Legislature(2001 - 2002)

04/24/2001 08:13 AM House CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              HOUSE COMMUNITY AND REGIONAL AFFAIRS                                                                            
                       STANDING COMMITTEE                                                                                     
                         April 24, 2001                                                                                         
                           8:13 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Carl Morgan, Co-Chair                                                                                            
Representative Drew Scalzi                                                                                                      
Representative Lisa Murkowski                                                                                                   
Representative Gretchen Guess                                                                                                   
Representative Beth Kerttula                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative Andrew Halcro                                                                                                    
COMMITTEE CALENDAR                                                                                                            
HOUSE BILL NO. 217                                                                                                              
"An Act relating to municipal property assessment and taxation;                                                                 
and providing for an effective date."                                                                                           
     - HEARD AND HELD; ASSIGNED TO SUBCOMMITTEE                                                                                 
PREVIOUS ACTION                                                                                                               
BILL: HB 217                                                                                                                  
SHORT TITLE:MUNICIPAL PROPERTY ASSESSMENT AND TAX                                                                               
SPONSOR(S): REPRESENTATIVE(S)KOHRING                                                                                            
Jrn-Date   Jrn-Page                     Action                                                                                  
03/27/01     0742       (H)        READ THE FIRST TIME -                                                                        
03/27/01     0742       (H)        CRA, JUD                                                                                     
03/27/01     0742       (H)        REFERRED TO CRA                                                                              
04/19/01                (H)        CRA AT 8:00 AM CAPITOL 124                                                                   
04/19/01                (H)        Heard & Held                                                                                 
04/24/01                (H)        CRA AT 8:00 AM CAPITOL 124                                                                   
WITNESS REGISTER                                                                                                              
KEVIN RITCHIE, Executive Director                                                                                               
Alaska Municipal League                                                                                                         
217 Second Street                                                                                                               
Juneau, Alaska 99801                                                                                                            
POSITION STATEMENT:  Testified on HB 217.                                                                                       
GARY LEWIS, a retired assessor                                                                                                  
Box 2006                                                                                                                        
Wrangell, Alaska 99929                                                                                                          
POSITION STATEMENT:  Testified on HB 217.                                                                                       
UWE KALENKA                                                                                                                     
PO Box 92824                                                                                                                    
Anchorage, Alaska 99509                                                                                                         
POSITION STATEMENT:  Testified on HB 217.                                                                                       
ELIZABETH BARR                                                                                                                  
Alaska Property Owners Association                                                                                              
3301 Sherrie Street                                                                                                             
Anchorage, Alaska 99504                                                                                                         
POSITION STATEMENT:  Testified on her firm belief in local                                                                      
DAN DICKINSON, Director                                                                                                         
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
550 West 7th, Number 500                                                                                                        
Anchorage, Alaska 99501                                                                                                         
POSITION STATEMENT:  Testified that HB 217 would eliminate a                                                                    
current safeguard in relation to taxation.                                                                                      
KEN JACOBUS                                                                                                                     
425 G Street, Number 920                                                                                                        
Anchorage, Alaska 99501                                                                                                         
POSITION STATEMENT:  Testified that HB 217 should be enacted.                                                                   
ACTION NARRATIVE                                                                                                              
TAPE 01-23, SIDE A                                                                                                              
Number 0001                                                                                                                     
CO-CHAIR  CARL MORGAN  called the  House  Community and  Regional                                                               
Affairs  Standing  Committee  meeting   to  order  at  8:13  a.m.                                                               
Representatives  Morgan,   Meyer,  Scalzi,  and   Murkowski  were                                                               
present  at  the  call  to  order.    Representatives  Guess  and                                                               
Kerttula arrived as the meeting was in progress.                                                                                
