Legislature(2015 - 2016)BARNES 124

03/31/2016 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

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08:05:13 AM Start
08:06:01 AM HB370
08:32:35 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 370(CRA) Out of Committee
                HB 370-MUNICIPAL TAX EXEMPTIONS                                                                             
8:06:01 AM                                                                                                                    
CHAIR TILTON announced  that the only order of  business would be                                                               
HOUSE  BILL   NO.  370,  "An   Act  relating  to   municipal  tax                                                               
[Before the committee was the  proposed committee substitute (CS)                                                               
for HB 370, Version H.]                                                                                                         
8:07:35 AM                                                                                                                    
HEATH HILYARD,  Staff, Representative Cathy Tilton,  Alaska State                                                               
Legislature, referred to language contained  in Version H, page 1                                                               
line  11,  and continuing  to  page  2,  line  1, for  which  the                                                               
committee   requested  clarification.     Mr.   Hilyard  directed                                                               
attention to the  committee packet and the  handout titled, "Part                                                               
3  -  Property  Taxation,"  to  provide  an  explanation  of  the                                                               
historical application, and mechanical  function of the tax rate,                                                               
as  it pertains  to the  elimination of  renewals under  existing                                                               
statute,  which  is  the  bill   language  in  question.    Using                                                               
Anchorage as  an example, he  said the  total mill rate  is 14.7.                                                               
Under  a  renewal for  years  1-5,  the  statute allows  a  total                                                               
exemption  of  the  14.7;  filing under  a  renewal,  the  amount                                                               
identified for education would be  set aside.  The language which                                                               
allows for this  action can best be characterized  as "an attempt                                                               
at  a secondary  protection of  education under  a renewal."   He                                                               
reported  that the  State Assessor,  Martin  McGee, concurs  with                                                               
that characterization  and has  indicated that,  "especially with                                                               
the elimination  of a renewal,  it's completely  unnecessary." He                                                               
said  an  amendment   labeled  [29-LS1551\H.3,  Shutts,  3/30/16,                                                               
subsequently  referred  to  as Amendment  1],  contained  in  the                                                               
committee  packet,  removes  the renewal,  removes  the  language                                                               
pertaining  to  education  funding  under  a  renewal,  and  also                                                               
removes the renewal  for deferrals.  The amendment  is in keeping                                                               
with the committee's intent as  voiced during hearing discussions                                                               
on HB  370.   The proposed bill  introduces new  language dealing                                                               
with  unlimited  time  periods  for  exemptions,  making  renewal                                                               
language irrelevant, he assured.                                                                                                
8:10:10 AM                                                                                                                    
REPRESENTATIVE ORTIZ asked whether  businesses have ever received                                                               
a  property tax  exemption  from that  portion  which relates  to                                                               
MR. HILYARD deferred to Mr. McGee.                                                                                              
CHAIR TILTON opened public testimony.                                                                                           
8:11:27 AM                                                                                                                    
MARTIN  MCGEE, State  Assessor,  Division Programs  & Key  Staff,                                                               
Division  of  Community  and   Regional  Affairs,  Department  of                                                               
Commerce,  Community, &  Economic Development  (DCCED), responded                                                               
that  the  required  local  contribution  [for  education]  is  a                                                               
requirement for the  entire tax base, based on a  minimum of 2.65                                                               
mills.    He  said  the   contribution  is  not  specific  to  an                                                               
individual  property,   and  the   requirement  has   never  been                                                               
8:12:15 AM                                                                                                                    
REPRESENTATIVE  ORTIZ asked  if  the  amount represents  foregone                                                               
revenue to  the municipality particular  for education,  or would                                                               
the  business still  contribute  that portion  of their  property                                                               
taxes directed towards education.                                                                                               
MR. MCGEE answered that an  individual business is exempt and not                                                               
required to  provide tax revenue,  however the municipality  as a                                                               
whole is still required to provide the revenue.  He explained:                                                                  
     That's the way  the add-back works with  the full value                                                                    
     determination for  local option.  In  effect the school                                                                    
     district and  municipality does not forego  the revenue                                                                    
     required to support the school district.                                                                                   
8:13:37 AM                                                                                                                    
REPRESENTATIVE  SEATON  reported  that a  similar  situation  was                                                               
dealt with  regarding the senior  property tax exemption,  and he                                                               
explained  that  the  first  $150,000 of  property  value  for  a                                                               
benefiting  senior would  be exempt  from  the tax  base for  the                                                               
education  calculation.    He stated  his  understanding  of  the                                                               
proposed legislation:                                                                                                           
     This is an optional, so that  it is included in the tax                                                                    
     base  for  the  calculation  of  education.  ...  If  a                                                                    
     municipality  would give  a tax  exemption  for ...  10                                                                    
     years  for a  big  economic  development project,  that                                                                    
     might be  ... 25  percent of their  assessed valuation,                                                                    
     then the  other residents and the  other businesses, if                                                                    
     it was a  full tax exemption, would owe  the 2.65 mills                                                                    
     of the entire project that  was being exempted from the                                                                    
     taxation.  They would still  owe that as required local                                                                    
