ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
April 10, 2001
8:07 a.m.
MEMBERS PRESENT
Representative Kevin Meyer, Co-Chair
Representative Carl Morgan, Co-Chair
Representative Andrew Halcro
Representative Drew Scalzi
Representative Lisa Murkowski
Representative Gretchen Guess
Representative Beth Kerttula
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 36
"An Act relating to enterprise zones."
- HEARD AND HELD
HOUSE BILL NO. 18
"An Act making an appropriation to the Department of Community
and Economic Development for renters' tax equivalency payments;
and providing for an effective date."
- MOVED HB 18 OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 36
SHORT TITLE:ENTERPRISE ZONES
SPONSOR(S): REPRESENTATIVE(S)HAYES
Jrn-Date Jrn-Page Action
01/08/01 0033 (H) PREFILE RELEASED 1/5/01
01/08/01 0033 (H) READ THE FIRST TIME -
REFERRALS
01/08/01 0033 (H) EDT, CRA, FIN
02/09/01 0287 (H) COSPONSOR(S): GUESS
02/22/01 (H) EDT AT 5:00 PM CAPITOL 124
02/22/01 (H) Heard & Held
02/22/01 (H) MINUTE(EDT)
03/15/01 (H) EDT AT 4:00 PM CAPITOL 120
03/15/01 (H) Moved Out of Committee
03/15/01 (H) MINUTE(EDT)
03/16/01 0623 (H) EDT RPT 3DP 2NR
03/16/01 0624 (H) DP: CRAWFORD, GUESS, MCGUIRE;
03/16/01 0624 (H) NR: MORGAN, JAMES
03/16/01 0624 (H) FN1: (CED)
04/04/01 0846 (H) COSPONSOR(S): HALCRO
04/10/01 (H) CRA AT 8:00 AM CAPITOL 124
BILL: HB 18
SHORT TITLE:RENTERS' TAX EQUIVALENCY PAYMENT APPROP.
SPONSOR(S): REPRESENTATIVE(S)BERKOWITZ
Jrn-Date Jrn-Page Action
01/08/01 0028 (H) PREFILE RELEASED 12/29/00
01/08/01 0028 (H) READ THE FIRST TIME -
REFERRALS
01/08/01 0028 (H) CRA, FIN
01/26/01 0177 (H) COSPONSOR(S): GUESS
04/09/01 0911 (H) COSPONSOR(S): CROFT
04/10/01 0917 (H) CRA RPT 4DP 1DNP 2NR
04/10/01 0918 (H) DP: SCALZI, HALCRO, KERTTULA,
GUESS;
04/10/01 0918 (H) DNP: MEYER; NR: MURKOWSKI,
MORGAN
04/10/01 0918 (H) FN1: ZERO(CED)
04/10/01 0918 (H) REFERRED TO FINANCE
04/10/01 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE JOE HAYES
Alaska State Legislature
Capitol Building, Room 422
Juneau, Alaska 99801
POSITION STATEMENT: Testified as the sponsor of HB 36.
NATE MOHATT, Staff
to Representative Hayes
Alaska State Legislature
Capitol Building, Room 422
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 36.
LARRY PERSILY, Deputy Commissioner
Department of Revenue
PO Box 110400
Juneau, Alaska 99811-0400
POSITION STATEMENT: Testified on the Department of Revenue's
fiscal note.
PATRICK FLYNN, Staff
to Representative Berkowitz
Alaska State Legislature
Capitol Building, Room 404
Juneau, Alaska 99801
POSITION STATEMENT: Testified on behalf of the sponsor of HB
18.
ACTION NARRATIVE
TAPE 01-19, SIDE A
Number 0001
CO-CHAIR CARL MORGAN called the House Community and Regional
Affairs Standing Committee meeting to order at 8:07 a.m.
Representatives Morgan, Meyer, Guess, and Kerttula were present
at the call to order. Representatives Halcro, Scalzi, and
Murkowski arrived as the meeting was in progress.
HB 36-ENTERPRISE ZONES
CO-CHAIR MORGAN announced that the first order of business would
be HOUSE BILL NO. 36, "An Act relating to enterprise zones."
