Legislature(2003 - 2004)

02/12/2004 08:10 AM House CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SB  63-MUNICIPAL ANNEXATIONS AND DETACHMENTS                                                                                  
CHAIR MORGAN announced  that the only order of  business would be                                                               
CS FOR  SENATE BILL NO.  63(STA), "An Act relating  to transition                                                               
provisions   related   to  municipal   mergers,   consolidations,                                                               
dissolutions,  reclassifications,  annexations, detachments,  and                                                               
incorporations; and  relating to  municipal property  taxation in                                                               
annexed, detached, and newly incorporated areas."                                                                               
Number 0084                                                                                                                     
REPRESENTATIVE  KOTT moved  to  adopt HCS  CSSB  63, Version  23-                                                               
LS0489\X, Cook,  2/11/04, as the  working document.   There being                                                               
no objection, Version X was before the committee.                                                                               
REPRESENTATIVE KOTT,  upon Representative Seaton being  called to                                                               
present Version  S, questioned why  a House member  is presenting                                                               
Senate legislation.                                                                                                             
Number 0210                                                                                                                     
REPRESENTATIVE   PAUL  SEATON,   Alaska  State   Legislature,  in                                                               
response to Representative Kott, explained  that there has been a                                                               
lot  of  friction  over  this   legislation,  which  impacts  the                                                               
district  he represents.   This  is a  taxation issue  that needs                                                               
clarification.  He further explained  that he has worked with the                                                               
sponsor and  thus he  volunteered to carry  the legislation.   In                                                               
further  response to  Representative Kott,  Representative Seaton                                                               
specified that the sponsor supports [Version X].                                                                                
REPRESENTATIVE SEATON explained that  when there is an annexation                                                               
or  incorporation  there  are  almost  always  overlying  service                                                               
areas.   Currently,  the service  areas lose  a major  portion of                                                               
their budget  when there is an  annexation early in the  year but                                                               
after   the  service   areas  have   their   budgets  in   place.                                                               
Furthermore, there  is no way  for the  service areas to  make up                                                               
the loss.   Therefore,  this legislation  specifies that  the tax                                                               
year begins  January 1st [of  the year immediately  following the                                                               
year  an  annexation takes  effect].    Under the  aforementioned                                                               
scenario budgets  can be planned  without facing a  disruption in                                                               
service to the local areas.   Furthermore, this legislation takes                                                               
one of the objections of the local parties off the table.                                                                       
Number 0477                                                                                                                     
CHAIR MORGAN posed  a situation in which the  public doesn't vote                                                               
[on the annexation] until November.   He asked if the new borough                                                               
would begin  charging and  collecting taxes  two months  later on                                                               
January 1st.                                                                                                                    
REPRESENTATIVE  SEATON replied  yes,  but pointed  out that  many                                                               
[annexations  and incorporations]  don't go  through an  election                                                               
process,  rather  they go  through  a  Local Boundary  Commission                                                               
(LBC)  process.   Therefore, it  would depend  upon when  the LBC                                                               
makes it decision.   He informed the committee  that currently if                                                               
the annexation or incorporation takes  place after June 15th, the                                                               
taxation begins January  1st of the following year.   However, if                                                               
[an annexation  or incorporation occurs] between  January 1st and                                                               
June  15th, the  taxation could  start at  any time.   Therefore,                                                               
such a situation is problematic, as discussed earlier.                                                                          
Number 0636                                                                                                                     
REPRESENTATIVE SAMUELS  suggested that  it might make  more sense                                                               
to specify  that the [taxation]  would begin six or  eight months                                                               
after the  [annexation or  incorporation] decision  is made.   He                                                               
asked  if it  would  take time  for  a city  to  establish a  tax                                                               
structure to have a new service area.                                                                                           
REPRESENTATIVE SEATON reiterated that  this legislation would let                                                               
everyone know that  [taxation] all begins or ends  at a budgetary                                                               
cycle in order  that the entities can plan.   In further response                                                               
to  Representative  Samuels,  Representative Seaton  related  his                                                               
belief  that  all  municipalities  use a  calendar  year  budget.                                                               
However,  he offered  to check  the statute.   He  noted that  no                                                               
