Legislature(2001 - 2002)

04/24/2002 02:00 PM Senate CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               SB 365-MUNICIPAL IMPROVEMENT AREAS                                                                           
KRISTY TIBBLES, legislative assistant to Senator Ben Stevens,                                                                   
introduced SB 365 and read the following into the record:                                                                       
     Current statute allows a municipality to issue bonds                                                                       
     for the redevelopment of blighted areas funded only by                                                                     
     the tax revenues generated by the increased tax base                                                                       
     that occurs as a result of the development.  This                                                                          
     financing tool is referred to as tax increment                                                                             
     Senate Bill 365 has been introduced to provide greater                                                                     
     flexibility for municipalities to finance public                                                                           
     improvements to blighted areas.                                                                                            
     Senate bill 365 is written to essentially do three                                                                         
     It clarifies statute so that municipalities may use tax                                                                    
     increment financing (TIF) with general obligation bonds                                                                    
     or revenue bonds, or a combination of both.  The                                                                           
     current provision is silent, leaving the matter to                                                                         
     judicial interpretation.                                                                                                   
     It allows the tax increment financing to be used to                                                                        
     improve both public improvements and private                                                                               
     improvements of blighted areas.                                                                                            
     It also creates the definition of "improvement area"                                                                       
     which broadens the earlier restriction that tax                                                                            
     increment financing be used only with blighted areas,                                                                      
     to give municipalities a better and more flexible                                                                          
     financial tool.                                                                                                            
     This enhancement in statute will allow and encourage                                                                       
     municipalities to shape development of town centers as                                                                     
     outlined in Anchorage's 2020 Comprehensive Plan.                                                                         
     The municipality supports SB 36                                                                                            
SENATOR AUSTERMAN  asked for an explanation of  proposed amendment                                                              
MS. TIBBLES  replied there  is a companion  bill in the  House and                                                              
the municipality  of Anchorage suggested removing  "or private" on                                                              
page 1, line 6.                                                                                                                 
SENATOR  AUSTERMAN made  a  motion to  adopt  amendment #1.  There                                                              
being no objection, amendment #1 was adopted.                                                                                   
He  said his  question  was in  reference to  how  far the  taxing                                                              
ability  could  be  taken.  Reading on  page  2,  subsection  (b),                                                              
beginning  on  line  2  it  doesn't   talk  about  obligating  the                                                              
municipality that has  issued the bonds. When it  says, "and other                                                              
area" it  made him  wonder whether  they could  go to a  different                                                              
area to  collect revenue  if they weren't  able to collect  enough                                                              
tax in the "improved" area.                                                                                                     
STEVE VAN  SANT, state assessor, said  he too was a  bit concerned                                                              
about that language and Mr. Pfeffer could offer explanation.                                                                    
MARK  PFEFFER  testified  via  teleconference.   He  said  he  was                                                              
currently working on a town center  plan in Anchorage and had been                                                              
working with the municipality of Anchorage on this bill.                                                                        
CHAIRMAN TORGERSON asked whether Devon Mitchell was on line.                                                                    
DEVON MITCHEL,  debt manager  for the  State of Alaska,  explained                                                              
the ability to pledge taxing authority  of a community would be up                                                              
to that community.  The local assembly or council  would determine                                                              
whether or not they wanted to pursue  a general obligation bond or                                                              
revenue bond  for the particular  improvement or area  they wanted                                                              
to improve.  If they  decided on a  general obligation  bond there                                                              
would  have  to be  a  vote  of  the general  population  of  that                                                              
community. If  it were a revenue  bond then they would  pledge the                                                              
incremental tax-- the increase in  tax that you would get from the                                                              
improvement  as well  as  the increased  property  values in  that                                                              
area. He  said they  probably have to  pledge an additional  "back                                                              
stop" to give  investors sufficient security, but that  would be a                                                              
local decision.                                                                                                                 
CHAIRMAN TORGERSON  rephrased Senator  Austerman's question.  With                                                              
respect  to a  revenue  bond, if  the  property  is worth  $500.00                                                              
because it is  blighted and with the improvements  you think it'll                                                              
