Legislature(2001 - 2002)
03/27/2001 06:05 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.