SB 161-TAX EXEMPTION FOR FARM LAND/STRUCTURES  3:57:47 PM CHAIR MCKAY announced that the final order of business would be SENATE BILL NO. 161, "An Act relating to municipal taxation of farm land and farm structures; and providing for an effective date." SENATOR JESSE BJORKMAN, Alaska State Legislature, as prime sponsor, presented SB 161 and its accompanying PowerPoint [hard copy included in the committee packet]. He stated that the heart of the bill is to provide tax relief for farmers by reducing fixed costs and increasing farming profitability. By doing so it attempts to encourage more people to grow food for Alaskans. He highlighted that SB 161 would extend current mandatory exemptions from farm-use land to include farm-use buildings. He stated that these buildings would be taxed at the farm rate as opposed to the standard rate. He stated that additionally the bill would change the qualification tax-break standard from showing 10 percent of total income and move the standard to showing $2,500 in sales on a Schedule F. He also said SB 161 would change the optional portion of the law, which would allow municipalities by ordinance to allow tax breaks for farm-use buildings all the way down to zero. By doing so, he highlighted, municipalities could dictate farmer tax breaks on farm-use buildings even when deviating from standard farm-use rates. He also highlighted that these buildings would require exclusive use for farming activities. He mentioned that the types of farming activities that would be included in these mandatory section deferments would be for food production only while the optional tax exemption would include all farming activities. 4:01:21 PM LAURA ACHEE, Staff, Senator Jesse Bjorkman, Alaska State Legislature, on behalf of Senator Bjorkman, prime sponsor of SB 161, added that under current statutes the mandatory exemption is open to all agricultural operations. She noted that in attempt to balance out taxes needed by both municipalities and boroughs and to address the need for both farmers and food production in Alaska, the legislation would narrow the scope of mandatory exemptions. 4:02:23 PM ADAM JENSKI, representing self, as a Matanuska-Susitna farmer working in agriculture ("Ag"), testified in support of SB 161. He mentioned that although representing self, he sits on both the Matanuska-Susitna Borough Agriculture Advisory Board and the State Board of Agriculture & Conservation. He stated that he has been involved with farming since he was 16. He noted that he does a lot of deferments to the Mat-Su Borough and understands its benefits to farmers and adding the buildings is a "huge deal." He believes this bill addresses one of the many hurdles that farmers face which is the high taxes. He mentioned that many farms in his life that have been on the annual chopping block are outside the Delta area and have a differing tax structure. He noted that the tax codes have detrimentally impacted retiring and aging farmers looking to pass off their business. He said that this bill would support all food producers regardless of size. He highlighted that 1 percent of farmers in Alaska produce 57 percent of the food. He noted that if these 1 percent go under, then it would create food security issues. He claimed that these taxes benefit larger producers like him, even more so than anyone else. He mentioned that his Ag operation currently encompasses 2,000-3,000 acres depending on lease agreements. He mentioned that Point MacKenzie is a large issue right now regarding deferments. His example was old, out-of-use dairy buildings that are causing too much tax burden for owners and prompting owners to sell their land, and these sales are often to developers that pull land out of AG use. He opined that deferment adjustment can keep farmers from selling out Ag property because of the tax burden. He estimated certain instances where tax savings could amount to $30,000 a year. He emphasized that another important part of the bill would allow incentives for landowners to add land into new Ag related processes and operations. He noted that a strategy for farming is to open new tracts to AG. He mentioned that Nenana is one such example but may not be feasible for some farmers due to its distant nature. He noted that this bill would allow smaller acreage parcels to roll into Ag easier and allow an easier tax burden on the development of new farms. He said that the bill would substantially increase land designated for agriculture in Alaska. He remarked that as a Southcentral farmer who has seen the sale of many farm properties, SB 161 would help keep players in the game with tax incentives. 4:07:20 PM CHARLIE JEANNET, representing self, introduced himself as a farmer operating a small farm called Porcupine Ridge Farm. He noted that the previous testifier shared many of his same sentiments and that they are a common concern amongst other farmers across the state. He noted that he operates a smaller scale farm than the previous testifier, around 80 acres total with about 50 dedicated to hay production. He noted that he has been struggling in recent years and SB 161 would go a long way to help him and others maintain their ability to farm or enter farming. He noted that he had submitted a letter in support of SB 161 prior to the hearing. He emphasized that farming and sustainability is important. He claimed that interest in farms is waning largely due to increasing costs and the inability to turn a profit. He noted that most farmers in his area have a day job and as farming becomes more of a challenge, people are placing more focus and reliance on those day jobs. He opined that given the current 10 percent tax rule, it has become harder to hit that qualification standard. He noted that the application pool for deferments in the area has gone from around 150 to less than 30 and only about one-fifth of local farmers are still in the deferment program for the Fairbanks area. He said that these numbers are indicative of current issues in farming. He remarked that more and more land has been abandoned for farm use and that his current Ag operation used to accommodate over 300 acres. In summary, he said that he thinks SB 161 is important and hopes that it will encourage greater participation in farming. He noted that the Alaska State Fair lacks the farming related entries that it once saw, and the current trend is not good for Alaska. 4:12:02 PM CHAIR MCKAY invited questions. 4:12:13 PM REPRESENTATIVE SADDLER asked Senator Bjorkman how it is determined that a structure on a farm is farm-related. He asked whether it be with an inspector or an affirmation from the farmer. 4:12:30 PM SENATOR BJORKMAN answered that the Office of the State Assessor is responsible for making the determination whether a structure qualifies for farming use. He then stated that a structure is assessed by portion, what percent of the building, and what time of year the building is used for farming. He made the example of home office tax write-offs as a similar means in which farmers could claim Ag-related buildings. He noted that farmers receive tax breaks based only on proportioned building use. 4:13:34 PM REPRESENTATIVE SADDLER asked Senator Bjorkman if assessors make annual trips to verify that buildings currently are used for agriculture. 4:13:58 PM SENATOR BJORKMAN replied that in his experience, most assessments are done on a cyclical basis and often in two- or three-year cycles. He noted that assessors have the discretion to assess more often than that. He noted that there is an assessor online that can answer these questions. 4:14:43 PM CHAIR MCKAY inquired about any additional questions and thanked Senator Bjorkman, his staff, the testifiers, and Chair Sumner for the additional time to complete the work. CHAIR MCKAY announced that SB 161 was held over.