SB 77-MUNI PROP TAX EXEMPTION/TAX BLIGHTED PROP  1:42:34 PM CHAIR DUNBAR announced the consideration of SENATE BILL NO. 77 "An Act relating to municipal property tax; and providing for an effective date." CHAIR DUNBAR said this is the introductory hearing for SB 77. The intention is to introduce the bill, followed by the sectional analysis, invited testimony, committee discussion, and public testimony. 1:43:39 PM CHAIR DUNBAR, speaking as the sponsor, introduced SB 77, stating the bill gives local governments two optional tools to incentivize economic development. These apply mainly to residential and commercial housing developments. CHAIR DUNBAR said that the first tool provides a full property tax abatement. Currently, local governments can only exempt the amount above the local school requirement. He said SB 77 removes this limit, allowing for a full property tax abatement. He emphasized that it is important to note that this does not impact the required contribution for schools. Local governments still need to fund schools and will need to find alternative funding sources. He said this may cause a short-term increase in some property taxes but increases the property tax base over the long term. In Anchorage, for example, a downtown property tax abatement lasts about 12 years. CHAIR DUNBAR said that the second tool gives local governments the option to adopt an ordinance for implementing a "blight tax." Blighted properties can reduce property tax collection by decreasing the value of surrounding properties. He said they also provide a public safety risk, becoming centers of criminal activity. A "blight tax" increases the property tax on blighted property until it is remediated, incentivizing owners to remediate their properties. CHAIR DUNBAR reiterated that SB 77 does not impose either of these tools on localities; instead, it changes state law to allow local governments to use these tools if they choose. Local governments would adopt their own local ordinances before using either tool, particularly in the case of blighted property. He said that local governments must set out a framework defining a blighted property. CHAIR DUNBAR completed the introduction of the bill. He invited Ms. Salanguit to present the sectional analysis for SB 77. 1:45:34 PM ALLIANA SALANGUIT, Staff, Senator Forrest Dunbar, Alaska State Legislature, Juneau, Alaska, presented the sectional analysis for SB 77 on behalf of the sponsor. [Original punctuation provided.] Section 1: Amends AS 29.45.050 Optional exemptions and exclusions to allow municipalities to completely exempt property taxes for an economic development property. Currently, only the amount above the school district's local required contribution may be exempted. MS. SALANGUIT said that Section 1 does not remove the municipality's obligation to fund the required local contribution. Section 2: Adds a new section AS 29.45.057 Levy of tax on blighted property that allows municipalities to adopt an ordinance establishing a blight tax. The ordinance must include the following: • Standards for determining if a property is blighted; • A procedure for designating a property as blighted, notifying the property owner, and providing the property owner an opportunity to appeal; A tax rate for the blighted property; • Standards for remediating or redeveloping the property so it will no longer be considered blighted; • A duration of time and reduced tax rate for remediated properties. To qualify for the reduced tax rate, the property owner must have a plan for remediating or redeveloping the property submitted to and approved by the municipality. They must also fulfill the terms of the pan. Municipalities may designate the tax revenue to be used for community redevelopment purposes. Primary residences are exempt from this section. MS. SALANGUIT said that Sections 1 and 2 use "may" instead of "shall" so the tools to incentivize economic development are optional, not required. Section 3: Provides for an immediate effective date after enactment per AS 01.10.070(c). 1:47:37 PM SENATOR GRAY-JACKSON sought clarification that, currently, the exemption applies only to service areas. CHAIR DUNBAR asked her to expound on "service areas." SENATOR GRAY-JACKSON sought verification that SB 77 proposes exemptions for all service areas and school districts. CHAIR DUNBAR replied yes, if localities decide to do that, they would have the ability. He moved down the agenda to invited testimony. He asked Mr. Robbins to put himself on the record and begin his testimony. 1:48:51 PM MIKE ROBBINS, Executive Director, Anchorage Community Development Authority (ACDA), Anchorage, Alaska, provided invited testimony on SB 77, stating this bill would stimulate economic and housing development around the state. Many places across the state suffer from serious housing shortages. Multiple factors contribute to this, and while the state cannot affect some, it can and should influence others. This is why SB 77 is important. He said that one of the biggest challenges facing builders is the gap between construction costs and the expected returns for multi-family housing. SB 77 allows cities to offer a full tax abatement to help bridge that gap. He stated that the law already allows a 100 percent abatement for redevelopment of deteriorated property, noting it seems equitable to offer the same incentive for new construction. MR. ROBBINS said the "blight tax" is a much-needed tool to protect property values, clean up neighborhoods, and encourage redevelopment. The blighted property section of SB 77 gives cities the opportunity to enact a tax on blighted properties to encourage neighborhood development. MR. ROBBINS said this bill appears to have no financial consequences to the state budget and should not negatively affect education. As property taxes increase through development, so will revenue for education funding. It is a multiple win for multiple sectors of the economy, including jobs, housing, tax creation, and construction. SB 77 makes housing affordable for young people, which is one way to prevent population decline in Alaska. 