Legislature(2001 - 2002)
04/02/2002 08:10 AM House CRA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
April 2, 2002
8:10 a.m.
MEMBERS PRESENT
Representative Kevin Meyer, Co-Chair
Representative Carl Morgan, Co-Chair
Representative Drew Scalzi
Representative Lisa Murkowski
Representative Beth Kerttula
MEMBERS ABSENT
Representative Andrew Halcro
Representative Gretchen Guess
COMMITTEE CALENDAR
HOUSE BILL NO. 455
"An Act relating to the assessment of farm or agricultural land
for purposes of municipal taxation; and providing for an
effective date."
- MOVED CSHB 455(CRA) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 455
SHORT TITLE:MUNICIPAL TAXATION OF AGRICULTURAL LAND
SPONSOR(S): REPRESENTATIVE(S)HARRIS
Jrn-Date Jrn-Page Action
02/19/02 2310 (H) READ THE FIRST TIME -
REFERRALS
02/19/02 2310 (H) CRA
03/28/02 (H) CRA AT 8:00 AM CAPITOL 124
03/28/02 (H) Heard & Held
03/28/02 (H) MINUTE(CRA)
04/02/02 (H) CRA AT 8:00 AM CAPITOL
WITNESS REGISTER
JOHN TOBIN
(No address provided)
POSITION STATEMENT: Urged passage of HB 455.
RON ILLINGWORTH
(No address provided)
POSITION STATEMENT: Testified that HB 455 would simplify the
process.
ROBERT WELLS, Director
Division of Agriculture
Department of Natural Resources
1800 Glenn Highway, Suite 12
Palmer, Alaska 99645-6736
POSITION STATEMENT: Testified on HB 455.
PETE FELLMAN, Staff
to Representative John Harris
Alaska State Legislature
Capitol Building, Room 513
Juneau, Alaska 99801
POSITION STATEMENT: Answered questions on behalf of the sponsor
of HB 455.
STUART DAVIES
1606 Roosevelt
Fairbanks, Alaska 99709
POSITION STATEMENT: Urged passage of HB 455.
STEVE VAN SANT, State Assessor
Division of Community and Business Development
Department of Community & Economic Development
550 W 7th Avenue, Suite 1770
Anchorage, Alaska 99501-3510
POSITION STATEMENT: Answered questions.
ACTION NARRATIVE
TAPE 02-20, SIDE A
Number 0001
CO-CHAIR CARL MORGAN called the House Community and Regional
Affairs Standing Committee meeting to order at 8:10 a.m.
Representatives Morgan, Meyer, Scalzi, and Kerttula were present
at the call to order. Representative Murkowski arrived as the
meeting was in progress.
HB 455-MUNICIPAL TAXATION OF AGRICULTURAL LAND
CO-CHAIR MORGAN announced that the only order of business would
be HOUSE BILL NO. 455, "An Act relating to the assessment of
farm or agricultural land for purposes of municipal taxation;
and providing for an effective date."
Number 0074
JOHN TOBIN testified via teleconference and informed the
committee that he owns 40 acres of restricted agricultural land
off of Eielson Road. He requested that the committee help with
the passage of HB 455. He informed the committee that his land
assessment from the Fairbanks North Star Borough has increased
by almost five-fold in the last two years, which makes it
[impossible] to be self-sufficient. [This is the case for many
farmers on Eielson Road.] Mr. Tobin urged the committee to pass
HB 455.
Number 0317
RON ILLINGWORTH testified via teleconference and informed the
committee that he is also a farm owner on the Eielson Road
project. He pointed out that the state established an
agricultural project and restricted land so that it can only be
used for agricultural purposes. He explained that he had to put
a certain percentage of the land, which was established by the
Division of Agriculture, into production. In his case, over 50
percent of the land had to be placed into production. That land
had to be available for agricultural use and continues to have
agricultural covenants. Therefore, he questioned why that land
should be taxed as if it could be used in some other manner. He
also questioned why separate applications for an agricultural
exclusion must be made on forms designed to give an agricultural
exemption to people who don't live on land with state
agricultural covenants. Mr. Illingworth concluded by saying
that HB 455 would simplify the process and eliminate unnecessary
applications for individuals who already own agricultural land.