Number 0081
REPRESENTATIVE JOE HAYES, Alaska State Legislature, testified as
the sponsor of HB 36. Representative Hayes read the following
sponsor statement:
The idea of enterprise zones originated in England
under Margaret Thatcher and was brought to the United
States under the Reagan Administration. The basic
idea is to stimulate the economy of depressed areas by
offering incentives, such as tax breaks, to
businesses. Enterprise zones have gained bipartisan
support from lawmakers across the country. Thirty-
eight states have passed enterprise zone legislation
and in 1994 the Clinton Administration reshaped the
enterprise zone idea into a federal program named
Empowerment Zones/Enterprise Communities (EZ/EC).
The purpose of HB 36 is to help reinvigorate Alaska's
depressed urban and rural areas. By providing
incentives, businesses will be more likely to develop
in depressed areas. This will in turn provide more
jobs for the community, increase the average household
income and, therefore, ... also the standard of
living. Enterprise zones work and have been yielding
promising results for nearly two decades.
Traditionally, enterprise zones rely on credits
towards or exemptions from state taxes or fees. In
Alaska, however, there is little in the way of state
taxes. Therefore, in order to make this concept fit,
HB 36 is based on a local control option. The
backbone of the incentive package is the local
control. The designation of an enterprise zone would
authorize local communities to offer their incentives
or incentives of choice from a short list, which would
include reductions in permit or user fees, credits on
or exemption from property taxes, flexibility in
regulation or, lease or sale of real property to
private persons.
On top of authorizing greater flexibility in providing
local economic development incentives, HB 36 would
also establish statewide corporate income tax credits.
The two statewide incentives are a 15 percent of the
initial investment would count as a credit towards the
state corporate income tax and after one year of
operation within an enterprise zone, a business could
qualify for a corporate income tax credit of $500 per
new employee.
HB 36 will also help facilitate access to federal
grant money. Various grant programs are available
through the federal Department of Housing and Urban
Development. Most notable are the Community
Development Block Grants and the federal EZ/EC
program.
The goal of HB 36 is to encourage business development
and economic growth while providing new options to
Alaskan communities to improve the quality of life.
HB 36 will be good for economic development in Alaska.
Please join me in [supporting this bill].
REPRESENTATIVE HAYES informed the committee that there should be
a representative from the Department of Revenue, the Alaska
Municipal League(AML), and the Barrow Economic Development
Group. He pointed out that the committee packet includes a
detailed sectional analysis and information with regard to what
other states are doing with rural enterprise zones.
Representative Hayes related his belief that in some areas in
rural Alaska, enterprise zones would be doable.
Number 0412
CO-CHAIR MORGAN inquired as to the difference between the state
enterprise zones and the federal empowerment zones.
REPRESENTATIVE HAYES explained that HB 36 would create a
statewide program. Currently, Alaska has no avenue with which
to gain the federal funds. Therefore, starting a statewide
program would be the first step. He informed the committee that
U.S. Senator Ted Stevens' office had informed him that at the
federal level, grants amount to $40 million for rural areas and
$100 billion for urban areas.
REPRESENTATIVE HAYES, in further response to Co-Chair Morgan,
said that Metlakatla is the only empowerment zone in Alaska. He
clarified, "We have one enterprise community [Metlakatla] in the
state of Alaska and then we have a renaissance zone in
Anchorage."
Number 0535
REPRESENTATIVE MURKOWSKI mentioned that part of her district is
inside a renaissance zone. She asked if there is a difference
between a renaissance zone and an enterprise zone.
REPRESENTATIVE HAYES explained that renaissance zones are able
to obtain funding from the Department of Housing and Urban
Development(HUD) to incorporate for housing. However, an
enterprise zone would open economic development by bringing
businesses to the community. The two are very different.
REPRESENTATIVE MURKOWSKI surmised, however, that an enterprise
zone could be in a renaissance zone.
REPRESENTATIVE HAYES agreed, but pointed out that a renaissance
zone doesn't receive any federal funding.
Number 0643
REPRESENTATIVE SCALZI asked if this legislation is necessary in
order to allow for the creation of enterprise zones.
REPRESENTATIVE HAYES replied yes, because it would be easier to
have an enterprise zone program if there is a statewide program.
He explained that under the proposed statewide program four
communities would be accepted by the state each year. Those
four communities would go through the process of obtaining a
federal grant. Staff in U.S. Senator Ted Stevens' office said
that this would be the step that bridges the gap to obtain
federal enterprise zone funding.
REPRESENTATIVE GUESS turned to the following language in HB 36:
"The department may recommend to the governor and the
legislature incentives to enterprise zones that include". She
asked if that [language] refers to specific enterprise zones or
the program overall.
