SB 20 ALASKA MUNICIPAL BASIC SERVICES PROGRAM Number 400 CHAIRMAN TORGERSON brought up SB 20 as the next order of business. The committee began by hearing an overview by the Alaska Municipal League (AML). The chairman stated that SB 20 is an attempt to rewrite the municipal assistance and revenue sharing programs that the State of Alaska has in place. The original intent of the bill was to come up with a creative formula that all the municipalities in the State of Alaska would think was a wonderful thing. Over the years, that hasn't been achieved without creating winners and losers. The intent is to prioritize services deemed necessary, which the state will reimburse municipalities for performing. The state will reimburse for mandated services. We will do this without actually changing much of the formula. The formula is maintained the same. There will be some changes in allocation of funds, because we are raising the minimum entitlement up to $40,000. Number 415 SENATOR KELLY asked if there is a fiscal note for SB 20. CHAIRMAN TORGERSON responded there is not a fiscal note for SB 20. We are making the changes within the funds appropriated to municipal assistance and revenue sharing. There is a spreadsheet in members' bill packets showing that. He has asked the AML to give approximately a 15 minute overview of how things are now, and how SB 20 would change things. JOE MURDY, Alaska Municipal League President, Anchorage Assembly Member, thanked Chairman Torgerson for his work on SB 20. Mr. Murdy introduced Mayor Tom Green, Vice-President of the Alaska Conference of Mayors. Mr. Murdy stated that Mayor Mystrom of the Municipality of Anchorage, President of the Alaska Conference of Mayors, was not able to attend, but he sends his greetings and urges support of SB 20. Mr. Murdy noted that a letter from Mayor Mystrom had been distributed to committee members. Other members of the Alaska Conference of Mayors assisting in the presentation were: Mayor Dennis Egan of the City & Borough of Juneau, George Weurtz, Assembly member from the Municipality of Anchorage and Co- Chairperson of the AML Legislative Committee, Drew Scalzi, President of the Kenai Peninsula Borough Assembly, Kevin Ritchie, Executive Director of the AML, and Tom Greene, Mayor of Nondalton, Vice President of the Alaska Conference of Mayors, and 1st Vice President of the AML. Other municipal officials were on-line via teleconference to offer comments and support, as well as in the audience today. Between the AML and the Conference of Mayors, the group represents over 135 municipalities, and over 95 percent of Alaska's population. The issue in SB 20 is fully supported by the members of both groups. Most of the concepts in SB 20 were proposed by a committee of the Alaska Conference of Mayors. Number 468 MAYOR DENNIS EGAN, City & Borough of Juneau, stated SB 20 is a critical goal of both state and local governments. The safe communities fund legislation is one of the first steps in what will be a long process to create stability in taxation and services for citizens. Mayor Egan explained some charts which give an overview of the partnership between state and local governments in providing services. The first chart shows that municipal budgets together, are approximately the same size as the state operating budget. The main overlap is the provision of education services, which is a constitutionally mandated responsibility of state government, but is largely administered on the local level. The second and third charts show an overview of state and local government services. Please note that a large number of the state services overlap with the services of local governments, for example: public safety, transportation, health and social services, and education. These charts show that there is no clear distinction between the state and local responsibilities. The fourth chart shows how state and local government is paid for in Alaska. People who assert that Alaska has very few or no personal taxes are clearly wrong. Alaska funds over 40 percent of it's services from personal taxes and fees, and the vast majority of those are collected by local governments. Alaska's fiscal crisis is the wedge of the pie chart marked "state reserves, 10 percent." He added that although Alaska's municipalities are proud of our role in supporting Alaska's budget, we have been given little choice in the matter. Number 508 MAYOR EGAN stated that since 1986, when oil revenues began decreasing, the state has cut municipal assistance and revenue sharing by over 60 percent, without generation of new revenue by the state nor significantly decreasing the overall dollar amount of its' budget. He noted that the State of Alaska and municipalities share the same citizens. It simply doesn't matter whether a tax or a fee is a local tax or fee, or a state tax or fee: the cost is still the same to our citizens. However, how taxes and fees are structured may be of critical importance to all taxpayers in terms of equity and affordability. If the State of Alaska continues to ignore the impact of its actions on local services and local taxes, our ability to offer safe communities to our citizens will be threatened. We believe that rebuilding the relationship between the state and local governments is absolutely critical. The framers of the state constitution felt so strongly about the future relationship between state and local governments, it specified that there must be a local government agency in the executive branch. This is the only executive branch agency specified in the constitution. He asks that it be remembered that cutting revenue sharing is not cutting the state budget, it is a new sales tax or property tax increase to the taxpayers of Alaska, and should be represented to the public as such. Number 532 SENATOR RANDY PHILLIPS commented that Hillside people would debate the question that services provided by troopers and city police are indistinguishable. MAYOR EGAN replied that there