduced under his name as a                                                            
reaction  to  a  request  from  the  Fairbanks  North  Star  Borough                                                            
Assembly because  more local flexibility is desired  with respect to                                                            
the residential property tax exemption.                                                                                         
                                                                                                                                
The interest stems  from the proposed 10-mill cap  on property taxes                                                            
and the feeling  that property owners  bear an unreasonable  portion                                                            
of the government expenses.  SB 4 proposes to raise the ceiling from                                                            
$10,000  to  $50,000 on  the  amount  a municipality  may  offer  in                                                            
residential  property tax  exemptions. The  exemption is subject  to                                                            
local taxing  authority discretion,  as is  currently the case.  The                                                            
current cap has  been in effect since 1974 so it is  time to revisit                                                            
the issue.                                                                                                                      
                                                                                                                                
Number 47                                                                                                                       
                                                                                                                                
SENATOR THERRIAULT  said that it was  also brought to his  attention                                                            
that  the mandatory  exemption  for  senior  citizens  and  veterans                                                            
provides  no mechanism  for  local governments  to  assess  property                                                            
taxes mid year  if a property changes hands from an  exempt party to                                                            
a non-exempt  party.  SB 4 allows  municipalities  to prorate  taxes                                                            
after  such transfers  of  ownership  but there  is  no wording  for                                                            
prorating  in the  other direction,  from non-exempt  to exempt.  He                                                            
suggested  that  this  is something  the  committee  might  want  to                                                            
consider  and he welcomes  the discussion.  However,  it is time  to                                                            
address the issue of prorating taxes.                                                                                           
                                                                                                                                
Number 84                                                                                                                       
                                                                                                                                
SENATOR  THERRIAULT said  that the  state assessor  was on line  and                                                            
available  to answer  questions  about the  bill's  impact on  state                                                            
revenues.  Although it  was not his  intention to  impact the  state                                                            
treasury, a borough  raising the exemption  cap to  $50,000 and then                                                            
raising  the mill rate  to make  up the revenue  loss, would  impact                                                            
state revenues.  At the same  time, he wanted  committee members  to                                                            
realize  that the estimates  of the  revenue losses  are just  that,                                                            
estimates. Exact figures are very difficult to establish.                                                                       
                                                                                                                                
Members of  service areas in the Fairbanks  North Star Borough  have                                                            
contacted Senator Therriault  asking if adjusting their mill-rate up                                                            
is the only way  to capture lost revenue. He has been  in discussion                                                            
with his local  government and is  looking at ways to structure  the                                                            
bill  so that  service areas are not adversely affected.  This could                                                            
mean that the  exemption can be offered  on the portion of  the mill                                                            
rate that  covers  general government  services,  or things  offered                                                            
area wide.  Service areas  could be picked  out saying they  operate                                                            
outside that exemption.                                                                                                         
                                                                                                                                
SENATOR THERRIAULT  said he realizes that the provision  of the bill                                                            
that  allows  the  senior  citizen  property  tax  mechanism  to  be                                                            
modified for prorating  collection of property tax opens the bill to                                                            
include that  section of the statutes.  He said he would  understand                                                            
if the committee chose not to address that area of the statutes.                                                                
                                                                                                                                
CHAIRMAN  TORGERSON agreed  but said  it was  something that  needed                                                            
review. With small  governments, a floating date for  tax exemption,                                                            
rather than  a January 1  eligibility cut  off for the entire  year,                                                            
could have a large impact causing budget shortfalls.                                                                            
                                                                                                                                
CHAIRMAN TORGERSON  asked for anyone  else wanting to testify  on SB
4.                                                                                                                              
                                                                                                                                
MR. KEVIN RITCHIE  from the Alaska Municipal League  came forward to                                                            
state  his  endorsement  of  the bill.  He  said  this  bill  allows                                                            
municipalities an additional  tool for local control of property tax                                                            
equity.                                                                                                                         
                                                                                                                                
