HB 13-SERVICE AREAS: VOTER APPROVAL/TAX ZONES  REPRESENTATIVE CON BUNDE, sponsor of HB 13, said the bill was about smaller government, local control, and privatization. HB 13 allows people in limited service areas, where changes are needed, to have a vote on the changes. There are 200 service areas in Alaska with Fairbanks having more than 100. In order for the borough and Municipality of Anchorage to combine, people who had limited road service areas had to be assured a right to maintain those areas in order to convince them that consolidation was a good idea. HB 13 guarantees the status quo in areas where people are contemplating consolidations. HB 13 says that if there is to be a consolidation alteration there has to be a majority vote by both entities, the service area and the surrounding area. The bill allows for the consolidation of many service areas for administrative savings while maintaining a differential taxation rate. Improved subdivisions with a higher level of road service and areas with more traditional Alaskan roads with a lower level of road service can each maintain their own level of service. The bill last year only applied to areas with 60,000 people or more and HB 13 applies to everyone in Alaska. CHAIRMAN TAYLOR asked how HB 13 would impact home rule cities. REPRESENTATIVE BUNDE said there are currently 53 limitations in statute on home rule cities and HB 13 would add one more statute. CHAIRMAN TAYLOR said he thought HB 13 would impact home rule cities, and that the primary thrust of HB 13 was to "go after" unified city/borough governments. REPRESENTATIVE BUNDE said unified city/borough governments were the primary thrust of HB 13 but it also would have an impact on home rule cities. CHAIRMAN TAYLOR asked what that impact would be. REPRESENTATIVE BUNDE said there would be an impact if the cities had service areas. CHAIRMAN TAYLOR asked how home rule cities with service areas would be treated differently after the passage of HB 13. REPRESENTATIVE BUNDE said an alteration or change in a service area would require a majority vote of the entire community before any change could take place. CHAIRMAN TAYLOR said home rule cities now have authority for a differential tax structure but unified cities, because of city/borough unification, do not. He asked if HB 13 would change that so unified cities would have a differential tax structure. REPRESENTATIVE BUNDE said unified cities might now have a differential tax structure. Number 376 SENATOR THERRIAULT said last year he was concerned with the expense of a certain fire service area. He asked if this had been addressed on page 2, lines 19 through 22. REPRESENTATIVE BUNDE said yes. SENATOR THERRIAULT asked how the language worked if there was an existing service area with a valley portion and a hill portion and the people on the hill needed their roads sanded, which would be an additional expense. Would the new language allow an existing service area to "carve up a certain portion and go to the borough assembly and ask that they pay an extra quarter mill for something of that nature to allow for the sanding on their roads because the roads down the valley don't need to be sanded?" REPRESENTATIVE BUNDE replied it would not affect an existing service area that could subdivide and a majority vote of both entities would be needed to subdivide. HB 13 calls for differential taxation if two entities want to combine for administrative savings within a subdivision. SENATOR THERRIAULT said the mill rate within a service area is now voted on by the residents of that area. If there were a thousand people living in the valley and 250 people up on the hill, he asked if the people in the valley would be able to impose a higher millage rate on the people up the hill. REPRESENTATIVE BUNDE replied yes, because the entire service area would vote it on. SENATOR THERRIAULT asked if Representative Bunde would have an objection to adding language that said something to the effect of: "generated differential millage rate monies have to be spent within the area that generated it." REPRESENTATIVE BUNDE replied no. SENATOR THERRIAULT said that HB 13 talks about subsets within the service area, but he did not know if there was language covering that. REPRESENTATIVE BUNDE said subsets would still be separate service areas and they would only be combined to save administrative fees. Subsets would still have a differential taxation rate with the intent that Group A's level of taxation be spent on Group A and Group B's level of taxation be spent on Group B. Number 715 CHAIRMAN TAYLOR said this could be a "real can of worms." It would be difficult to draft language that would specifically allocate where the funds were to be spent within a service area. He noted that whether this could or should be done would be a serious question. REPRESENTATIVE BUNDE thought he had not explained the intent well. He said if there were two service areas, Group A and Group B, and they were combined and had differential taxation rates, the monies assessed on Group A would be spent on Group A and monies assessed on Group B would be spent on Group B. There would be no crossing of funds. CHAIRMAN TAYLOR said he was not sure of this. Number 785 MR. JEFFERY BUSH, Deputy Commissioner, Department of Community and Economic Development (DCED), started by following up on some of the questions asked earlier in the meeting. He said the administration did not oppose Sec. 4 of HB 13 but it was opposed to the rest of the bill. Sec. 4 allows the assembly, by ordnance, to establish differential taxation rates within service areas and that can be within an existing area. This is to allow for the consolidation of services areas so they can combine and have differential rates. Another question was regarding the requirement that additional assessments be used for the people who were