are some situations like that. He thinks that if there was a debate like that in Juneau, they would finally distinguish between troopers and city police. There is only one trooper in Juneau anyway. Number 539 SENATOR KELLY asked how much state money Juneau has received for schools between 1986 and 1996. MAYOR EGAN responded that there has been no percentage increase in that period. SENATOR KELLY asked if Juneau was not receiving more money today. MAYOR EGAN replied Juneau is receiving more money, but the population has gone up a tremendous amount. SENATOR KELLY said the Conference of Mayors has good numbers on revenue sharing, and he asked if the conference has any numbers on education funding. He doesn't discriminate between education and road service at the local level. He asked how much money Juneau has received for education, on a percentage basis, since 1986. MAYOR EGAN responded that he didn't have that information in front of him, but he would get those figures for Senator Kelly. He pointed out that the local school district's budget is $40,000,000, and over 50 percent of that comes from local tax payers. SENATOR KELLY asked then if half came from the state. MAYOR EGAN replied that it comes from the state and from the federal government. 5.8 mills of property tax increases were due directly to decreases in state shared revenue and municipal assistance. SENATOR KELLY stated he is trying to make the point that there has been a tremendous increase in the amount of money that the state has sent to municipalities to fund education. The state considers that as one pot of money. Mayor Egan would like to differentiate between municipal revenue sharing and education. The state thinks education funding is also assisting local governments. That is his point. Number 560 GEORGE WEURTZ, Assembly Member, Anchorage Municipal Assembly, commented that the education issue is a dispute whether it is added up as local or state. According to the state constitution, education is a state responsibility. As the state becomes increasingly concerned with finding ways to balance its own budget, shifting more budget problems to local taxpayers increases. The governor's proposed budget for this year includes direct cuts estimated to be in excess of $15,000,000. In addition to the 8% cuts to municipal assistance and revenue sharing, there are direct cuts to school transportation, elimination of funding for the state senior citizen tax, and cuts to many other programs. Mr. Weurtz itemized some of the cuts. He contended that little or no consideration has been given by the state to the escalating and cumulative effects of these cuts on local taxes and local public services. He thinks SB 20 is a good step in the direction of a win-win solution for everyone. SENATOR RANDY PHILLIPS asked, regarding the language on page 4, line 17--[end of Side A] TAPE 96-6, SIDE B --communities, versus municipal assistance; isn't it the same cat, only a different color? MR. WEURTZ responded that the issue is the priority of where the money needs to be spent. These dollars are focused on the functions that create a safe community for our citizens. CHAIRMAN TORGERSON informed Senator Phillips that there would be a presentation on that subject by DCRA that will explain in more detail what we're doing. Number 582 SENATOR HOFFMAN stated, "The problem that I see is that that was the governor's proposed cuts, and [interference] even further cuts and those haven't been delineated by the budget subcommittees yet, but it is my vision that what's going to happen is we're going to see substantially higher cuts than what the governor asked from this legislature." MR. WEURTZ responded that is a point they're aware of and concerned about. SB 20 brings us to the table to talk about equity and fairness. Number 575 SENATOR ZHAROFF stated that his concern is that as communities dissolve, services will still be needed, and somebody is going to have to provide services. CHAIRMAN TORGERSON stated that is the main driving force behind raising the minimum entitlement up to $40,000, in order to try to shore up some of the communities that have been prorated down by cuts. It should be higher, but what we're trying to do by changing this formula is take the money out of existing communities. So we're taking money out of tax-base communities. This approach has the support of all the mayors and the assemblies. They recognize that if we don't shore up local governments in rural Alaska, we're not going to have local governments in rural Alaska. Number 562 DREW SCALZI, President, Kenai Peninsula Borough Assembly, stated SB 20 is about stabilization. The state and municipalities need to get revenues and expenditures stabilized in order to have safe and prosperous communities. Mr. Scalzi explained three charts to the committee: the first one illustrates how we fared; the second chart gives proof of the correlation between local sales and property tax increases and municipal assistance and revenue sharing; the third chart illustrates the history of funding for municipal assistance and revenue sharing programs. Sharing revenues with municipalities is done in all 50 states, and Alaska is below the average in the western states, even if one considers the education funding as part of the revenue sharing. The major advantage of municipal assistance and revenue sharing is that it gives municipalities their share of Alaska's oil wealth without strings and the high administrative costs, like most other state and federal programs. However, the same flexibility is a disadvantage to municipalities, which is a factor in determining why it has been cut so much. Number 530 KEVIN RITCHIE, Executive Director, Alaska Municipal League, stated that SB 20 would make six major changes: 1) change the name municipal assistance to safe communities; 2) tie funding to safe community types of issues; 3) the minimum entitlement for incorporated communities would be set at $40,000; 4) the program retains the former