rise  to $1,000.00,  you can  pledge  the $500.00  and that's  the                                                              
definition of a tax increment in this bill.                                                                                     
MR. MITCHELL  said that's correct.  The community might  choose to                                                              
pledge  something  in  addition  to  that, but  that  would  be  a                                                              
community-by-community  evaluation  to  determine whether  or  not                                                              
investors were  secure enough  with the  increase in property  tax                                                              
value  and   increased  tax  collection   as  their   security  of                                                              
CHAIRMAN  TORGERSON then  asked whether  it was  correct that  the                                                              
general obligation (GO) bond pledges  the full faith and credit of                                                              
the municipality because it's an area wide vote.                                                                                
MR. MITCHELL said  GOs do pledge the full faith and  credit of the                                                              
municipality, but  they would plan to use the  additional revenues                                                              
received from the improved area's increased tax collection.                                                                     
SENATOR AUSTERMAN  said he  didn't get an  answer to  his question                                                              
regarding values  when using  the revenue  bond in an  improvement                                                              
area. If the  incremental tax proved not to be  enough and revenue                                                              
bonds  were the  mechanism, couldn't  they tax  other entities  or                                                              
bring  money in  from  other parts  of the  borough  to help  with                                                              
MR.  MITCHELL  replied that  would  depend  on how  the  community                                                              
decided to structure the revenue  bond. However, an investor would                                                              
be buying a rather  high risk or speculative bond  if all that was                                                              
pledged was  the incremental increase  in taxes that  might result                                                              
after  the  area  was  improved.   Knowledgeable  investors  would                                                              
require either additional  compensation for the risk  or a greater                                                              
pledge than the incremental increase.                                                                                           
SENATOR AUSTERMAN  asked for verification  that there would  be no                                                              
state liability since this is strictly a municipal issue.                                                                       
MR. MITCHELL  replied there is no  way this could tie back  to the                                                              
State of Alaska.                                                                                                                
CHAIRMAN TORGERSON  asked if it  wouldn't be the  bondholders that                                                              
would assume the risk rather than the municipality.                                                                             
MR. MITCHELL agreed that if the municipality  said they would only                                                              
pledge the incremental increase in  taxes then the investors would                                                              
assume all the risk.                                                                                                            
CHAIRMAN TORGERSON  asked for the difference between  this and the                                                              
Local Improvement District (LID) approach.                                                                                      
MR. MITCHELL  replied it is his  understanding that with  the LID,                                                              
the people  within a service  area approve public  improvements so                                                              
there is an increase  in mil rate. When the  public improvement is                                                              
completed not only do property taxes  increase but payment is made                                                              
at  the higher  mil rate,  which  is a  double hit.  With the  tax                                                              
increment,  there is  no  increased  mil rate.  The  tax from  the                                                              
increased value of the property goes to repay the bonds.                                                                        
CHAIRMAN TORGERSON referred  to page 1, line 10  and asked whether                                                              
"payments made by  borrowers of the proceeds of  the bonds," meant                                                              
that it was anticipated that this  money might go to a third party                                                              
other than the municipality.                                                                                                    
MR. MITCHELL thought that by taking  the words "or private" out of                                                              
the bill [amendment #1] removed that concern.                                                                                   
CHAIRMAN  TORGERSON then  referred to  page 2,  line 21 and  asked                                                              
whether the words  "and delinquencies in payment  of real property                                                              
taxes;" meant that  if someone didn't want to  pay their municipal                                                              
property  taxes,  that area  could  be designated  an  improvement                                                              
area,  which  would  artificially  inflate the  area  so  property                                                              
values would go up then that incremental  amount would be pledged.                                                              
MR.  MITCHELL said  he  reads that  as  providing  a developer  an                                                              
exemption to go  in and improve the property because  the increase                                                              
in value that will  occur in that area is going to  be used to pay                                                              
for those improvements  rather than having to put  your money into                                                              
a piece  of property and the  increased tax might  not necessarily                                                              
go directly to the improvements that were made in that area.                                                                    
CHAIRMAN  TORGERSON  understood that  but  didn't  agree with  Mr.                                                              
Mitchell's interpretation.                                                                                                      
STEVE  VAN  SANT,  State Assessor,  explained  there  are  certain                                                              
