Legislature(2003 - 2004)
10/03/2003 10:00 AM Senate STA
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SCR 12-BOROUGH INCORPORATION: UNORG AREAS
CHAIR GARY STEVENS announced this was a work session for SCR 12
and testimony was by invitation. SCR 12 requests the Local
Boundary Commission (LBC) to consider certain borough
incorporations. He asked the sponsor to come forward.
SENATOR GARY WILKEN, sponsor of SCR 12, described the
legislation as a step toward better government and parity among
Alaskans. It's an issue of personal responsibility and fairness
and although some call it a mandatory borough bill, it's only
mandatory "if able."
He highlighted the following:
· The slide presentation
· Tri-fold brochure his staff prepared outlining the
reasoning associated with SCR 12
· A letter from Commissioner Blatchford
· The sponsor statement for SCR 12
· The first chapter of the report the LBC gave to the 23rd
Legislature [Unorganized Areas of Alaska that Meet Borough
Incorporation Standards dated February 2003]
He pointed out that the slide presentation would give historical
background and answer why legislators should be thinking about
borough incorporation and what SCR 12 does to help the effort. A
copy of the CD may be found in the bill packet.
Part I
Historical Perspective
Historical Perspective
Regional government was a central topic at Alaska's
Constitutional Convention.
The Committee on Local Government often focused on regional
The Committee on Local Government often focused on regional
government during the 44 meetings held to draft the Local
government during the 44 meetings held to draft the Local
Government Article.
Government Article.
The Local Government Committee called for all of Alaska to be
The Local Government Committee called for all of Alaska to be
divided into boroughs - organized or unorganized.
divided into boroughs - organized or unorganized.
Alaska Constitution Convention Proceedings, Alaska Legislative
Council, page 2612
John Rosswog, Chair, Committee on Local Government [said they
would allow boroughs to remain unorganized until they are able
to take on local government functions.]
Alaska Constitution Convention Proceedings, Alaska Legislative
Council, page 2673
Delegate James Hurley [asked if it was correct that no
unorganized borough would become effectuated without the voice
of the people in the area.]
Alaska Constitution Convention Proceedings, Alaska Legislative
Council, page 2673
Vic Fischer, Secretary, Local Government Committee [said no.
When a certain area can support certain services and act in its
own behalf it should take on the burden of its local
government.]
It provided that all of Alaska must be divided into boroughs
(organized or unorganized).
It encourages the creation of organized boroughs.
It provides that there must be a rational basis for disparate
It provides that there must be a rational basis for disparate
treatment of Alaskans (e.g., organized vs. unorganized areas).
treatment of Alaskans (e.g., organized vs. unorganized areas).
Local responsibility is also called for under Alaska's
Local responsibility is also called for under Alaska's
constitution.
constitution.
It imposes a duty on the legislature to set state policy
It imposes a duty on the legislature to set state policy
regarding establishment of boroughs.
regarding establishment of boroughs.
The First Alaska State Legislature (1959 - 1960) considered
The First Alaska State Legislature (1959 - 1960) considered
several proposals for establishment of boroughs. None was
several proposals for establishment of boroughs. None was
adopted.
adopted.
The Second Alaska State Legislature adopted the Borough Act of
The Second Alaska State Legislature adopted the Borough Act of
1961.
1961.
At the time, state policy makers anticipated that the Borough
Act of 1961 would be generally ineffective in promoting borough
formation.
Arguments against boroughs in the early 1960s are the same as
those voiced today.
Representative Rader's solution to the greatest unresolved
Representative Rader's solution to the greatest unresolved
political problem facing the State:
political problem facing the State:
· Grant each borough 10 percent of state lands to give them a
· Grant each borough 10 percent of state lands to give them a
meaningful responsibility and interest in natural resource
meaningful responsibility and interest in natural resource
development;
· Encourage formation of large boroughs;
· Provide a reasonable period before mandatory incorporation
· Provide a reasonable period before mandatory incorporation
for local initiative efforts.
for local initiative efforts.
With a few compromises, Representative Rader's proposal was
With a few compromises, Representative Rader's proposal was
adopted by the Legislature as the 1963 Mandatory Borough Act.
adopted by the Legislature as the 1963 Mandatory Borough Act.
Chapter 52,
Session Laws of Alaska, 1963
Section 1. Declaration of Intent.
In 44 years of statehood, boroughs have formed under the local
In 44 years of statehood, boroughs have formed under the local
option process in areas encompassing just 4 percent of Alaskans.
option process in areas encompassing just 4 percent of Alaskans.
Incentives to incorporate boroughs were generally inadequate in
Incentives to incorporate boroughs were generally inadequate in
the early 1960s.
the early 1960s.
"Shortcomings in the manner in which the borough concept has
"Shortcomings in the manner in which the borough concept has
been implemented" were studied by the Local Boundary Commission
been implemented" were studied by the Local Boundary Commission
in 2001.
in 2001.
"The Commission considers the lack of a strong state policy
"The Commission considers the lack of a strong state policy
promoting the extension of borough government to be the most
promoting the extension of borough government to be the most
pressing 'local government boundary problem' facing Alaska."
pressing 'local government boundary problem' facing Alaska."
CHAPTER 53,
CHAPTER 53,
SESSION LAWS OF ALASKA, 2002
SESSION LAWS OF ALASKA, 2002
"The Local Boundary Commission shall review conditions in the
"The Local Boundary Commission shall review conditions in the
unorganized borough. … the commission shall report to the
unorganized borough. … the commission shall report to the
Legislature the areas it has identified that meet the standards
Legislature the areas it has identified that meet the standards
for incorporation."
for incorporation."