Furthermore, it would allow for a tax base that reflects the
only use allowed for [restricted agricultural land].
Number 0572
ROBERT WELLS, Director, Division of Agriculture, Department of
Natural Resources, acknowledged that the division has heard many
of the same concerns already expressed to the committee this
morning. He noted that he has been working with the sponsor to
make the process simpler, while recognizing that those lands
with an agricultural covenant or restriction are in fact
restricted to that. There was never the intention for this to
fall under the application system that is being addressed with
this legislation. He mentioned that the division has also
worked with the state assessors because the process needs to
work for them as well. He acknowledged that the division is
aware that in some cases, the application process isn't being
utilized properly by some. Therefore, the division wants to
work with the legislature and the assessors to close any of the
loopholes. Mr. Wells related that HB 455 simply lets people
know that once restricted agricultural land is purchased those
lands have clearing requirements. However, these folks
shouldn't have to go through the annual application process with
the borough.
Number 0744
REPRESENTATIVE KERTTULA posed a situation in which land with an
[agricultural] covenant is sold. She asked if "they" would have
to pay seven years in back taxes to the state. She requested
that Mr. Wells explain the covenants.
MR. WELLS answered that once the land is designated as
agriculturally restricted, that restriction remains with the
land. Therefore, if the land were sold it would still remain
subject to the agricultural covenant. Mr. Wells explained that
selling land and paying back taxes to the borough only relates
to fee simple land that doesn't have an agricultural
restriction. As long as the land owners were farming, they
would have been applying on an annual basis. However, once the
farming was discontinued, the land owner could be subject to
back taxes from the municipal government. Mr. Wells didn't see
a case where that would come in to play with agricultural
restricted land sold by the state.
Number 0875
REPRESENTATIVE KERTTULA recalled legislation sponsored by
Senator Green, legislation that allowed a less restrictive sale
and division of the land.
PETE FELLMAN, Staff to Representative John Harris, Alaska State
Legislature, explained that there are three different types of
land. First, there is fee simple land that is voluntarily being
used for agriculture. Second, there is land restricted by the
state for use only for agriculture. Third, there is also land,
land with an agricultural covenant, for which a patent has been
applied and received under SB 109 by Senator Green. Under the
latter type of land the agricultural covenant stays with the
land. That covenant allows for division of the land into
parcels no less than 40 acres.
REPRESENTATIVE KERTTULA turned to the land with the agricultural
covenant that can be divided. She asked if that would fall
under the ambit of SB 109.
MR. FELLMAN reiterated that the land addressed in SB 109 can't
be divided into parcels less than 40 acres. Still, the land has
an agricultural restriction. On the other hand, fee simple land
with no agricultural covenant or restriction still requires that
paperwork be filled out to show that [the owner] is making
income from farming that fee simple land. If one were to sell
their land after making [and receiving] an application for this
exemption and they could show [income] from farming, then the
[owner] would have to pay the back taxes.
REPRESENTATIVE KERTTULA asked if the [agricultural] covenant
would remain with the land that under SB 109 can be divided.
MR. FELLMAN replied yes. In further response to Representative
Kerttula, Mr. Fellman answered that originally all the
[agricultural] land [identified by the state] only allowed one
building site and the land couldn't be divided to a parcel less
than what was originally received.
REPRESENTATIVE KERTTULA related her understanding then that
under HB 455 the [owner of the] third type of land doesn't have
to go back to the assessor.
Number 1123
STUART DAVIES testified via teleconference. He began by
informing the committee that he farms and owns 160 acres in the
Fairbanks North Star Borough. Mr. Davies explained that he
purchased the farm in 2000 knowing it had a agricultural
covenant restricting the use of this land for agricultural
purposes. He pointed out that his borough taxes have increased
273 percent in 2000 and 94 percent in 2002, which amounts to the
current assessed value being $400 per acre. The borough
assessor says that such an assessment is comparable to the sale
of other land in the borough. However, the borough doesn't
acknowledge the differences between fee simple title property
and agricultural restricted land. Furthermore, the assessor is
requesting that he apply for a farm use exemption in order to
receive a reduced assessment, which Mr. Davies viewed as
redundant per the agricultural restriction placed on the land by
the state. Mr. Davies pointed out that currently he doesn't
meet the income qualifications of this exemption, which states
that he must earn 10 percent of his gross income [from farming]
in order to qualify. The amended language in AS 29.45.060 will
correct these inequities and require land restricted by the
state to be assessed on its potential for farm use.