REPRESENTATIVE HAYES explained that the department can recommend
what the communities have already recommended. Once the
proposals of the communities have been accepted, then the
department will [forward] those recommendations.
Number 0771
REPRESENTATIVE MURKOWSKI inquired as to the reason for the cap,
that is allowing only four enterprise zones each year.
REPRESENTATIVE HAYES explained that starting with four
enterprise zones per year, with a maximum timeline of 20 years,
seemed to be a reasonable number that isn't too large or too
small.
REPRESENTATIVE MURKOWSKI then turned to the eligibility criteria
and related her understanding that the area has to consist of
one census tract. She inquired as to the number of census
tracts in Anchorage or rather how many areas could qualify for
this enterprise zone designation?
REPRESENTATIVE HAYES answered that there are only three [census
tracts] in the City of Anchorage.
REPRESENTATIVE MURKOWSKI pointed out that Anchorage has half the
population of the state. Therefore, she surmised that there
will not be many areas that will make applications for an
enterprise zone.
REPRESENTATIVE HAYES said that this is a local option.
Number 0992
REPRESENTATIVE MURKOWSKI related her understanding that a
community would make a request to the department, which would
prioritize the request and make recommendations, and the
governor would designate up to four enterprise zones. However,
the language in Section 2 mentions that the department may make
recommendations to the legislature. Therefore, she inquired as
to the role of the legislature in this process. Furthermore,
she questioned whether the legislature really cares what the
incentives are if the legislature isn't part of the process.
REPRESENTATIVE HAYES said that he didn't have a definitive
answer.
REPRESENTATIVE HALCRO pointed out that the state mandates that
all property be assessed at the full market value and no
deviations are allowed unless there are legislative exemptions,
such as the property tax referral bill for the McKay building.
Therefore, he assumed that any deviation from the full market
value assessment would require legislative action.
REPRESENTATIVE MURKOWSKI asked then if that is why Section 1
includes four incentives and Section 2(d) only lists three
incentives. Section 2(d) doesn't include the following
incentive: "flexibility in the municipality's regulation of the
area, including establishing special zoning districts, special
processing for permits, and exemptions from local ordinances".
She asked if that is due to Representative Halcro's point.
REPRESENTATIVE HAYES replied yes. Representative Hayes
clarified that the incentives listed in Section 1 pertain to
municipalities, while those in Section 2 pertain to the state.
REPRESENTATIVE GUESS returned to the subject of census tracts
and clarified that there are more than three census tracts in
[Anchorage].
Number 1224
NATE MOHATT, Staff to Representative Hayes, Alaska State
Legislature, agreed that there are many census tracts across the
state. However, this bill specifically limits each municipality
to three enterprise zones. He indicated agreement with
Representative Guess that there would be more than three census
tracts that would be eligible in Anchorage.
REPRESENTATIVE GUESS directed attention to page 1, line 11, and
asked if census tracts could combine for this [program].
REPRESENTATIVE HAYES pointed out that a census tract must meet
all the criteria listed in Section 1.
REPRESENTATIVE GUESS asked if the language refers to "at least
one or is it just one."
REPRESENTATIVE HAYES specified that the language in HB 36 is in
compliance with the federal program and thus wouldn't work with
the federal program if the language is changed.
Number 1332
REPRESENTATIVE KERTTULA indicated agreement with Representative
Guess' point that the eligibility for designation language says
that "the area must consist of one census tract", but it doesn't
say "shall only" or "must only."
REPRESENTATIVE MURKOWSKI agreed that the language could be
interpreted to mean "at least."
REPRESENTATIVE HAYES, in response to Representative Kerttula,
said that he could provide information regarding how the federal
program is applied.
Number 1378
REPRESENTATIVE SCALZI asked if there are any negatives to this
program.
REPRESENTATIVE HAYES said that he hasn't found much opposition.
Although the Municipality of Anchorage fears that this would
erode their tax base, he wasn't sure how that could be since a
community has the local control to choose what it wanted to use
as its plan. The rural areas seem amenable to this and AML is
supportive of this. In response to Representative Halcro,
Representative Hayes explained that the Municipality of
Anchorage is neutral on this matter because they feel that it
would erode their tax base. However, those under the Mayor of
Anchorage's chief of staff feel that HB 36 is an excellent piece
of legislation.
