HB 411-MUNI TAX EXEMPT/DEFER; ECON DEVELOPMENT  3:30:52 PM CHAIR HUGHES announced the consideration of CS FOR HOUSE BILL NO. 411(CRA) "An Act relating to municipal economic development; relating to municipal tax exemptions and deferrals on economic development property; and relating to economic development." 3:31:15 PM REPRESENTATIVE CALVIN SCHRAGE, Alaska State Legislature, Juneau, Alaska, presented HB 411 as co-chair of the House Community and Regional Affairs Committee. He explained that the bill came about when residents from the Girdwood area brought forward a concern that an economic development bill that passed several years ago did not include service areas. HB 411 amends the statute to allow special services areas to take part in economic development programs, but they could opt out if they thought such projects would have a negative effect. The bill also addresses two concerns his office heard this year from the Fairbanks area. One, it allows a borough and municipality within that borough to work together to use federal funds for economic development. Second, the bill broadens the definition of "economic development to allow local areas to define that term to meet the local needs. 3:34:52 PM SENATOR GRAY-JACKSON asked whether HB 411 would apply to all types of service areas REPRESENTATIVE SCHRAGE deferred the question to Ryan Johnston. 3:35:14 PM RYAN JOHNSTON, Staff, Representative Calvin Schrage, Alaska State Legislature, Juneau, Alaska, answered that HB 411 applies to all service areas that have appointed or elected boards. MR. JOHNSTON presented the sectional analysis for HB 411 that read as follows: [Original punctuation provided.] Section 1: Amends AS 29.35.110(c) to include "other sources" to possible funding sources for use by a borough and city that have entered into an agreement to provide economic development. Section 2: Amends AS 29.45.050(m) to allow for tax deferrals and incentives within a service area. The service area has a 30-day window after the adoption of the ordinance to op-out of the tax deferral or incentive. Deletes the definition of "economic development property" for the section. Section 3: Adds a definition for "economic development", "means an action intended to result in an outcome that causes an increase in, or avoids a decrease of, economic activity, gross domestic product, or the tax base." 3:38:04 PM At ease. 3:38:03 PM CHAIR HUGHES reconvened the meeting and asked if the committee had questions or comments. 3:38:10 PM SENATOR MYERS referenced the new language in Section 2 that allows a municipality to apply an exemption or deferral "unless the board objects to the exemption or deferral by resolution....He relayed that someone in his district who has considerable experience with road service areas, questioned whether a road service area board, an appointed board in particular, has the ability to pass a resolution. He asked if there was a definitive answer to that question. 3:38:59 PM REPRESENTATIVE SCHRAGE said he imagines that even if the board wasn't strictly authorized to pass a resolution, the members could sign and send a document to the municipality that would fulfill the requirement spelled out in statute. SENATOR MYERS clarified that he was not opposed to the process, he just wanted to make sure the bill wasn't overly prescriptive. 3:39:58 PM CHAIR HUGHES asked whether a road service areas could place a time limit on the exemption. REPRESENTATIVE SCHRAGE answered yes; the statute says that the tax deferral or exemption must be for a specified period. He added that the taxes would only be deferred or exempted in a service area if the project was in that service area. For example, if there was a development in midtown Anchorage, the property taxes for the special service area in Girdwood would not be deferred or exempted. The taxes would only be exempted or deferred if the project was in Girdwood. 3:41:49 PM CHAIR HUGHES opened invited testimony on HB 411. 