Seven Areas Meet Standards
· Aleutians West
· Upper Tanana Basin
· Copper River Basin
· Prince William Sound
· Glacier Bay
· Chatham Area
· Wrangell/Petersburg
SENATOR LYMAN HOFFMAN asked what population percentage the seven
areas would represent.
SENATOR WILKEN said he wasn't sure, but he estimated there were
10,000 people.
Part II
Public Policy Perspective
Public Policy Perspective
Why should state government be concerned with local government?
Why should state government be concerned with local government?
BOROUGHS ARE UNITS OF STATE GOVERNMENT
Boroughs carry out essential services on behalf of the State of
Boroughs carry out essential services on behalf of the State of
Alaska (e.g., state's duty under Article VII, Section 1, AK
Alaska (e.g., state's duty under Article VII, Section 1, AK
Const., to establish and maintain a system of public schools is
Const., to establish and maintain a system of public schools is
delegated to boroughs).
delegated to boroughs).
BOROUGHS PROMOTE ECONOMIC DEVELOPMENT
· All boroughs commonly engage in economic development
activities.
· Borough governments in rural Alaska "serve as the economic
engine for the area."
· The Aleutians East Borough has used its bonding capacity in
the past to assist the regional fisheries, thereby
promoting economic development.
· The Aleutians East Borough represents local residents
before fisheries advisory and management bodies.
· The Northwest Arctic Borough was instrumental in the
development of the world-class Red Dog Mine.
· The Lake and Peninsula Borough provides a variety of
economic development planning functions to a number of
small communities within the Borough.
BOROUGHS PROMOTE EQUITY AMONG ALASKANS
Art. I, Sec. 1 requires equal responsibility among Alaskans.
Yet, statutory law singles out organized boroughs and home rule
& first class cities in the unorganized borough by requiring
them to provide significant support for fundamental services
such as public education.
Local contributions required of municipal school districts under
AS 14.17.410 reduce education foundation funding that would
otherwise be paid by the state to boroughs and home rule & first
class cities in the unorganized borough.
Reduction of funding conflicts with the express intent of the
1963 Mandatory Borough Act.
The requirement for local contributions for schools is, in
effect, a $165 million annual state tax levied only on organized
boroughs and home rule & first class cities in the unorganized
borough.
In the absence of standards and procedures to determine whether
unorganized areas have the capacity to take on responsibility
for their own government, the current disparate treatment of
Alaskans lacks a rational basis.
SENATOR COWDERY asked who decides which area can afford to
provide government.
SENATOR WILKEN said it's ultimately the Legislature, but SCR 12
asks the LBC to go through the borough standards to see whether
areas have the capacity for government.
SENATOR GRETCHEN GUESS asked about Talkeetna.
SENATOR WILKEN replied he wasn't there yet, but "If you were
able to organize those and have them start to contribute to
education, the top of the [indec] number is about $4 million
plus or minus. Lots of things go into that calculation, but it's
in the millions."
SENATOR FRED DYSON asked if that was $4 million each.
SENATOR WILKEN clarified that it was a total figure.
SENATOR GARY STEVENS said some communities in the unorganized
borough, such as Dutch Harbor, do contribute to education. He
asked how that works and whether it's a 4-mil requirement.
SENATOR WILKEN said, "From my point it is. Dutch Harbor doesn't
because they operate under the 45 percent rule." Home rule and
first class cities within the Unorganized Borough do contribute.
Pelican is in the Unorganized Borough and they contribute a bit
to their education.
He clarified; everyone has the 4-mil requirement with the
exception of the North Slope, the Aleutians, Valdez and Skagway.
SENATOR COWDERY asked if Anchorage is at 4-mils because they pay
an 18-mil tax.
SENATOR WILKEN explained state law requires giving a minimum of
4-mils then each assembly decides what to do from there. In
Fairbanks they're at 8.6-mils for education.
SENATOR GUESS advised that Anchorage contributes 8-mils to
education. The minimum is 4-mils and there is also a cap.
SENATOR WILKEN said the cap relates to the federal disparity
test.
SENATOR COWDERY said he knew all that he was simply asking the
question for the benefit of the listening public.
SENATOR WILKEN said 4-mils applies to organized Alaska and he
would suggest that there are areas of the state that have
perfect capacity to contribute that 4-mils. A taxing mechanism
needs to be in place and a borough provides that mechanism.
SENATOR WILKEN continued the slide presentation:
BOROUGHS PROMOTE MAXIMUM LOCAL SELF-GOVERNMENT
Practical examples of the manner in which boroughs promote
maximum local self-government include:
Boroughs can supplement state funding
· An REAA can not bond but organized areas can
· Boroughs are the only regional government that can tax
SENATOR HOFFMAN asked how the other functions of government such
as public health and safety might be affected and how it might
compare with what exists in the unorganized areas currently.
SENATOR WILKEN said boroughs are required to do three things and
anything else is local option.
· Set in place the mechanism to tax
· Take care of education
· Take on planning responsibilities
SENATOR HOFFMAN pointed out that many state services are being
reduced so many areas are moving toward consolidating services
and looking to the federal government for relief. Some second-
class cities are discussing dissolution. He asked for a comment
on the fact that Article X touches on the issue of dissolving
boroughs and there are provisions for local governments to
dissolve with a vote of the people. He questioned whether SCR 12
would provide provisions for borough dissolution.
