Number 001 HB 399 - EXEMPT/DEFERRAL DETERIORATED PROPTY TAX CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 9:43 a.m., and brought HB 399 before the committee as the first order of business. REPRESENTATIVE JOE RYAN, prime sponsor of HB 399, explained the legislation provides a municipality the option to waive or to forgive the taxes for a person who has a piece of deteriorated property under the premise that the person is going to improve the property and add to the tax base. He emphasized that this provision is purely voluntary on the part of the governing body, and would have to be passed by an ordinance to become effective. REPRESENTATIVE RYAN noted this type of ordinance has been used frequently in large cities where people have had large buildings and rent control has kept them from keeping the buildings from deteriorating. It has been a tool that has allowed economic development and reinvestment in the community. CHAIRMAN LEMAN referenced line 5 and 6 on page 2 and asked if that language meant that any new construction could be exempted from property tax for up to five years if it is in a deteriorated area. REPRESENTATIVE RYAN replied that the governing body would have to sit down and make that determination. It would allow the municipality the latitude to try to improve areas. Number 089 SENATOR MACKIE asked why this can't be done already. REPRESENTATIVE RYAN answered that it doesn't come under the exceptions in Title 29. SENATOR MACKIE asked if the whole idea is to get new construction built in a deteriorated area, and, as result, they don't have to pay taxes on the new construction. REPRESENTATIVE RYAN replied that the governing body could decide not to charge a tax or it could decide to charge a reduced rate as an incentive. He said the breadth of the law is such that it does allow for innovation and some imaginative things as to how they would go about this. SENATOR MACKIE asked if there are particular areas in Anchorage where the municipality wants to pursue this kind of a deal. REPRESENTATIVE RYAN replied that the municipality didn't tell him they had a particular area in mind, but he thinks there are a lot of areas in Anchorage where the city would like to have the ability to do this. SENATOR KELLY voiced his concern that if there is no change of ownership required, property owners could allow their property to deteriorate to the point where they wanted it to be condemned, and then not have to pay taxes for the next five years. He questioned where the incentive was for people to keep their property up if they can go through a condemnation procedure and not have to pay taxes for the next five years. REPRESENTATIVE RYAN replied that he didn't think it would be a wise business move to allow the building to depreciate and get a tax break versus what it would then take to rehabilitate the building. SENATOR KELLY said he presumed the municipalities were in favor of this legislation, and REPRESENTATIVE RYAN acknowledged that it is supported by the Anchorage Assembly and the Alaska Municipal League. SENATOR KELLY said he was also concerned that the more property that is taken off the tax roles, the more other property owners' taxes will go up to make up for it, as well as it will open up a whole new can of opportunity at the local level for people to manipulate their planning and zoning boards, city councils, etc. He asked where in Alaska is the problem so bad that it necessitates opening up a potential for the abuse that this could bring. SENATOR MACKIE commented he shares some of Senator Kelly's concerns. He asked if there were some areas in Anchorage where because of the property taxes being so high it makes development or improvement unworkable. REPRESENTATIVE RYAN pointed out that there were several residential buildings in Juneau that were constructed in the late 1920s and early 1930s that are in need of rehabilitation, and if the Juneau Assembly had this particular tool, they could offer incentives for people to fix up these residences. He reiterated that it is up to the municipalities to decide if they want to partially or totally exempt the deteriorated property from taxation. Number 281 SENATOR KELLY noted that the Missouri law doesn't allow this exemption for residential areas, just commercial areas. He wondered why it was needed in this state for residential areas, because there are a lot of people who look for low price homes that need fixing up, and there are a lot of federal fix-up programs where these people go in, do the renovations, and then turn around and sell them at a profit. There being no further comments from committee members, CHAIRMAN LEMAN asked for the pleasure of the committee. SENATOR MACKIE moved HB 399 be passed out of committee with individual recommendations. Hearing no objection, it was so ordered.