3:42:07 PM WILLIAM FALSEY, representing self, Anchorage, Alaska, stated that he is a private practice attorney testifying today in his personal capacity. He voiced support for the provision in Section 2 that corrects an issue that was created in 2017 with passage of Senate Bill 100. That bill created significant challenges for municipalities that want to enact economic development tax incentives in areas where taxes are mostly collected for a service area that is overseen by a board. MR. FALSEY explained that in 2017, Senate Bill 100 expanded the ability of municipalities to provide economic development tax incentives. It was a good bill that has benefited communities across the state, but it also added a new limitation to AS 29.45.050(m) that prevents a municipality from applying a tax exemption or deferral for special services when the service area is supervised by a board under AS 29.35.460. MR. FALSEY reminded the committee that service areas are authorized in the state constitution. They are taxing districts within boroughs and unified municipalities that offer local services that a local borough or unified municipality has chosen not to provide on an areawide basis. For example, in the Municipality of Anchorage core services for police, fire, parks and recreation, and roads and drainage are provided through service areas. He noted that they were not affected by Senate Bill 100 because they are not supervised by a board. MR. FALSEY said the municipality also has numerous board supervised service areas that were affected by the exclusion. This includes the Hillside area out to the Anchorage Bowl that has numerous limited road service areas and Chugiak and Eagle River that have board supervised parks and fire boards. Perhaps most significantly was the Girdwood Valley service area. It operates like a small city, providing separate police, fire, roads and parks services. MR. FALSEY stated that the provision that excluded service areas supervised by a board was added late in the Senate Bill 100 process. It was in response to a concern voiced in committee that a borough or municipal assembly might enact an economic development incentive that would negatively affect the board of a supervised service area. The fix was to ban economic development incentives in board supervised service areas altogether. That was not the right fix. Rather, the board supervised service areas should have been given the ability to decide for themselves. MR. FALSEY said HB 411 makes a surgical correction and allows tax incentives in board supervised service areas when the service area board doesn't object. It will be particularly meaningful for Girdwood. Mechanically, the fix allows service areas to opt out by passing a resolution of objection no later than 30 days after the ordinance passes. This would be after the notice and public hearing requirements are fulfilled. MR. FALSEY, in response to an earlier discussion, said he knows that the Girdwood Valley service area commonly adopts resolutions. He thought most boards would think it was within their powers to pass or adopt a resolution either expressing their opinion or awarding a contract to a specific road service contractor. MR. FALSEY concluded his comments stating that HB 411 is a good measure that he strongly supports and that he appreciates the committee's consideration of the bill. 3:47:41 PM CHAIR HUGHES acknowledged that he said he was representing himself, but wondered if he also worked for the Anchorage Assembly and was aware that the Municipality of Anchorage had a resolution in support of HB 411. MR. FALSEY replied that the Anchorage Assembly had hired him on other issues, but not this one. Today he was representing himself. 3:48:24 PM SENATOR GRAY-JACKSON noted that the bill packet did not have a resolution from the Anchorage Assembly. She asked if there was one. REPRESENTATIVE SCHRAGE responded that his office had not received a letter of support for HB 411 from the Municipality of Anchorage, but there were letters of support from the Girdwood Service Area Board, the Alaska Municipal League, and the Fairbanks North Star Borough. 3:49:42 PM MIKE EDGINGTON, Co-Chair, Girdwood Board of Supervisors, Girdwood, Alaska, testified on HB 411 by invitation. He stated that of all the issues facing Girdwood, housing is the most pressing because it affects all the economic activity in the community. When the board was looking for possible options to pursue, they identified the restriction on offering tax exemptions for economic development projects. He highlighted that just under half of the taxes levied locally through the service area are used to fund police, fire, parks and recreation, the cemetery, and roads. He reiterated that under existing law, the service area is not able to take advantage of tax exemptions. MR. EDGINGTON highlighted that the ordinance that the Municipality of Anchorage introduced to look at incentives for accessory dwelling units impacted areas of the municipality very differently depending on what local services are provided through the service areas. Because of the exclusion, the ordinance would not be useful at all in Girdwood, but it would have a positive effect in parts of the Anchorage bowl, Chugiak, and Eagle River. He voiced support for the provision for service areas to opt out if there was concern about the impact on tax valuations. 