SENATOR WILKEN replied,
I'm not sure, Senator, how that tribal thing works
into this. And I think it works in to the benefit of
the efforts. We're looking at that. The thing you talk
about is that the withdrawal of the state and perhaps
when Ted Stevens leaves us, we know it's going to have
an impact on our state. Shouldn't we then have that
group, that area of the state, have a common voice and
a strong common voice to promote their needs. So it's
not just this city or this village or this area coming
to the feds or coming to us they band together in a
political voice or certainly in a common need voice
for the very reason that you state. Because the money
is going away, and it seems to me that they have a
stronger voice if they're banded together with common
values. I think that's....'if able.' If they can't,
and I think this is an important part that you brought
up, if you go out and you look at these four areas,
and let's just say that one of them can't support
government. You go down the checklist and you say,
nope, nope, nope they don't fit. What we do is we find
the strong and we ask them to incorporate through a
plan, which you'll see a timeline here, and when
that's finished then you look to see what's left. What
areas of the state need the efforts of all of the
state to bring them, so the next generation to come
along, they're able to incorporate. They have the
wealth; they have the economic value to help
themselves through a common voice. So, we separate,
with SCR 12, the strong from the weak. We have the
strong help, as they should, because they can and we
start to look at the weak. What do we do over the next
couple of generations to get the areas of the state
that can't today help themselves? What do we do to get
them to help themselves? It's a concentration of
efforts. It's a rising tide that lifts all boats. And
I think that's what we're trying to do here. And I
think that's what you're talking about. There are
areas of the state that are poor, but let's not waste
our money on areas that aren't helping when they
should. Let's focus that money on areas that truly
need the help of the state so that someday they'll be
able to pay their fair share.
He acknowledged he was not well versed in the area of
dissolutions.
SENATOR HOFFMAN asked if he would be averse to including
provisions for dissolution of boroughs since that's part of
Article X.
SENATOR WILKEN replied he didn't believe he had objection, but
he thought "those pieces are already in our law, on how to do
that."
SENATOR HOFFMAN said that's correct with regard to local
government, but he wasn't aware of any provisions in statute for
dissolution of boroughs.
SENATOR WILKEN said he would look at the issue and acknowledged
that the tribe issue is already on the table.
SENATOR WILKEN continued the presentation:
Part III
Legislative Perspective
Legislative Perspective
SCR 12 is sponsored by Senator Gary Wilken of Fairbanks.
Eight other senators co-sponsored the resolution (45 percent of
the total State Senate).
Contribution to Education:
As you recall, statutory law requires only organized boroughs
and home rule and first class cities in the Unorganized Borough
to operate and help fund their local public school system.
In FY04, Alaskans in borough and city school districts paid
$165.1 million to help support their local schools.
The required contribution has increased 34 percent since 1997.
SENATOR WILKEN said organized areas have contributed an
additional $42 million over the last eight years.
SENATOR HOFFMAN asked how many additional millions might be
expected from the four proposed areas and how much from the
seven identified areas.
SENATOR WILKEN replied they estimate that the four areas would
bring in $4 million in total and they haven't calculated what
the other three areas might bring.
SENATOR HOFFMAN requested follow up on the amounts that might be
expected from the other three model borough areas. He then asked
why just four of the seven model boroughs were addressed in SCR
12.
SENATOR WILKEN replied the other three [Aleutians West, Prince
William Sound, Wrangell/Petersburg] contribute to education,
they're just not in a borough. He opined it is too difficult,
politically, to address all seven at once. The focus on the four
models is because they pay nothing or very little toward
education.
SENATOR HOFFMAN said that if three of the models are paying
their fair share then it would be easier to "slip them in the
door" than the ones that aren't paying their share and they
should be the first targeted.
SENATOR WILKEN said, "that except in regard to education, they
are far and above paying what these four are not." For instance,
Cordova and Valdez would ask why if they were told they had to
form a borough.
SENATOR HOFFMAN replied it's because the constitution framers
said boroughs would be formed, that's why.
SENATOR WILKEN said those areas are paying their fair share and
the other four are not.
SENATOR HOFFMAN asked whether the four areas could anti-up [4-
mils for education] and avoid becoming boroughs.
SENATOR WILKEN said, "Anti-up? In what respect?"
SENATOR HOFFMAN said for the same reason and in the same way
that the three model boroughs aren't included in SCR 12. It's
because they're paying their fair share.
SENATOR WILKEN replied the Legislature could sit as an assembly
and tax people in those areas. He said, "We could do that
tomorrow if we had the political will to do it."
SENATOR HOFFMAN said SCR 12 is sending the message that areas
don't have to form boroughs if they pay for education.
SENATOR WILKEN replied that was probably the idea 20 years ago
when third class boroughs existed.
He pointed to a chart that shows Anchorage is worth about $17
billion and contributes $67 million in local taxes to their
school district. The North Slope school district is worth about
$10.5 billion and contributes $9 million. Fairbanks school
district is assessed at about $4.8 billion and contributes about
$19 million.
SIDE B 10:45 am
He continued the presentation.
Two of the four areas listed in SCR 12 have very high property
value.
All four areas have property value greater than 9 school
districts that currently support their schools.
Model Borough Summary
Upper Tanana Basin
Upper Tanana Basin
19 communities
6,316 residents
Delta/Greely REAA
Alaska Gateway REAA
Value - $469,045,724
Avg. Home - $144,044
Avg. Income - $47,472
Copper River Basin
Copper River Basin
18 communities
3,089 residents
Copper River REAA
Value - $502,729,199
Avg. Home - $128,800
Avg. Income - $43,990
Glacier Bay
Glacier Bay
7 communities
1,739 residents
Pelican Schools
Hoonah Schools
Chatham REAA
Value - $73,526,489
Avg. Home - $136,738
Avg. Income - $46,563
Chatham Region
Chatham Region
3 communities
1,354 residents
Kake Schools
Chatham REAA
Value - $35,908,397
Avg. Home - $132,854
Avg. Income - $47,516
Economic Wealth [REAA Wages and Average Employment (FY 2002)
chart slide 62]
As you recall, the LBC reviewed and analyzed the Unorganized
Borough in 2003.
The four regions listed in SCR 12 met borough standards.
