HB 397 An Act relating to the power to levy property taxes in second class cities. HB 397 was held in Committee for further consideration. HOUSE BILL 397 "An Act relating to the power to levy property taxes in second class cities." DAVID KAMRATH, STAFF, REPRESENTATIVE OLBERG, provided the Committee with Amendment #1 [Attachment #2] which would limit second class cities to a two percent tax of the assessed value of the property to be taxed. Co-Chair MacLean asked why Amendment #1 would repeal Section could be raised through city council meetings as presently done in first class cities. Representative Navarre pointed out, under this authorization, raising taxes to the new level would create a disincentive for organizing a new borough. He added his concern regarding the individual city councils raising second class taxation to twenty mils. Mr. Kamrath responded to Representative Martin's inquiry regarding "personal and real property taxation" explaining that personal property could be taxed only by a decision of the local municipality. The proposed legislation would guarantee local government taxation decisions. 4 (Tape Change, HFC 94-42, Side 2). Representative Hanley pointed out that repealing Section #2 as proposed in Amendment #1, would delete local flexibility. Co-Chair Larson commented on the potential effect of taxation by local communities with oil and gas pipeline property within their bourndaries. Representative Brown understood that the oil and gas pipeline property tax was a separate statute from regular property taxation. Co-Chair Larson replied that all oil and gas facilities would be assessed by the same policy, however, organized municipalities may tax up to twenty (20) mils. Representative Brown pointed out that the proposed legislation would allow a second class city to further use state revenues from pipeline property tax. She advised that the fiscal note should be revised to indicate the impact on state revenue. Representative Martin recommended the continuance of levy of taxes "by referendum" which would allow citizens a voice in the taxation. Mr. Kamrath stated that first class cities and home rule districts have the potential of milage rate being raised to thirty (30) mils. He added that city and borough governments establish the rate. It is not directly decided by the local citizens through their election of those officials. Representative Martin pointed out that Anchorage has established a milage rate cap. Representative Martin MOVED to adopt Amendment #1. Representative Martin MOVED TO AMEND Amendment #1 by restoring [BY REFERENDUM] to the context of Section #1. Representative Hoffman OBJECTED to the amendment to Amendment #1. Representative Parnell asked if second class cities would have a prohibition of funds. Co-Chair Larson explained that citizens decide this issue from a voting power. Representative Hoffman stated that second class cities generally do not consider imposing a property tax because of the amount of paper work imposed to collect the extra funds. Committee members continued discussion regarding the levy of property taxes by first and second class cities. Representative Hanley pointed out that Amendment #1 would provide more authority in delegating taxation to the individual city councils. Co-Chair MacLean advised that the amended Amendment #1 might not allow the local government proper authority to provide required services and revenues. 5 Co-Chair Larson summarized the amended amendment which would propose a referendum to allow the city council the ability to levy taxes, increasing the amount from five (5) mils to twenty (20) mils. Representative Hoffman urged the Committee to oppose the amendment. Representative Martin felt that the amendment would take away local referendum powers of the second class cities. Co-Chair MacLean interjected her concern with the effect on education for the second class cities as most of them are REAA's. Representative Navarre OBJECTED to the MOTION to amend Amendment #1. A roll call vote was taken on the MOTION. IN FAVOR: Hanley, Martin, Parnell, Therriault. OPPOSED: Foster, Grussendorf, Hoffman, Navarre, Brown, MacLean, Larson. The MOTION FAILED (4-7). Representative Martin MOVED to RESCIND his MOTION to adopt Amendment #1. There being NO OBJECTION, it was so ordered. Representative Hoffman MOVED to adopt Amendment #1. Discussion followed regarding Amendment #1. Co-Chair MacLean felt that to incorporate as a second class city, a petition should be signed by the voters when the property tax proposal is placed on the ballot. She MOVED to delete Section #2 of Amendment #1. Mr. Kamrath explained that the Division of Legal Service's Director, Tamara Cooke, recommended including Section #2 of the amendment. CRYSTAL SMITH, ALASKA MUNICIPAL LEAGUE (AML), JUNEAU, stated that the Alaska Municipal League supports the intent of SS HB 397, which would remove the limitation on the power of second class cities to levy property taxes. She spoke to the amendment asking for more time to consider the changing circumstances which the amendment would initiate. She understood that the amendment would preclude any future adjustment to service the cap. Co-Chair MacLean clarified that the amendment would provide a petition for the new second class cities incorporation and it would be on the property tax ballot proposal. The legislation would allow second class cities to determine the appropriate property tax rate and remove arbitrary limits on their ability to generate revenue locally. Co-Chair Larson requested the bill be held in Committee in 6 order to provide time for the Alaska Municipal League to provide the Committee information regarding: 1. The ramifications of repealing the levy of property taxes by referendum; and 2. Restrictions for cities at the time of incorporation which would result in levies and types of taxes. Co-Chair MacLean MOVED to RESCIND the motion to delete Section #2 of Amendment #1 until AML has the opportunity to consider the above concerns. Representative Brown requested more detailed information on the loss of any revenue to the State as a result of the proposed legislation. Representative Parnell interjected his concern with the legality of the "policy call" to be made by Committee members on the referendum issue. SS HB 397 was HELD in Committee for further consideration.