SENATE COMMUNITY & REGIONAL AFFAIRS COMMITTEE March 12, 1997 1:35 p.m. MEMBERS PRESENT Senator Jerry Mackie, Chairman Senator Gary Wilken, Vice Chairman Senator Dave Donley Senator Randy Phillips Senator Lyman Hoffman MEMBERS ABSENT All members present COMMITTEE CALENDAR SENATE BILL NO. 78 "An Act relating to reimbursement to a municipality for certain property tax revenues lost to it as a result of a tax exemption for certain residences; and providing for an effective date." -- HEARD AND HELD PREVIOUS SENATE COMMITTEE ACTION SB 78 - No previous action to record. WITNESS REGISTER Tuckerman Babcock, Legislative Aide to Senator Lyda Green State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Offered information on SB 78 Tim Armstrong Department of Alaska, American Legion 6590 Glacier Highway, #101 Juneau, AK 99801 POSITION STATEMENT: Testified in support of SB 78 John Bitney Alaska Housing Finance Corporation P.O. Box 101020 Anchorage, AK 99510-1020 POSITION STATEMENT: AHFC has concerns with SB 78 Lucille Frey HC02 Box 7342 Palmer, AK 99645 POSITION STATEMENT: Supports SB 78 Kevin Ritchie, Executive Director Alaska Municipal League 217 2nd St. Juneau, AK 99801 POSITION STATEMENT: Municipal League supports intent of SB 78 ACTION NARRATIVE TAPE 97-11, SIDE A Number 001  SB 78 AHFC FUND: REIMBURSE SR. CIT PROP. TAX  CHAIRMAN MACKIE called the Senate Community & Regional Affairs Committee meeting to order at 1:35 p.m. He brought SB 78 before the committee as the only order of business. TUCKERMAN BABCOCK , Legislative Aide to Senator Lyda Green who is prime sponsor of SB 78, explained the legislation simply identifies in statute that the funding source for the senior and disabled veterans property tax exemption would be the Alaska Housing Finance Corporation (AHFC). The practical effect of doing that is to: (1) focus the Legislature's attention when it considers funding this exemption mandated on local government; (2) that it is a subsidy for housing and that it is a subsidy for seniors and disabled veterans; and (3) that an agency the state has created to help subsidize housing is the Alaska Housing Finance Corporation and it does earn dividends or profits that could be directed to this purpose without threatening their status in the bond market. Mr. Babcock pointed out that reimbursements to the municipalities for this program have been steadily declining, and last year the Legislature stopped funding it 100 percent. As one of its legislative priorities this year, the Alaska Municipal League is seeking the repeal of the exemption, which has led to an effort by Senator Green to find some source within state government that would be appropriate for subsidizing the property taxes of certain seniors, disabled veterans and surviving spouses of disabled veterans. Number 078 SENATOR WILKEN asked what effect SB 78 would have on the five-year plan to balance the state's budget, as well as its effect on AHFC if they are tapped for another $20 million along with the five-year plan. MR. BABCOCK responded the effect on the five-year plan to balance the budget would be detrimental if this were simply added to the general appropriations from AHFC, but Senator Green's goal with this bill is to place the discussion about whether to fund this in the context of the available money from AHFC, which is both the $50 million that has typically been presented as a dividend to the state general fund and the remaining capital money of approximately $50 million. The alternatives would be to either have it come from the dividend monies or the capital monies. It would not be Senator Green's intent to imply that any further appropriation should be sought from AHFC. Number 140 TIM ARMSTRONG , representing the Department of Alaska, American Legion in Juneau, voiced their support for the passage of SB 78. The organization feels it is a vital benefit to disabled veterans and their spouses. It would do a lot to help keep these seniors in Alaska and keep them active in the volunteer services that they provide throughout the state and to the state economy. Number 185 JOHN BITNEY , representing the Alaska Housing Finance Corporation, said the corporation sees the bill as an effort to try to seek a resolution to a problem of reimbursing municipalities for the cost of property tax exemptions, and in that regard they don't oppose this effort, but there are some situations in regards to how this would have to happen. The language, as currently written in the bill, would attach to the revolving fund at AHFC the opportunity to take money from that account to put into the program to reimburse the municipalities for the cost of these tax exemptions. Mr. Bitney explained the corporation has an agreement with the state of Alaska to transfer $103 million annually to the state both for capital projects and for a dividend to the state of Alaska. That amount is set in terms of an agreement AHFC has with the rating agencies, and AHFC can basically live with that amount on an annual basis and maintain solid credit ratings for the corporation so it can go out and issue debt. In order for a program like this to be funded, it would be well in excess of $20 million on an annual basis. In order to pay for something like that and not affect the corporation's credit ratings, that appropriation would have to come from within the $103 million the corporation annually provides. Mr. Bitney pointed out that in terms of the capital appropriations that AHFC provides for in its $53 million capital budget, they do provide for things like senior housing development programs and projects. The corporation tries to meet the needs for senior housing across the state of Alaska, and, in doing so, they put seniors into projects that are taxable by municipalities while at the same time putting existing