Legislature(2001 - 2002)
03/27/2001 06:05 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 4(CRA)
"An Act relating to a mandatory exemption from municipal
property taxes for certain residences; and providing for an
effective date."
This was the third hearing for this bill in the Senate Finance
Committee.
SENATOR GENE THERRIAULT, sponsor, reminded members of the proposed
committee substitute that he hoped the Committee would take action
on.
Senator Wilken moved to adopt CS SB 4, 22-LS0190\P, as a working
draft.
AT EASE 6:22 PM / 6:27 PM
There was no objection and the committee substitute was ADOPTED.
Amendment #3: This conceptual amendment reduces the assessed value
limit in Section 2(a) on page 2, line 18 of the committee
substitute as follows.
Delete:
(1) exceed the assessed value of $40,000 [$10,000] for
any one residence; or
Insert:
(1) exceed the assessed value of $30,000, or 20 percent
of the assessed value, whichever is less, [$10,000] for any
one residence; or
New Text Underlined [DELETED TEXT BRACKETED]
Senator Austerman moved for adoption.
Senator Therriault did not oppose the amendment, noting it is
sensitive to the threat to the state treasury. He shared that this
amount would still triple the local government's ability and that
the 20 percent provision is an existing mechanism in the Fairbanks
North Star Borough (FNSB) ordinance.
Without objection the amendment was ADOPTED.
Senator Therriault addressed the fiscal note at Co-Chair Kelly's
request. Senator Therriault stated that the estimated $1.6 million
potential reduction in state revenues applied to the original
version of the bill and reflected the scenario that every
municipality that currently exercises the residential property tax
exemption immediately increased from the current $10,000 cap to the
proposed $50,000 cap and compensated for their lost revenue solely
by raising the overall mil rate to the oil and gas properties.
However, he noted that because the Senate Community and Regional
Affairs committee substitute deleted the applicable section of the
bill, the original fiscal note is dropped.
Senator Therriault pointed out that with the action taken by this
Committee in adopting the committee substitute Version "P" the
projected potential reduction is cut in half. He added that the
committee substitute eliminates the service areas' mil rates from
the tax exemption option. He explained that without this change,
the service areas would have no option for increasing revenue
except for raising overall mil rates, which would impact state
revenue from oil and gas properties.
Senator Therriault emphasized that the FNSB is considering other
revenue sources to fund services rather than increasing the mil
rate.
Senator Green referred to a March 19, 2001 letter to Senator
Therriault's office from Steve Van Sant, State Assessor, Department
of Community and Economic Development. [Copy on file.] She read,
"The only issue that might address any funding is the fact that the
municipality will lose, in this example, $600,000 of assessed value
upon which a property tax can be levied, thus requiring either an
increase in the local mil rate, an alternative source or revenue, a
decrease in services so the revenue loss may be made up without
increasing the levy or a combination of these." She asked how the
committee substitute impacts this situation.
Senator Therriault believed this statement was in response to
Senator Green's earlier question about the possible impact on the
education foundation funding formula. He explained that it
addresses the issue in the event that the municipality chooses to
exercise the tax exemption option and suffers a loss in revenues.
He again stressed his doubt that the municipalities would choose an
increase in the mil rate to recoup lost revenues. He pointed out
the changes made in the committee substitute saying they have
"drastically reduced" the likelihood.
Senator Green wanted an adjustment on the cited $600,000 figure
given as an example in the statement.
Senator Therriault asserted the amount would be less.
AT EASE 6:33 PM / 6:39 PM
Amendment #4: This conceptual amendment inserts language to Section
2 to provide, "The increase in Sec. 2(a)(1) is only available to
those governments with a debt service less than $15,000 per
person."
Co-Chair Donley moved for adoption noting this is the standard
provided in existing statute.
Senator Austerman objected for explanation.
AT EASE 6:41 PM / 6:42 PM
Senator Austerman wanted clarification of the amendment, what it
accomplishes and why it is necessary.
Co-Chair Donley explained that in order to qualify for the
increased cap of $30,000, the municipality would have to have a per
capita bonded indebtedness of less than the statutory limit of
$15,000.
