CHAIRMAN RANDY PHILLIPS introduced SB 102 (MUNICIPAL PROPERTY TAX EXEMPTIONS) as the first order of business. Number 015 SENATOR JAY KERTTULA said the state has sufficient income, and as long as the state does have sufficient income, we shouldn't be taking from the senior programs. If it becomes necessary to do so, then it should be done in the same manner and not exceeding the percentage of other programs, including the operating of general government. Senator Kerttula voiced his concern with statements that have been made by the Alaska Municipal League on SB 102. He said the seniors don't draw on municipal services; the primary costs to the municipalities is the schools. Senator Kerttula believes it is fair to consider giving a senior citizen property tax reduction, both at the borough and at the state level. He said seniors do not have the costs to the boroughs that the ordinary family or does. However, seniors do put a lot of money into the state just through normal living expenditures. Senator Kerttula stated he believes that overall it is a big mistake to change this program. He said the state gives the municipalities revenue sharing, municipal services and other funds from this state to help offset whatever they may do for the seniors and their property contributions at the local level. Number 088 CHAIRMAN PHILLIPS said state statute says the program has to be funded at $9 million, yet the legislature, year after year only funds one-third of it. He said he has a real problem: either the commitment is there or its not. SENATOR KERTTULA said local governments don't consider seniors particularly important and they aren't going to provide the benefits at the local level unless they have to and it is mandated. He said it would be fairer perhaps if it were funded totally, but if we don't fund it fully, it is not so unfair that they pay the difference for the reason he stated. Seniors don't draw on the programs that cost local government, i.e., schools. Number 155 BRUCE GERAGHTY, Deputy Commissioner, Department of Community and Regional Affairs, directed attention to the Governor's transmittal letter, which states that due to declining revenues, it has become apparent over the past several years that the state can no longer afford to fully pay for the municipal reimbursement program for the mandatory senior citizens or disabled veterans property tax exemption. As a result, municipalities have not been reimbursed in full for the tax revenues lost through the mandatory property tax exemptions. SB 102 will allow municipalities to decide whether they wish to exempt such property from taxation in whole or in part. If they choose to exempt the property, they will lose tax revenue, but that decision will be up to the individual municipality and will not be mandated by the state. Mr. Geraghty pointed out that the total reimbursements to municipalities for calendar year 1992 would have been $13.6 million. The legislature funded the program at $2.8 million, which amounts to about 20 percent of the total funding. He added that the legislature funds the renters rebate program at about 85 percent, which is a little over $800,000. Number 195 CHAIRMAN PHILLIPS asked for an explanation of the January 1, 1993 effective date. BRUCE GERAGHTY answered there was discussion on whether they make this effective on January 1, 1994, and they determined there wasn't a lot of difference between making it retroactive to this year. They have received applications for this year, and, unless the legislature so determines to put money into the fund this year, the program will go unfunded in FY 94. Mr. Geraghty said since the original bill was introduced, in discussions with the Department of Law, it was determined that Section 1 is not necessary and they are proposing that it be deleted in a committee substitute. Number 218 CHAIRMAN PHILLIPS asked if disabled veterans were taken out of the bill, how much money and people would that involve. BRUCE GERAGHTY responded that he didn't have the exact figures, but his understanding was that the disabled veterans are a small portion of the program. CHAIRMAN PHILLIPS requested that he be provided that breakdown. Number 235 KENT SWISHER, Alaska Municipal League, stated the League's support for SB 102, but added that they are requesting a couple of minor changes in the bill. Mr. Swisher noted that when the program started out it was a very small program. However, now it is a great big program and it is an expensive program, both in terms of the state and its obligation, largely unfunded, and the municipalities and their contributions to this program. There is approximately $10 million a year in terms of funding shortfall. He said that's a large enough number to be a significant problem, especially when it is coupled with the decline over the last few years of municipal assistance and revenue sharing. Mr. Swisher outlined three suggested changes to SB 102: (1) require that any local property tax relief program for senior citizens and disabled veterans be approved by the voters; (2) allow locally established property tax relief programs to grant deferments on property taxes as well as exemptions; and (3) exempt the value of property optionally exempted under a local program to provide tax relief for senior citizens and disabled veterans from the full and true value determination prepared by the Department of Community & Regional Affairs, which is a determining factor in the level of funding under the education foundation and the state revenue sharing programs. Mr. Swisher said the municipalities strongly feel these exemptions are decisions that should be made locally. They are not insensitive to the concerns of senior citizens, but it is necessary to balance whether this exemption is most helpful to seniors who may be struggling or perhaps to the younger family who may also be struggling. He suggested that perhaps, as public policy, the question of need should at least be considered. Number 290 Addressing the amendments proposed by the League, BRUCE GERAGHTY said they think the municipalities can already deal with the requirement for an election to approve the ordinance. He said he wasn't quite sure that access to a deferral system isn't already available. There is nothing that says municipalities can't institute a deferral system. The department prefers that the municipalities have as much flexibility as possible. Speaking to the third amendment to remove it from the tax rolls, Mr. Geraghty said the state tax assessor has brought that up, and he thinks that it is a matter of it being in the proper location to exempt so it doesn't affect the education formula. He added that he would get more information on the issue. SENATOR TAYLOR commented that it was his understanding local communities are not allowed to exempt property from that calculation. He believes that a program should be based upon what a tax mill generates in a community, not what the department calculates a community being capable of generating. He said it raises a policy issue that needs to be resolved because there are many communities where the department doesn't have a tax base. Furthermore, he would be very hesitant to provide an additional exemption as suggested by Mr. Swisher, because that exemption might very well be abused. Number 350 CONNIE SIPE, Executive Director, Older Alaskans Commission, explained that the Commission has not yet taken an official position on SB 102, although they have been discussing it and have some concerns with it. Ms. Sipe said she always thought that under the old system there was some exemption from ad valorem value at either revenue sharing or school taxation for these exempted properties so that the municipalities did have some benefit despite the fact that they weren't fully reimbursed by the state. Ms. Sipe noted that seniors have also raised the same concern as addressed by Senator Taylor about the fairness between the communities. Concluding, Ms. Sipe said seniors would like some consideration of something like the deferral system, or if it is going to go to local option, perhaps the state could preserve a mandatory hardship level and have it defined so that it would be fair between cities. She added that 30 percent of seniors have incomes below $15,000 and that includes their longevity bonus and permanent fund dividend. Number 395 CHAIRMAN RANDY PHILLIPS requested that the Older Alaskans Commission provide the committee with any recommended changes. He stated SB 102 would be back before the committee the following Thursday.