SB 122-MUNICIPAL PROPERTY TAX EXEMPTION    The committee took a brief at-ease at 4:36:24 PM. 4:37:43 PM CHAIR OLSON announced the consideration of SB 122. SENATOR THOMAS said SB 122 is a simply a tool to allow -- it doesn't mandate [a municipal property tax exemption]. He said municipalities have applied it in various ways. [The bill provides] the opportunity to go from the existing $20,000 [exemption] up to the $100,000. "It can be based on a percentage of the property's values, and so it doesn't necessarily mean -- some have overreacted to its impact as what it would mean. Obviously it does cause a replacement in revenue in some cases and possibly the ability or the willingness to have to spread the burden for the cost of local government." Many complain that the cost of local government is on the backs of personal property owners. It has been several years since [the exemption] was adjusted, and when [an adjustment] last passed, he thinks it was unanimous. He said to keep an open mind. "Personal property tax folks are suffering from the high cost of energy." This is "a reasonable method of returning that responsibility to the various communities to allow that relief through a personal property tax exemption." 4:40:22 PM GRIER HOPKINS, Staff to Senator Thomas, said SB 122 gives municipalities the option of raising their residential property tax exemption from the current $20,000 to $100,000. It doesn't mandate any action by the municipalities. There are 12 boroughs that currently enact property taxes, and he supplied a list of the communities that use the exemption. SB 122 can be used to help offset high energy costs and increasing property tax assessments for homeowners. 4:41:49 PM SENATOR STEVENS asked if there is any cost to the state and the position of the Alaska Municipal League (AML). MR. HOPKINS said there is a letter of support from the AML. The cost to the state will be about $2 million because oil and gas infrastructure within municipal boundaries is charged a flat 20 mil rate. Fairbanks has TAPS [Trans Alaska Pipeline] running through it with a 14 mil rate going to the municipality and the remaining 6 going to the state. If Fairbanks raised the mil rate to 17, the state would only get 3 mils out of the 20. SENATOR STEVENS said he doesn't understand. SENATOR THOMAS restated it. SENATOR STEVENS asked if would cost the state $2 million. SENATOR THOMAS said he thinks it is larger than that. 4:44:50 PM CHAIR OLSON asked for the statewide estimates. JENNIFER YUHAS, Special Assistant, Fairbanks North Star Borough (FNSB), said if all municipalities with oil revenues implemented the maximum exemption, it would cost the state $2 million. There is a spread sheet prepared by the FNSB. She noted that SB 122 was requested by the borough. If a municipality adopts the exemption without implementing another form of revenue, the mil rate will increase as that burden is shifted to the other property owners. She provided a table showing every municipality enacting up to the $100,000 exemption. "We would not be creating a deficit where we would come back to the state looking for revenue sharing based on something here. We'd be making up the difference within our own community." If a community lies above the threshold for residential property, which is shown in the second column, "the revenue is made up by those above the threshold, non-residential property owners - meaning vacant lots and businesses, including small businesses -- and the mil rate increases because we've lost the other revenue stream." It would also apply to oil-based revenues, she explained. 4:46:49 PM SENATOR STEVENS said he doesn't like taking $2 million from the state, and asked her to find a way to deal with that. MR. YUHAS said $2 million is the greatest burden the state would suffer if every eligible municipality implemented the maximum exemption. STEVE VAN SANT, ASSESSOR, Department of Commerce, Community & Economic Development, said the amount was $3 million, which was a statewide worst-case scenario if every community that offers an exemption increased it to $100,000. It is difficult to calculate because some, like Kenai, offers a flat $20,000 exemption, and Anchorage offers a percentage up to $20,000. Valdez has a flat exemption. It is difficult to know what each municipality would do, so a worst-case scenario was provided. 