allocation formulas, but allows for a more equitable proration; 5) funding will be distributed on July 31; 6) only six communities would actually receive less funding if a decrease in revenue sharing occurred. MR. RITCHIE stated that the Alaska Municipal League and the Alaska Conference of Mayors view SB 20 as a good first step in building a revenue-sharing program that will continue to evolve and improve. Number 485 MAYOR THOMAS GREENE, City of Nondalton, stated that municipal governments have always been the leaders in finding creative ways to meet community needs. A survey of members conducted by the AML and the Alaska Conference of Mayors showed that all but two communities responding reported significant service cuts and or tax increases. Mayor Greene related some of the remarks from communities. He stated that passing SB 20 will cost the state almost nothing, but it will be an important step in improving the process and ensuring accountability of funds. Number 408 JUDITH SLAJER, Chief Financial Officer, Fairbanks North Star Borough, testifying from Fairbanks, stated she was speaking on behalf of the Mayor Jim Sampson. Ms. Slajer stated that the Fairbanks North Star Borough supports SB 20. CHAIRMAN TORGERSON asked Ms. Slajer to put the borough's support in writing and submit that to the committee. Number 390 PATRICK COLE, Mayor's Staff, City of Fairbanks, stated he was representing the Mayor. He stated that the city supports SB 20. CHAIRMAN TORGERSON informed everyone that SB 20 will not be passed out of committee today, because not everyone has had a chance to review it yet. It will probably be held for a week. Number 382 LAMAR COTTEN, Deputy Commissioner, Department of Community & Regional Affairs (DCRA), stated that the department supports SB 20. DCRA sees three essential features of SB 20: 1) no longer holding harmless the base amount; 2) a minimum grant of $40,000; 3) the funds would be distributed in July, instead of February. CHAIRMAN TORGERSON asked DC&RA to explain the spreadsheet distributed to committee members. The intent of the spreadsheet is to show last years' funding levels, what the hold-harmless is, and the effect of removing the hold-harmless. Number 340 BILL ROLFZEN, Division of Municipal & Regional Assistance, Department of Community & Regional Affairs, explained the spreadsheets distributed to the committee. SENATOR KELLY asked if, under the current system, everyone would get a check for the third column amount in February. MR. ROLFZEN responded that is not correct. The first column, the revenue sharing payments, go out on July 31 of each fiscal year. The municipal assistance payments, the second column, go out February 1. CHAIRMAN TORGERSON stated that under SB 20, those payments would be lumped together, because we're consolidating the program. SENATOR KELLY asked if the state has currently been adding that interest revenue on their own books. CHAIRMAN TORGERSON responded, more than likely. SENATOR KELLY commented that if it is a plus here, it's got to be a minus somewhere else. CHAIRMAN TORGERSON replied he is sure it would be. He asked how much money that would be. MR. ROLFZEN responded the municipal assistance distribution this year was $31,900,000. CHAIRMAN TORGERSON asked how much revenue sharing was. MR. ROLFZEN responded it was approximately $26,000,000. CHAIRMAN TORGERSON thinks that interest revenue would probably be in the fiscal note from the department, when those become available. DC&RA staff responded that it would be roughly in the neighborhood of $600,000. CHAIRMAN TORGERSON noted that amount would only be for a yearly basis, when we're referring to a six-month period. So he doesn't think it will be that high. However, Senator Kelly is correct in that there will be some impact somewhere. There was a discussion on how accrual of interest would possibly affect the amount of money available. Number 264 SENATOR ZHAROFF asked about communities not included. MR. COTTEN responded that Metlakatla participates in the revenue sharing program as an unincorporated community, but they participate in the municipal assistance program as a municipality. That's why they're not included in the general spreadsheet. Egegik, based on the date of incorporation, was not eligible for the FY 96 revenue sharing program but was eligible for the FY 96 municipal assistance program. It is noted that there is an attempt to take care of Metlakatla's problem through other legislation. MR. ROLFZEN stated that under SB 20, all of the municipal assistance money will now have to be spent on priority public services, whereas in the past, it could be spent by the municipality for any public purpose for which they were legally authorized to spend funds. This bill does not tinker with the revenue sharing formula. It would take about 60% of the total money and designate it for specific public services. CHAIRMAN TORGERSON notes the existence of another spreadsheet listing the hold-harmless portion, and how that is applied. The chairman called Representative Long to testify. Number 205 REPRESENTATIVE DON LONG, former mayor of Barrow and president of the AML, stated he spent most of the last year working on this subject. Currently, small communities are unincorporating because there is no support from the state. Citizens of small communities need support, just as do people of larger communities. He had no specific statement to make relating to SB 20 at this time. DONALD MOORE, Manager, Matanuska-Susitna Borough, stated he is conveying support from the borough and Mayor Lacher for SB 20. Right now, revenue sharing and municipal assistance is at about the same level as it was in the late 1970's. The guessing game that goes on from year to year is as much a hazard to us as the decline, so we appreciate the work that's gone into the development of this formula and this proposal. CHAIRMAN TORGERSON, seeing that there was no further testimony, stated that SB 20 would be held in order to receive further comment.