SB 172-PROPERTY TAX EXEMPTION  4:33:31 PM CHAIR HUGHES announced the consideration of SENATE BILL NO. 172 "An Act increasing the residential property tax exemption." 4:34:25 PM NICK MOE, Staff, Senator Bill Wielechowski, Alaska State Legislature, Juneau, Alaska, introduced SB 172 with a PowerPoint, "SB 172 An Act Increasing the Residential Property Tax Exemption." He began with slide 2, discussing the highlights of property tax relief reflected in SB 172: • SB 172 increases the residential property tax exemption from $50,000 to $75,000 • Optional tool for local communities to use to reduce tax burden • Increased exemption amount equals more than $400 in annual savings to average homeowner • More than $12,000 in savings over the life of a 30-year residential mortgage MR. MOE described why property tax relief in needed: • Property taxes have dramatically increased • The cost of living in Alaska has increased the last few decades as well • Average income has not even doubled during the same time MR. MOE spoke to the property tax burden SB 172 seeks to remedy: • Anchorage saw the second largest property tax growth in the country between 2019 and 2020 • Property assessment cards were sent out recently in Anchorage, Mat-Su, and North Star Borough. Some property owners saw 10% increases in appraisals or more. • Many Alaskans are looking for solutions to increasing property taxes MR. MOE provided some of the history of the property tax exemption: • On August 28, 2012, the Alaskan voters passed Proposition 1, Property Tax Exemption Act • Prop 1 Increased the residential property tax exemption from $20,000 to $50,000 • Six boroughs and municipalities now take advantage of the exemption set by the state. • 54% of Alaskans enjoy property tax relief through this exemption 4:37:10 PM CHAIR HUGHES asked how many boroughs and municipalities that have property tax were not taking advantage of the exemption. MR. MOE answered that 12 of the 18 boroughs that are allowed to collect property taxes are not taking advantage of the exemption. CHAIR HUGHES asked if that was both boroughs and municipalities. MR. MOE said he would follow up with a definitive number. MR. MOE turned to the state map on slide 6, that identifies six boroughs and communities that take advantage of the $50,000 property tax exemption. These are: North Slope Borough, Fairbanks North Star Borough, City of Valdez, Municipality of Anchorage, Kenai Peninsula Borough, and Bristol Bay Borough. MR. MOE mentioned the recent media coverage regarding property tax values, including an article in the News Miner last week that described dramatic increases. One homeowner saw the assessed value of their home double from one year to the next. MR. MOE advanced to the US map on slide 8 to illustrate that property tax is the largest tax that most Alaska home owners pay. The state is ranked second nationwide. MR. MOE displayed the chart on slide 9 that shows that Alaska ranked second in the nation for the highest property tax increase from 2019 to 2020. He also provided charts to show increases in the price of gasoline and natural gas compared to the slow growth of personal income over the last 20 years. 4:39:16 PM MR. MOE concluded the presentation with the following highlights: • Property tax relief is needed now • The cost of living for Alaskans has increased dramatically • SB 172 increases the allowable residential property tax [exemption] from $50,000 to $75,000 • Optional tool for local communities to use to reduce tax burden, most Alaskans utilize current exemption • Homeowners could save $400 a year, and $12,000 over the life of a mortgage 4:39:39 PM CHAIR HUGHES asked him to go through the sectional analysis. MR. MOE stated that the bill has just one section, which increases the property tax exemption from $50,000 to $75,000. It is tied to the Consumer Price Index (CPI). CHAIR HUGHES observed that ten years ago the exemption was based on CPI for Anchorage and SB 172 changes that to the CPI for urban Alaska. MR. MOE agreed that was his understanding. SENATOR HUGHES offered her understanding that the Mat-Su Borough was not taking advantage of the exemption. Mr. Moe agreed. 4:41:45 PM SENATOR GRAY-JACKSON noted that she was a co-sponsor. She corrected the record, advising that a homeowner whose assessment doubles will see their tax assessment double as well. 4:42:27 PM SENATOR MYERS referred to the US map that shows that Alaska ranks second in the nation for property tax burden. He noted that Alaska has a local property tax and a petroleum property tax that is assessed at both the borough and state level, depending on location. He wondered where Alaska would rank if the petroleum tax were removed from the calculation. MR. MOE offered to follow up with the information. SENATOR MYERS asked if Anchorage had a tax cap. MR. MOE answered yes. SENATOR MYERS noted that Fairbanks also had a tax cap. He offered his view that the discussion wasn't so much about property tax relief as tax shifting because taxing jurisdictions would still try to raise the same amount of revenue. The policy call is whether or not to shift the tax burden from residential property owners to commercial property owners. 4:44:37 PM MR. MOE responded that each borough assesses differently according to what works best for that jurisdiction. He acknowledged that with a tax cap, there will be a little redistribution as opposed to an overall decrease. SENATOR GRAY-JACKSON explained that the tax burden is spread throughout the entire tax base and everybody tax burden increases based on the assessment. SENATOR MYERS said it will be interesting to see what happens in areas like North Pole that have both property and sales tax. If the dollar amount coming in from residential property tax is less, he wondered whether the mill rate or the sales tax would be increased to make up the difference. 