REPRESENTATIVE HALCRO expressed surprise with the Municipality
of Anchorage's position because he had a meeting with the head
of the Anchorage Downtown Partnership during which this idea was
pitched.
Number 1500
CO-CHAIR MEYER related his belief that if the Municipality of
Anchorage is really upset about HB 36, the committee would have
heard about it. Therefore, he surmised that the chamber may not
understand how and where this could be used. He also recalled
the flack that occurred with the McKay building because of the
notion of preferential treatment of certain developers.
CO-CHAIR MEYER turned to the fiscal note and inquired as to why
this program would cost the state additional money.
REPRESENTATIVE HAYES explained that the department felt that
with a new program, it would need a development specialist for
half of the first year of the program in order to run the
program.
CO-CHAIR MEYER pointed out that a reduction in property tax
would impact the cities not the state. He surmised that the
hope is that these zones will create more economic activity and
thus gain more money in the long term.
REPRESENTATIVE HAYES pointed out that there is a zero fiscal
note from the Department of Revenue. He informed the committee
that there would be a decline in state income if the option of
15 percent is chosen. He said that Deputy Commissioner Larry
Persily, Department of Revenue, could speak to that if the
committee wishes.
Number 1649
REPRESENTATIVE MURKOWSKI addressed ensuring that this is truly a
local option. She related her understanding that a neighborhood
could approach a municipality for an enterprise zone and the
municipality could refuse. She asked whether there was any way
a neighborhood that qualified could circumvent the refusal of
the municipality and [gain the ability to have an enterprise
zone].
REPRESENTATIVE HAYES replied, "Not the way this bill is
drafted." He agreed with Representative Murkowski that the
municipality has to "sign on" [to the neighborhood's wish to
have an enterprise zone].
Number 1729
REPRESENTATIVE KERTTULA inquired as to how necessary the
additional departmental staff is for this program. She also
asked if Representative Hayes felt that the department could
administer this program under its existing budget.
MR. MOHATT explained that the $33,000 in the first year would be
for one half of a staff person's time. The department hasn't
said whether it needs to hire a new position but rather [the
fiscal note] reflects that someone [already on staff] would have
to dedicate part of their time to reviewing the applications.
REPRESENTATIVE KERTTULA inquired as to the sponsor's thoughts if
the committee decided to have a zero fiscal note.
REPRESENTATIVE HAYES said that he had no argument with a zero
fiscal note. He emphasized that this funding will only be for
four a year "at best."
Number 1858
LARRY PERSILY, Deputy Commissioner, Department of Revenue,
informed the committee that the Department of Revenue has a zero
fiscal note because it won't cost the department anything to
administer the program. However, there is a cost to the state
for any tax credit program in that [the department] would
forgive revenue that it would otherwise get. He clarified that
he was referring to Section 5 of HB 36. Mr. Persily emphasized
that the department cannot estimate the future loss of tax
revenue to credits if enterprise zones were allowed. Therefore,
he surmised that the choice for the legislature is: "How much
revenue would you lose to credits versus how much new
development, new business, new jobs would you create?"
MR. PERSILY informed the committee that in Alaska only C
corporations pay corporate income tax while S corporations,
patrnerships, limited liability companies, and proprietorships
don't pay corporate income tax. He pointed out that the largest
corporate taxpayers in Alaska are oil companies. Therefore, he
assumed that it isn't the intent of the supporters of this
legislation to offer an incentive to oil companies. However,
these facts are important to keep in mind because oil companies
are the largest corporate taxpayers in Alaska and have the most
to gain from any business incentive.
MR. PERSILY related his understanding that under HB 36, if a
corporate taxpayer cannot use the entire tax credit within one
year, the tax credit would be lost. He posed an example in
which a corporation invests $2 million and has a $300,000 credit
at the 15 percent credit rate. If that corporation doesn't have
$300,000 in tax liability, the corporation would only write off
the credit to the extent of their liability and the unused
credit would disappear because it cannot be carried over. Mr.
Persily said the department believes that would be a good
policy.
Number 2059
REPRESENTATIVE MURKOWSKI posed an example in which Boeing moved
its headquarters to Mountainview, Alaska. The Municipality of
Anchorage would be concerned due to the potential loss of
corporate tax from Boeing. She understood that the tax credit
would be given for a 20-year period.
