HB 170-MUNI TAX EXEMPTION FOR CERTAIN VOLUNTEERS  8:06:41 AM CHAIR MUNOZ announced that the first order of business would be HOUSE BILL NO. 170, "An Act relating to municipal property tax exemptions on residences of certain volunteer emergency services personnel and the widows and widowers of volunteer emergency services personnel; and providing for an effective date." 8:07:40 AM REPRESENTATIVE AUSTERMAN moved to adopt Version 27-LS0562\I, Bullard, 4/6/11, as the working document. There being no objection, Version I was before the committee. 8:08:01 AM REPRESENTATIVE ERIC FEIGE, Alaska State Legislature, speaking as the sponsor of HB 170, reminded the committee that it heard HB 170 last year and several questions arose last year. He related that over the interim changes to HB 170 were made to address those concerns. 8:08:43 AM MICHAEL PASCHALL, Staff, Representative Eric Feige, Alaska State Legislature, explained that HB 170 provides the state the opportunity to reimburse to municipalities the property taxes paid by first responders, fire and emergency medical services (EMS) personnel, if the municipality chooses to enact an ordinance to do so. Originally, the legislation proposed an opt-out program, but has now been changed to an opt-in program. Therefore, there is no obligation on behalf of the municipality to do this unless they choose to do so. This legislation allows municipalities to provide an incentive [for first responders to stay as such] if the municipality so chooses. He recalled that last year there were questions regarding whether there was an annual application, which is left to the municipality to decide. However, since it's an annual property tax it would seem to make sense that one would be required to apply annually in order to receive the exemption. There was also a question regarding qualifying an "active volunteer." The legislation defines "volunteer" in statute by using an existing definition in statute, but if the municipality wants a smaller group or to clarify the group further, the municipality can decide that. There was also a question regarding the widow/widower provision and whether a widow/widower who remarries would qualify. Again, the municipality can define that and any parameters around it. He also recalled that last year there was a question regarding "paid on-call volunteers" and, again said that it would be left to the municipality to determine. 8:12:31 AM REPRESENTATIVE DICK requested explanation of the provision on page 3, lines 4-10. MR. PASCHALL explained that the aforementioned provision provides an opportunity for the state to reimburse the municipality for the exemptions, just as is done for the senior property tax exemption. Therefore, if the state recognized this proposed exemption as a need, the legislature could fund a reimbursement for the lost revenue the municipalities would experience. REPRESENTATIVE DICK pointed out that the provision on page 3, line 4 uses the term "shall". MR. PASCHALL said that "shall" is the normal language for such programs. Since the legislature has to provide separate legislation to fund the program, the program/exemption is dependent on that. 8:13:44 AM CHAIR MUNOZ inquired as to how long it has been since the state has actively reimbursed the municipalities for the senior tax exemption. MR. PASCHALL answered that it has been about 10-12 years. 8:14:01 AM MR. PASCHALL, in response to Representative Saddler, stated that the language "only to the extent that the loss exceeds an exemption that was granted by the municipality" on page 3, lines 6-7, was taken from the senior exemption language. The language relates that the municipality can't be reimbursed twice. 8:14:31 AM REPRESENTATIVE DICK inquired as to what prohibits a large increase in the number of volunteer firefighters to take advantage of this proposed property tax exemption. MR. PASCHALL opined that he didn't believe people would put the time in to do so. He indicated that the municipality could specify rules regarding the number of hours one must serve to be able to apply for the exemption. 8:15:14 AM REPRESENTATIVE GARDNER asked how the sponsor would feel about amending the language on page 3, line 4, from "shall" to "may" since she understood the sponsor's intention is not to mandate the reimbursement. MR. PASCHALL said that the sponsor wouldn't object to that. 8:15:46 AM REPRESENTATIVE SADDLER inquired as to the number of volunteer fire departments in the state that could be impacted by this. MR. PASCHALL responded that he counted 78 fire departments located within a municipality that has a property tax. There are approximately 250 fire departments in the state and approximately 7,000 firefighters of which about 4,000 are volunteers. Approximately 1,500 firefighters live in a municipality that assesses property taxes. He recalled that the Girdwood Fire Department has 30-some volunteers of which 14 owned property within the community. REPRESENTATIVE SADDLER questioned whether all the voters in the Municipality