HOUSE BILL NO. 67 "An Act relating to an optional exemption from municipal property taxes on certain residences of law enforcement officers." Vice Chair Stoltze MOVED to ADOPT the work draft for HB 67, labeled 25-LS-0314\F, Cook, 4/10/07. There being NO OBJECTION, it was so ordered. 1:48:44 PM SUZANNE CUNNINGHAM, STAFF, REPRESENTATIVE MEYER, explained the three major changes to HB 67 depicted in the new CS. Section 1 provides that property of a private, nonprofit four-year college is also exempt from taxation except for cases when there is a private lessor of the property. This treatment is consistent with the way the University of Alaska is treated. 1:49:10 PM Ms. Cunningham explained that Section 2 was added by request and provides for an optional tax exemption for fraternal society orders or associations. Section 3 was worked on by Representative Gruenberg's office and addresses previous concerns raised by Representative Gara. NORMAN COHEN, STAFF, REPRESENTATIVE MAX GRUENBERG, explained the changes to Section 3. He pointed to a change on page 4, which limits a parcel owned by a law enforcement officer to one exemption. If two or more individuals own the parcel, the exemption depends on the percentage owned by the law enforcement officer. The individuals can decide between themselves how the exemption is distributed. Other changes were made to give municipalities more discretion in how they decide which area is to be tax exempt. Municipalities can also decide which law enforcement officers are eligible for the exemption. Mr. Cohen referred to page 4, lines 13 and 14, which gives the municipality the ability to place additional criteria when determining which areas to include for the exemption and how large to make them. 1:54:27 PM Representative Hawker referred to Section 1 and asked which property tax payers would benefit from the proposed change. Ms. Cunningham listed Alaska Pacific University (APU) and Sheldon Jackson College. Representative Hawker wondered how much monetary relief they would be receiving. Ms. Cunningham explained that under AS 29.45.030 there is a property tax exemption for property used exclusively for nonprofit, religious, charitable, cemetery, hospital, or educational purposes. The new language clarifies that if the property of four-year, private, nonprofit institutions is leased, the lessor is liable for municipal property tax. Representative Hawker inquired if the taxing authority would have to make up for waived taxes. He wondered if the liability would then fall upon other taxpayers of the community. Ms. Cunningham referred to a section under the mandatory property tax exemption that allows the municipality to seek revenue from the state. Representative Hawker expressed interest in knowing the amount of the potential lost revenue by allowing Sheldon Jackson and APU to be tax exempt. Co-Chair Meyer asked if this is a local option. REPRESENTATIVE MAX GRUENBERG, co-sponsor, reported that Section 1 was not optional. 1:58:05 PM Representative Crawford wondered about the impact on Wayland Baptist University in his district. He asked about the effect of this legislation on the property tax cap. MIKE BLACK, DIRECTOR, COMMUNITY ADVOCACY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, explained that if a class of property tax is removed, the balance of revenue needing to be generated would be passed on to other taxpayers in Anchorage. He thought that there was no state reimbursement to make up for the loss. He said there would be no effect on the municipal tax cap. Representative Hawker requested a dollar amount. Mr. Black related that some university-owned vacant properties would be removed from the tax roll. He could not state a dollar amount. Representative Hawker wondered about the relationship between vacant property and Alaska Pacific University (APU). Mr. Black reported that the properties are held in title by APU, although they are not attached to the campus. HARRY MCDONALD, BOARD OF TRUSTEES, ALASKA PACIFIC UNIVERSITY, clarified that no tax has ever been paid on those properties. Representative Hawker asked by what authority APU has been exempt. DOUG NORTH, PRESIDENT, ALASKA PACIFIC UNIVERSITY, explained the university's 501(c)3 status as a non-profit educational institution from 1959 until 2005. 2:03:08 PM BOB MINZ, TRUSTEE, ALASKA PACIFIC UNIVERSITY, added that there is a provision in state law whereby an entity that has never paid tax, is excluded from having to pay. Representative Hawker asked why this bill is needed. Bob Minz replied that in 2006 the municipal assessor changed the interpretation. Representative Hawker asked what the change in interpretation was. Mr. Minz responded that in 2006 and 2007 the municipality decided that APU property was taxable. Representative Hawker asked how much money was involved. Mr. Minz replied that the 2006 taxes are in dispute. A clarification of state law would solve the problem. 2:05:13 PM Representative Gruenberg inquired if the Mat-Su property was left in trust. Mr. Minz replied said he is not sure which property is being referred to. Representative Gruenberg clarified that he is referring to a homestead that was left to the university. Mr. Minz related that APU only leases that property. Representative Gruenberg concluded it would not be covered by the bill. Mr. Minz said that is correct. Representative Gruenberg questioned about a specific piece of APU property that is being rented out. Mr. Minz replied that in 2007 the tax exemption for the Spine Institute building was withdrawn while the remaining exemptions were continued. 