MR. PERSILY agreed that the tax credit would be given for a 20-
year period. However, he specified that the state rather than
the municipality would be concerned about the potential loss of
a corporate tax. Mr. Persily remarked that this would work well
if a large corporation makes a large investment that it
otherwise would not make. Although the state would lose X
dollars in corporate income tax receipts, receipts that would
not have otherwise been obtained would be obtained.
Furthermore, jobs would be created and if there was ever an
income tax, then there would be revenue from those jobs as well.
Number 2145
REPRESENTATIVE HALCRO surmised that the legislature would have
the final approval on any taxing incentives.
MR. PERSILY turned to Section 5 and related his understanding
that the 15 percent would not be subject to legislative or
gubernatorial approval. However, as mentioned earlier, a
property tax would require a statutory change. Mr. Persily
likened this to the education tax credit, which doesn't require
any legislative action because the statute already exists.
Number 2209
REPRESENTATIVE SCALZI returned to the oil companies. He asked
if this legislation would relate to any new facility or does it
have to be a new business or new enterprise or would the mode of
business have to be changed in order to obtain the tax credit.
MR. PERSILY related his understanding that it would merely have
to be a new facility. He explained, "It can be an existing
business that's expanding, but it can't replace something." For
instance, the headquarters on C Street cannot be closed and
reopened on B Street and called a new business. If a tool and
die maker wanted to expand and build a new warehouse, that would
be a new business, a new facility, and thus they could qualify
for the credit.
REPRESENTATIVE SCALZI turned to the example of the tool and die
maker and asked whether they would be changing their structure
in order to qualify versus merely moving the business.
Representative Scalzi wondered if this could be a tax credit
loophole that really doesn't do anything for economic
development, but creates a tax credit for an existing business.
MR. PERSILY reiterated his interpretation that it would have to
be a new [facility] and not a replacement. There would have to
be an expansion that is new, something that adds value to the
state. In further response to Representative Scalzi, Mr.
Persily said that he would like to think that the Department of
Revenue would be the entity that would quantify that.
Number 2353
REPRESENTATIVE KERTTULA referred to Section 5(c), which says
that a new business facility could replace another facility.
Therefore, she surmised that there could be a situation similar
to that described by Representative Scalzi.
MR. PERSILY explained that [in such a situation] the company
would receive credit for the additional value.
REPRESENTATIVE KERTTULA then referred to Section 2(d)(2), which
refers to the recommendation on state income taxes to go to the
legislature. Therefore, she wasn't sure whether it would be
automatic or it would go back for approval.
MR. PERSILY said that the department interpreted that to refer
to anything additional, such as the incentive packages cities
offer to attract large sports arenas.
REPRESENTATIVE KERTTULA returned to Section 5(a) that begins by
saying, "In addition to any other tax credit allowed for the
investment under this chapter". Although that may be true, she
indicated the need to add clarifying language to address Mr.
Persily's interpretation. She suggested that the clarifying
language could say, "in addition to the credit allowed under
Section 5". She acknowledged that it is a bit circular.
MR. PERSILY pointed out that Section 5 refers to other credits
available under that chapter, such as education credits and
mineral exploration credits, and thus that language would be
necessary to cover those credits.
Number 2491
REPRESENTATIVE MURKOWSKI inquired as to the legislature's role
in this other than considering recommendations for additional
incentives under Section 2. From what she could see, everything
is left to the governor in regard to what is granted as well as
the incentives. She asked if under Section 5, the legislature
could say that the tax credits shouldn't be given to a
particular entity. She also asked whether the legislature has
any role in this at all.
MR. PERSILY informed the committee that Section 5 deals with AS
43, which addresses the Department of Revenue. Therefore, the
department read this legislation as a definite tax credit of 15
percent plus $500 per employee. However, [Section 2] that deals
with AS 44.33 addresses the Department of Community & Economic
Development, which makes recommendations to the governor. The
Department of Revenue is involved in the tax only.
REPRESENTATIVE KERTTULA related her belief that Mr. Persily is
correct because there are [two] different sections.
REPRESENTATIVE MURKOWSKI pointed out that the legislature has no
authority with this beyond receiving the recommendations that go
to the governor. The governor makes the decisions in Section 1.
She interpreted it to mean that if there are additional
incentives, then the legislature would advise that these
incentives are available.
REPRESENTATIVE KERTTULA echoed Representative Halcro's earlier
point that the legislature may have to enact a law if there were
differing property taxes. The governor wouldn't be able to do
that automatically and thus that language is present.
