HOUSE BILL NO. 200 "An Act relating to exemptions for municipal property taxes for certain primary residences; relating to property tax equivalency payments for certain residents; and providing for an effective date." EDDY JEANS, SCHOOL FINANCE MANAGER, DEPARTMENT OF EDUCATION stated that the department has concerns regarding CSHB 200 (C&RA). He discussed the full value determination. There are mandatory exemptions under Title 29 that do not count and some that do count in the full value determination. Mr. Jeans noted that the C&RA version amends AS 14.17.510(a): "However, the value of property exempted under AS 29.45.050(i) may not be included in the determination to the extent of the exemption." This would leave the level of exemption optional, to be determined by each community. He stated that the Department of Education objects to the exemption from the full value determination for the purpose of counting state aid under the foundation program. A different rule would be applied to each community. It would not reflect the community's ability to pay for their education services. The Department of Education applies the full value determination in determining each school district's local contribution rate. He suggested that parameters be placed on the exemption. If a community exempts $500 thousand dollars of property their assessed value would be reduced by this amount. Another community that has no exemptions would pay at a greater rate. The Department of Education is looking for a uniform application to determine the full value for foundation funding purposes. Representative J. Davies suggested the elimination of: "However, the value of property exempted under AS 29.45.050(i) may not be included in the determination to the extent of the exemption," to disentangle it from the question. Mr. Jeans explained that because the mandatory exemption would be converted to an optional exemption, the local option would be increased by approximately $6 million dollars statewide. The Community and Regional Affairs version would provide an assessed value for the purpose of calculating state aid. This would prevent an increase in the required local effort. The state assessor would provide two assessed values. The state assessor would do two assessments. Representative J. Davies summarized that if a community enacts a senior tax exemption their revenues would be reduced, but their state aid would increase. Mr. Jeans explained that if there were a tax exemption greater than the required $500 thousand dollars then their state aid to education would be increased by the amount that was exempted beyond the required $150 thousand dollars. (Tape Change, HFC 99 - 98, Side 2) Co-Chair Therriault clarified that the state aid to education would not be dollar for dollar. He summarized that the community would lose more in property tax values than they would gain in education support. Representative Moses asked why the total accessed value would change. Mr. Jeans explained that optional exemptions are included in the full value. He gave the example of boats and cars. The value of boats and cars are counted without consideration of local exemptions. STEVE VANSANT, STATE ASSESSOR, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS, ANCHORAGE provided the Committee with information. He explained that the value of personal property is determined from data supplied by the Division of Motor Vehicles. Each category of motor vehicle is assigned a value used in calculating the assessed value. Schedules are built on a per capita basis according to their location. In response to a question by Co-Chair Therriault, Mr. Vansant explained that, in Fairbanks, the real and personal property value is part of the full value determination that is used for the local contribution for school funding. He maintained that the full value should reflect everything that could be taxed if the community decides to tax. He noted that property that is optionally exempted under AS 29.45.050 is added back into the full value. Mandatory exemptions under AS 29.45.030, such as churches, schools, cemeteries, hospitals and senior citizens and disabled veterans property taxes are excluded from the full value determination. The legislation would move some mandatory exemptions to optional exemptions. He pointed out that moving from a mandatory to an optional exemption would cost local municipalities an additional $6 million dollars in the 4 mill equivalency. Co-Chair Therriault noted that the local dollar contribution is derived as a dollar amount. Communities that do not collect a tax end up paying more to make up the difference of the non-tax property. Mr. VanSant clarified that the full value determination does not affect the amount of tax on personal property. The full value determination is used in the calculation of local contribution for school aid. It does not affect the mill rate. He noted that no one in Fairbanks pays personal property tax. He observed that the tax burden in Mat-Su is shifted from the mom and pop operations to the larger chain businesses by the exemption of the first $250 thousand dollars of business inventory. In Fairbanks, the entire burden of personal property is shifted to the real property taxpayer. RICHARD BOUSE, DENAKKANAGA INCORPORATED, FAIRBANKS testified via teleconference. He expressed concerns on behalf of senior citizens that may have to pay property tax. He asked why the burden is being placed on the local entities. Co-Chair Therriault explained that it would be a local option. Mr. Bouse