Legislature(2001 - 2002)

03/27/2001 06:05 PM FIN

Audio Topic
* first hearing in first committee of referral
+ 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                                                            
SENATOR GENE THERRIAULT,  sponsor, reminded members  of the proposed                                                            
committee substitute  that he hoped the Committee  would take action                                                            
Senator Wilken  moved to  adopt CS SB 4,  22-LS0190\P, as a  working                                                            
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.                                                                                                          
          (1) exceed the assessed value of $40,000 [$10,000] for                                                            
     any one residence; or                                                                                                    
          (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                                                            
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                                                            
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                                                            
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                                                            
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                                                            
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                                                               
              (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                                                            
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                                                            
The committee substitute was MOVED from Committee.                                                                              

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