homes and property owned by seniors back on the municipal tax rolls. In closing, Mr. Bitney pointed out the corporation is providing the $103 million annually, and if the Legislature chose to do so, it could fund this program with or without a piece of legislation at this point in time. Number 245 CHAIRMAN MACKIE referred to AHFC's fiscal note and asked if the projections included a 10 percent annual growth at a minimum. MR. BITNEY acknowledged that was correct. CHAIRMAN MACKIE asked Mr. Bitney is he was saying that with anything, in addition to the $103 million that is committed through the agreement with the Legislature, whether it is $22 million or $36 million five years from now, the agency would not be able to withstand paying out that money unless it came from within the $103 million, in terms of credit ratings and other things. MR. BITNEY acknowledged that was the point he was trying to make. Number 290 SENATOR HOFFMAN commented that the 10 percent growth rate used in the preparation of the fiscal note seems to be quite low compared to taking an average of the last 10 to 12 years, and then that 10 percent would be in the neighborhood of 12 to 15 percent, historically. MR. BITNEY agreed with his analysis, and related that he purposely used a low number, not to try to inflate his estimates, but, by using a low number, the point was made that this is a significantly growing program. Responding to a question from SENATOR PHILLIPS relating to the amount of funds the corporation has transferred to the state treasury in recent years, MR. BITNEY said to date, the corporation, with the recent announcement of the state mortgage insurance fund being turned over to the state, will have paid back to the state $903 million in cash, net of capital projects and mortgage activity of the state of Alaska. He also acknowledged to Senator Phillips that the corporation still has approximately $100 million left to repay to the state. Number 340 SENATOR WILKEN asked what effect a $20 million appropriation to this program would have on AHFC. MR. BITNEY responded it would compete in the appropriation process for the projects, maintenance, etc., that AHFC pays for. SENATOR WILKEN commented that personally, he would like to see that, but he would have to balance that with where the $20 million in cuts might be made. He said the people in the North Star Borough would prefer to not have to fund this mandate anymore; they would like to have the state do what they promised to do years ago. Number 365 LUCILLE FREY of Palmer, testifying from the Mat-LIO, suggested the state should mandate that the municipalities do not tax the property of senior citizens within the borough. She said the state should either fund this mandate or eliminate it because it just puts a bigger burden on the local taxpayers. She added that if this bill will resolve the problem, she is in support of it. Number 400 KEVIN RITCHIE , Executive Director, Alaska Municipal League, stated the League is in support of the intent of the bill, however, they don't want to damage the ability of the Alaska Housing Finance Corporation to do business. He said with an unfunded mandate, the two choices are to give the responsibility to the people paying the bill, or, in essence, find another way to take care of that cost, which is the intent of this legislation. Mr. Ritchie pointed out that over the last ten years or so the cost of the exemption has gone up by 400 percent or more, and it is a very substantial part of municipal budgets and what municipal taxpayers have to make up to pay the difference for this funding. He also pointed out that the population of older people in Alaska is increasing, and the value of the homes that seniors live in is also increasing. So when looking at the estimates for the cost of this program in the future, it is going up, and it does need to be addressed. Number 419 SENATOR HOFFMAN asked Mr. Ritchie if he would support the Legislature not mandating the tax exemption and thereby not paying it. MR. RITCHIE acknowledged that he would. He added that in past years, the Municipal League has been in support of bills that would allow the local taxpayers that each pay $50 to fund this exemption, to have them decide how the exemption would be delivered, what the maximum amount of the exemption would be, etc. Number 445 TUCKERMAN BABCOCK directed attention to the "Senior Citizen/Disabled Veteran Property Tax Exemption Program History" prepared by the Office of the State Assessor in DCRA, and noted that although the projections of cost prepared by AHFC are based on 10 percent, the program history shows the actual percent increase over the last 10 years is closer to seven percent, and the percentage increase in the number of people applying is about seven percent and it is dropping down to five or six percent. Further, it has always been an option, as has been the case for the last 10 years, of funding the exemption at some percentage less than 100 percent. Number 460 SENATOR PHILLIPS commented that this is just one piece of the puzzle in the grand scheme of things of doing the budget, and if this pushed in, it is going to effect other things. He suggested keeping the legislation in committee for a couple of days before deciding what to do with the bill. SENATOR HOFFMAN commented that the legislation would be expanding the fiscal gap, which would be going in the wrong direction. He suggested maybe the sensible financial thing to do would be to make this bill into a committee substitute that wouldn't mandate the tax credit by municipalities. Number 490 CHAIRMAN MACKIE stated SB 78 would be held in committee so that the members have an opportunity to digest the whole issue, discuss options, etc., before scheduling it for another hearing. He then adjourned the meeting at 2:12 p.m.