factors that  determine what  a blighted area  is. One is  an area                                                              
with  excessive  vacant  land,  another  could  be  an  area  with                                                              
delinquent taxes,  which could tend  to make you believe  that the                                                              
area is not  desirable and people  don't care if it  is foreclosed                                                              
upon and taken over  by the city. That's one factor  that you look                                                              
at for a blighted area.                                                                                                         
SENATOR PHILLIPS asked who requested the bill.                                                                                  
MS. TIBBLES  replied Mr.  Mark Pfeffer had  been working  with the                                                              
municipality and  then presented the  idea to Senator  Stevens. He                                                              
was on line to answer any questions.                                                                                            
MR.  PFEFFER  replied  his  firm  is  currently  involved  in  the                                                              
redevelopment  of  a town  center  area  in  the Muldoon  area  of                                                              
Anchorage.  They  support  SB  365 and  believe  it  enhances  the                                                              
existing  tax  increment  financing   laws  for  redevelopment  of                                                              
blighted areas.  With relation to  planning, social  and financial                                                              
issues, redevelopment  of blighted  areas is difficult.  Anchorage                                                              
has dealt with  the planning issues through the  implementation of                                                              
the Anchorage 20-20 plan. They have  been with the municipality on                                                              
social  issues   involved.  With   regard  to  financial   issues,                                                              
redevelopment  usually  involves  a balance  between  private  and                                                              
public investment.  The existing TIF law recognizes  this required                                                              
balance, but  has some ambiguities  that this bill  would clarify.                                                              
This  would primarily  be the  different  forms of  bonding and  a                                                              
definition of what constitutes a blighted area.                                                                                 
SENATOR PHILLIPS  told Mr.  Pfeffer he  didn't recall receiving  a                                                              
sponsor request  and Muldoon is in  his Senate district.  He asked                                                              
if there was a reason.                                                                                                          
MR. PFEFFER replied there was no particular reason.                                                                             
SENATOR   PHILLIPS  expressed   displeasure   because  he   wasn't                                                              
approached first.                                                                                                               
MR. PFEFFER apologized.                                                                                                         
SENATOR  AUSTERMAN  asked  Mr.  Pfeffer  to  respond  to  how  the                                                              
amendment affected his project.                                                                                                 
MR. PFEFFER said they believe that  in other jurisdictions the TIF                                                              
laws have  been used  for private  improvements, but they  haven't                                                              
identified  any  specific  private   application  at  this  point.                                                              
Without knowing which private improvements  were appropriate, they                                                              
agreed with the  municipality that "or private"  should come. Once                                                              
they identify  appropriate specific use,  they might ask  for that                                                              
to change.                                                                                                                      
GEORGE  CANNELOS, Director  of  the Heritage  Land  Bank and  Real                                                              
Estate Services  for the Municipality of Anchorage,  testified via                                                              
teleconference.  He said the  Muldoon Town  Center would  be their                                                              
first test case for a public private partnership.                                                                               
He suggested  adding ", or other  forms of indebtedness."  on page                                                              
1, line 8  after "general obligation bonds." Second,  he suggested                                                              
a  reduction  in  the extended  definition  of  improvement  areas                                                              
beyond the traditional notion of blighted areas.                                                                                
CHAIRMAN  TORGERSON asked  Mr. Mitchell  for his  response to  the                                                              
suggestion on page 1, line 8.                                                                                                   
MR. MITCHELL replied  he would agree that flexibility  is always a                                                              
good thing.                                                                                                                     
CHAIRMAN  TORGERSON  asked him  to  list  several other  forms  of                                                              
indebtedness for the record.                                                                                                    
MR. MITCHELL said,  "We heard certificate of  participation, which                                                              
are a  form of unique  financing. There  would be different  lease                                                              
revenue  bonds  as a  different  form  of  lease financing  so  in                                                              
addition  to a  straight revenue  bond  where you  have a  revenue                                                              
stream that can  be specifically pledged, if you  have a situation                                                              
where you  might have  revenue streams that  you can't  pledge for                                                              
some reason, then  it would apply for one of these  other forms of                                                              
There was no further testimony.                                                                                                 
CHAIRMAN TORGERSON  announced he would hold the  bill in committee                                                              
so they would have the opportunity to look at that language.                                                                    

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