Including the fiscal and administrative capacity to operate a
fiscal and administrative capacity to operate a
borough
borough
Timeline for Incorporation
Senate Concurrent Resolution 12
Acknowledges that some Alaskans are required to operate and fund
local schools and some Alaskans are not.
Recognizes and addresses this inherent inequality.
Requires an arms-length review of 4 areas to determine ability
to support their local schools.
Senate Concurrent Resolution 12 [Timeline for Incorporation
chart, slide 67]
Provides a lengthy, public review process.
Allows for gradual change.
Answers the fundamental questions: [Can you help? Can you pay
your fair share?]
SENATOR WILKEN concluded the presentation.
CHAIR GARY STEVENS asked why the State Affairs Committee is
addressing an issue that is the purview of the Local Boundary
Commission. He asked whether they had the power to act without
receiving legislative direction.
SENATOR WILKEN said they have the power to act then outlined the
composition and history of the LBC. He then explained that the
LBC has asked for legislative help. SCR 12 is an effort to
measure support.
CHAIR GARY STEVENS recognized Senator Con Bunde and thanked him
for attending the meeting.
SENATOR BUNDE asked whether any of existing boroughs
incorporated willingly.
SENATOR WILKEN said between four and eight boroughs incorporated
voluntarily.
DAN BOCKHORST, Department of Community and Economic Development,
clarified that the North Slope Borough, Denali Borough,
Northwest Arctic Borough, Lake & Peninsula Borough, Bristol Bay
Borough, Aleutians East Borough, Yakutat Borough, and Haines
Borough incorporated voluntarily.
CHAIR GARY STEVENS announced that Eddie Jeans with the
Department of Education, John Walsh, Kate Tesar, Senator Ben
Steven's staff and Representative Mike Chenault's staff were
listening from off-net sites.
SENATOR BUNDE expressed surprise at the number of voluntary
incorporations.
SENATOR WILKEN acknowledged there has been stiff opposition and
even Fairbanks voted against incorporation.
SENATOR GUESS asked about the reference to three ways to resolve
the issue. One is SCR 12, another is that the current incentives
are working as disincentives and the third is for the
Legislature to be the overseeing body. She asked why he selected
the resolution approach and did he have any insight on using the
other two approaches.
SENATOR WILKEN said this is the most difficult way, but the
"more surgical." He stated there are pockets of both wealth and
poverty in unorganized Alaska and it's incumbent upon the
Legislature not to take the easy way out and penalize people
that are struggling in areas of the state that need help.
SENATOR GUESS asked about his thought process regarding
reworking the incentives so that they aren't viewed as
disincentives.
SENATOR WILKEN said there are incentives and disincentives. The
incentive is for the Legislature to identify what would make an
area more viable and the hammer is for the Legislature to
require everyone to pay. That's the easy way out and it's not
fair.
SENATOR GUESS agreed with Senator Hoffman's logic with regard to
the other three areas. Seven areas were identified and SCR 12
looks at just four. She thought it somewhat odd that the areas
that can and do contribute to education were not included in the
resolution while the questionable areas were included.
SENATOR WILKEN used Prince William Sound [model borough] to
explain that Cordova and Valdez pay their fair share. "You go in
and try to bring those people together. It's a rat's nest...You
won't get through." They're paying their fair share so that
discussion is for another day and another effort.
SENATOR GUESS questioned it's "if able" and they are able, but
it would be too difficult.
SENATOR WILKEN disagreed; they are able and participating.
SENATOR GUESS said they're participating in one area, but not
necessarily in others.
SENATOR WILKEN agreed.
CHAIR GARY STEVENS said the larger communities in a borough are
taxed at the cap and frequently the money is spent in areas with
no tax base. He used his community of Kodiak and the smaller
community of Karluk as examples. He said he was not unhappy that
his tax money was helping support the schools in the smaller
community. He questioned whether there were smaller communities
that might benefit from the tax base in Cordova and Valdez. He
then pointed to Dutch Harbor. It has a large tax base and isn't
funding smaller villages in the area, but they would under this
system. Simply saying Cordova pays its own way may not be enough
if they aren't helping the less advantaged communities that are
unable to fund education.
SENATOR WILKEN replied that if all the areas were rolled
together then all the money that flows into separate pockets
would flow into a common government to be distributed as an
assembly saw fit.
SENATOR DYSON said that in Prince William Sound there are also
ethnic differences to be considered.
He asked what happens after the LBC does what it is directed to
do in SCR 12.
SENATOR WILKEN said it comes before the Legislature and they
would have 45 days to turn it down. If they don't turn it down
in that timeframe then the areas would become a borough.
SENATOR DYSON said the Legislature has formed boroughs in the
past and asked whether he had any sense of the history for that.
SENATOR WILKEN stated he wasn't familiar with any mandatory
boroughs beyond the original ones.
MR. BOCKHORST advised it was legislative action that created the
Eagle River- Chugiak Borough in 1974, but it was determined to
be an unconstitutional act.
SENATOR DYSON asked if it might be advantageous for the
legislation to be addressed early in the session.
SENATOR WILKEN said there is a time line, but he didn't know
what it is.
MR. BOCKHORST said the constitution prescribes that the LBC may
present its recommendations only during the first ten days of a
regular session.
SENATOR HOFFMAN said a major problem in the unorganized areas is
that much of the land is federal or corporation land. Those
lands are exempt so there is limited land available for
taxation. He asked what suggestions Senator Wilken had to help
those areas come up with the needed money.
SENATOR WILKEN said there are many facets to the question. He
concentrated on education and used Tok as an example because it
has considerable federal land in the area. When calculating the
4-mil requirement, the federal land isn't calculated so their 4-
mil requirement would be small. He suggested they could raise
the money through an income tax, or a gas tax. The point is that
the areas of the state that have the capacity to support local
government may be surprised to find how little it takes to fund
local government. Local government can fund itself through
property taxes, sales taxes, bed taxes, fish taxes, severance
taxes, timber taxes and others.
