HOUSE BILL NO. 397 "An Act relating to the power to levy property taxes in second class cities." REPRESENTATIVE HARLEY OLBERG provided members with AMENDMENT 1 (Attachment 1). He explained that the amendment would allow second class cities to levy a 20 mill property tax. The current version allows a 30 mill levy to be raised. Representative Brown questioned the impact of CSHB 397 (FIN) on state revenues. She noted that second class cities would be allowed to tax the pipeline. Representative Parnell asked the impact of deleting the referendum requirement. JOHN WALSH, SPECIAL ASSISTANT, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS stated that the Department is neutral in regards to CSHB 397 (FIN). Representative Olberg observed that the referendum right is not currently being employed. Representative Grussendorf noted that second class cities could require a referendum vote under city ordinances. Mr. Walsh noted that second class cities would not be required to approve a tax increase by referendum. He agreed that the 2 option to require approval though a referendum would remain. Representative Hanley expressed concern that the legislation would take away the incentive to incorporate to a first class city. CRYSTAL SMITH, DIRECTOR OF MEMBER SERVICE, ALASKA MUNICIPAL LEAGUE stressed that only 37 out of 117 second class cities are large enough to incorporate to a first class city. There are approximately 10 second class cities with a population of 400 to 500. She clarified that only home rule municipalities operate with a charter. Other municipalities operate under general law statutes and adopted ordinances. She observed that only 3 second class cities collect any property tax. Sixty one second class cities collect sales tax. She asserted that a 5 mill limitation is inefficient to assess and collect property taxes. She added that a lot of property in second class cities is exempt from taxation. Representative Martin maintained that the deletion of "by referendum", as provided in amendment 1, would have a large impact on the rights of citizens. Ms. Smith noted that the Alaska Municipal League supports amendment 1. She pointed out that referendum elections are expensive to operate. She observed that most second class cities have a population of under 200. She maintained that local officials in small communities are well informed as to public opinion. Representative Brown observed that Delta Junction could obtain $312.0 thousand dollars through taxation of the pipeline. She asked if this would represent a loss to the state. Ms. Smith acknowledged that the amendment would allow second class cities to tax the pipeline up to 20 mills. She felt that it was unlikely that the full mill rate would be imposed. She pointed out that the local residents would have to pay the same mill rate. STEVE VAN SANT, STATE ASSESSOR, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS stated that there are only three second class cities that would have the possibility to tax the pipeline, Delta Junction, Glennallen and Copper Center. He observed that the pipeline is the only asset that could effect state revenues. CAROL COLLINS, STAFF, HOUSE FINANCE COMMITTEE clarified that Representative Hoffman MOVED to ADOPT AMENDMENT 1, during the 2/28/94 House Finance Committee hearing. She reviewed previous action taken by the Committee in regards to amendment 1. 3 Co-Chair MacLean asked for further clarification of section 2, amendment 1. She observed that section 2 would repeal statutes allowing incorporating second class cities to place a tax proposal on the incorporation ballot. Representative Hanley pointed out that the the statute being repealed states that second class cities "may" combine a property tax proposal with an incorporation referendum. Representative Olberg agreed with the deletion of section 2. Co-Chair MacLean MOVED to delete section 2, CSHB 397 (FIN). There being NO OBJECTION, it was so ordered. Representative Martin expressed concern that the amendment restricts the rights of citizens. Co-Chair Larson restated the main motion to adopt AMENDMENT 1. Representative Parnell OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Brown, Foster, Grussendorf, Hanley, Navarre, Therriault, MacLean, Larson OPPOSED: Martin, Parnell Representative Hoffman was not present for the vote. The MOTION PASSED (8-2). Co-Chair MacLean MOVED to report CSHB 397 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSSSHB 397 (FIN) was reported out of Committee with individual recommendations and with a zero fiscal note by the Department of Community and Regional Affairs, published 2/4/94.