asked what would encourage local entities to continue the exemption. Vice-Chair Bunde questioned why the state would want to continue the exemption if local communities do not. Mr. Bouse stressed that the legislation would create hardships. He questioned what safety nets would be available to protect seniors. Vice-Chair Bunde pointed out that the state has been very generous to seniors. Mr. Bouse agreed but questioned what would happen to seniors as services are diminished. Co-Chair Therriault noted the difficulty of funding increasing costs. PAT BRANSON, DIRECTOR, SENIOR CITIZENS OF KODIAK, KODIAK testified via teleconference in opposition to the legislation. She stressed that the responsibility for assuring seniors an affordable place to live is being shifted to local communities. She maintained that shifting responsibilities without a long-range plan is not a fair way of maintaining seniors in the state. PAT CARLSON, ASSESSOR, KODIAK ISLAND BOROUGH spoke in support of the legislation. He stressed that it would allow local communities to tailor programs to the local needs of the communities. Representative G. Davis asked how much the state mandate would cost the city and borough of Kodiak. Mr. Carlson observed that they have an assessed value of approximately $23 million dollars against a $700 million dollar loan. The mill rate is 9.25. This generates approximately $200 thousand dollars a year. They collect about $6.8 million dollars. He concluded that the state mandate costs about 10 percent. JOSEPH CRAIG, KETCHIKAN testified via teleconference against the legislation. He emphasized that veterans are getting a strong message that their representatives are attempting to save funds that have not been funded to municipalities since 1985. He estimated that 500 veterans would be affected by the legislation. He maintained that the legislation would be a hardship on veterans. He asserted that pitting seniors and veterans against young voters would have severe consequences. JIM VAN HORN, KETCHIKAN GATEWAY BOROUGH testified via teleconference. He questioned how the legislation would affect the local ordinance. He acknowledged the affect of the unfunded mandate on cities. Co-Chair Therriault did not know if the local ordinance would have to be reevaluated. BOB WEINSTEIN, MAYOR, CITY OF KETCHIKAN testified via teleconference. He observed that there has not been overwhelming support to repeal the exemption. He pointed out that subsection (i) would need clarification or amendment in order for Ketchikan to continue the status quo, since they do not have a parallel ordinance. He suggested that consideration be given to require an election if the municipality wishes to change the status quo. He added that the local elected body address the issue. He observed that there are concerns that the switch from a mandatory to option exemption would cost those municipalities that have property tax an additional $6 million dollars in terms of state education aid. He questioned if the amendment to section 1 made in the House Community and Regional Affairs Committee would correct this situation. Co-Chair Therriault noted that the testimony indicated that the problem still needs to be addressed. Mr. Weinstein stressed that communities cannot afford to lose $6 million dollars in school aid. FREDERICK STIRN, MATSU testified via teleconference in opposition to the legislation. He maintained that he would have to sell his house if he had to pay an additional $100 dollars a month to pay for the tax. He observed that many seniors would have a hard time paying property tax. LORRAINE MONTGOMERY, MATSU testified via teleconference in opposition to HB 200. She noted that she only makes $700 dollars a month in social security and would lose her home if she had to pay property tax. MINNIE FISHER, MATSU testified via teleconference in opposition to HB 200. She noted that she is on a fixed income. ELLIS FALL, VALDEZ testified via teleconference against HB 200. He asserted that it is a bookkeeping problem. He stated that a lot of people could not afford to live without the exemption. He noted that expenses are going up. He maintained that mandates are needed because communities are greedy. KEVIN RICHIE, ALASKA MUNCIPAL LEAGUE, JUNEAU testified in support of HB 200. Municipalities want broad discretion to work with seniors and veterans to design exemption programs. He acknowledged that many people depend on the exemption. According to the state assessor, the average exemption is a little over $100 thousand dollars. The mandatory exemption is $150 thousand dollars. One option to slow down the exemption's cost is to lower the cap. Other options included a needs based exemption and the deferring of taxes. These could be mixed or matched in a variety of ways. The Alaska Municipal League has been discussing the issue for the last nine years. In 1997, the League expressed support for the concept by consensus. There are 140 members. Representative G. Davis asked the statewide impact. Mr. Richie noted that the statewide impact would be approximately $24 million dollars. Representative G. Davis asked if a community development fund would help. Mr. Richie stated that a community development fund would help. Representative J. Davies clarified that the $24 million dollar level is based on every community eliminating the exemption. Mr. Richie agreed and emphasized that no community has considered eliminating the exemption. The cost of the exemption has increased from $2 to $4 million dollars a year, as