2:07:03 PM Co-Chair Chenault asked if University of Alaska (UA) land is involved. Ms. Cunningham said the provisions pertaining to UA lands are untouched by this legislation. Co-Chair Chenault asked if it would be optional for municipalities to allow exemptions. Ms. Cunningham said that Section 2 of the bill is optional. Co-Chair Chenault referred to a letter from Shane Horan (copy on file) voicing concern about exemptions for UA leasehold interests and fraternal orders. Co-Chair Chenault declared a conflict of interest stating that he is a member of Moose and Elks clubs. Co-Chair Chenault voiced concern about pressure on municipalities regarding exemptions. He questioned if the time is right. He pointed out that it would cost the Kenai Borough $25,000 for the exemptions. He stated concern about exempting properties at a time of budget tightening. He agreed with the police officer exemption. 2:11:23 PM Co-Chair Meyer noted that the amendments regarding the fraternal orders were proposed in another committee. Vice Chair Stoltze addressed the appropriateness of those exemptions. He pointed out that fraternal orders often function as community centers. He expressed comfort with the optional exemptions. Representative Gara pointed out that there are hundreds of good reasons for property tax exemptions. He noted on page 2, line 22, property used exclusively for nonprofit religious, charitable, cemetery, hospital, and educational purposes are already exempted. He spoke in favor of those exemptions as well as college property exemptions. He questioned the need for Section 2 and wondered why current law is not adequate. 2:17:14 PM Mr. North explained the curricular relationship between APU and the Spine Institute, which leases their property. He spoke to the current exemptions for AU and APU. The question is how to level the playing field among the various colleges and universities in the state. Representative Gara spoke highly of APU, however, he questioned the favoritism of one group of doctors over another regarding taxes. Mr. McDonald explained how APU operating costs are handled. He clarified that the doctors are not getting the tax break, the university is. Mr. North added that the amount is $200,000 per year. 2:20:26 PM Ms. Cunningham addressed Representative Gara's concern. Page 1 outlines properties that are exempt from property tax. Subparagraph (a) states that the properties are exempt from taxation except that a privately sold contract or other interest in the property is taxable to the extent of the interest. That language was included at the request of the municipal attorney's office so that a lessor would be liable for tax purposes. Representative Gruenberg added that the Spine Institute is not tax free. He asked what the educational relationship is between APU and the Spine Institute. Mr. North described the internship relationship, curriculum, and adjunct recruitment. He referred to an educational agreement between the Spine Institute and APU (copy on file.) Representative Gara clarified that the doctors pay municipal business tax and state corporate tax. He concluded that currently the building would be taxed unless the law is changed. Mr. Minz reported that currently there is a dispute with APU as to whether that property should be taxed. 2:24:35 PM Representative Hawker questioned exemptions for fraternal orders and maintained that voters should have a chance to voice an opinion. He stated concern about the assembly changing taxes without the voice of the people. He suggested language to allow voters to have a say. Vice Chair Stoltze thought that was a reasonable request. 2:26:37 PM Representative Gruenberg said he would accept a friendly amendment to that effect. Co-Chair Chenault also agreed. Representative Hawker clarified that his concern is only with Section 2. Representative Hawker MOVED to ADOPT Conceptual Amendment #1: ADD to Section 2. Incorporate language similar to that found in Sec. 29.45.050(a) A municipality may exclude or exempt or partially exempt residential property from taxation by ordinance ratified by the voters at an election. This would incorporate the concept into the exemption taxation of the property of a fraternal society, order, or association that is exempt from federal taxes. Vice Chair Stoltze OBJECTED. Representative Hawker clarified "an election" would allow the municipality to decide which election. 2:29:36 PM Representative Gara pointed out that charitable organizations are exempt already. This amendment applies to organizations that wish to exempt non-charitable-use property. He maintained that the issue is not clear. Vice Chair Stoltze WITHDREW his OBJECTION. Conceptual Amendment #1 was ADOPTED. Representative Gruenberg stated a conflict of interest in that he is a member of the Lions' Club. Co-Chair Meyer noted a zero fiscal note by the Department of Commerce, Community and Economic Development. 2:32:58 PM Representative Hawker reported reservations about imposing unfunded mandates on municipalities. He agreed with Representative Gara's concern regarding exemptions for commercial enterprises. He said he would have to vote against the bill because he is against additional property tax in Anchorage. 2:34:35 PM Representative Gara spoke to properties used by religious groups. He objected to Section 2, which would expand that exemption to properties used for profit by religious groups. He stated no support for Section 2 of the bill. Co-Chair Meyer summarized that that would be true only after voter approval. Representative Gruenberg thought Section 2 would not cover the shopping center idea because commercial use is not one of the six items listed there. Representative Gara agreed. 2:36:29 PM Vice Chair Stoltze MOVED to REPORT CSHB 67 (FIN), as amended, out of Committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 67 (FIN) was REPORTED out of Committee with a "no recommendation" and with zero fiscal note #1 by the Department of Commerce, Community and Economic Development. 2:38:03 PM