HB 217-MUNICIPAL PROPERTY ASSESSMENT AND TAX                                                                                  
CO-CHAIR MORGAN announced that the  only order of business before                                                               
the committee  would be HOUSE BILL  NO. 217, "An Act  relating to                                                               
municipal property assessment and  taxation; and providing for an                                                               
effective date."                                                                                                                
Number 0088                                                                                                                     
KEVIN  RITCHIE,  Executive   Director,  Alaska  Municipal  League                                                               
(AML), informed  the committee that  AML did have a  meeting with                                                               
its  Revenue and  Finance Subcommittee  yesterday.   Mr.  Ritchie                                                               
explained that [HB 217] allows  municipalities to do part of what                                                               
was  rejected  by   70  percent  of  Alaskans  in   the  tax  cap                                                               
initiative.  Therefore, from a  policy standpoint there is reason                                                               
to  believe that  the public  may not  think [HB  217] is  a good                                                               
idea.  [This legislation] would  allow unlimited local discretion                                                               
for  local governments  to shift  property tax  burdens from  one                                                               
taxpayer  to another.   Mr.  Ritchie remarked,  "We don't  really                                                               
have a  policy reason to ask  for this broad of  discretion.  ...                                                               
And  also  I  believe  that   this  initiative  is  also  in  the                                                               
Lieutenant Governor's  office, is  something that would  be voted                                                               
on statewide."                                                                                                                  
MR. RITCHIE announced that AML does  support SB 4 and HB 6, which                                                               
updates an optional legislatively  granted property tax exemption                                                               
that allowed municipalities  the ability to exempt  to $10,000 of                                                               
assessed  value on  residential property.   Both  SB 4  and  HB 6                                                               
attempt  to  update  the  value  of  that  exemption,  which  AML                                                               
believes would be a good tool  to allow some minor adjustments in                                                               
property tax  burdens.   He noted that  the Fairbanks  North Star                                                               
Borough was  considering using this  [updated exemption]  as part                                                               
of its local  long-range financial plan.   Therefore, there could                                                               
be some positive  impacts with this [updated  exemption] in terms                                                               
of creating a more balanced taxation system in municipalities.                                                                  
Number 0320                                                                                                                     
MR. RITCHIE,  in response to Representative  Murkowski, said that                                                               
SB  4  is in  the  Senate  Rules  Committee; however,  he  didn't                                                               
believe that HB 6 has had a hearing.                                                                                            
CO-CHAIR MORGAN asked  if there were any questions  for Steve Van                                                               
Sant,  State   Assessor,  Division  of  Community   and  Business                                                               
Development, Department  of Community  & Economic  Development or                                                               
Gary Lewis, a retired assessor.                                                                                                 
Number 482                                                                                                                      
REPRESENTATIVE  MURKOWSKI  inquired  as  to  Mr.  Lewis'  opinion                                                               
regarding the disparate impacts of HB 217.                                                                                      
GARY  LEWIS, a  retired assessor,  testified via  teleconference.                                                               
He began by  pointing out that Alaska has had  a very uniform tax                                                               
system   since  statehood.     This   legislation  provides   the                                                               
opportunity  to  charge  different  rates of  tax  for  different                                                               
classes of property.   There is the question of  equity in regard                                                               
to  the value  of property  and how  it is  taxed other  than the                                                               
market value.   Furthermore, Mr. Lewis noted that  HB 217 invites                                                               
special  interest groups  to influence  and shift  the burden  of                                                               
taxes from one group to  another group, which is very detrimental                                                               
in regard to fairness.                                                                                                          
Number 0622                                                                                                                     
UWE KALENKA  testified via teleconference.   Mr.  Kalenka thanked                                                               
Representative Kohring for his foresight  in recognizing that the                                                               
tax  cap failed  last  year,  "namely, [because  it  is a]  local                                                               
issue."   He explained that  it quickly became apparent  with the                                                               
tax cap initiative that every  community felt that it should have                                                               
the  right   to  establish  their  own   criteria  for  taxation.                                                               
Although Mr.  Kalenka felt  that was  correct, the  current state                                                               
law  didn't  allow such  and  thus  the  tax cap  initiative  was                                                               
statewide.   Therefore, he surmised  that the failure of  the tax                                                               
cap initiative  highlights that local communities  should be able                                                               
