HB 317-FARM USE LAND/STRUCTURES: TAX EXEMPTION  8:24:14 AM CHAIR MCCORMICK announced that the next order of business would be HOUSE BILL NO. 317, "An Act relating to the municipal tax exemption of farm use land and structures on farm use land; requiring a vote in municipalities that do not currently provide a general tax exemption for structures used in farming activity; and providing for an effective date." 8:24:51 AM BEN CARPENTER, Alaska State Representative, prime sponsor, presented HB 317. He paraphrased the sponsor statement [included in the committee packet], which read as follows [original punctuation provided]: House Bill 317 is a proactive measure designed to foster a favorable environment for agricultural growth and sustainability in Alaska. By providing tax incentives for farm structures and preserving farm use land, we aim to incentivize farming practices, stimulate economic activity, and strengthen our food production systems. Alaska is the largest U.S. state, yet it has one of the smallest agricultural industries according to the USDA. As such, the food supply does not yet meet demand. Alaska relies heavily on imported food and is thus more vulnerable to interruptions in the food import supply chain. Currently, only 5% of the food Alaskans consume is produced in Alaska. House Bill 317 amends current statute giving municipalities the authority to partially or fully exempt farm structures used exclusively for farming activities from taxation. This exemption applies to structures engaged in various farming-related functions, such as crop production, feed storage, and dairy operations. The Bill also ensures that farm use land and structures dedicated to farming operations are assessed based on their agricultural value, rather than being subject to taxation as if used for non- agricultural purposes. This provision safeguards the integrity of agricultural land and supports its continued use for farming activities. Alaska statutes currently help with the cost of farming, through limited property tax assessments and local option tax exemptions. Alaska state law allows farmland to be assessed at the farmland use rate, which can be lower than the highest and best use tax rate for the property. This helps encourage farmers to keep their land in production, rather than selling it or converting it for other uses. HB 317 removes all current statutory requirements that operators have to be commercial farmers, to receive the tax breaks. REPRESENTATIVE CARPENTER shared a personal anecdote about the agricultural infrastructure he witnessed in South Korea. He explained how property taxes increase when a structure, like a greenhouse, is built on a residential lot. He said HB 317 would attempt to incentivize the growth of agriculture by reducing the tax burden on agriculture use. 8:30:03 AM KENDRA BROUSSARD, Staff, Representative Ben Carpenter, Alaska State Legislature, on behalf of Representative Carpenter, prime sponsor of HB 317, presented the sectional analysis [included in the committee packet], which read as follows [original punctuation provided]: Sections 1 Amends Property tax exemptions for farm use structure by removing the requirement that the person engaged in farming derive at least 10 percent of the person's yearly gross income from farming. Section 2 Amends farm use land assessment statute to add structures for farm purposes. Section 3 Amends farm use land assessment statute to remove requirement for first time farmers to file intended percentage of income, as that requirement is being removed from law. Section 4 Amends farm use land assessment statute by removing the requirement that the person engaged in farming derive at least 10 percent of the person's yearly gross income from farming. Section 5 Repeals the ability to waive, for crop failure, the 10 percent of income requirement, as that requirement is being removed from law. 8:31:42 AM MS. BROUSSARD directed attention to a PowerPoint presentation, titled "Let's Grow, Alaska" [included in the committee packet]. She began on slide 2, "Proactive Measure," which read as follows [original punctuation provided]: Alaska is the largest U.S. state, yet it has one of the smallest agricultural industries according to the USDA. As such, the food supply does not yet meet demand. Alaska relies heavily on imported food and is thus more vulnerable to interruptions in the food import supply chain. Currently, only 5% of the food Alaskans consume is produced in Alaska. House Bill 317 is a proactive measure designed to foster a favorable environment for agricultural growth and sustainability in Alaska. By providing tax incentives for farm structures and preserving farm use land, we aim to incentivize farming practices, stimulate economic activity, and strengthen our food production systems. MS. BROUSSARD continued to slide 3, "Alaska Food Security and Independence Task Force 2022," which read as follows [original punctuation provided]: Alaska's supply chain is vulnerable and in turn, our food supply is unstable, of which 95% of purchased foods are imported. Extreme weather events and seasonality make rural communities, far beyond the end of the road, susceptible to weeks without food delivery and the food that arrives often has a high spoilage rate due to long travel time and poor storage conditions. Additionally, by importing most of our food supplies, around $2 billion is sent out of state each year. Alaska is past due for activating a strategic approach to creating a more inclusive, equitable, and resilient food system for all. 8:33:20 AM MS. BROUSSARD advanced to slide 4, "What's Hindering Alaska Agriculture?" Slide 4 read as follows [original punctuation provided]: Sustainability Challenges Marketing Issues Business Plans Access to Affordable & Adequate Land MS. BROUSSARD turned to slide 5, "Promising Efforts Underway," which read as follows [original punctuation provided]: Seaweed Supply Farmers Markets and Food Hub Activity Room For Growth Current Economic Impact 8:33:40 AM MS. BROUSSARD proceeded to slide 6, "Agriculture Tax Breaks in the U.S.," which read as follows [original punctuation provided]: You don't have to be a full-time farmer to take advantage of a variety of agricultural tax breaks that will help you with your property taxes. In some cases, all you need is a piece of land that's not currently being used. You can use the land to preserve timber, for example, or put it to some kind of agricultural use to save on property taxes. The size of agricultural property tax exemptions varies from state to state. Qualifications for agricultural tax exemptions vary from state to state, too. Some states base eligibility on the size of the property, while others set a minimum dollar amount for agricultural sales of goods produced on the property. Many use a combination of gross sales and acreage requirements. Grazing a single cow on your property can be enough to trigger tax breaks in some places. If you qualify, an agricultural tax exemption can knock thousands off your property tax bill. Depending on your state's rules, one way to execute this tax strategy is to offer use of your land to a local farmer. For example, you could allow a nearby farmer to harvest hay on acres you're not using or rent your land to a farmer. You don't necessarily have to do the work yourself to claim the exemption for your property. 