MR. DAVIES related his belief that the state's intent when it
created agricultural restricted land was to develop and promote
agriculture in the state. By amending AS 29.45.060 to include
land restricted for agricultural use, the committee will send a
strong message that farming is viable in Alaska as an economic
entity. Mr. Davies urged passage of HB 455 because it will
enable him to make future plans for improvements on his farm.
MR. DAVIES turned to the third type of land that has been
discussed. He specified that he didn't believe there is a third
type of land, but rather SB 109 simply allowed owners of
agricultural restricted land to subdivide up to four times with
the parcels being no less than 40 acres.
CO-CHAIR MORGAN closed public testimony.
Number 1377
REPRESENTATIVE SCALZI moved that the committee adopt Amendment
1, which reads as follows:
Page 1, line 1:
Delete "farm or"
Insert "certain"
Page, 2, line 5:
Delete "for farm use in accordance with this
section"
Insert "based upon that restricted use"
There being no objection, Amendment 1 was adopted.
Number 1416
STEVE VAN SANT, State Assessor, Division of Community and
Business Development, Department of Community & Economic
Development (DCED), explained that currently Alaska doesn't
value farm land based on its potential production, which some
states do. In Alaska, assessors utilize the market sales of
these [agricultural restricted] lands in order to establish
these values. The [assessor's office] views these restricted
properties as a different animal than some of the different
agricultural land. The farm land for which the owner applies
for and receives the deferment under AS 29.45.060 is land that
is required to be farmed such that income is derived from it.
He posed an example in which the farm land is selling or valued
around $400 an acre, while the restricted lands are selling
around $500-$600 an acre. Mr. Van Sant related his belief that
the land can be subdivided and home sites placed on each
subdivided parcel. The proposed amendment lets everyone know
that the assessable value of these lands based on those
restricted values will be different than those under AS
29.45.060, to some extent. Once these lands are farmed, the
values will probably come in line with the other values [for
farm land].
Number 1591
REPRESENTATIVE MURKOWSKI inquired as to how HB 455 will work.
She recalled the testimony regarding significantly increased
assessments. She asked if the assessment is based on the
restricted use [of the land], would the restricted use be taken
into account such that the assessment would be revised for the
past several years.
MR. VAN SANT replied no. He explained that the assessments that
he has heard seem to be in the ballpark of what the farm land is
selling for and thus he wouldn't see any need for revision.
REPRESENTATIVE KERTTULA posed a situation in which a person
purchases a restricted use land, then the assessor will value
the property based on the restrictions. Therefore, the
valuations wouldn't change. [Under HB 455,] the owner wouldn't
have to come in and file with the assessor's office.
MR. VAN SANT agreed with Representative Kerttula's
understanding.
Number 1716
REPRESENTATIVE KERTTULA asked if there is a Mat-Su Borough case
regarding the 10 percent income requirement for fee simple land.
MR. VAN SANT answered that any participant of this program under
AS 29.45.060 will have to derive 10 percent of their income from
the farming of the land in order to participate in the program.
REPRESENTATIVE KERTTULA posed a situation in which a person
farms the land for 60 years, but doesn't farm it the 61st year.
She inquired as to how the land would be valued on the 61st
year.
MR. VAN SANT specified that as long as the use hasn't changed,
the owner wouldn't have to repay the past seven years. What
matters is what they do after that. If the owner doesn't apply
for the [exemption] and the land is fee simple, then the land
value would likely return to the full value of the possible uses
of the property. Therefore, the value could dramatically
increase.
Number 1829
CO-CHAIR MEYER pointed out that cities often grow up around
existing farm land and thus the farm land would be more valuable
for development versus for farming. He related his
understanding that the status of the farm land can be changed,
but the assessed back taxes would have to be paid.