municipalities or  the LBC have  made comments [similar  to those                                                               
of Representative Samuels].                                                                                                     
Number 0881                                                                                                                     
MARY  GRISWOLD  urged the  committee  to  support Version  X  and                                                               
provided the following testimony:                                                                                               
     The  importance  of this  bill  is  that it  eliminates                                                                    
     long-standing  ambiguities  in existing  law  regarding                                                                    
     when   newly   incorporated,  annexed,   and   detached                                                                    
     properties  are subject  to  municipal property  taxes.                                                                    
     Your  committee identified  the  need  to resolve  this                                                                    
     issue  as it  debated  Homer's  annexation proposal  in                                                                    
     2002.  And the Local  Boundary Commission has requested                                                                    
     ...  a resolution  for at  least the  past four  years.                                                                    
     Alaska Statute  established January 1 of  an assessment                                                                    
     year  as  the  date  property shall  be  valued.    The                                                                    
     statutes require  municipalities to determine  the rate                                                                    
     of levy  before June  15th and  to mail  tax statements                                                                    
     setting  out the  levy by  July 1st.   These  deadlines                                                                    
     prevent municipalities  from levying  in the  same year                                                                    
     for  any  annexation   or  incorporation  that  becomes                                                                    
     effective  after  July  1st.     The  question  remains                                                                    
     whether they  can disrupt  the established  schedule to                                                                    
     immediately  tax  properties  annexed  or  incorporated                                                                    
     between  January  1 and  July  1.   To  complicate  the                                                                    
     situation,  the  Local  Boundary  Commission  is  given                                                                    
     broad powers  to place conditions on  boundary changes,                                                                    
     but  there  is no  clear  authority  for it  to  decide                                                                    
     property tax jurisdiction.  This  is a policy issue and                                                                    
     it's better  resolved through  legislation than  by the                                                                    
     Local Boundary  Commission on  a case-by-case  basis or                                                                    
     by  dragging  it through  the  court.   Clarifying,  by                                                                    
     statute  in  cases  of incorporation,  annexation,  and                                                                    
     detachment,  that property  taxes accrue  in full  each                                                                    
     year on January 1  is consistent with existing policies                                                                    
     and procedures across the  state for assessing property                                                                    
     and adding new  property tax rolls.  It  is a practical                                                                    
     approach  that will  simplify  the transition  planning                                                                    
     process  and   be  less  disruptive  to   the  effected                                                                    
     governmental  units and  individual taxpayers.   It  is                                                                    
     the approach  the Mat-Su Borough has  consistently used                                                                    
     in all its annexations,  and they have [completed] more                                                                    
     than anyone else.                                                                                                          
     It is important to note  that with many annexations and                                                                    
     incorporations there  is a  corresponding, simultaneous                                                                    
     detachment  from  another  governmental  unit.    Using                                                                    
     January 1  as the  cutoff date  to establish  value and                                                                    
     jurisdiction   provides   less   disruption   to   that                                                                    
     municipality's  budget  process  and  service  delivery                                                                    
     plans.    This is  a  better  approach than  pro-rating                                                                    
     taxes between governments for the  remainder of the tax                                                                    
     year because many services are  provided on an areawide                                                                    
     basis,   the   cost   of  which   will   not   decrease                                                                    
     proportionately  to  the   territory  affected  by  the                                                                    
     simultaneous  boundary  change.    It  is  also  better                                                                    
     because  municipal  governments   have  flexibility  to                                                                    
     establish  levy dates  and  payment  cycles within  the                                                                    
     statutory  limit and  are  often  different fiscal  and                                                                    
     budget  preparation  cycles,   which  makes  pro-rating                                                                    
     taxes cumbersome and disruptive.                                                                                           
Number 1113                                                                                                                     
     Taxpayers expect property assessments  and tax bills on                                                                    
     an orderly schedule.  The  January 1 assessment date is                                                                    
     the  effective date  for property  tax liability.   Set                                                                    