CHAIRMAN TORGERSON asked  his opinion on the impact on service areas                                                            
or small governments  if a floating date for property  tax exemption                                                            
was adopted.                                                                                                                    
                                                                                                                                
MR. RITCHIE said  he was not in the room during that  discussion and                                                            
couldn't comment.                                                                                                               
                                                                                                                                
SENATOR PHILLIPS had the same concern.                                                                                          
                                                                                                                                
Number 193                                                                                                                      
                                                                                                                                
CHAIRMAN  TORGERSON explained  that  the concern  was the impact  on                                                            
small governments  or service areas where a relatively  large number                                                            
of properties  may be exempted and  revenue would be lost.  The only                                                            
choice  to recover that  revenue would  be to  adjust the mill  rate                                                            
upward. With this  in mind, the committee would be  charged with the                                                            
task  of  trying  to  exempt  some  service   areas.  As  the  local                                                            
government  representative,  he  was  interested  in  Mr.  Ritchie's                                                            
thoughts on the matter.                                                                                                         
                                                                                                                                
MR. RITCHIE  said that Steve  Van Zant might  be a better person  to                                                            
answer  the question  but that  he didn't  feel that  the amount  of                                                            
money involved would be substantial.                                                                                            
                                                                                                                                
CHAIRMAN TORGERSON asked  whether Steve Van Zant was on line and had                                                            
he heard the question.                                                                                                          
                                                                                                                                
MR. STEVE VAN ZANT, state  assessor, said he had asked all assessors                                                            
for their input on the  exemption issue.  They didn't think that the                                                            
impact  would  be  substantial  but  service   areas  weren't  asked                                                            
specifically, just municipalities in general.                                                                                   
                                                                                                                                
SENATOR  PHILLIPS  asked  for  the Anchorage  figures.  He  had  the                                                            
figures for  Fairbanks, Kenai, North  Slope and Valdez and  wondered                                                            
if Anchorage might not be affected.                                                                                             
                                                                                                                                
MR. VAN ZANT referred the question to Dan Dickinson.                                                                            
                                                                                                                                
MR.  DAN DICKINSON,  Director  of the  Tax Division,  Department  of                                                            
Revenue,  said that Anchorage  plays a very  small roll in  terms of                                                            
the effect this legislation plays on state revenues.                                                                            
                                                                                                                                
CHAIRMAN  TORGERSON  thought   the  fiscal  note  was  fairly  self-                                                            
explanatory.                                                                                                                    
                                                                                                                                
SENATOR THERRIAULT addressed  Senator Phillips' question saying that                                                            
there  are just  five  municipalities  that currently  exercise  the                                                            
optional  exemption:  Bristol  Bay, Fairbanks  North  Star  Borough,                                                            
Kenai Peninsula  Borough,  North Slope Borough  and City of  Valdez.                                                            
Anchorage  doesn't  show  on the  spreadsheet  because  they  aren't                                                            
currently exercising the option.                                                                                                
                                                                                                                                
CHAIRMAN  TORGERSON asked "If  the state is  faced with another  10-                                                            
mill cap initiative and  that was to pass, that would, I'm assuming,                                                            
preclude the taxing jurisdictions  from increasing the mill rates so                                                            
this would,  actually, come right  off the bottom line. Is  that the                                                            
way to read this?"                                                                                                              
                                                                                                                                
MR. VAN SANT  said that this is very  different than a 10-mill  cap.                                                            
In fact,  in the situation  discussed here,  it is assumed  that the                                                            
municipalities affected  would try to make up the state revenue some                                                            
other way  such as  by increasing  the mill rate.  If a 10-mill  cap                                                            
were layered  over that the affect  would be different. The  revenue                                                            
shortfall  would have to  be made up with  alcohol taxes, bed  taxes                                                            
and others that are not property tax.                                                                                           
                                                                                                                                
CHAIRMAN  TORGERSON asked  that the record  show that Senator  Kelly                                                            
arrived during the previous discussion.                                                                                         
                                                                                                                                