to assess taxes as they see fit.                                                                                                
MR.  KALENKA turned  to  comments  made at  the  April 19,  2001,                                                               
hearing on HB  217.  He recalled the concern  that there would be                                                               
a potential loss in revenue to  the state [with the passage of HB
217].  To  that, Mr. Kalenka pointed out that  the potential loss                                                               
in revenue  to the state  already exists with  the municipalities                                                               
that  have  the  right to  assess  up  to  20  mills on  the  oil                                                               
production, transportation,  and storage facilities.   Therefore,                                                               
there  will  be  no  change  there.   He  also  recalled  concern                                                               
regarding the oil companies, who  are governed separately under a                                                               
different  statute.   However, he  pointed out  that the  concern                                                               
could be  addressed by exempting oil  production, transportation,                                                               
and storage facilities  from HB 217.  Mr. Kalenka  addressed SB 4                                                               
and  HB 6,  which  he  identified as  band  aids  to the  present                                                               
problem.   The  primary issue  is that  local communities  desire                                                               
local control.                                                                                                                  
Number 0838                                                                                                                     
ELIZABETH  BARR, Alaska  Property  Owners Association,  testified                                                               
via teleconference.  She noted  her firm belief in local control,                                                               
which HB  217 attempts.   As a  private property owner,  Ms. Barr                                                               
said that  she would prefer taxes  to be based on  the true value                                                               
of property rather than having increasing taxes every year.                                                                     
Number 0910                                                                                                                     
DAN  DICKINSON, Director,  Tax Division,  Department of  Revenue,                                                               
testified  via  teleconference.     Mr.  Dickinson  informed  the                                                               
committee that he  would clarify some of his remarks  made at the                                                               
April 19,  2001, hearing  on this  complex issue.   In  regard to                                                               
remarks  that Alaska  has a  "cookie-cutter" system  of taxation,                                                               
Mr. Dickinson  pointed out  that there are  already four  or five                                                               
limits in various statutes.                                                                                                     
MR. DICKINSON  pointed out  that the state  assesses oil  and gas                                                               
properties at 20  mills.  Therefore, when Valdez had  a mill rate                                                               
of 18, the state  would collect about 2 mills on  the oil and gas                                                               
property  located  in the  Borough  of  Valdez and  Valdez  would                                                               
collect the remainder.  However,  in a hypothetical situation, if                                                               
Valdez had  a mill rate of  25, the state would  collect no taxes                                                               
on the  property located in  Valdez since  their tax stops  at 20                                                               
mills.  He highlighted the  importance of realizing who Valdez is                                                               
taxing, which  would be the  following pipelines:   Exxon Mobile,                                                               
BP,  Amerada Hess,  Phillips, and  Union.   Those taxpayers  have                                                               
additional  property in  the rest  of  the Trans-Alaska  Pipeline                                                               
System (TAPS).   Furthermore, the  state gathers most of  its tax                                                               
from oil and  property tax from those portions of  TAPS that pass                                                               
through unincorporated areas.  Therefore,  the state collects the                                                               
full 20 mills on the portion  of the pipeline that runs through a                                                               
huge  unincorporated area.    If Exxon  Mobile,  BP, and  Amerada                                                               
pipeline are allowed a credit for  what they paid in Valdez, that                                                               
credit   will  eat   into  what   the  state   collects  in   the                                                               
unincorporated areas.                                                                                                           
Number 1104                                                                                                                     
REPRESENTATIVE KERTTULA requested that  Mr. Dickinson explain why                                                               
this would go into the unincorporated areas.                                                                                    
MR. DICKINSON  referred to AS  43.56.010(d) and  15AAC56.050 that                                                               
says that  a taxpayer  is allowed  a credit for  taxes paid  to a                                                               
municipality.  He said, "We've never  had to face this issue head                                                               
on."   As a non-lawyer  reading the statute, a  pipeline provides                                                               
[the department] with  what it owes, 20 mills  on their pipeline,                                                               
and  what they've  paid to  the municipality.   [The  department]                                                               
doesn't  ask how  much the  pipeline owes  for the  piece of  the                                                               
pipeline in Valdez  and how much the pipeline paid  to Valdez and                                                               
net those  two out.  [The  department] simply looks at  the total                                                               
assessed valuation of  Exxon pipeline, which is  about 20 percent                                                               
of TAPS.   [The department] also  looks at the number  of dollars                                                               