MR. PERSILY related his interpretation that the governor can't
do what is prohibited by statute. The governor can't grant
exemptions on property taxes and the governor can't change
corporate taxes. Mr. Persily emphasized that the governor is
very limited in what he/she can do without legislative approval.
Mr. Persily said that he wasn't aware of any tax laws that could
be changed by the governor alone.
REPRESENTATIVE HAYES informed the committee of his concern with
regard to politicizing this outside of the community making the
decision. Representative Hayes felt that it made sense for the
legislature to authorize this, but beyond that the legislature
would [not be involved].
Number 2776
REPRESENTATIVE GUESS asked Representative Hayes if he agreed
with Mr. Persily that the reduction of state permit or user fees
couldn't happen without coming to the legislature.
REPRESENTATIVE HAYES replied yes. He anticipated the
municipalities choosing one of their four choices unless there
is a major entity entering the state in which case the
legislature would be involved. Representative Hayes reiterated
that this is a local control option.
REPRESENTATIVE MURKOWSKI said that it couldn't hurt to be more
definitive in Section 2(d)(2) and clarify that if legislative
action is necessary, then the legislature would do what is
necessary.
Number 2878
REPRESENTATIVE MURKOWSKI moved a conceptual amendment to clarify
Section 2(2)(d) by specifying that if legislative action is
necessary that would be the purview of the legislature.
REPRESENTATIVE HAYES said he wouldn't have any objections to
that.
There was no objection stated and thus the conceptual amendment
was adopted.
There was discussion regarding how this conceptual amendment
would require some creative writing on the part of the draft.
REPRESENTATIVE HAYES wondered if legislative intent should be
included to add further clarity.
TAPE 01-19, SIDE B
REPRESENTATIVE MURKOWSKI indicated that the sponsor could
provide the committee with some intent language that it could
review.
REPRESENTATIVE HAYES said that he or the committee could talk
with the drafter regarding the language [of the conceptual
amendment]. He deferred to the will of the committee.
CO-CHAIR MORGAN announced that HB 36 would be held to the next
scheduled hearing in order to provide the committee with the new
language in a committee substitute.
REPRESENTATIVE KERTTULA said that she would like to hear from
the Department of Commerce & Economic Development because she
didn't see the need for their fiscal note. If there is no case
for that fiscal note, then she announced that she would
recommend there be a zero fiscal note.
CO-CHAIR MEYER noted his agreement with Representative Kerttula.
He commented that HB 36 is a good bill and he hated to see
problems arise due to the fiscal note, which he didn't agree
with either.
The committee took an at-ease from 8:58 a.m. to 9:01 a.m.
HB 18-RENTERS' TAX EQUIVALENCY PAYMENT APPROP.
Number 2874
CO-CHAIR MEYER announced that the next order of business would
be HOUSE BILL NO. 18, "An Act making an appropriation to the
Department of Community and Economic Development for renters'
tax equivalency payments; and providing for an effective date."
Number 2859
PATRICK FLYNN, Staff to Representative Berkowitz, Alaska State
Legislature, informed the committee that HB 18 would restart the
renters' tax equivalency program that would provide a small
stipend to seniors and disabled veterans who rent homes in
jurisdictions that levy property taxes. This program came into
being because the state allowed $150,000 in tax free property
ownership for a senior or disabled veteran's personal home and
thus the state felt it appropriate to apply the same concept to
those who don't own their own home. He reminded the committee
that the property tax exemption is a state mandate that is no
longer funded by the state, and therefore the cost falls on the
municipalities. Unfortunately, the renters' tax equivalency
program was eliminated in the fiscal year 2000 budget. The hope
with this bill is to re-implement a worthy and morally correct
program.
MR. FLYNN addressed how the program would work. The program
would be administered by the Department of Community & Economic
Development (DCED), who would receive applications. He stressed
that this program is not need-based but rather self selected
need-based. In other words, people who don't need this money
typically don't apply for it. Mr. Flynn explained that the
program is not need-based because seniors and disabled veterans
find it insulting to have to demonstrate that they have a
sufficiently low income to qualify for the program.
Furthermore, the program serves only about 1,100 people and thus
implementing need-based testing would likely cost more than the
occasional abuser of the program.