assessed. HB 13 allows this by saying it allows for different levels of taxation to occur "for a different level of services than provided generally in the service areas." The implication being that when there are differential levels of service, a different differential rate can be assessed. MR. BUSH said this bill came to the Governor last year as HB 133. He vetoed it and he still finds it objectionable. The objection is not to differential taxation, the objection is to the rest of the bill, which the Governor views as limiting the power of municipal governments and boroughs by requiring service areas, which are not a government entity, to veto powers at the borough, which could otherwise be exercised at the borough, level. Alaska's constitution creates borough governments and there is a dispute over whether the constitution would even prohibit HB 13 because the state cannot limit the powers of boroughs except if there is an overriding state interest, and an overriding state interest has not been demonstrated in this case. An overriding state interest needs to be found before the power of boroughs and municipal governments are limited. MR. BUSH said the provisions of HB 13 have already been provided for in the Anchorage Charter. There is nothing that HB 13 does that could not be done at the local level by local choice. The administration's objection is that this would be imposed at the state level on municipal governments. MR. BUSH said the philosophy being demonstrated is somewhat inconsistent with the philosophy that is being otherwise debated in the legislature - the formation of borough governments is being encouraged and so is the centralization of local powers in unorganized borough into boroughs. Those efforts are being undercut by the arguments of HB 13 - that borough governments should not be the center of power and the power should reside in a smaller unit at the local level. Number 1073 CHAIRMAN TAYLOR said on the philosophical question, "when you say being debated within these halls on the expansion and incentives to create borough governments," that he did not realize the administration shared any of those thoughts. MR. BUSH replied that DCED had for many years consistently supported those efforts and he had pointed out that this was the department's position. The administration has no formal position on that yet. CHAIRMAN TAYLOR said he was curious as to what the administration's position might be on the entire subject. He thought this was a subject worthy of consideration and discussion and he would like the administration participating. Chairman Taylor asked for a recap on Senator Therriault's question on whether the funds could be assessed for specific services and allocated to that particular portion of the service area. Number 1226 MR. BUSH said HB 13 implies that because it allows for increases or decreases of assessments based upon a different service for a particular group within a service area, that the adjustment be made on the amount collected. There is no requirement that the service area account for an exact dollar for dollar amount. SENATOR THERRIAULT said if it were an extra quarter mill rate, it would just be that, multiplied times the value of the homes in the sub zone, and he felt that could be accounted for. He asked if Mr. Bush would see a problem with language that said, "except for administrative expenses, funds generated by the imposition of a differential tax in a differential tax zone within a service may only be used for services within that tax zone." MR. BUSH said his only concern would be retaining separate accounts for service areas for the same service. He did not know if accounting problems would be created if administrative costs were added. He thought this link should be there but he did not know if it would be statutorily required. Number 1380 MS. JEAN WOOD, speaking via teleconference from Palmer, said she supported HB 13. She felt that local control was the best control available and she thought the people affected should have a say in whether they wanted to be included in a service area if that area were to be changed. At one time the Mat-Su Borough had a differential taxation rate and when a subdivision in a service area wanted its roads paved, the property owners were assessed at a different rate than the rest of the service area. MR. JOE BALASH, staff to Senator Therriault, said HB 13 does not prohibit various millage rates from being charged within a given service area and it does not prohibit one group in the service area from disproportionately benefiting from that assessment. He said it is conceivable that a base one mill could be charged on everyone, with the residents in a given area deciding that the wealthy people up on the hill should be charged an additional half mill to receive an additional service that only cost a quarter mill. The surplus quarter mill would be used to supplement the rest of the base. This is why legal services suggested that, conceptually, there should be some type of amendment to state that the additional funds generated by the differential taxation rate only be spent within that differential tax zone. CHAIRMAN TAYLOR noted that the committee had received written testimony from Mr. Jim Norcross of Willow asking for a limitation where HB 13 says, "or road service areas affecting not more than five percent of the total road miles of the service area, within a two year period." SENATOR THERRIAULT said he would like to work on an amendment because he does not want one area to impose a higher millage rate on another area and then siphon the funds off. CHAIRMAN TAYLOR suggested that Senator Therriault work with legal services to clean up the language in a way that would not change the overall concept of the bill. CHAIRMAN TAYLOR announced that HB 13 would be held until the next committee meeting.