3:52:42 PM BRITTANY SMART, Special Assistant to the Mayor, Fairbanks North Star Borough (FNSB), Fairbanks, Alaska, stated that current statute does not have a broad definition for "economic development,which makes it very difficult for FNSB, as a second-class borough, to understand what authority it has to apply for federal economic development funds. This was particularly problematic during the COVID-19 pandemic when the borough tried to navigate the various relief programs to support the community. The FNSB Assembly identified defining economic development within Title 29 as a 2022 legislative priority. This will help the borough leverage additional programs and tools to support the community and economy as it moves beyond recovery and into growth and resiliency. 3:54:24 PM NILS ANDREASSEN, Executive Director, Alaska Municipal League (AML), Juneau, Alaska, stated that HB 411 is consistent with two resolutions that AML passed. One spoke broadly about the need for economic development that is consistent with the interests of local government. The second was to provide a broad definition of "economic development," which is consistent with the interests of local governments. MR. ANDREASSEN emphasized the importance of having a clear but flexible definition of economic development so local governments understand how they can contribute to local economies such that it is beneficial to residents and businesses. The definition in HB 411 is both. It provides multiple ways to measure economic development and it not only creates new business activity it also stabilizes current businesses. The pandemic made it clear that there is a need for local governments to step in where they haven't in the past. He opined that if the definition had been in place during the pandemic, the local response to support local economies would have been more robust. The definition gives local governments clarity about what economic development looks like; it gives flexibility to incentivize economic development; it ensures that funding is available from a variety of sources; and it allows the optional exemptions to apply broadly but through a deliberative and public process. He encouraged support for the bill. 3:57:48 PM CHAIR HUGHES asked for confirmation that road service areas are required to publicly notice meetings so the local area would be aware of any proposed exemptions. MR. ANDREASSEN responded that is correct. Decisions about optional exemptions go through a months-long process; they are not made in a piecemeal approach. 3:59:01 PM At ease. 3:59:16 PM CHAIR HUGHES reconvened the meeting and invited the public to submit written testimony on HB 411 to scra@akleg.gov. 3:59:33 PM SENATOR MYERS moved to adopt Amendment 1, work order 32- LS1646\B.3. 32-LS1646\B.3 Dunmire 5/5/22 AMENDMENT 1 OFFERED IN THE SENATE BY SENATOR MYERS TO: CSHB 411(CRA) Page 2, line 7: Delete "a service area" Insert "an elected service area [A]" Following "the": Insert "elected service area" Page 2, line 9: Delete "30" Insert "90" 3:59:37 PM CHAIR HUGHES objected for discussion purposes. 3:59:40 PM SENATOR MYERS stated that service areas in Fairbanks are a little different than the rest of the state. It is a patchwork of over 100 road service areas, about a dozen fire service areas, and a couple of water service areas. Another difference is that members are appointed rather than elected, which creates a different power dynamic among the boards and residents. Amendment No. 1 adds the word "elected" to specify that the board is elected. He noted that this wouldn't affect Girdwood because it has an elected board. The amendment also increases the number of days to veto a municipality's action from 30 to 90 days. Extending the time recognizes that some public notices may be misplaced or lost and that some board members may not always be readily available due to travel or because they are snowbirds. Service areas in the Fairbanks region often don't have enough volunteers to fill all the board seats, which can make it difficult to meet the quorum requirements when all sitting members are absent. 