MR. FELLMAN reiterated that if the land has an agricultural
restriction, it doesn't change. However, when the land is paid
off and a patent is received, the [owner], under SB 109, can
obtain an agricultural patent with a covenant. The covenant,
and its requirements, never change. Mr. Fellman explained that
the [owner of] fee simple land that is being farmed can use the
application process. If this fee simple land becomes surrounded
by a city and the land isn't restricted, that land could be
divided and sold - depending upon the circumstances in the
borough. However, that [land owner] would be responsible for
seven years of back taxes on that fee simple land.
MR. FELLMAN, in further response to Co-Chair Meyer, explained
that SB 109 made changes such that agricultural restricted land
remains agricultural land with a covenant. With SB 109, there
would be agricultural restricted land with a title/patent that
could be taken to the bank in order to obtain a loan based on
the equity [in the land]. Still, there have been very few banks
that have been willing to lend on land that has been restricted
as agricultural land. Moreover, although the land may be
appraised at a certain value, if the land owner can't borrow
against that appraised value, what good is it, he asked.
Number 2079
MR. VAN SANT explained that AS 29.45.060, the farm use deferment
program, is designed specifically to address those farms that
are situated on the borders of cities where there is pressure to
sell land so that it can be developed into subdivisions. Those
farms will remain at the farm value, and if those farms don't
produce much more, then the chances are that the values won't
increase. Under the agricultural restricted property, if there
is a situation in which land is scarce, then those parcels may
go up in value because there is no requirement to farm those
parcels. He noted that there is a clearing requirement.
However, he specified that the agricultural restricted property
would never rise to the value of the fee simple land because the
property can't be divided smaller than 40 acre parcels. He,
too, noted that the owner of the fee simple land would be
required to pay seven years back taxes whereas the value of the
agricultural restricted land would be whatever the market
dictates.
CO-CHAIR MEYER inquired as to the difficulty in moving from
state restricted land to covenanted land.
MR. FELLMAN pointed out that the owner would have to pay off the
land first. When one applies for a patent, the owner also fills
out paperwork for the agricultural covenant. Therefore, the
land would have an agricultural covenant. He noted that some
people have paid off their land, but haven't applied for the
patented agricultural land.
Number 2196
CO-CHAIR MEYER asked whether the farm land is assessed with
different values based on whether there is irrigation or not.
MR. VAN SANT said that the market drives [the value].
Obviously, if a farm has more amenities, then one would probably
pay more for that property. The irrigation would come into play
with regard to the improvement value, which is added later.
Therefore, an assessor/appraiser reviews similar property in the
area to drive the value. In further response to Co-Chair Meyer,
Mr. Van Sant explained that all property in the borough is
assessed every year.
Number 2260
REPRESENTATIVE MURKOWSKI related her impression that HB 455
could keep in check the rising assessments on agricultural
[restricted] land. However, Mr. Van Sant said that isn't
necessarily the case. Still, the letters of endorsement express
the need to pass HB 455 because of the increased assessments and
the need to keep that in check.
MR. FELLMAN explained that by removing the requirement to apply
every year, the hope is to open the door so that those owning
land can go to the borough and have their land evaluated. There
is no attempt to set a tax rate. This attempts to clarify that
the land has an agricultural restriction and thus doesn't have
to make this application each year in order to decide that the
land has an agricultural restriction. Therefore, the farmers
will be involved in the process and have their land appraised
such that it [recognizes] the agricultural restriction.
REPRESENTATIVE KERTTULA remarked that [HB 455] seems to be a
good start. She reported that she may have a conflict of
interest due to her parents' land that is situated on a
municipality's boundary. Representative Kerttula expressed the
need to review the assessments and determine whether the next
step should be taken [in order to address rising assessments].
MR. FELLMAN mentioned that he and Mr. Van Sant have spoken and
have invited anyone interested to become involved in the process
in order to lay out some clear guidelines in this state. As a
whole, the nation has a variety of policies regarding taxation
of agricultural land.
CO-CHAIR MORGAN noted that Amendment 1 had been adopted.
Number 2462
CO-CHAIR MEYER moved to report HB 455 as amended out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 455(CRA) was
reported from the House Community and Regional Affairs Standing
Committee.
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 8:46 a.m.
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