1:51:50 PM BILL POPP, President and Chief Executive Office, Anchorage Economic Development Corporation (AEDC), Anchorage, Alaska, provided invited testimony on SB 77. He stated this bill would provide the Municipality of Anchorage and other communities with the ability to develop strategic initiatives to attract new investments from outside Alaska through housing development. Data shows that businesses prioritize stability and availability of workforce when deciding to invest in an area. He said Alaska is reaching a demographic tipping point; population trends demonstrate a decline in the available workforce in the coming decades. This will become a critical issue for businesses seeking new investment opportunities nationwide. A key piece in attracting and retaining workers is housing availability. SB 77 could be an important tool for multi-family development in Anchorage, particularly for vertical construction, given the diminishing availability of buildable land that does not require significant redevelopment costs. He said AEDC hopes that the legislature and the governor pass SB 77 into law so communities can get to work developing their variations of this new legislation. 1:54:15 PM At ease. 1:54:32 PM CHAIR DUNBAR reconvened the meeting and invited Mr. Andreassen to share his perspective on SB 77. 1:54:47 PM NILS ANDREASSEN, Executive Director, Alaska Municipal League (AML), Juneau, Alaska, provided invited testimony, stating that fundamentally SB 77 is a "tools in the toolbox" bill. It gives local governments the ability to do good things in their communities related to community and economic development. AML is supportive of both aspects of the bill: - the abatement exemption, which AML recognizes increases property values over time with increased early investment; and - the blighted properties incentive program. MR. ANDREASSEN commented on the blighted properties portion of SB 77. He said blighted properties produce property tax collections by devaluing neighboring properties. "Blight tax" is shorthand for a tax incentive program that encourages community redevelopment. It is not currently an option for municipalities as no provisions in Alaska Statutes allow it. This legislation aims to allow municipalities to levy an additional property tax on blighted properties. He said that the bill helps communities by encouraging property owners to redevelop their properties or sell them to new owners who will. SB 77 enables vacant or underutilized properties to be used for more productive purposes and, ultimately, increases the value of the property and surrounding properties with positive effects that reverberate throughout the community. He said AML looks forward to contributing its perspective throughout the legislative process and supports SB 77 as currently drafted. 1:56:51 PM SENATOR OLSON asked how much SB 77 will affect communities other than Anchorage. MR. ANDREASSEN answered that this bill focuses on communities with a property tax. It is self-limiting to some extent because most local governments have a sales tax instead of a property tax. More populated communities use property tax as the revenue base, so SB 77 could benefit the majority of Alaskans in some way. However, in terms of the total number of communities, the bill affects a smaller footprint. SENATOR OLSON sought verification that the bill applies mainly to first-class cities. MR. ANDREASSEN answered that it is not necessarily attributable to class, but yes, home rule, first-class, and unified are the main local governments with property taxes. He commented that he could not think of any second-class cities with property taxes. CHAIR DUNBAR thanked Mr. Andreassen for his testimony and permitted him to clarify a statement. MR. ANDREASSEN clarified that second-class boroughs have a property tax, but second-class cities do not have a property tax. 1:59:00 PM CHAIR DUNBAR opened public testimony on SB 77. 1:59:34 PM CHRIS SCHUTTE, representing self, Anchorage, Alaska, stated that he is a private economic and development consultant based in Anchorage, testifying in support of SB 77. The bill makes critical statutory changes that empower local jurisdictions to encourage new jobs, new local taxes, and long-term economic benefits for their communities. He supports the property tax abatement tools that create incentives and the property tax that deals with blighted properties. MR. SCHUTTE discussed the proposed tax abatement changes to AS 29.45.050(m). He explained that before 2017, property tax abatement tools encouraging economic or community development were limited and rarely used. Changes to the law improved incrementally but did not fully achieve their aim. He said SB 77 is the right statutory fix. He thanked the sponsor for the bill. 2:02:38 PM CHAIR DUNBAR closed public testimony and held SB 77 in committee.