SENATOR HOFFMAN said he was thinking about payroll deduction tax
because a homesteader's ability to pay the necessary value of
his of her 160 acres of land might be limited. The taxes just
mentioned are small in comparison to property tax on a 160-acre
homestead.
SENATOR WILKEN replied "We shouldn't just assume that this new
government will fund itself by property taxes." In fact there
are a number of boroughs that have no property tax at all.
SENATOR JOHN COWDERY commented that the taxes on his five acre
homestead property in the Mat-Su Borough have increased a great
deal since 1951 when he acquired the land. He then pointed out
that someone with 160 acres would receive the same education
benefits as someone with five acres.
SENATOR WILKEN said, "On a bigger scale, if we did this over the
next few generations, exactly right. Then that property that
those people hold and we protect through a system that we
develop, that property increases in value so it doesn't detract
from their lifestyle, it indeed through economic development it
increases the assessed value, which is money to them in the
bank."
He thanked Dan Bockhorst and Sheila Peterson for preparing the
presentation.
CHAIR GARY STEVENS thanked Senator Cowdery's staff member,
Annette Skibinski, for taking notes and his staff member,
Katrina Matheny, for organizing the meeting.
He announced public testimony would begin.
ETHAN SCHUTT, general counsel for the Tanana Chiefs Conference
in Fairbanks, stated the resolution has inconsistencies on a
policy basis. He has seldom heard and doesn't necessarily agree
with the proposition that more government creates economic
development.
While local government can enhance economic development, there
must be something there first. For instance, the Red Dog Mine
was discovered and developed before the Northwest Arctic Borough
began to capture that economic development. Similarly, putting
local government into the Tok Delta area without some great
resource base won't necessarily create any economic development.
He assumed that the assessed valuation numbers for the Tok Delta
region were drawn from the fact that the pipeline runs through
the area. As far as state funds are concerned, that would
approach a wash because that would reduce the amount the state
is paid at the wellhead by the way the tax system works.
Similarly, federal properties that aren't taxable have the
payment in lieu of taxes (PILT) system and currently 90 percent
of that payment is rolled into the state's general fund whereas
only 10 percent goes to the REAAs in that area. That 90 percent
federal payment would be rolled back into the borough in that
area. The same two points would apply in the Copper River Basin
Borough.
It's not correct to say that those areas aren't paying their own
way because there are economic generators that are putting money
in the state general fund that may or may not come back in
proportion to those areas.
If the state government rearranges the school funding formula
there would be no way for those communities to recapture that
money. If they lose funding and must cut a teacher from the
local school, they cannot raise revenue to re-fund that position
so they are making a local choice to sacrifice that position.
Whether it makes sense to cut education is debatable and he is
not in favor of that, but this is a government by the people of
the people and for the people and if that local population
chooses to go without, to the detriment of themselves and their
own children, that is a principle of government that is adhered
to and it is their choice.
He questioned the point that there would be better political
representation through the unified political voice of a borough.
It wouldn't change the political calculus of the south central
caucus from Anchorage, Mat-Su, and Kenai. That area has an
overwhelming majority of the state's population and it is not
going to be undone by the fact that Tok Delta or Copper River
Basin has an organized borough. The proposed boroughs would
still have to approach the Legislature to ask for projects and
funding for their programs.
It's important to acknowledge that the primary purpose and
likely the sole purpose of the proposed boroughs would be to
fund schools at the statutory minimum limit. It's doubtful that
there would be excess revenue to fund any services other than
the necessary and statutorily required government. It would be
necessary to develop the mechanism and physical infrastructure
to assess and collect taxes, which would result in carrying and
operational costs. It's likely that those required functions
would be the only thing funded other than education with the
small boroughs.
There are 6,300 people in the proposed Upper Tanana Basin
borough and they are spread over a geographic area the size of
New York. Delta and Tok are the predominant communities and
would displace the political voice of the other 17 small
isolated villages. He asked what services they might receive
other than a little money into the school and questioned whether
it made good policy sense.
SENATOR COWDERY said that all areas require the same mechanism
and infrastructure for government.
MR. SCHUTT agreed then pointed out that the economies of scale
must be considered. The smaller an organization is the higher
the cost per employee.
SENATOR BUNDE assumed it would be good for the state if everyone
reached into their own pocket to help fund schools. He asked
whether the people in the Upper Tanana Basin would support the
Legislature sitting as their borough assembly to impose taxes to
avoid the cost of local government.
MR. SCHUTT said that if the Legislature decided to sit as a
local assembly, it would have political ramifications that might
provide incentive to form a borough, but there are better ways
to capture the economies of scale. One way might be the
imposition of a broad-based statewide tax with an offset to the
boroughs that already pay property taxes.
SENATOR DYSON informed members he was unsuccessful in his effort
to institute a new category for small communities to give them
freedom to write their own charter and organize themselves. He
asked Mr. Schutt if he could see a way for communities that want
to organize along tribal lines to do so under state law while
enhancing their relationship with the federal government and its
funding sources in particular.
MR. SCHUTT replied that is a complicated topic, but he could
imagine scenarios that would work for the state, for local
communities and for Native and tribal governments. Certainly
there is increased fiscal reality in rural communities and there
is interest in working cooperatively.
SENATOR DYSON said he worked in communities that had three
governments and they struggled to work together. He has dreamed
of creating state law so that the federal entities could be
integrated in a way that makes sense to individual communities.
MR. SCHUTT agreed that duplicative local governments are
problematic.
SENATOR COWDERY asked Mr. Schutt what the future economic
potential might entail.