4:46:43 PM CHAIR HUGHES pointed out that this was optional and North Pole might decide not to take advantage of the exemption. She questioned whether Palmer would be interested because it was trying to attract more businesses. By comparison, Anchorage has a much broader business base so each individual business wouldn't see that much increase. She noted that the bill was currently written so that a local assembly or city council could decide to take advantage of this option. She offered her perspective that it was a good idea to allow the voters as a whole decide on the merits of a tax shift. She asked whether the sponsor had considered getting voter approval. MR. MOE said he didn't know, but would find out. To the comments about increasing the burden on commercial properties, he pointed out that in the Mat-Su and the Fairbanks North Star Borough, both residential and commercial property assessments were increasing so each group will pay more overall. He noted that assessors in different parts of the state also thought both groups would be similarly affected. 4:50:28 PM SENATOR GRAY-JACKSON said she cares about the entire state and wants property taxes to be distributed fairly, but in District I the assessed values for commercial properties have not been what they should be for many years and this year the assessed value for residential properties increased more than 10 percent in some areas. 4:51:13 PM SENATOR MYERS reported that his property in the Fairbanks area went up 10 percent this year and several friends saw a 25 percent increase. He noted that while a property owner has the ability to challenge the assessment, the burden is on the property owner to prove the valuation is wrong. He described that as a large power imbalance between the homeowner and the borough. He wondered whether the sponsor would be interested in addressing the tax issue by shifting the burden of proof for property tax valuations to the borough instead of increasing the exemption for homeowners. 4:52:27 PM SENATOR BILL WIELECHOWSKI, Alaska State Legislature, Juneau, Alaska, sponsor of SB 172, answered that he could do some research and check with local communities, but he wasn't sure that the state could regulate property tax assessments. He acknowledged that it also seemed odd that the state could regulate the size of the property tax exemptions that local communities can offer. SENATOR MYERS relayed that state statute places the burden on the homeowner to prove the borough's assessment of a property was wrong. 4:53:55 PM SENATOR GRAY-JACKSON related that in Anchorage assessments are typically based on the assessed value of nearby properties. The municipal property appraisal division works with individuals who question their assessments and minor disagreements are generally resolved before the matter goes to the next level. CHAIR HUGHES noted that the presentation indicated that the average savings would be $400 per homeowner. Using Anchorage as an example, she asked what the average property tax increase will be for homeowners based on the higher assessments and, should the bill pass, what the average increase would be for the higher assessed residential and commercial properties. 4:55:19 PM SENATOR WIELECHOWSKI answered that he didnt know what the average increase would be with the new property tax assessments, because the Anchorage Assembly sets the mill rate. The estimated savings of $400 was based on what the tax would be under the current mill rate and increasing the exemption from $50,000 to $75,000. 4:55:53 PM CHAIR HUGHES asked, if the assessments go up 13 percent on average, will the property taxes also increase 13 percent. SENATOR WIELECHOWSKI answered not necessarily; it depends on the mill rate. CHAIR HUGHES narrowed the question to include the same mill rate. SENATOR WIELECHOWSKI deferred the question to Senator Gray- Jackson. 4:56:30 PM SENATOR GRAY-JACKSON responded with a hypothetical example. If a residential assessment increased $100,000 and the mill rate is 14.5 percent, the homeowner would pay an additional $1,450 in taxes. CHAIR HUGHES asked the sponsor if he had considered asking the voters to weigh in. SENATOR WIELECHOWSKI stated that he had no strong feelings one way or the other. CHAIR HUGHES asked Senator Gray-Jackson if anything in the Municipality of Anchorage charter would automatically send a question like this to the voters. 4:58:18 PM SENATOR GRAY-JACKSON answered she didn't think so, but if it did go to the voters she was sure it would pass with at least a 70 percent margin. CHAIR HUGHES asked the sponsor what kind of support or opposition he'd heard. SENATOR WIELECHOWSKI said he had not heard of any formal opposition, but he would defer to Mr. Moe. 4:58:48 PM MR. MOE added that there had been a lot of support for the bill and realtors were eager about the potential to lower property taxes. He'd heard no formal opposition. CHAIR HUGHES asked if chambers of commerce or the Alaska Municipal League had weighed in. MR. MOE answered no. 4:59:13 PM SENATOR MYERS commented that it was a concern if realtors were excited because they were likely thinking it would result in the increase in both homes sales and valuations. SENATOR WIELECHOWSKI offered his experience that realtors typically oppose property tax increases because people are more likely to purchase when the prices are lower. He acknowledged the possibility that future property tax appraisals might be affected. MR. MOE offered his perspective that in smaller communities, lowering the homeowner property taxes with an exemption helps to encourage people to stay in the community because they are not priced out of their homes. 5:00:39 PM CHAIR HUGHES held SB 172 in committee.