     statutes allow up to six months  to mail the bills is a                                                                    
     practical necessity  for sufficient  time to  create an                                                                    
     assessment  roll,   notify  property   (indisc.  -paper                                                                    
     shuffling)   board  of   adjustment  hearing,   develop                                                                    
     budgets,  certify the  tax rolls,  set the  appropriate                                                                    
     levy,  and  levy  and  prepare the  tax  bills.    This                                                                    
     schedule  also  allows  taxpayers  time  to  set  aside                                                                    
     sufficient funds  to pay their  bills.  It is  not fair                                                                    
     to surprise  them with  a big change  in the  middle of                                                                    
     the  assessment  calendar.     If  the  Local  Boundary                                                                    
     Commission  were allowed  to  direct municipalities  to                                                                    
     levy taxes on property  within their jurisdiction as of                                                                    
     any date other than  January 1, serious conflicts could                                                                    
     arise.   Exactly  how  close the  effective  date of  a                                                                    
     boundary  change could  crowd the  tax mailing  date is                                                                    
     too  open a  question  to leave  unresolved until  well                                                                    
     into  the petition  analysis.   Furthermore,  realistic                                                                    
     revenue projections  are necessary at the  beginning of                                                                    
     an  annexation, incorporation  process for  responsible                                                                    
     evaluation and transition planning.                                                                                        
     Some people  have argued that  this approach  is unduly                                                                    
     conservative,   especially    for   areas   undertaking                                                                    
     incorporation   because  they   will  be   required  to                                                                    
     immediately  provide services  for which  they have  no                                                                    
     funding.   After analyzing the consequences  and trying                                                                    
     to accommodate special situations,  I realized that the                                                                    
     conflicts  created by  more flexible  approaches defeat                                                                    
     their  purpose.   Municipalities  are  not expected  to                                                                    
     immediately  provide  the  host of  services  typically                                                                    
     associated  with  government.   Services  and  delivery                                                                    
     timelines  should be  made clear  to everyone  early in                                                                    
     the   consideration   of   to  incorporate   or   annex                                                                    
     territory.      It   is    important   to   know   that                                                                    
     municipalities  have   revenue  sources   other  [than]                                                                    
     property  taxes.    An   area  deemed  appropriate  for                                                                    
     incorporation    or    annexation   has    demonstrated                                                                    
     sufficient  economic  and  human resources  to  support                                                                    
     government.   Sales taxes could  serve as  [an] initial                                                                    
     source  of  funding  for government  services  while  a                                                                    
     municipality (indisc.) foundation.   Organized boroughs                                                                    
     may loan money to a  newly incorporated city similar to                                                                    
     a  loan made  by  the Kenai  Peninsula  Borough to  the                                                                    
     service area  formed in October  of ... 2000  for which                                                                    
     the  borough did  not levy  taxes until  June of  2001.                                                                    
     The  state  offers  significant  financial  incentives,                                                                    
     including a  $600,000 organizational grant to  areas of                                                                    
     the unorganized  borough willing to incorporate.   Such                                                                    
     payments  would help  bridge this  revenue gap.   Clear                                                                    
     guidelines  for   municipal  taxation   authority  will                                                                    
     promote orderly  municipal growth  and will  reduce the                                                                    
     stress   and   contention  associated   with   boundary                                                                    
     changes.  Please support  your committee substitute for                                                                    
     Senate  Bill 63  so  everyone  understands the  revenue                                                                    
     rules  before  becoming   involved  in  an  annexation,                                                                    
      detachment, or incorporation procedure.  Thank you.                                                                       
     I'd be happy to try to answer any questions.                                                                               
Number 1367                                                                                                                     
CHAIR MORGAN,  upon determining  no one  else wished  to testify,                                                               
closed public testimony.   Chair Morgan announced  that he didn't                                                               
intend  to hold  CSSB  63(STA)  forever.   However,  there was  a                                                               
request  to hold  the legislation  for another  week and  thus he                                                               
announced that it would be scheduled for next Thursday.                                                                         

Document Name Date/Time Subjects