MR. SCHUTT said he would hate to say mining because it sometimes
works well for jobs, but it doesn't work well for local revenue
because mines don't always generate income on the books. There
are potential oil and gas projects in rural Alaska that haven't
been developed and they pay their way, but beyond that he was
unsure.
SENATOR COWDERY asked if the missile defense project in his area
might spur the economy and did he think they should contribute.
MR. SCHUTT said the project would provide economic benefits to
the community of Delta Greely, but the majority of the
infrastructure is on a federal reserve so that would be a PILT
program where 90 percent currently goes into the state general
fund as far as the value of that land.
SENATOR COWDERY asked whether there would be a population
increase with new homes built as a result of the missile
project.
MR. SCHUTT understood the project was in the construction phase
and many of the workers are coming from the Fairbanks area so
that tax base is already capturing most of those benefits. Of
course some is probably going to the Delta area as well.
SENATOR COWDERY asked if he thought the local area should
contribute to education if the economy is up.
MR. SCHUTT replied that his point on the Payment in Lieu of
Taxes System is that because that is in the geographic area in
which they live, they are indirectly contributing significantly
already.
SENATOR GUESS asked whether he considered Delta Greely part of
his area.
MR. SCHUTT said he does because it is in the proposed Upper
Tanana Basin model borough.
SENATOR COWDERY said the tax base would come from improvements
on private land.
MR. SCHUTT replied there are some significant improvements on
private land, but when the construction phase is complete they
may be less significant than they are now.
TAPE 03-34 SIDE A, 11:30 am
DARROL HARGRAVES, Chair of the LBC, reported that the 22nd
Legislature passed SB 359 directing the LBC to review the
Unorganized Borough in terms of standards for borough
incorporation. The report was filed in February 2003 and he
believes the new commission concurs with the past commission's
work.
SCR 12 is a natural result of the review and if adopted, the
commission will proceed with formal consideration of the areas
listed in the resolution. The commission could act without
legislative directive, but he can't conceive of acting without a
prompt and in the absence of a local petition coming from a
group of people asking for organization.
The commission recognizes that organized boroughs are
fundamental to promoting maximum local self government for
Alaskans. They promote local responsibility and provide a
structure for efficiency and effective delivery of public
services.
SENATOR HOFFMAN said many of the people he represents are asking
about the promises of statehood. Municipal assistance and
revenue sharing are gone, the VPSO system has been cut and many
of the communities that were promised education are still using
substandard BIA facilities. They're asking how they benefited
from becoming a state and saying that perhaps they made the
wrong decision. Some believe moving back toward the federal
government might not be a bad idea. This is a bigger question
than borough formation and he would like to know what he should
say to those people.
MR. HARGRAVES acknowledged that was a good question and he
wasn't prepared to offer an answer.
SENATOR GUESS asked why there were just four areas included and
not all seven.
MR. HARGRAVES said he didn't know why just four were included.
The LBC wasn't looking at education funding, they were looking
at what would constitute a unit and meet the standards for a
borough.
KEVIN WARING advised he was the chair of the LBC when the report
was prepared and he was prepared to answer questions in that
regard.
SENATOR HOFFMAN asked him to respond to his previous question.
Senator Wilken has said that SCR 12 is an effort to get these
areas to pay for education. The villages he represents are
asking about the promises that were made when Alaska became a
state. What benefits would these largely Native villages receive
from a borough?
MR. WARING said the LBC isn't powerful enough to answer that
question; the answer lies with the Legislature. The report deals
with the question of which areas of the state have the capacity
to support borough government. He said, " All seven of those
areas have more substantial tax bases, higher incomes, often
lower unemployment rates than several of the areas that now
support borough government."
SENATOR HOFFMAN asked whether the Legislature is moving toward
fulfilling the promises made at statehood in passage of SCR 12.
It seems as though many of the people he represents are saying
no, this will not fulfill the promises.
MR. WARING said the report sets out to fulfill part of Article X
of the Alaska State Constitution and the broader question is a
policy question for legislators.
GENE KANE, Director, Division of Community Advocacy, Department
of Community & Economic Development, reported they provide staff
support and administrative support to the LBC. In matters of
policy, the LBC is independent of the department. The commission
members are appointed by and serve at the pleasure of the
Governor.
He reiterated Commissioner Blatchford's letter saying the
department recognizes that the Legislature has the duty, under
Article X, Sec. 3, to set state policy regarding establishment
of boroughs, both organized and unorganized, throughout the
state. It encourages organized boroughs encompassing large,
natural regions that have the fiscal capacity to support
regional government. "Organized boroughs are fundamental to
promoting maximum local self government, local responsibility,
more efficient and effective delivery of public services, and
economic development."
SENATOR GUESS asked whether the administration supports SCR 12.
MR. KANE replied his statement was that his department supports
the Legislature in its efforts to address SCR 12. He was not
speaking on behalf of the Governor. He couldn't respond to the
question of mandating borough formation.
SENATOR GUESS said she would like to know where the
administration stands when the committee hears the bill during
the next regular session. She would also like to know the
administration's position with regard to considering just four
of the seven model boroughs in SCR 12.
MR. KANE said they would get some clarification.
DAN BOCKHORST, local government specialist, Department of
Community & Economic Development, stated he is candid in his
remarks and he believes the state is better served by such
discussions.
SCR 12 deals with the fundamental question of the policy of how
borough government will be established. He considers the policy
of the last four decades to be incomplete, ineffective,
inequitable and inconsistent with the vision of the constitution
framers.
The 1963 Legislature mandated borough incorporation, but
inexplicably returned to the local option policy following the
implementation of the Mandatory Borough Act. With few
exceptions, the incentives have never been sufficient to
voluntarily incorporate borough government on a broad spectrum
in the state. In fact, the level of incentives has declined
since the 1960s.