4:48:28 PM CHAIR OLSON asked about Kodiak. MR. VAN SANT said only six municipalities offer the residential exemption: Bristol Bay, Kenai Peninsula, North Slope Borough, Valdez, Anchorage, and Fairbanks. The bill will shift the tax burden. In a small community where there aren't places to shift the tax, it doesn't make sense to implement a bill like this. Anchorage can shift taxes to its numerous commercial properties. The North Slope, Kenai, and Valdez can shift them to oil and gas businesses. Bristol Bay could shift taxation to fishery businesses. The others don't use the exemption now. 4:49:46 PM MS. YUHAS said SB 122 was requested to offset FNSB's rising energy and tax costs. Some residents purchased homes four years ago and didn't expect the energy burden and the increasing assessment value of those homes. CHAIR OLSON said if the exemption increases by five, it shifts the burden "to those other personal property tax owners that are out there and they've got rising costs as well." It concentrates the burden on a smaller cluster of people. MS. YUHAS said that happens if there is no other revenue stream. She expects that issue to arise during the local election. CHAIR OLSON asked about the public outcry. MS. YUHAS said it usually comes from small business associations and chambers of commerce. 4:51:34 PM MARTY MCGEE, Assessor, Municipality of Anchorage, expressed support. Any decision to shift taxes will be dealt with on a local basis. 4:52:11 PM LISA VON BARGEN, Director, Community and Economic Development, City of Valdez, said Valdez has not taken an official position, but "we are not anticipating shifting any burden at all, so we would not be adding additional mil rate … to the other taxpayers in our community." SENATOR STEVENS asked if she would oppose the bill. MS. VON BARGEN said she cannot speak for Valdez. Valdez now allows for the full $20,000 exemption, and [under SB 122] would be able to choose any level up to $100,000. But once legislation like this is passed it is difficult for a local official to say no to residents. Valdez won't shift the burden because commercial entities can't afford it any more than residents. "It puts our elected officials at a little bit between a rock and a hard place, but other than that, no." She then said the bill will allow for local communities to give tax relief. 4:54:30 PM CHAIR OLSON asked if she represents Valdez or not. MS. VON BARGEN said she does, but the council has not taken formal action in support of or against the bill. SENATOR STEVENS said he would like to hear from AML. SENATOR THOMAS said there is letter from AML dated April 20, 2007. "Actually we're just returning the right to the people, here, is what it amounts to. We're doing the people's business." 4:56:40 PM SENATOR WAGONER said he understands AML's stance, but he doesn't like the bill. He used to be a business property owner in Kenai, and he can speak for business owners in the area. They would not be happy if the bill passed and the borough increased the exemption to $100,000. "That puts an undue burden right on the back of the small business person." It is not easy to make a living as a small business in Alaska. Sometimes you can't give yourself a paycheck. The bill sponsor knows that. You can only put so many burdens on small business people. Wal-Mart and Safeway can afford it, but it will increase the tax burden on a small business with three or four employees and a substantial building. It's not necessary. 4:59:08 PM SENATOR THOMAS said the outcome is difficult to predict because each community will handle this differently, and those considerations will likely be taken in. The data show varying degrees of how it can be implemented. He understands Senator Wagoner's concern that the burden will automatically shift to one particular source. "I believe that there are a variety of sources." The woman from Valdez said they wouldn't be spreading it out. The reason for the bill is to spread the tax burden in a different fashion. MS. YUHAS said the council will not be able to act on their own; a municipality election is required. SENATOR WAGONER said he understands how the bill works. But when you give a person the opportunity to lower their property taxes and put money in their pocket, there's very little concern by that person about the person in the small business who's trying to make a living. The prices of services are going to go up, and one way or other, someone will pay. 5:01:42 PM SENATOR KOOKESH moved SB 122 from committee with individual recommendations and attached fiscal note(s). 5:02:02 PM SENATOR WAGONER objected. A roll call vote was taken. Senators Thomas, Kookesh, Stevens, and Olson voted in favor of SB 122 and Senator Wagoner voted against. Therefore SB 122 passed from committee.