property values rise and the population ages. He stressed that the issue is containing the cost. According to the state assessor's tabulations the cost of the exemption has grown. The statewide cost of the exemption was $6 million dollars in 1990. In 1997, it was $20.3 million dollars and in 1999 it was $24.6 million dollars. Representative J. Davies questioned if there should be a mandatory requirement for an affirmative vote to retain the exemption or if existing ordinances should remain on the books unless changed by a vote. Mr. Richie stated that he could not speak to the issue. Co-Chair Therriault stated that passage of the legislation would not necessary override a local ordinance. If the state exemption were removed in communities with optional exemptions beyond the state level, they could be left with an exemption that only covered those at the higher level. Local governments may want to reconsider their exemptions. Representative Foster observed that Nome would be the only community with assessed property tax in his district. Mr. VanSant explained that the statewide property tax collection for 1998 was $359 million dollars. Representative Foster observed that the legislation would not affect Fairbanks because of their revenue cap. He asked whom it would affect. Mr. Richie stated that the legislation would be a tool for future use. Representative Williams questioned how seniors would rearrange their finances if they were not able to get the exemption. He asked if there are any federal laws that would prohibit the change. Mr. Richie reiterated that, to his knowledge, no municipality is planning to eliminate or severely reduce the exemption. He did not know of any federal prohibitions. Representative Williams questioned why the legislation was introduced. (Tape Change, HFC 99 - 99, Side 1) Co-Chair Therriault reiterated that the major concern is the increasing cost of the exemption. The exemption is estimated to cost $43 million dollars by the year 2005. State law mandates a shift of the tax burden to the local level. He observed that the value of senior housing is being paid by other taxpayers. Vice-Chair Bunde noted that the tax burden is shifted in communities that support the exemption. He spoke in support of allowing local communities to decide. Representative Foster recalled that in 1996 up to 60 percent of the assessed value was exempt in Nome. He questioned if the Alaska Municipal League has considered other options for raising revenues. Mr. Ritchie stated that the Alaska Municipal League has considered other solutions. GARY BERRY, AMERICAN LEGION, JUNEAU spoke in support of disabled veterans. He referred to section 4, line 25. He stressed that the legislation would create problems for disabled veterans if it were passed. There are 500 disabled veterans in Alaska. Representative Moses asked if Mr. Berry would support a program that would apply the property tax against the value of the property on an equity basis. Mr. Berry stated he would not support the tax being applied to the property after the veteran is deceased. GEERALD DORSHER, VETERANS OF FOREIGN WARS, JUNEAU spoke in support of retaining the exemption for disabled veterans. He maintained that loss of the exemption would be disastrous to veterans. Many disabled veterans are on fixed incomes. He maintained that veterans could lose their homes. Vice-Chair Bunde agreed that it would be disastrous for disabled veterans to lose their homes. He felt that local communities would retain the exemption. Mr. Dorsher noted that there is no assumption that the exemption would be removed. He emphasized that veterans desire the small break that can be given to them. Co-Chair Therriault noted that the Fairbanks North Star Borough passed a resolution requesting that local option be given. The resolution specifically requested that the option be given on the senior citizen provision. The disabled veterans' exemption would be continued. If the senior citizen exemption becomes optional the mayor of Fairbanks indicated that a ballot issue would be offered to allow a needs based exemption for senior citizens. PEGGY MULLIGAN, AMERICAN ASSOCIATION OF RETIRED PERSONS, JUNEAU testified in opposition to the legislation. She suggested that the bill be held. She found it hard to believe that municipalities would not consider the exemption in light of reductions to municipal assistance and revenue sharing. She spoke in support of reinstitution of an income tax. She has been in the state since 1947. She emphasized the fear of seniors that they will not be able to afford to stay in her their homes. MARIE DARLING, LEGISLATIVE CHAIR, RETIRED FEDERAL EMPLOYEES OF ALASKA, JUNEAU spoke against HB 200. She acknowledged the difficulty of municipalities to handle the unfunded mandate. She recommended that the legislation be held. There are over 6,000 retired federal employees in the state. ROSALEE T. WALKER, JUNEAU spoke against the legislation. She agreed that the legislation should be held. She observed that the intent of the original statute was for the state to reimburse municipalities for the exemption. She maintained that local communities would delete the exemption. She emphasized the increase in property values and noted that her house increased in value from $18 thousand dollars to $300 thousand dollars. Representative Foster noted the lack of testimony by mayors and stressed that it is easier for the mayors to place the legislature on the hot seat. HB 200 was heard and HELD in Committee for further consideration.