The existing policy is incomplete from the standpoint that
Alaska's Constitution requires that the Legislature enact laws
to provide standards and procedures for the establishment of
both organized and unorganized boroughs. The Legislature has
provided standards and procedures for the creation of organized
boroughs, but it has never established standards and procedures
for the establishment of unorganized boroughs and this has been
a large part of the problem.
The Alaska Constitution compels the state to treat its citizens
equally and he contends that the failure to adopt standards to
make distinctions between organized boroughs and unorganized
boroughs fosters inequitable treatment. There are strong
parallels between the promises that were forsaken by the federal
government at statehood and the promises that were forsaken to
boroughs by the State of Alaska. Senator Wilken touched on the
foremost one in which the 1963 State Legislature picked eight
areas and said they must organize borough government and take on
the responsibility for schools, for planning, for land-use
regulation, and for tax assessment and collection. In addition
they have paid significant amounts of money that the state would
otherwise have paid, to support those services.
The policy is inconsistent in that Article X, Section 3 says
that each borough would embrace an area and population with
common interests to the maximum degree possible yet the first
borough that was established was the Unorganized Borough. Rather
that defining how unorganized boroughs would be established and
providing standards, it simply divided the entire state into a
single Unorganized Borough. He opined it creates a situation
where there is no review or consideration of how to move from
unorganized to organized status. The Unorganized Borough has
always encompassed an area of great diversity.
The framers envisioned the creation of incentives to organize,
but dis-incentives to organize borough government have been
created instead. The basic tenet of the local government article
in the constitution is that there would be a maximum of local
self government with a minimum number of government units and
that occurs in organized boroughs.
When organized boroughs were first established, 50 percent of
the people that lived within organized boroughs also lived
within a city government. Over the last four decades, that
number has declined substantially. With regard to economies of
scale, borough governments have the capability of providing
services on a regional level and a community level. People have
taken advantage of that capacity to make their local government
more efficient. The continued evolution of the structure is
evidenced by the consolidation of the Haines Borough and the
City of Haines where 75 percent of the people that lived in the
Haines Borough also lived in the City of Haines. He reported
that the voters in Ketchikan would soon vote on a proposition to
develop a petition to consolidate the City of Ketchikan and the
Ketchikan Gateway Borough. There is no regional structure in the
unorganized areas and people are forced to deal with the
delivery of services on a very fractionalized method. They don't
have the benefit of the economies of scale that are achieved
through local government.
SENATOR HOFFMAN restated his position that many of his
constituents are reevaluating the decision to become part of the
state. He questioned whether the state should be required to
divide into mandatory boroughs. Ninety percent of the PILT money
goes directly into the state general fund so areas that receive
those moneys are already paying their fair share.
The LBC is working to form boroughs to follow the intent of the
constitution and Senator Wilken's intent is to get more money
into the state coffers to pay for education. SCR 12 focuses on
four model boroughs while passing on three areas that are closer
to formation.
MR. BOCKHORST said others have spoken on those issues and he
agrees in particular with Senator Wilken when he said if the
state encourages those areas to form that have the capacity to
organize borough government it enables the state to focus on and
help areas that don't have the capacity to deliver essential
services and promote their own economies.
He said the Gustavus petition to organize has actually become
more compelling now that they won't receive state capital
matching grants and municipal assistance and revenue sharing in
the foreseeable future. They have the capacity to generate local
income to help support those services that they have enjoyed.
With regard to areas with local land, he said that circumstance
exists all over Alaska. Close to 99 percent of the land in the
City and Borough of Juneau is not privately owned.
Whether or not to direct the LBC to review all seven proposed
model boroughs or just four is a policy question. Certainly SCR
12 could be amended to include all seven areas.
SIDE B, 12:15 pm
SENATOR HOFFMAN said the constitution addresses the dissolution
of boroughs and he questioned whether Mr. Waring thought it was
an important part of the constitution that needed to be
addressed.
MR. BOCKHORST agreed it is an important part of the constitution
and he believes that the provisions in the statutes are suitable
for current and projected circumstances regarding borough
dissolution.
SENATOR GUESS asked how the Unorganized Borough was formed.
MR. BOCKHORST explained that in 1961 the Legislature passed
Title 29 that says, "All of Alaska that is not within an
organized borough shall constitute a single unorganized
borough." He repeated his earlier assertion that the provisions
in current law do not fulfill the constitution from the
standpoint that they make no provision and provide no procedures
for establishing unorganized boroughs. It would take legislative
action to establish such mechanisms. In the early 1990s the LBC
did address this issue and their product is the model borough
boundaries definitions.
SENATOR GUESS referred to the map on the front of the February
2003 report and asked who drew all the lines.
MR. BOCKHORST said there are 16 organized boroughs in Alaska and
the rest of Alaska is the single Unorganized Borough. In the
early 1990s the commission held hearings in 88 communities in
the Unorganized Borough and examined the standards, but they
didn't look at economic viability. The product is reflected on
the map and it defines the model borough boundaries for the
unorganized areas if they were to be organized into boroughs.
SENATOR GUESS asked whether he supports the process Senator
Wilken laid out as the best long-term process for organizing
boroughs "if able."
MR. BOCKHORST restated his belief that the process that has been
in place for 40 years has been a failure. There are a number of
different options for coming up with a better process and SCR 12
is a reasonable approach. Several years ago Senator Wilken
worked unsuccessfully on SB 48, which was patterned after an LBC
proposal and it too was a reasonable approach. This points to
the fact that there are many ways that it could be done.
SENATOR GUESS asked who is responsible for public safety and
noted that the City of Anchorage has the Anchorage Police
Department.
MR. BOCKHORST replied the Municipality of Anchorage is a borough
government that exercises police protection as a discretionary
function. The state troopers have statewide jurisdiction for
public safety. Many borough governments do exercise police
protection, but state statute does not require either borough or
city governments to exercise that power.