Co-Chair Kelly stated that there is a current limitation on bond
indebtedness of $15,000 and that this amendment "reinforces"
existing statute. He noted that municipalities that currently
comply with this statute would be eligible to apply for this
discount.
Senator Austerman asked if the provision is in current statute, why
it is necessary in this legislation.
Co-Chair Donley responded, "Because not everybody follows the
statutes."
Co-Chair Kelly elaborated that the bond indebtedness limitation is
in statutes and that without this amendment, the tax exemption
would be available to those municipalities.
Senator Hoffman requested comment from the bill sponsor.
Senator Therriault understood Co-Chair Donley's concern agreeing,
"It's a big issue". However, he preferred this limitation not be
included with this legislation.
Senator Austerman maintained his objection.
A roll call was taken on the motion.
IN FAVOR: Senator Leman, Senator Wilken, Senator Green, Co-Chair
Donley and Co-Chair Kelly
OPPOSED: Senator Austerman, Senator Hoffman and Senator Olson
ABSENT: Senator Ward
The motion PASSED (5-3-1)
The amendment was ADOPTED.
Amendment #1: This amendment makes the following changes to CS SB 4
(CRA) as follows.
Page 1, line 1, after "relating":
Insert to limitations on municipal taxation of oil and gas
production and pipeline property and"
Page 2, following line 11:
Insert new bill sections to read:
Sec. 2. AS 29.45.080 is amended by adding a new subsection to
read:
(f) Notwithstanding AS 29.45.090(a) and regardless of
whether the municipality levies the tax under (b) or (c)
of this section, a municipality may not, during a year,
levy a tax on property taxable under AS 43.56 for any
purpose in excess of 1 8 percent of the assessed value of
that property.
Sec. 3. AS 29.45.100 is amended to read:
Sec. 29.45.100. Applicability of [NO] limitations on
taxes to pay bonds. The limitations provided for in AS
29.45 080 - 29.45.090 do not apply to taxes levied or
pledged to pay or secure the payment of the principal and
interest on bonds issued before January 1, 2002. Taxes to
pay or secure the payment of principal and interest on
bonds issued before January 1, 2OO2~ may be levied
without limitation as to rate or amount, regardless of
whether the bonds are in default or in danger of default.
The limitations provided for in AS 29.45.080(a) - (e) and
29.45.090 do not apply to taxes levied or pledged to pay
or secure the payment of the principal and interest on
bonds issued on or after January 1, 2OO2, regardless of
whether the bonds are in default or in danger of default.
New Text Underlined [DELETED TEXT BRACKETED]
Co-Chair Donley announced that he would NOT OFFER this amendment.
Amendment #2: This amendment changes the title of the committee
substitute to read as follows.
"An Act relating to a mandatory exemption from municipal
property taxes for certain residences; relating to an optional
exemption from municipal taxes for residential property and
prohibiting a municipality from replacing tax revenue lost as
a result of the optional exemption with revenue generated from
a tax on certain oil and gas production and pipeline property;
and providing for an effective date."
The amendment also inserts language in Section 2 on page 2 of the
committee substitute making the subsection read as follows.
(a) A municipality may exclude or exempt or partially
exempt residential property from taxation by ordinance
ratified by the voters at an election. However, the
municipality may not replace tax revenue lost as a result the
exclusion or exemption with revenue generated from a tax
levied under AS 29.45.080 on property taxable under AS 43.56.
An exclusion or exemption authorized by this subsection
[SECTION] may not
(1) exceed the assessed value of $40,000 [$10,000]
for any one residence; or
(2) be applied with respect to taxes levied in a
service area to fund the special services.
New Text Underlined [DELETED TEXT BRACKETED]
Senator Leman moved for adoption noting this addresses concerns
raised at an earlier hearing regarding reducing taxes on
residential properties but recouping subsequent lost revenues by
increasing the levy on other properties. He assured this amendment
would preclude this and that any increase in revenue would have to
come from a source other than an increase in property tax on oil
and gas production and pipeline properties. He explained that
increasing property taxes on these properties would result in lost
revenue to the state.
