Number 120 HB 397 - TAXING POWER OF SECOND CLASS CITIES GARY WILLIAMS, CITY MANAGER, CITY OF WHITTIER, testified in support of HB 397 and the sponsor substitute draft before the committee. He stated, "There are 117 second class cities in Alaska, all of whom depend on various forms of state assistance which include municipal assistance and revenue sharing and grants to supplement revenue derived from their local tax structures. We depend on these outside sources, not only because we've become accustomed to the revenues stream, but because small communities like Whittier have few sources from which to raise the revenues to provide the local public services that we need. As you know, economies of scale work against small communities that have most of the same needs as their larger counterparts but have much less in taxable base. It's an added burden for a small community to be saddled with a statutory limitation on a rate that it may establish as a levy for the provision of local services. And this is the matter that HB 397 addresses and does it very well." MR. WILLIAMS continued, "...as you know the Alaska Railroad is the largest landowner in the Whittier area with some 60 percent ownership of Whittier proper. Some quick math will show that the property tax that can be raised on $8.3 million in taxable property at five mill is $40,000. For perspective, that's about half the amount necessary to employ our nurse practitioner. The city also levies the five mill tax on personal property including boats, machinery and recreational equipment. This raises it another $60,000, an amount equal to about one third of our public safety budget. Given the past and proposed reductions in state assistance and a policy which places more fiscal responsibility on local government, what's missing in this picture is the transfer of authority to local governments to tax themselves in order to survive. It just seems inappropriate to tie a knot in the shared revenue stream and yet expect second class cities to not only survive but to be actively involved in developing local economies..." Number 202 REPRESENTATIVE JOHN DAVIES asked, "...the conditions under which the city was incorporated and whether or not this limitation on property tax was in effect at the time the voters voted to incorporate. Do you know if that's the case?" MR. WILLIAMS said yes. REPRESENTATIVE DAVIES continued, "I think that the idea here is fine and to do it prospective basis, I have absolutely no problem with agreeing 100 percent with the Chair of this committee that we should maximize self determination. But I do have a problem with removing retrospectively that without a vote of the folks that voted to incorporate in the first place." Number 225 MR. WILLIAMS responded saying, "City Councils are still subject to the will of the people and none of those folks who voted for incorporation at the time are still with us. I'm quite sure of that fact. Additionally, if people don't like to see the mill levy that the council says is necessary in order to provide the services that they deem are appropriate and important, they can voice their opinion at public hearings when the budget comes before the people and it must. They can also vote those councilmen out if they think the mill levy was raised inappropriately." REPRESENTATIVE DAVIES asked if the City of Whittier receives any revenues from the Alaska Railroad Corporation. MR. WILLIAMS indicated that the City of Whittier is unable to levy any taxes on the Alaska Railroad Corporation. Number 249 REPRESENTATIVE CYNTHIA TOOHEY asked, "Does the railroad furnish any help to the City of Whittier?" MR. WILLIAMS indicated not and added, "We are in the process of forming a new relationship (with the railroad)." Number 271 REPRESENTATIVE CON BUNDE asked if there was any opposition to HB 397. CHRYSTAL SMITH, DIRECTOR OF MEMBER SERVICES, ALASKA MUNICIPAL LEAGUE, indicated that AML supported HB 397 but "it was not one of the Municipal League's priorities for the year... Our members did pass a resolution in support of this concept at the November conference and it was discussed by the members at that time and as far as I know there was no opposition to it..." CHAIRMAN OLBERG pointed out that the sponsor substitute needs to be read across the floor or adopted as a committee substitute before it can be moved out of committee. REPRESENTATIVE ED WILLIS asked, "What is the difference with regard to the taxing policy between a second class city and a first class city?" Number 330 CHAIRMAN OLBERG referred to the copies of the 93-94 Alaska Blue Book page 170-171 and AS 29.45.590 included in the committee's folders. (A copy of the information provided to committee members is on file.) BRUCE GERAGHTY, DEPUTY COMMISSIONER, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS, indicated that he was uncertain as to these specifics. MS. SMITH indicated that, "Basically, first class cities can tax up to three percent and second class cities, a half of percent on property tax." REPRESENTATIVE WILLIS continued, "And the second class city as it now stands, must have voter approval..." REPRESENTATIVE DAVIES asked, "Can second class cities impose sales taxes?" MS. SMITH indicated said, "As far as I know they can, yes. Many of the second class cities do have sales tax..." Number 361 REPRESENTATIVE DAVIES asked, "Was this limitation on property tax in place when the original legislation creating the distinctions between first class and second class cities was enacted? How long has this been on the books?" MS. SMITH said she wasn't sure. REPRESENTATIVE DAVIES said, "This gets to my original question...how many of them incorporated under that five mill limitation." CHAIRMAN OLBERG offered to have committee staff compile a comparison to address his concerns for the next hearing on HB 397 and brought forth HB 398.