SENATOR THERRIAULT wanted  to clarify for committee members that the                                                            
real concern for service  areas comes from the second portion of the                                                            
bill dealing with the cap  increase from $10,000 to $50,000. To make                                                            
up for budget  shortfalls, local government  would have to  increase                                                            
the mill  rate and therefore  shift more of  the local property  tax                                                            
burden to undeveloped  land and businesses and there  would be local                                                            
pressure not to do that.                                                                                                        
                                                                                                                                
SENATOR THERRIAULT wanted  to make clear that current wording in the                                                            
statute says that voters would have to ratify the ordinance.                                                                    
                                                                                                                                
CHAIRMAN  TORGERSON asked  if the laws outlining  the meeting  dates                                                            
for the Board of Equalization (BoE) would have to be changed.                                                                   
                                                                                                                                
MR. VAN SANT said he didn't  anticipate any problem because property                                                            
values would be set by the time the BoE meets in April.                                                                         
                                                                                                                                
CHAIRMAN TORGERSON called on Nadine Hargesheimer from Fairbanks.                                                                
                                                                                                                                
MS.  NADINE  HARGESHEIMER  with the  Fairbanks  North  Star  Borough                                                            
supports SB 4, particularly  the increase in the cap from $10,000 to                                                            
$50,000.  She said that  people are generally  comfortable  with the                                                            
level of service  received but perhaps not with the  funding source.                                                            
About 80 percent  of the Fairbanks  North Star Borough revenues  are                                                            
derived from property tax.  They have created an alternative revenue                                                            
task  force that  communicates  with  the  public to  determine  how                                                            
services will  be funded. Although  the increase in the residential                                                             
exemption may  or may not be used, they actually view  the exemption                                                            
as  a tool  in  the process.  If  there is  another  revenue  source                                                            
available,  they might not  increase the  residential exemption  but                                                            
they aren't ready to do  without the revenue. There would still need                                                            
to be passage by the assembly and public ratification.                                                                          
                                                                                                                                
She said there would be  an impact on service areas. They have every                                                            
intention  of keeping fire,  emergency and  road services whole.  If                                                            
more residential  land is exempted  then the mill rate will  have to                                                            
go up.  They have widely  varied population  densities in  different                                                            
service areas  and they don't know how business will  be affected in                                                            
each of these areas if  the residential exemptions are increased. It                                                            
could range  from onerous to a non-event  but they won't  know until                                                            
they begin looking at the specifics in each area.                                                                               
                                                                                                                                
CHAIRMAN  TORGERSON asked  if she  had the spreadsheet  prepared  by                                                            
Steve  Van Sant  titled "Estimated  Revenue  Loss  Due to  Increased                                                            
Allowance  for Residential  Exemption". He  said it looks as  though                                                            
the  state would  lose  money if  the borough  wide  mill rate  were                                                            
increased.                                                                                                                      
                                                                                                                                
MS HARGESHEIMER  agreed and said they  were looking at implementing                                                             
revenue sources  separate  from property tax  so that revenue  stays                                                            
the same and people  are paying less property tax.  They are looking                                                            
at alcohol, sales,  and personal property taxes, not  the mill rate.                                                            
They want to shift the burden from the property owners.                                                                         
                                                                                                                                
CHAIRMAN  TORGERSON  commended  those efforts,  but  said there  was                                                            
still the  possibility  that if the  mill rate  were increased,  the                                                            
state would lose $1.6 million in revenue.                                                                                       
                                                                                                                                
MAYOR BURT COTTLE of Valdez  testified that they too were in support                                                            
of SB  4. It  is their  belief that  they would  have greater  local                                                            
control and taxes would be stabilized with passage of SB 4.                                                                     
                                                                                                                                
CHAIRMAN  TORGERSON said  that  SB 4 would  be set  aside and  heard                                                            
again.                                                                                                                          

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