Senator Olson and Senator Hoffman objected.
Senator Hoffman requested the bill sponsor comment on the
amendment.
Senator Therriault relayed his consultation with the bill drafter
Ms. Tamara Cook, Director, Division of Legal and Research Services,
where he was told this language is not operable. He gave an example
whereby if a municipality exercised this tax exemption increase,
suffered a loss in revenue and recouped that loss with a sales tax,
and in the future proposed an unrelated mil rate increase. He
remarked that there would be no way to verify whether the
municipality was attempting to recoup lost revenue from the tax
exemption option. He warned that adopting this language into law
"would trigger a series of lawsuits" about whether the local
government has such power, whether the increases are funding new
services or facilities, etc.
Senator Leman countered that in Senator Therriault's example, this
municipality "would have done exactly what they would need to do so
they would not violate the intent of the amendment." He stated that
he explained this to Ms. Cook and this amendment contains the
language she prepared. He stressed his intent is the municipalities
would replace the lost revenue from tax exemptions with another
source and so long as that alternative is in place, any future mil
rate increases would be eligible.
Senator Therriault surmised, "it becomes somewhat of an accounting
nightmare" speculating on the various scenarios of a growing tax
base that a new facility may or may not create and whether the new
revenues would be considered as recouping the lost revenues from a
previous tax exemption.
Senator Wilken told Senator Leman, "This whole bill is about local
control and local decisions." He spoke for the FNSB that the
"property tax rebellion bell has been rung and we've heard it loud
and clear." He stated that the 20 mils collected on oil and gas
properties could all be allocated to municipalities, "if local
governments have the courage to raise property taxes, not only on
4356 properties but my home and my business and Fort Knox and
everywhere else." He suggested that when this legislation passes,
the burden is then placed on local assemblies to determine whether
to lower services, institute alternative revenue sources or raise
property taxes on all property in the municipalities.
Senator Wilken appreciated the attempt to protect the state's
revenues in the general fund. However, he stressed that this is not
the bill to limit local options of municipalities facing the
property tax limitation attempts, such as the proposed ballot
measure that failed in the November 2000 general election. He
remarked that this legislation merely, "allow those folks to
exercise their decision capabilities and their courage."
Senator Wilken expressed that he would therefore be voting against
the amendment.
Senator Olson asserted that this amendment restricts the
municipalities' options and because of this, he would also vote no
on the adoption of the amendment.
Co-Chair Donley supported the amendment due to his concern of the
potential loss to the state treasury if a municipality was to
exercise the tax exemption option in a manner not anticipated by
the sponsor of the legislation. He understood that Senator
Therriault did not think it would happen, but stressed that it is
still a possibility. Co-Chair Donley concluded that this amendment
would protect the state treasury from an unpredicted loss.
Co-Chair Kelly noted changes made to the bill in the committee
substitute preclude any significant loss to state revenue.
A roll call was taken on the motion.
IN FAVOR: Senator Green, Senator Leman and Co-Chair Donley
OPPOSED: Senator Austerman, Senator Hoffman, Senator Olson, Senator
Wilken and Co-Chair Kelly
ABSENT: Senator Ward
The motion FAILED (3-5-1)
The amendment FAILED to be adopted.
Senator Therriault asked if the co-chair would request an updated
fiscal note from the Department of Revenue to reflect the changes
made in the committee substitute.
Co-Chair Kelly replied that he would.
Senator Wilken moved to report CS SB 4, 22-LS0190\P, as amended,
from Committee with a forthcoming fiscal note from the Department
of Revenue.
Co-Chair Donley objected. He opined, "The bill is much better than
the original proposal." However, he expressed concerns about the
potential threat to the state treasury.
AT EASE 6:54 PM / 6:55 PM
Co-Chair Donley removed his objection after making a statement on
the record. "I am concerned about the potential fiscal impact and
that I would be looking forward to seeing the fiscal note because
we'd still know that before we have a final vote on here in the
Senate."
The committee substitute was MOVED from Committee.
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