SB 161-TAX EXEMPTION FOR FARM LAND/STRUCTURES  8:03:18 AM CHAIR MCCORMICK announced that the first order of business would be CS FOR SENATE BILL NO. 161(CRA) am, "An Act relating to municipal taxation of farm land and farm structures; and providing for an effective date." 8:03:34 AM SENATOR JESSE BJORKMAN, Alaska State Legislature, prime sponsor, presented CSSB 161(CRA) am. He referenced a PowerPoint, titled "SB 161 Tax Exemption for Farm Use Land" [included in the committee packet], and spoke to slide 2, "Optional Tax Exemption: AS 29.45.050(t)," which read as follows [original punctuation provided]: Current Statute • Optional full or partial property tax exemption • Applies to farm structures • Applies to operations that produce food for humans or livestock • Requires that 10% of income come from farm operations SB 161 expands what is covered on a farm and types of farms that are eligible • Optional full or partial property tax exemption • Applies to farm structures and farmland • Applies to all agricultural operations and to aquaculture • Requires $1,000 in annual farm product sales and filing an IRS Schedule F 8:06:50 AM SENATOR BJORKMAN continued to slide 3, "Mandatory Tax Breaks: AS 29.45.060," which read as follows [original punctuation provided]: Current Statute • Mandatory tax break • Applies to farmland • Applies to all agricultural operations • Requires that 10% of income come from farm operations SB 161 expands what is covered on a farm while narrowing the types of farms that are eligible to those that produce food for humans or livestock • Mandatory tax break • Applies to farmland and farm structures • Applies to farms that produce food for human or livestock consumption • Requires $1,000 in annual farm product sales and filing an IRS Schedule F CHAIR MCCORMICK sought questions from committee members. 8:08:26 AM REPRESENTATIVE MEARS shared her understanding that the bill would redefine a farm by requiring $1,000 in farm product sales and filing a Schedule F instead of 10 percent of income. She asked whether that would apply to current exemptions for farmland as well. SENATOR BJORKMAN answered yes. REPRESENTATIVE MEARS recalled that Fairbanks had passed a ballot initiative to include farm structures with the 10 percent threshold, which was state code at the time. She asked whether the bill would supersede municipal code. 8:09:40 AM LAURA ACHEE, Staff, Senator Jesse Bjorkman, Alaska State Legislature, stated that the code in Fairbanks would stand as written. If the borough assembly wanted to change it, they would need to take action to match the new statute. REPRESENTATIVE MEARS shared her understanding that another provision in the bill would allow for these changes to be made administratively by the local assembly instead of going through the public process again. MS. ACHEE responded, "That's correct." 8:10:37 AM REPRESENTATIVE HIMSCHOOT asked whether the sale of flowers would be considered consumption. SENATOR BJORKMAN said it would depend on the products being made from the flowers. He shared, for example, that if fireweed was being grown to produce jam or some edible food, that would be consumable. He added that flowers would be considered a non- edible farm product that could be eligible for the "optional" exemption. Accordingly, a local city or political subdivision could, through action of the assembly or city council, take that under the optional provision and reduce the property taxes to zero. 8:11:50 AM REPRESENTATIVE MEARS raised a concern about larger properties that were being under utilized and the ability for assessors to apportion parcels based on utilization. SENATOR BJORKMAN acknowledged that apportioned assessment is an important part of how municipalities assess farm use land, as well as structures. He explained that similar to how a tax accountant might apportion someone's home office space, an assessor would determine what percentage of the ground and buildings are being used for farm uses. REPRESENTATIVE HIMSCHOOT asked for an example of aquaculture and how it applies to the bill. SENATOR BJORKMAN defined aquaculture as the growing of kelp and seaweed for human consumption. CHAIR MCCORMICK opened invited testimony. 8:14:35 AM AMY SEITZ, Executive Director, Alaska Farm Bureau, gave invited testimony during the hearing on CSSB 161(CRA) am. She gave a brief overview of the bureau, stating that it is a nonprofit organization whose mission is to improve and expand agriculture in Alaska. The bureau's focus is advocacy and support of agriculture-friendly policies that help Alaskan farmers and ranchers build businesses; increasing production; and increasing the number of successful farms in Alaska. She said that the agriculture industry has significant potential and opportunities in Alaska, and developing this industry will benefit the state. She noted that farming and ranching comes with its challenges. Some policies can be lessened with good policy, for example, high input costs and access to capital. While efforts to find ways to expand access to loans and grants are underway, another way to get funding is through reduced input costs. An example of input cost is property taxes. She said that reducing the amount paid in property taxes allows farmers to invest those monies back into farm expansion and easier production. This results in increased sales and food availability. 