8:35:04 AM MS. BROUSSARD continued to slide 7, "Current Agriculture Tax Breaks in Alaska," which read as follows [original punctuation provided]: AS 29.45 Allows for commercial farmland to be assessed for property tax purposes as farmland rather than if the land was used for some other purpose. AS 29.45 Allows municipalities to allow voters to approve reduced tax rates for farm structures use for farming activity. 8:35:34 AM MS. BROUSSARD presented slides 8 and 9, which read as follows [original punctuation provided]: House Bill 317 ensure that not only farm use land, but also structures dedicated to farming operations, are assessed based on their agricultural value, rather than being subject to taxation as if used for non- agricultural purposes. This provision safeguards the integrity of agricultural land and supports its continued use for farming activities. HB 317 also removes the requirement that the farm use land or structures be used for commercial activities to lower the barrier of entry for start-up farmers and small operations. Which encourages growth in both commercial farming and farming to feed your family and community. 8:36:15 AM MS. BROUSSARD concluded on slide 10, which read as follows [original punctuation provided]: Current statute gives municipalities the authority to partially or fully exempt farm structures used exclusively for farming activities from taxation. This exemption applies to structures engaged in various farming-related functions, such as crop production, feed storage, and dairy operations. HB 317 requires municipalities, who do not currently give tax rate exemptions for farm use structures, to place a partial or total tax exemption before their voters in the next general election. CHAIR MCCORMICK sought questions from committee members. 8:37:02 AM REPRESENTATIVE MEARS commented on the increased interest in gardening and agriculture during the pandemic and expressed concern that the bill is "too fine" on that point and "the ability of the assessment to be able to fully capture that that be beneficial." REPRESENTATIVE CARPENTER explained that currently, when a greenhouse is added to a property, the assessor changes the property value assessment because it's considered an improvement to the land. If the bill were to pass, the value assessment on greenhouses would be lowered and a municipal tax reduction would be offered. He noted that current statute allows for the reduction in tax rolls to be covered by state funds. Lowering the tax burden through a reduction in property tax would incentivize people to build greenhouses, he said. 8:41:40 AM REPRESENTATIVE HIMSCHOOT sought to clarify the definition of "agriculture" and whether growing a garden for personal consumption would be included. REPRESENTATIVE CARPENTER clarified that the bill would not change the statutory definition of "agriculture" or "agriculture use." REPRESENTATIVE HIMSCHOOT expressed concern that anyone could call a cultivated raspberry bush an agricultural endeavor to reduce the property tax. She asked sought to verify that an actual structure must be built to qualify for the tax break. REPRESENTATIVE CARPENTER pointed out that if everyone started growing raspberries, raspberries would no longer need to be imported to Alaska, thereby decreasing the cost of out-of-state food purchases. 8:44:58 AM DONNA ARDUIN, Staff, Representative Ben Carpenter, Alaska State Legislature, on behalf of Representative Carpenter, prime sponsor of HB 317, defined farming activity and farm use as raising and harvesting crops; feeding, breeding, managing livestock; dairying; or any combination of these activities. She further clarified that the assessor would still be responsible for determining whether a raspberry bush, for example, is truly farm use, which would make a difference. REPRESENTATIVE HIMSCHOOT sought to confirm that the bill would remove existing thresholds to be considered a farm. REPRESENTATIVE CARPENTER confirmed that the bill would remove the dollar figure associated with an agricultural commercial venture in statute. REPRESENTATIVE HIMSCHOOT asked for verification that the statutory definition of "farming" would still need to be met by growing crops, dairy, or livestock. REPRESENTATIVE CARPENTER agreed, adding that a claim of "agriculture use" or "agriculture land" would still need to be verified by an assessor. 8:47:35 AM REPRESENTATIVE HIMSCHOOT said she was concerned about the burden that would be placed on municipal tax assessors. She asked why the municipal vote in Section 6 of the bill would be required, not optional. REPRESENTATIVE CARPENTER explained that the requirement is intended to prompt a conversation and incentivize local food production. REPRESENTATIVE HIMSCHOOT opined that the goal is worthy; however, she felt uncomfortable with imposing a municipal mandate. She mentioned the barrier to growing crops presented by Alaska's climate. REPRESENTATIVE CARPENTER agreed that certain things do not grow in Alaska and that food importation would never be entirely replaced; however, any money saved by food production would be good for local economy, he said. 8:52:23 AM REPRESENTATIVE RUFFRIDGE asked whether a meat processing plant on a chicken farm could apply for the tax incentive. REPRESENTATIVE CARPENTER reiterated that the bill would remove the requirement that only commercial operations are eligible for a tax reduction. Consequently, individuals, families, and businesses would be treated the same by the assessor. 8:53:48 AM CHAIR MCCORMICK sought closing remarks from the bill sponsor. 8:54:00 AM REPRESENTATIVE CARPENTER stated that Alaska has the capacity to grow more food, but he questioned whether the will is there. He opined that by the government encouraging that behavior, Alaskans would be healthier, stronger, and more resilient. CHAIR MCCORMICK announced that HB 317 would be held over.