of Anchorage would have to vote on whether to grant this proposed exemption. He pointed out that in Anchorage there is a city fire department, a volunteer fire department within the municipal borders, and fire service areas. MR. PASCHALL replied no, and clarified that this legislation provides a provision on page 1, line 12, that the governing body of the municipality can grant the exemption. Therefore, in the case of Anchorage, the Anchorage Assembly would be able to grant the exemption. REPRESENTATIVE SADDLER related his understanding that there is no guarantee the state would fund this proposed exemption, it's subject to appropriations. He then asked if the pro rata provision exists to address a limited appropriation. MR. PASCHALL replied yes. REPRESENTATIVE SADDLER then inquired as to the potential cost to the state. MR. PASCHALL explained that in determining an answer to the aforementioned, the question then becomes how much time should legislative research spend on such. He used Girdwood as a typical example. The Girdwood Fire Department has 51 members listed in the state registry of which 12 properties were held in names matching members of the Girdwood Fire Department. These properties had an assessed value of $3.9 million and the average property value was $329,500. The property values ranged from $194,000-$765,000. Mr. Paschall reminded the committee that most of those who are very active in local fire departments are involved in them for years. Still, there are many firefighters who come and go and those people often don't own property. Therefore, this proposed exemption could be an incentive for those who serve the community to remain in it. 8:21:00 AM REPRESENTATIVE CISSNA noted that most fire departments include emergency medical services (EMS) personnel as well. MR. PASCHALL confirmed that in most communities in Alaska the fire departments include EMS personnel. He informed the committee that the numbers he used for the fire department includes the EMS personnel as well. REPRESENTATIVE CISSNA, drawing from her time reviewing EMS, related that a large percentage of EMS personnel are volunteers. In fact, in small communities the EMS personnel are often helping in the clinics. She opined that [EMS and firefighters] do really good work. 8:22:46 AM REPRESENTATIVE SADDLER inquired as to what happens to a community that goes forward with this proposed exemption, but the state stops funding it after a few years. MR. PASCHALL opined that the volunteers would accept the fact that the state doesn't have the funds. He also pointed out that the municipality would be able to repeal the ordinance and the program were the state to end the funding to the program. REPRESENTATIVE SADDLER asked if the municipalities would actually repeal the program. MR. PASCHALL said he couldn't answer that. He then related that the Homer Fire Department newsletter related that in 2010 the [Homer] Fire Department's budget was $971,000, but the total cost in normal wages for the same services as the volunteer firefighters would be an estimated $3.6 million. REPRESENTATIVE SADDLER stated that he admired the motivation of this effort and monetarily supports his local fire department. However, he expressed concern that [this legislation] establishes a situation, a worst case scenario, in which the proposed exemption is offered, boroughs and municipalities take advantage of it and enjoy it while those who aren't firefighters in the community have to pay for the exemption. In fact, he related that he has heard testimony that local businesses are concerned that their property taxes may increase. MR. PASCHALL agreed that would be the worst case scenario. However, he highlighted these volunteers are taking their own time to help those who aren't providing the funding for the service. 8:27:16 AM REPRESENTATIVE FEIGE interjected that the municipality receives what it pays for in terms of emergency services. The more capability and the greater the ability to fight fires and provide EMS, the better service it provides to the citizens. Furthermore, it directly impacts home insurance rates in the community. He related that for those homeowners who participate in the fire department in his community, there is about a 15-20 percent savings on their home insurance rates. Ultimately, if a municipality has the demand for a certain quality of fire department, the municipality can decide to pay for it out of its coffers such that it has professional firefighters or it can choose to utilize a far cheaper labor force from volunteer firefighters. This legislation, HB 170, gives them a large degree of flexibility in terms of providing an opportunity for the exemption not a mandate. 