SENATOR GUESS questioned whether the state would shoulder the
cost of providing troopers if Anchorage decided not to provide
police protection.
MR. BOCKHORST said there is nothing in state law that obligates
Anchorage to exercise police protection, but arguments could be
made regarding the moral obligation.
SENATOR GUESS asked if there is a difference between what a
first or second-class borough, a unified municipality, or a home
rule borough must provide.
MR. BOCKHORST answered there is no difference. Any borough
government formed today is obligated to provide three broad
functions.
SENATOR DYSON asked what the Legislature could statutorily
impose on the Unorganized Borough.
MR. BOCKHORST replied the Legislature has the capacity to
provide for any service or exercise any power within the
Unorganized Borough that the assembly of an organized borough
has.
SENATOR DYSON asked whether the Legislature could " create in
statute an unorganized borough assembly elected either from
regional or at-large in the Unorganized Borough that we
delegated then the responsibilities to."
MR. BOCKHORST said the constitution gives that responsibility to
the Legislature and he was unsure whether that could be
delegated, but it would seem to be contrary to notions of
democratically elected governing bodies.
SENATOR DYSON said he assumed that the Legislature sitting as
the assembly for the Unorganized Borough could develop a taxing
scheme that was just for that area.
MR. BOCKHORST said that is correct.
SENATOR DYSON commented difficulties associated with unequal
treatment might arise.
MR. BOCKHORST advised the Mat-Su Borough raised an equal
treatment challenge regarding the state education funding
structure asking why they were being penalized as an organized
area. They challenged based on the equal protection provision of
the constitution. The supreme court responded that it is a
problem, but it is a policy fix that the Legislature has the
responsibility to make. The Legislature has the capacity to levy
taxes on the Unorganized Borough and that is one way to attain
equity.
SENATOR BUNDE announced he wanted to make a statement as a co-
sponsor. He said:
For a very important reason I am concerned about our
fiscal gap challenges and I think this issue is an
important aspect of solving that fiscal gap. Not so
much financially as it is politically and
psychologically. We saw the presentation that
basically said those that could, should pay a fair
share. So I think that is going to be an overriding
challenge to the 80 some percent that are providing
could impart the argument of fair share. So I think
that needs to be a part of discussion as the committee
addresses that.
Two other comments: Just a caution for those that are
hanging their hat on federal funding, with the growing
federal deficit I think that is a very short term
solution for people who are questioning...the wisdom
of statehood. The other is the wisdom of any part of
our constitution including Article X...People can
always submit legislation for a constitutional
amendment.
CHAIR GARY STEVENS restated that the committee was not taking
public testimony, but would do so early in the next session. He
asked Senator Wilken to come forward to answer final questions
and give any closing remarks.
SENATOR GUESS said there is an underlying assumption that adding
another layer of government would be a good thing. She asked if
he had examined whether it would be efficient to move forward;
whether the current government structure is working; and whether
this pulls areas together.
SENATOR WILKEN replied it is common sense to think that a group
of people that gets together on their common needs and wants
would be more efficient than individuals trying to carry their
needs and wants on their own. Although everyone wouldn't get
everything they want the majority would certainly benefit.
SENATOR GUESS asked what he knew about whether the state would
or would not lose oil revenue by creating boroughs.
SENATOR WILKEN said the answer is a definite maybe. Many people
believe that Delta Greely, including Tok, Tetlin, Northway, and
Eagle, could support local government without touching the
pipeline. He explained that the pipeline is taxed at 20 mils and
boroughs that have oil and gas properties within their
boundaries are able to tax it as well, but only at the level
that they tax themselves. The wealth in Delta Greely from the
development of missile defense, a gold mine, the potential of
increased tourism and the potential of a gas line railroad makes
it likely that they wouldn't tap the pipeline because they
wouldn't want to impose the same tax on themselves. People will
make that decision based on what it would take to raise the
required minimum 4 mils for education and whether they want to
do more and what they want to do for government in general.
SENATOR GUESS asked if he had considered a policy that would
give areas a choice of organizing as a borough and becoming
responsible for more than the 4 mil education requirement or
simply paying the 4 mils for education.
SENATOR WILKEN said that would take care of his issue, but the
bigger issue asks whether local government shouldn't be
delivered to those places that would benefit. He believes that
in a generation or two the four areas under consideration have
the potential of benefiting by organizing and having government.
Better and more efficient government starts at the local level.
SENATOR GUESS questioned the issue of services and whether they
are mandatory or discretionary. Anchorage provides and pays for
police services while Fairbanks relies on troopers for which the
state picks up the tab. She asked whether the Legislature should
consider more than education and revisit which services are
mandatory and which are discretionary in the context of what an
area is able to pay.
SENATOR WILKEN acknowledged that Fairbanks funds their public
safety department while the borough does not and he didn't know
how it got to be that way.
He said the rural Alaska assertion that PL874 money is their
local contribution to education should be challenged a bit. The
federal government doesn't look at it that way and organized
Alaska isn't allowed to use that argument. When the Legislature
looked at the issue some years ago they determined that there
would be a $34 million impact to the general fund if organized
Alaska could use PL874 money as their local contribution.
SENATOR HOFFMAN asked why they call it payment in lieu of taxes.
CHAIR GARY STEVENS thanked Senator Wilken for presenting the
history and asked whether he had any closing remarks.
SENATOR WILKEN thanked everyone for participating and said there
certainly is a great deal to learn and every discussion helps.
He stated he is willing to travel to any area in the state to
give his presentation and answer questions.
CHAIR GARY STEVENS advised he would schedule a hearing in Juneau
as early in January as possible. There being no further business
to come before the committee, Chair Gary Stevens adjourned the
meeting at 12:35 pm.
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