8:16:32 AM MS. SEITZ highlighted the benefits of CSSB 161(CRA) am. She explained that the bill would include structures used for farming business in the mandatory tax reduction statute and streamline the process to apply and qualify. With the inclusion of farm structures in this provision, SB 161 would incentivize farmers to improve existing structures or build new ones, such as storage or processing facilities. These are two of the main infrastructure needs on a farm. Storage extends the availability of food throughout the year, while processing facilities enhance the ability to reach specific markets. Incentives to build farm infrastructure would help increase production and sales. The expectation is that growth will compound over the years. Each year, farmers could reinvest dollars saved through property tax reductions, thereby increasing livestock, crops, sales, and the number of successful farms. The bill would also streamline the process for famers to qualify and apply for property tax reduction by tying it directly to farm income. The 2017 Census of Agriculture indicated that "more than half of Alaska's producers have off- farm jobs as their primary occupation and source of income." She said access to healthcare and a high percentage of new and beginning farmers account for this statistic. Other sources of income are necessary while individuals grow their farming businesses. Alaskan farmers compete with established markets. Grocery stores, restaurants, and institutions have established distributors who primarily source products outside Alaska. Although the number of Alaska grown products is increasing in grocery stores and restaurants, the lack of infrastructure and services means that each farmer must navigate these systems individually. It takes time to figure out how to enter established markets and build a customer base. SB 161 streamlines the process for farmers to qualify for the property tax reduction by tying qualification directly to the farm instead of off-farm income. An off-farm income does not mean an individual lacks commitment to farming; additional sources of income are needed for individuals to foster growth. Ms. Seitz pointed out that, according to the Census of Agriculture, there are around 1,000 farms in Alaska. Many of these farms are located in areas that do not impose property taxes, so the number of farms per municipality is not large. She concluded by thanking the bill sponsor for looking at ways to ease burdens on farmers and ranchers and help them expand. She thanked committee members for hearing CSSB 161(CRA) am. 8:21:57 AM REPRESENTATIVE MEARS discussed the challenges surrounding food processing and asked whether the bill would complement the governor's crop bill with the expansion of the Agricultural Revolving Loan Fund (ARLF) to include processing. MS. SEITZ answered yes, anything that makes it easier for farmers to have additional funds to invest in the farm. She added that the property tax reduction would make it easier on the farm in the long term. 8:23:55 AM REPRESENTATIVE HIMSCHOOT asked whether kelp processing would be considered a farm, especially if the kelp was being rendered into fertilizer for shipment out of state. MS. SETIZ shared her understanding that it could be included in the local option at the municipality's discretion. SENATOR BJORKMAN agreed that it would fall under the 050 optional portion of Title 29. He added that it would be incumbent on the aquaculture farmer to file a Schedule F. 8:25:37 AM REPRESENTATIVE MCCABE asked whether a flower farm could qualify under the farm exemption if it produced honey. Secondly, he asked whether acres of birch trees could be considered a farm if syrup was produced from the trees. He questioned whether it's only incumbent on $1,000 [in sales] and the Schedule F. MS. ACHEE shared her understanding that an assessor would assess the land underneath the bee hives and any structures related to the processing of the honey as qualifying for the exemption, but not the flower field itself. She added that timber land would not be covered under this exemption. 8:28:31 AM ADAM JENSKI, representing self, gave invited testimony during the hearing on CSSB 161 (CRA) am. He expressed his strong support for the bill and shared that he had been farming for the past twenty years. He explained that the inability to defer taxes on farm structures has resulted in lost farmland and less investment in farm structures. He added that he would like to see the bill go farther to include timber land. CHAIR MCCORMICK invited closing remarks from the bill sponsor. 8:30:27 AM SENATOR BJORKMAN, in closing, emphasized the importance of giving local municipalities the option to reduce the property tax to zero on buildings and farm use land, because it allows them to pick and choose whether to exempt marijuana growing industries, for example, and other things that are not for human consumption. With the changes to AS 29.45.050, the bill would allow municipalities to make those changes administratively to adjust for peony growers or other consumptive uses. He reiterated that that the intent of CSSB 161(CRA) is not to include marijuana as food. MS. ACHEE added that the mandatory tax exemption in the underlying statute was not intended to provide an economic boost to a specific industry. Instead, it was designed to protect farmers from being driven out of business by high property taxes. The original statute was designed to ensure that farmland would remain farmland even when it would be more valuable as a mall or housing. She noted the difficulty of creating an unfunded mandate, adding that although Alaska Statutes allow the legislature to reimburse municipalities, it has not happened. She explained that the optional tax exemption was expanded to give local governments the choice to offer economic incentive for something that doesn't increase Alaska's good supply. 8:35:09 AM REPRESENTATIVE HIMSCHOOT asked whether the state assessor would be compelled to recognize a municipality's choice to assess at a lower rate. SENATOR BJORKMAN deferred to Director Moller. 8:36:09 AM SANDRA MOLLER, Director, Division of Community & Regional Affairs, Department of Commerce, Community & Economic Development (DCCED), offered to follow up with the requested information. REPRESENTATIVE HIMSCHOOT pointed out that if the state assessment differs from the municipal assessment, that could greatly reduce what a local community is able to contribute to its schools. SENATOR BJORKMAN shared his understanding that in determining that amount, the state assessor looks at the highest and true value of the property. 8:38:43 AM CHAIR MCCORMICK sought closing remarks from the bill sponsor. SENATOR BJORKMAN thanked the committee for allowing him to bring a recommendation from the Food Strategy Task Force forward. 8:39:06 AM CHAIR MCCORMICK announced that CSSB 161(CRA) am would be held over.