that have  been paid by Exxon  pipeline, which would be  25 mills                                                               
in  Valdez using  this example.   Those  dollars simply  become a                                                               
REPRESENTATIVE  KERTTULA related  her  understanding  that if  it                                                               
were 100 mills, it would come out as a credit.                                                                                  
MR. DICKINSON remarked that it would  take a great deal less than                                                               
100  mills to  reach  zero.   He explained  that  once the  total                                                               
dollars a pipeline pays to  the municipalities along the pipeline                                                               
reaches  the total  amount  of the  pipeline's  assessment of  20                                                               
mills, they  are no  longer paying  any money to  the state.   He                                                               
posed a situation  in which the aforementioned would  occur at 50                                                               
mills  after  which  the  companies  would  start  to  pay  more.                                                               
However, until that point the  companies would be indifferent and                                                               
the money would come out of state revenues.                                                                                     
REPRESENTATIVE KERTTULA related her  understanding that when [the                                                               
pipeline] goes  above 20 mills that  would be viewed as  a credit                                                               
against whatever the pipeline would pay elsewhere.                                                                              
MR.  DICKINSON replied  yes.   He explained,  "The credit  that a                                                               
pipeline  company receives,  for  example....   You  look at  the                                                               
pipeline property,  which in  this case  generally happens  to be                                                               
TAPS, and ...  the amount they pay to Valdez  are simply credited                                                               
against what  they're going to  be charged  at 20 mills  for that                                                               
same property."   Nothing in  statute or  regulation specifically                                                               
says that [each area is treated separately].                                                                                    
Number 1320                                                                                                                     
REPRESENTATIVE  KERTTULA surmised  then that  if a  pipeline goes                                                               
above  20 mills  by an  extra  5 percent,  then that  would be  a                                                               
credit and the state still loses.                                                                                               
MR.  DICKINSON agreed.   He  recalled  that the  language in  the                                                               
statute says that "you" are allowed a  credit for a tax paid to a                                                               
municipality.   The  regulations  say that  "you"  are allowed  a                                                               
credit for any tax paid to any municipality.                                                                                    
Number 1360                                                                                                                     
MR. DICKINSON continued  with his testimony and  pointed out that                                                               
AS 29.45.080  includes a  built-in cap, which  is 225  percent of                                                               
the per capita  valuation.  Mr. Dickinson  informed the committee                                                               
that the  supreme court recently  ruled on a different  aspect of                                                               
this and  in its ruling  it went out of  the way to  comment that                                                               
there was  no plain  language reading  of that  particular clause                                                               
because  the language  itself  is so  confusing.   That  language                                                               
would cap  Valdez at  about 26 mills;  that is  Valdez' operating                                                               
budget  that  is capped  at  26  mills.    However, there  is  no                                                               
limitation on the property taxes  that can be imposed from bonded                                                               
indebtedness.    Theoretically,  that  could be  100  percent  or                                                               
higher.   This  could happen  under  the current  law.   However,                                                               
under the  current law the  community, of Valdez if  that example                                                               
is continued, would  have to vote on that  mill obligation before                                                               
that community  could tax at a  [mill rate higher than  20 mills]                                                               
and take  away state revenues.   Mr. Dickinson understood  HB 217                                                               
to  take away  that safeguard.   Therefore,  the Municipality  of                                                               
Valdez  could  decide  not  to   tax  residential  or  commercial                                                               
property and only  tax AS 43.56 property  and ocean-borne tankers                                                               
that use their  port.  Under that scenario, the  people of Valdez                                                               
would  continue to  vote  on  every bond  issue.   However,  they                                                               
wouldn't be placing  the tax on themselves because  they could be                                                               
exempt from that  tax under HB 217.   In such a  case, the people                                                               
that would  pay the tax  would be those who  essentially couldn't                                                               
vote on  it.  Therefore,  Mr. Dickinson  felt it safe  to predict                                                               
that there  would be  a threat  to state revenues  due to  HB 217                                                               
removing  the  aforementioned  safeguard.   Currently,  AS  43.56                                                               
property is  about three-quarters of  the tax base in  Valdez and                                                               
residential  and  commercial  property constitute  the  remaining                                                               
quarter  of Valdez'  tax base.   He  explained, "It  is a  simple                                                               
mathematical way  to figure out  how you simply exempt  a quarter                                                               
