CS FOR HOUSE BILL NO. 379(FIN) "An Act relating to the limitation on the value of property taxable by a municipality; and providing for an effective date." 1:39:52 PM Senator Olson pointed out that the legislation was the top priority for the North Slope Borough. He shared that the industry did not have a problem with the bill, and there was no loss of revenue to the state. REPRESENTATIVE BENJAMIN NAGEAK, stated that he was there to answer any questions on the bill. He stressed that his constituents had been waiting a long time for the legislation. He felt that the bill was a workable solution to the issue. Senator Olson wondered how Representative Nageak, as the former mayor of the North Slope Borough, saw the budget advantages. Representative Nageak replied that the legislation would be very helpful to the borough's operating budget. He remarked that infrastructure was built when the borough was established, and stressed that the legislation would provide the proper maintenance to the infrastructure. Co-Chair Meyer surmised that the legislation would provide the North Slope Borough more flexibility for use of capital and operating funds. He queried the borough's current mil- rate. Representative Nageak replied that the current mil- rate was 18.5. He stated that the borough only had one year of a higher, 19.5 mil-rate. Co-Chair Meyer wondered if there was a proposal to change the mil-rate. Representative Nageak replied that there was no proposal to change the mil-rate. He stressed that the legislation was intended to allow some flexibility of fund usage. Co-Chair Meyer understood that there was no difference in the amount that the state received from oil proceeds or any difference in the amount that the oil companies paid. Representative Nageak agreed with that summation. 1:45:12 PM ANGELA RODELL, COMMISSIONER, DEPARTMENT OF REVENUE, shared that the Department of Revenue (DOR) worked to ensure that the bill was revenue neutral. She recognized that municipalities throughout the state who had oil and gas property may need flexibility to differentiate between their operating and debt service. She felt that the legislation provided the opportunity for the municipalities to address that issue, without impacting the state's financial picture, nor increase the taxes within the communities. Co-Chair Meyer wondered if the bill would impact the neighboring cities. Commissioner Rodell replied that the bill would affect any community that had oil and gas property. Co-Chair Meyer asked if the Kenai and Soldotna was included in the legislation. Commissioner Rodell deferred to Mr. Fonder. Senator Olson wondered if the communities in the unorganized boroughs would be affected by the legislation. Commissioner Rodell deferred to Mr. Fonder. MATT FONDER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE (via teleconference), looked at page 48 of the DOR Revenue Sources Book, and announced that there was a table that indicated the breakdown of property taxes and how they were shared. He stated that the chart indicated that the Kenai had oil and gas property. The tax was $19.8 million in the year prior was $19.8 million, and the local share was $9.7 million, so the state received $10.1 million in property taxes on the oil and gas property in Kenai. He stated that the unorganized boroughs did not assess property taxes, so the local share on the unorganized line of the chart was zero. The tax on oil and gas property in unorganized boroughs was $58.9 million, and was wholly contributed to the state. Senator Dunleavy surmised that the state would not be financially impacted by the legislation. Commissioner Rodell replied in the affirmative, if the locals kept their property taxes the same. Senator Dunleavy asked if there would be an impact to the state if the boroughs made changes to their current property taxes. Commissioner Rodell replied that there could be an impact to the state, because that was written in statute. Senator Dunleavy wondered if the legislation would change the borough's status negatively or positively. Commissioner Rodell responded that it was possible that certain communities could receive a positive impact, if they have very low tax rates. She stated that any municipalities that was at the 20 mil rate would not see any change. Senator Dunleavy surmised that Valdez would not be harmed by the legislation. Commissioner Rodell agreed. Senator Dunleavy asked if the Fairbanks Northstar Borough would be affected by the legislation. Commissioner Rodell responded that the borough should not be harmed by the bill. 1:51:06 PM Senator Hoffman wondered why the law was initially enacted for 9.08 mil-rate for the operating budget, and the difference for the capital budget. Commissioner Rodell asked for clarification. Senator Hoffman wondered why the current statute was set at 9.08 mil-rate. Commissioner Rodell responded that she understood that the 9.08 mil-rate was set by the local communities. The state had a statute that directed all localities, whether or not there was oil and gas property tax, at a rate of 30 mils. She stated that the number was adjusted through the multiplier factor into a corresponding mil-rate. The North Slope Borough had a 9.08 mil-rate for the operating budget. Senator Hoffman looked at the third paragraph of a document provided by the sponsor, which stated that the restriction applied to the 18.5 rate. The current law required the municipalities to spend $9.8 million on operating costs and $9.45 million capital costs. He queried the reason for that restriction. Commissioner Rodell replied that the multiplier put a cap on oil and gas property was because of an issue of fairness and equity. The state had a desire to help some communities that did not have oil and gas property. Senator Olson pointed out that the sponsor statement clearly pointed out the restrictions of the tax revenue usage. ROB ELKINS, DEPUTY DIRECTOR, NORTH SLOPE BOROUGH, ANCHORAGE, stated that the committee was dealing with the mil-rate for the current operating year. The mil-rate was determined through the calculation, which was a statewide per capita value multiplied by the 225 percent currently in statute. It was then multiplied by the total number residents, to arrive at an equivalent tax base. The equivalent tax base was then multiplied by the 30 mil-rate cap. He stated that the calculation provided a maximum dollar amount that could be spent on operations. The amount was then converted into a mil-rate based on the total assessed value. He stated that the North Slope Borough had continued to limit itself with the 18.5 mil rate. Senator Olson wondered why the original formula was established, which used so much money for debt service. Mr. Elkins responded that he understood that the statute was put in place in order to achieve equity. It would limit the borough's ability to sell debt. Co-Chair Meyer asked why the fiscal note was indeterminate. Commissioner Rodell replied that the fiscal note was indeterminate. The fiscal note would be zero if the communities continue to operate as they were currently. There could be positive adjustments to the state, if the communities lowered their mil-rate to take advantage of the greater operating flexibility. Adversely, if the community raises their mil-rate, it will have a negative impact to the state. 1:59:40 PM AT EASE 2:01:53 PM RECONVENED Co-Chair Meyer CLOSED public testimony. Vice-Chair Fairclough announced that she would like to hear testimony on the legislation from the State Assessor's Office. CSHB 379(FIN) was HEARD and HELD in committee for further consideration. Co-Chair Meyer handed the gavel to Co-Chair Kelly. 2:03:07 PM AT EASE 2:16:47 PM RECONVENED