MR. FLYNN explained that the senior or disabled veteran who is
50 percent or more disabled would apply for the program. The
credit amount is based on the number of applicants and the
funding available and is parsed out on a per capita basis. In
the program's last year, fiscal year 1999, the average stipend
benefiting program participants was $277. He specified that the
$277 stipend went to 993 seniors and 112 disabled veterans.
Number 2681
MR. FLYNN, in response to Co-Chair Meyer, specified that about
1,100 people benefited from this program in the last year of its
operation. He informed the committee of the following breakdown
of participants per year:
1992 - 1,032 participants
1993 - 1,207 participants
1994 - 1,233 participants
1995 - 1,048 participants
1996 - 1,092 participants
1997 - 1,111 participants
1998 - 1,105 participants
CO-CHAIR MEYER noted that there was a zero fiscal note for this
program. However, he asked if this program would require a
person to review the applications.
MR. FLYNN interpreted the zero fiscal note to be because the
department is intimately familiar with this program and because
there is no needs test, the department merely has to verify that
the person is 65 years old or older or a disabled veteran with
at least a 50 percent disability.
CO-CHAIR MEYER agreed that this program would seem to be
relatively easy to administer. However, HB 36 would require a
position even though there would only be four applications a
year. It was further noted that the fiscal note for HB 18,
which is zero, was prepared by the same department as the money
fiscal note for HB 36. Therefore, Co-Chair Meyer highlighted
the inconsistency.
Number 2578
CO-CHAIR MEYER acknowledged that the senior citizen property tax
exemption program is covered by municipalities, while the
program in HB 18 would be covered by the state. Therefore, the
programs aren't exactly the same.
MR. FLYNN informed the committee that in the program's nascent
years, the senior citizens' and disabled veterans' property tax
exemption was funded by the state and municipalities were
reimbursed for the full amount of that program as part of the
municipal assistance and revenue sharing program. As revenues
to the state declined, one of the decisions made by the
legislature was to fund that program at lower and lower levels
until there was no funding. When both programs were new, both
were entirely state funded. However, the senior citizens'
property tax exemption program continues because there was
someone to which to pass the [cost], but there was no such
option with the renters' tax program.
CO-CHAIR MEYER inquired as to why the renters' tax program
couldn't be passed to the municipalities.
MR. FLYNN answered that he believes there would be a separation
of powers issue if municipalities were told what they had to
spend their money.
CO-CHAIR MEYER inquired as to the reason this legislation didn't
pass when it was introduced in the prior legislature.
MR. FLYNN explained that the House Finance Committee declined to
hear the bill.
Number 2466
REPRESENTATIVE SCALZI turned to the $277 per applicant. He
asked if that amount is the amount in taxes on the individual's
rent within one year.
MR. FLYNN replied, "Yes, essentially." He explained that this
money is intended to pay the taxes for the renter so that the
renter would receive the same benefit as someone who owns
his/her own home.
REPRESENTATIVE SCALZI inquired as to what would happen in
Anchorage where there is no sales tax, but there is a property
tax. He asked if there is a differentiation in the percentage
that is paid.
MR. FLYNN answered that to his knowledge, there is no
differential applied from municipality to municipality.
Therefore, each beneficiary of this program would receive the
same amount of money. In further response to Representative
Scalzi, Mr. Flynn said that it doesn't matter that there is a
sales tax. The calculation is based on the number of
applications and the amount of money available.
Number 2341
REPRESENTATIVE SCALZI restated his question as follows: "As far
as the calculation of the tax, that's now being applied to the
renter where there is no sales tax, how is that tax calculated
that we're trying to reimburse. Or, is there a tax there?"
REPRESENTATIVE HALCRO explained that there is no tax but rather
there is basically a stipend regardless of the rent or sales
tax. The stipend is based on the number applicants divided into
the amount of dollars available for the reimbursement. This is
basically a subsidy.
MR. FLYNN agreed with Representative Halcro and noted that this
program is commonly known as the renters' rebate. In further
response to Representative Scalzi, Mr. Flynn agreed that this is
how the program was structured before.
REPRESENTATIVE SCALZI surmised then that there is no way to
quantify the equivalent of the tax.
MR. FLYNN informed the committee that it would require
approximately $1.2 million to fully fund this program. However,
in the interest of fiscal responsibility, HB 18 includes a more
modest proposal of $300,000.
REPRESENTATIVE HALCRO recalled that the funding level of this
program in its last year, 1998, was $275,000.