4:02:31 PM CHAIR HUGHES voiced support for the amendment. She asked the sponsor if meetings have to be publicly noticed two weeks before the meeting. REPRESENTATIVE SCHRAGE answered that for the Anchorage Assembly to approve an economic development program, there are multiple meetings with multiple public notice opportunities. He didn't know about outside Anchorage other than that public notice is required in statute as part of implementing an economic development program. Speaking to Amendment 1, he said he supports the change on page 2, line 7 to clarify it applies to elected service area boards. But extending the time from 30 to 90 days for the board to object to a municipal exemption or deferral is a concern. First, there are very few elected service area boards so it won't have broad applicability. Second, an entire construction season could pass if 90 days is added to the time to go through the public process. 4:04:52 PM CHAIR HUGHES pointed out that nothing would prevent a board from approving a municipal exemption or deferral well before 90 days. REPRESENTATIVE SCHRAGE said it's a good point but there could still be the chance that a financer would be concerned that a board could change its position during the time remaining in the 90-day window. SENATOR GRAY-JACKSON said the sponsor has a sound concern and she would support something less than 90 days. 4:06:43 PM SENATOR MYERS suggested the committee consider a conceptual amendment to give the board explicit authority to approve an exemption or deferral, which would stop the clock once approval was granted. CHAIR HUGHES added that to address the valid concern about jeopardizing the financing, the conceptual amendment would need to clarify that the board could not reverse the approval once it is formally given. 4:08:56 PM At ease 4:10:06 PM CHAIR HUGHES reconvened the meeting. 4:10:18 PM SENATOR MYERS moved to adopt Conceptual Amendment 1 to Amendment 1. CONCEPTUAL AMENDMENT 1 TO AMENDMENT 1  Page 1, line 9 of Amendment 1: Delete "90 Insert "60 4:10:31 PM CHAIR HUGHES objected for discussion purposes. 4:10:40 PM REPRESENTATIVE SCHRAGE stated that 60 days is a good compromise between 90 days, requested by the amendment sponsor, and 30 days in the bill. It strikes a good balance that he can support. 4:10:55 PM CHAIR HUGHES withdrew her objection. Finding no further objection, Conceptual Amendment 1 to Amendment 1 was adopted. CHAIR HUGHES stated Amendment 1 as amended is before the committee. CHAIR HUGHES withdrew her objection to Amendment 1 as amended; finding no further objection, Amendment 1 as amended, was adopted. 4:11:22 PM CHAIR HUGHES moved to adopt Amendment 2, 32-LS1646\B.4. 32-LS1646\B.4 Dunmire 5/5/22 AMENDMENT 2 OFFERED IN THE SENATE TO: CSHB 411(CRA) Page 1, line 2: Delete "and" Page 1, line 3, following "development": Insert "; and relating to a municipal tax  exemption for certain farm structures" Page 3, following line 19: Insert a new bill section to read: "* Sec. 4. Section 2, ch. 66, SLA 2013, is repealed." 4:11:25 PM SENATOR MYERS objected for discussion purposes. 4:11:30 PM CHAIR HUGHES explained that her constituents voiced interest in allowing the local governing board to give voters the option of giving certain farm structures in the MatSu Borough a tax exemption for a given period of time. This is also a priority for the Food and Farm Caucus, which more than half of the legislature has joined. She said this is not a factor for agricultural areas that are not in an organized borough, but in addition to MatSu it would affect Fairbanks, Kenai, and Anchorage. The exemption would sunset July 1, 2023. 4:14:01 PM REPRESENTATIVE SCHRAGE stated that he defers to the Chair's testimony about the need in her area and therefore supports the amendment. 4:14:22 PM CHAIR HUGHES asked Mr. Andreassen if he wanted to comment on behalf of AML on Amendment 2. She noted that he shook his head and commented that AML was probably neutral. 4:14:43 PM SENATOR MYERS withdrew his objection to Amendment 2. 4:14:45 PM CHAIR HUGHES found no further objection, and Amendment 2 was adopted. She asked Representative Schrage for closing comments. 4:15:04 PM REPRESENTATIVE SCHRAGE expressed appreciation to the committee for hearing the bill and hope for support in moving it forward. 4:15:35 PM SENATOR MYERS commented that initially he was a little concerned that HB 411 might contain cost shifts. Fairbanks has numerous road service areas, some of which are very small, and adding one property that has a tax exemption could mean a significant increase in property taxes for their neighbors. He was worried this might be a disincentive to economic development, but Amendment 1 addressed a lot of the concerns. He said this will be a good bill moving forward. 4:16:35 PM CHAIR HUGHES solicited the will of the committee. 4:16:37 PM SENATOR MYERS moved to report HB 411, work order 32-LS1646\B as amended, from committee with individual recommendations and attached fiscal note(s). 4:16:52 PM CHAIR HUGHES found no objection and SCS CSHB 411(CRA) was reported from committee.