of the current  tax base, up the mill rate,  the voters would not                                                               
be  paying for  that increase,  the voters  from Valdez  would be                                                               
voting on  it.  Instead  ... folks all  over the state  of Alaska                                                               
who  would  have diminished  revenue  would  be paying  for  that                                                               
change."   Mr.  Dickinson expressed  the importance  in realizing                                                               
that  there are  already  various different  caps  and limits  in                                                               
place.  He believes that  currently Valdez has very little bonded                                                               
indebtedness;  however,  he  believes  that  the  above  outlined                                                               
scenario could happen to Valdez under HB 217.                                                                                   
Number 1598                                                                                                                     
KEN  JACOBUS testified  via teleconference.    He emphasized  the                                                               
importance of  local control.   He also  related his  belief that                                                               
Republicans support local control  versus state control and state                                                               
control versus  federal control.   "Government should  be brought                                                               
down to the people rather than  imposed from some place else," he                                                               
MR. JACOBUS informed  the committee that he is  a former attorney                                                               
for the  City of Valdez.   During his time as  the city attorney,                                                               
Valdez followed  the interpretation that  the city could  not tax                                                               
pipeline property in  excess of 20 mills and expect  to charge it                                                               
back  to the  oil companies.    He felt  that was  clear from  AS                                                               
43.56.030 and  thus it is already  governed by the state  laws of                                                               
taxation.   Therefore,  Mr. Jacobus  didn't believe  there was  a                                                               
threat  to state  revenue.    He pointed  out  that Valdez  could                                                               
implement a  mill rate up  to 20  and the state  wouldn't receive                                                               
money  from  the pipeline  property  located  within Valdez,  but                                                               
Valdez couldn't  implement a mill  rate higher than 20  mills and                                                               
charge it  back against the rest  of the pipeline.   That was the                                                               
view of  Valdez during his time  as the city attorney.   Although                                                               
he didn't believe that would  be problematic, he pointed out that                                                               
an  amendment could  easily be  made to  address Mr.  Dickinson's                                                               
concerns.   Mr. Jacobus said  that HB  217 should be  enacted and                                                               
people shouldn't be forced to do this by an initiative.                                                                         
CO-CHAIR  MORGAN asked  if there  was anyone  else who  wished to                                                               
testify.   There being  no one, he  closed the  public testimony.                                                               
He reminded  the committee  that last  week a  possible amendment                                                               
was mentioned.                                                                                                                  
Number 1738                                                                                                                     
CO-CHAIR MEYER  informed the  committee that  he had  followed up                                                               
with  Representative  Kohring  who  agreed  that  there  is  some                                                               
concern  with  the  current  language  in  HB  217  and  thus  he                                                               
indicated  that  he  would  be  supportive  of  an  amendment  or                                                               
amendments.  Co-Chair  Meyer also informed the  committee that he                                                               
spoke with  Bob Bell  and Mr. Bell  emphasized the  importance of                                                               
local control.   However, Co-Chair Meyer noted  the temptation to                                                               
shift the  tax burden  from the  residents and  place it  on Wal-                                                               
Mart, Kmart,  et cetera.   Although Mr.  Bell felt  that assembly                                                               
elections could  curtail such actions,  Co-Chair Meyer  felt that                                                               
was  easier  said than  done.    Co-Chair Meyer  reiterated  that                                                               
Representative Kohring is amenable to  waiting on HB 217 in order                                                               
to create a good bill.                                                                                                          
CO-CHAIR MORGAN  informed the committee  that he had  spoken with                                                               
Representative Kohring  and Representative Kohring had  agreed to                                                               
place HB  217 into  a subcommittee.   Therefore,  Co-Chair Morgan                                                               
appointed    the   following    members   to    a   subcommittee:                                                               
Representative Halcro, Chair; Representatives Scalzi and                                                                        
The committee took a brief at-ease from 8:37 a.m. to 8:39 a.m.                                                                  
CO-CHAIR MORGAN announced that no one was present from the                                                                      
Department of Community & Economic Development and thus the                                                                     
scheduled overview was canceled.                                                                                                
There being no further business before the committee, the House                                                                 
Community and Regional Affairs Standing Committee meeting was                                                                   
adjourned at 8:39 a.m.                                                                                                          

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