     contribution for education.                                                                                                
MR. MCGEE  said, "You're  statement is  correct.   That's exactly                                                               
how it works - it shifts the tax burden."                                                                                       
8:15:36 AM                                                                                                                    
REPRESENTATIVE   HUGHES   questioned   how  this   would   affect                                                               
businesses differently  depending on  a locale within  or outside                                                               
of a municipality  that is part of a school  district, due to the                                                               
required education contribution.                                                                                                
MR. HILYARD  responded that under  current statute,  which allows                                                               
for a renewal,  after year five the full mill  for education must                                                               
be returned.   The  amendment that will  be proposed  removes the                                                               
renewal process and the necessity for the related language.                                                                     
REPRESENTATIVE  HUGHES   referred  to  Amendment   1  [previously                                                               
cited],  and  the language  offered  on  line 7  indicating  that                                                               
"Insert  THE  MUNICIPALITY MAY  PROVIDE  FOR  RENEWAL," which  is                                                               
followed  on  line  9,  with  the  verbiage,  "HOWEVER,  UNDER  A                                                               
RENEWAL,  A  MUNICIPALITY THAT  IS  A  SCHOOL DISTRICT  MAY  ONLY                                                               
EXEMPT ALL  OR A PORTIONOF THE  AMOUNT OF TAXES THAT  EXCEEDS THE                                                               
AMOUNT  LEVIED ON  OTHER PROPERTY  OR THE  SCHOOL DISTRICT",  and                                                               
asked for clarification.                                                                                                        
MR. HILYARD said  it appears that the language  is being proposed                                                               
for insertion;  however, it is just  a function of drafting.   He                                                               
explained,  "Because it's  an amendment  rather than  a CS,  [the                                                               
drafters] have to  delete the original insertion  before they can                                                               
insert the deletion."                                                                                                           
8:18:48 AM                                                                                                                    
CHAIR   TILTON  closed   public   testimony  on   HB  370   after                                                               
ascertaining no on wished to testify.                                                                                           
8:19:07 AM                                                                                                                    
The committee took an at-ease from 8:19 a.m. to 8:29 a.m.                                                                       
8:29:23 AM                                                                                                                    
REPRESENTATIVE  SEATON moved  to adopt  Amendment 1,  labeled 19-                                                               
LS1551\H.3, Shutts, 3/30/16, which read as follows:                                                                             
     Page 1, line 10, through page 2, line 1:                                                                                   
          Delete "YEARS].  The municipality may provide for                                                                     
     renewal of  the exemption under  conditions established                                                                    
     in  the  ordinance.   However,  [UNDER  A  RENEWAL,]  a                                                                    
     municipality that is a school  district may only exempt                                                                    
     for  more than  five  years  all or  a  portion of  the                                                                
     amount  of  taxes if  that  amount  exceeds the  amount                                                            
     levied on other property for the school district."                                                                         
          Insert "YEARS.  THE MUNICIPALITY MAY PROVIDE FOR                                                                      
     RENEWAL OF  THE EXEMPTION UNDER  CONDITIONS ESTABLISHED                                                                    
     IN  THE  ORDINANCE.    HOWEVER,   UNDER  A  RENEWAL,  A                                                                    
     MUNICIPALITY THAT IS A SCHOOL  DISTRICT MAY ONLY EXEMPT                                                                    
     ALL OR  A PORTION OF  THE AMOUNT OF TAXES  THAT EXCEEDS                                                                    
     THE  AMOUNT LEVIED  ON OTHER  PROPERTY  FOR THE  SCHOOL                                                                    
     Page 2, lines 3 - 4:                                                                                                       
          Delete "YEARS].  The municipality may provide for                                                                     
     renewal  of the  deferral under  conditions established                                                                    
     in the ordinance."                                                                                                         
          Insert "YEARS.  THE MUNICIPALITY MAY PROVIDE FOR                                                                      
     RENEWAL  OF THE  DEFERRAL UNDER  CONDITIONS ESTABLISHED                                                                    
     IN THE ORDINANCE]."                                                                                                        
There being no objection, it was so ordered.                                                                                    
8:29:59 AM                                                                                                                    
REPRESENTATIVE  SEATON emphasized  the  importance for  notifying                                                               
communities that this legislation  does not exempt municipalities                                                               
or  boroughs  from  funding schools  at  the  required  education                                                               
contribution of 2.56 mills.  He said:                                                                                           
     If a city council would  enter a contract, for economic                                                                    
     development  of  10-15  years, that's  going  to  be  a                                                                    
     contract that's  going to be  enforceable. ...  If they                                                                    
     give an exclusion  of the full taxable  value, the rest                                                                    
     of the  residents and  businesses in  that municipality                                                                    
     are  going to  have to  pick-up the  2.65 mill  rate on                                                                    
     that  exempted value.    If it's  a  large project,  it                                                                    
     could significantly  increase over that full  period of                                                                    
     time, the  tax liability  of the current  ... residents                                                                    
     and businesses.                                                                                                            
8:31:55 AM                                                                                                                    
REPRESENTATIVE  SEATON  moved to  report  CSHB  370, Version  29-                                                               
LS1551\H,  Shutts, 3/25/16,  as  amended, out  of committee  with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
There  being no  objection,  CSHB 370(CRA)  was  reported out  of                                                               

Document Name Date/Time Subjects
Municipal Tax Exemption Explanation HB 370.pdf HCRA 3/31/2016 8:00:00 AM
HB 370
HB 370March 30, State Assessor.pdf HCRA 3/31/2016 8:00:00 AM
HB 370
Amendment H 3, HB 370.pdf HCRA 3/31/2016 8:00:00 AM
HB 370
Legal Memorandum, Amendment H3 HB370.pdf HCRA 3/31/2016 8:00:00 AM
HB 370