8:29:55 AM MR. PASCHALL, in response to Representative Austerman, clarified that there was a zero fiscal note attached to the original legislation because there is no administration required for the state and there is no appropriation for it. REPRESENTATIVE AUSTERMAN pointed out that the legislation uses "shall" language. MR. PASCHALL clarified that until the legislature appropriates the funds, there are no funds to be spent. REPRESENTATIVE AUSTERMAN remarked that part of the discussion of this committee and the House Finance committee will be to make such determinations. While the fiscal note is zero, it would behoove the committee to recognize that there will be costs if the state pays for the exemption. Therefore, he suggested that the fiscal note should be indeterminate. 8:31:10 AM REPRESENTATIVE CISSNA highlighted communities such as Girdwood and Hope where volunteers are the lifeline for emergency services. MR. PASCHALL related that [the Delta Junction] volunteer fire department has 33 members, which doesn't include EMS personnel as that's provided by another volunteer department. He pointed out that the area the [Delta Junction Volunteer Fire Department] serves is the size of Vermont. 8:34:07 AM CHAIR MUNOZ added that this exemption isn't free. If HB 170 becomes law, the average taxes on homes in the City & Borough of Juneau would be about $2,000. Therefore, if this exemption goes forward, the state should [fund it] otherwise it would be another unfunded mandate. 8:34:50 AM REPRESENTATIVE AUSTERMAN explained that he felt the legislation should have an indeterminate fiscal note because he doesn't want municipalities to think the state "shall" reimburse the municipalities that opt-in to this program. He said that he wanted to be sure the aforementioned is clear on the record. 8:35:41 AM REPRESENTATIVE CISSNA emphasized that often the cost of not having a service isn't taken into account with the fiscal note. 8:36:28 AM REPRESENTATIVE SADDLER directed attention to written testimony from Thomas Andriesen that says, "There is already an optional tax reduction for emergency responders that boroughs can adopt and I believe it is a 15% reduction in a members' tax. Making this a mandate would be more appropriate than the current proposed House Bill." He inquired as to what Mr. Andriesen is referring. MR. PASCHALL responded that he wasn't sure, although he recalled that an assembly or the voters in a municipality can enact a $20,000 property value exemption for any purpose. REPRESENTATIVE SADDLER expressed interest in knowing more. 8:38:05 AM REPRESENTATIVE CISSNA related her understanding that usually smaller communities have larger numbers of volunteer firefighters whereas larger communities most often have paid firefighters. She inquired as to whether department staff could speak to the benefit of giving the exemption versus having to pay for volunteer services and the property values in smaller communities such as Hope and Girdwood. 8:39:51 AM STEVE VAN SANT, State Assessor, Division Programs, Division of Community and Regional Affairs, Department of Commerce, Community & Economic Development, said that he doesn't have value information on Hope since it's not a city. However, the property values in the following locations are as listed: Craig and Cordova - $105,000-$124,000; Nenana - $74,000; Tanana - $37,000; Petersburg - $118,000; Pelican - $162,000; Nome - $90,000. The aforementioned are per capita values, he noted. 8:41:21 AM REPRESENTATIVE CISSNA surmised that the taxation rate will vary from community to community. She then inquired as to the range of property tax. MR. VAN SANT informed the committee that the following communities have the specified rates: Craig - 6 mills; Cordova - 9.7 mills; Nome - 10 mills; Nenana - 12 mills; Pelican - 7 mills; Petersburg - 11 mills; Valdez - 20 mills; and Whittier - 5 mills. Therefore, the range is 5 to 20 mills with most communities having a mill rate of 6-11. CHAIR MUNOZ, in further response to Representative Cissna, explained that under a mill rate of 10, roughly for every $100,000 in assessed value, the property tax would be $1,000. 8:42:59 AM SCOTT RUBY, Director, Division Programs, Division of Community and Regional Affairs, Department of Commerce, Community & Economic Development, related that he has a home in Moose Pass with an approximate value of $140,000 and they pay $634 in property tax to the borough. Therefore, if the proposed $150,000 exemption was in place, the entire $634 tax would be exempted. 8:43:45 AM REPRESENTATIVE GARDNER pointed out that one of the letters of support references a tax exemption on the first $200,000 value whereas the legislation refers to the first $150,000. MR. PASCHALL responded that the original version of the legislation did propose a tax exemption on the first $200,000. 8:44:19 AM CHAIR MUNOZ, referring to page 2, lines 24-27, of Version I, inquired as to why the sponsor would want to reward those applications that aren't filed in a timely manner. MR. PASCHALL related that this is the language used for existing optional exemptions. 8:45:15 AM REPRESENTATIVE SADDLER asked if anything prohibits municipalities from doing this proposed exemption without a state authorizing statute. MR. PASCHALL reiterated his understanding that municipalities have the ability to provide a $20,000 exemption. 