Number 2200
MR. FLYNN agreed with Co-Chair Meyer that funding the program at
$300,000 for approximately 1,100 participants would result in
$277 per person. However, he suspected that the participation
for the first year would be a bit lower since the program hasn't
been in existence for a year. He noted that municipalities do
actively solicit applicants from their economically depressed
seniors and disabled veterans. In further response to Co-Chair
Meyer, Mr. Flynn reiterated that the program is not need-based
because there is concern that it is insulting to have to
demonstrate the economic need for this program. Furthermore, if
this program was need-based, then he suspected there wouldn't be
a zero fiscal note.
CO-CHAIR MEYER remarked that if the program isn't need-based,
then it is tantamount to giving the senior citizens a permanent
fund dividend.
MR. FLYNN acknowledged that there are probably unscrupulous
individuals that would take advantage of this program. However,
he generally believes in the goodness of humanity and that those
that don't need this program won't apply.
REPRESENTATIVE KERTTULA mentioned that when this legislation
first came about she [reviewed] the Juneau recipient list for
this program. She knew almost all the people on that list, all
of whom she considered lower income people.
Number 2095
REPRESENTATIVE MURKOWSKI inquired as to how a veteran would be
determined to have a 50 percent disability, which would qualify
that veteran for this program.
MR. FLYNN pointed out that disabled veterans qualify for the
property tax exemption and this program uses the same process.
REPRESENTATIVE MURKOWSKI surmised then that there must be some
paperwork that the disabled veteran must file.
MR. FLYNN also pointed out that [the property tax exemption] is
also administered by the department and thus would lend support
to why this program can be added.
REPRESENTATIVE MURKOWSKI referred to Representative Whitaker's
bill regarding not needing to file [the senior property tax
exemption] on an annual basis. However, Representative
Murkowski assumed that under HB 18 one would have to file and
establish that the individual is a renter in a particular
neighborhood and that the individual is a disabled veteran and a
senior.
MR. FLYNN specified that a senior is an individual who is 65
years old or older.
REPRESENTATIVE MURKOWSKI expressed her annoyance with DCED
issuing a fiscal note for HB 36 to handle four applications,
while it issues a zero fiscal note for this program.
Number 1822
REPRESENTATIVE MURKOWSKI remarked that this program should be
part of the budget rather than being part of a stand-alone bill.
However, she understood why it has been introduced as such.
Representative Murkowski mentioned that the $300,000 for this
program doesn't fund the program to the degree at which it would
make a difference, although it would probably make a difference
to the individuals.
REPRESENTATIVE MURKOWSKI expressed her concern that the senior
portion is not need-based. However, she didn't believe that
there would be the abuse with this program that would occur with
other exemption programs. She didn't foresee extensive abuse
with this program that is going to offer $277. Still, she
expressed concern that it would cost as much to set up the
program as it will to provide the exemption.
REPRESENTATIVE HALCRO agreed with Representative Murkowski. He
related his belief that this is part of a larger question. For
instance, the legislature can't go much longer without facing
the [ability to fund] the senior citizens' property tax
exemption. He related the projection that in the year 2006, the
senior citizens' property tax exemption will cost Alaskan
communities over $50 million. These communities have to absorb
that cost because the legislature won't fund the program or make
it a local option. He didn't believe that Alaskan communities
could carry the burden much longer without help from the state.
Representative Halcro noted his support of HB 18.
Number 1608
REPRESENTATIVE GUESS noted her agreement with the previous two
speakers. She then turned to the abuse of the program and
agreed with Mr. Flynn that having a need test is not worth it
when compared to the cost of the program.
CO-CHAIR MEYER agreed that there will be some abuse. However,
he agreed with the intent of the legislation. Co-Chair Meyer
expressed his concern that the fiscal note isn't accurate
because reviewing 1,200 people and verifying the age and
disability of the participant will cost some money.
Furthermore, the $300,000 that breaks down to $277 per
individual isn't much, although it is better than nothing.
REPRESENTATIVE KERTTULA recalled that when this cut happened
many people contacted her because that small amount of money did
make a difference in people's lives. Therefore, she felt this
program is a small step towards rebuilding something that was
lost.
Number 1441
REPRESENTATIVE HALCRO moved to report HB 18 out of committee
with individual recommendations and the accompanying fiscal
note. There being no objection, HB 18 was reported from the
House Community and Regional Affairs Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 9:29 a.m.