8:45:50 AM REPRESENTATIVE GARDNER recalled that some of the other property tax exemptions are only eligible to those who are eligible for the permanent fund dividend (PFD). MR. PASCHALL said HB 170 includes a provision that in order for an individual to receive the exemption, he/she must be eligible for the PFD. 8:46:16 AM CHAIR MUNOZ inquired as to whether the committee wanted to maintain or remove the language regarding timely application. REPRESENTATIVE AUSTERMAN said he was fine with it [as it is]. REPRESENTATIVE GARDNER surmised that Chair Munoz, drawing from her time on the Juneau Assembly, is likely viewing the provision as would an assembly. She said she would be fine with whatever Chair Munoz wanted. CHAIR MUNOZ announced that she would like to remove the language because an applicant should apply in a timely manner. REPRESENTATIVE SADDLER highlighted that the legislation specifies that one has to be a volunteer fire department employee for two years prior to applying for the exemption. 8:47:21 AM REPRESENTATIVE GARDNER moved to adopt Amendment 1: Page 2, lines 24-27; Delete the following language: "The governing body of the municipality for good cause shown may waive the claimant's failure to make timely application for exemption and authorize the assessor to accept the application as if timely filed." There being no objection, Amendment 1 was adopted. 8:48:06 AM REPRESENTATIVE GARDNER moved to adopt Amendment 2, as follows: Page 3, line 4 Delete "shall" Insert "may" REPRESENTATIVE GARDNER explained that she didn't want to give municipalities a false sense of security that they can expect the state to fund this proposed exemption. REPRESENTATIVE FEIGE said that he didn't have a problem with Amendment 2. 8:49:01 AM CHAIR MUNOZ related her belief that the state should pay for it, if the exemption is going to be law. However, she also understood Representative Gardner's point that the state may not fund the exemption. REPRESENTATIVE GARDNER reminded the committee that the state has chosen, on occasion, not to fund a host of other programs, such as power cost equalization and municipal revenue sharing. 8:49:34 AM There being no objection, Amendment 2 was adopted. 8:49:48 AM REPRESENTATIVE SADDLER suggested that it would be appropriate to have some mechanism whereby neighbors who would enjoy the benefits of the improved volunteer firefighter services would incur some obligation for this exemption rather than have it be a state subsidy. He suggested perhaps the local community could be obligated to provide a one-third match for the state funding for the exemption. He inquired if the aforementioned would be appropriate. REPRESENTATIVE FEIGE explained that by granting the exemption, a municipality is not taking in revenue, and therefore the only way for the municipality to make that up is to increase the mill rate. The state, he further explained, may choose to refund a certain percentage of the exemption up to 100 percent. He assumed that if the municipality granted the exemption and then found itself short of funds to operate, it would have to increase the mill rate if the state didn't provide a 100 percent reimbursement. Adjusting the municipality's income is within the purview of the municipality, the separate issue is the state's decision whether to provide a refund at a percentage up to 100 percent. REPRESENTATIVE SADDLER clarified that he is trying to avoid a situation similar to that of the senior property tax exemption in which the state funded it during a time of plenty, but did not during leaner times. In those leaner times, it was left to the municipality to fund. REPRESENTATIVE FEIGE said he understood the concern, but emphasized that the local municipality still has the job of increasing or lowering its mill rates or assessed values in order to raise revenue. There are so many unknowns with regard to this exemption that, perhaps the reimbursement should be left at 100 percent and see what happens. He reminded the committee that if a municipality isn't having a recruitment problem, then it doesn't have to enact the exemption. However, he understood there may be some political pressure, although it won't be from many people because it will likely be from those volunteers who own property. With regard to how much of a bill HB 170 will generate for the state, he said he was unsure. On the other hand, there is something of a moral obligation, he remarked. 8:55:05 AM CHAIR MUNOZ pointed out that if the state doesn't participate, the municipality has 100 percent "skin" in the game [and thus a 30 percent requirement as proposed by Representative Saddler] would be difficult. 8:55:36 AM REPRESENTATIVE AUSTERMAN moved to report CSHB 170, Version 27- LS0562\I, Bullard, 4/6/11, as amended, and with an indeterminate fiscal note, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 170(CRA) was reported from the House Community and Regional Affairs Standing Committee. 8:56:12 AM The committee took an at-ease from 8:56 a.m. to 9:00 a.m.