Legislature(1995 - 1996)
03/13/1996 01:35 PM CRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 280 MANDATORY INCORP OF CERTAIN BOROUGHS CHAIRMAN TORGERSON called the Senate Community & Regional Affairs Committee meeting to order at 1:35 p.m., and brought SB 280 before the committee as the first order of business. DEB DAVIDSON , committee aide, explained that at the last meeting on the legislation, a committee substitute was adopted that basically puts in a schedule for the incorporation of the boroughs. The original version provided that DCRA would have borough proposals completed by July 1, 1997 for submission to the Local Boundary Commission. However, it was realized that this was probably a little too optimistic so a transition schedule was inserted in the new committee substitute to give the department more time to put the borough proposals together. Once the Local Boundary Commission approves the borough proposal, it would then go directly to the Division of Elections for the election of borough assembly members and the choice of areawide powers. The Local Boundary Commission would have to bring any annexations before the Legislature for approval or disapproval. Ms. Davidson directed attention to a backup packet including a breakdown of fiscal implications, new fiscal notes, as well as a schedule of incorporation for boroughs, based on 1994 values. SENATOR TORGERSON asked if the state assessor has indicated when he will reassess the values in the REAAs, because the only information that is currently available is the 1994 values. MS. DAVIDSON replied that the state assessor indicated that if SB 280 passes, he will start immediately on estimating the property values. SENATOR TORGERSON noted the breakdown of the fiscal implications shows that the 1994 estimated value of property not currently taxed by local governments in rural areas amounts to $3,100,154.6. It also shows the preliminary estimate of cumulative cost to the state through fiscal year 2002 for the incorporation of the unorganized boroughs is $13,216,600. MS. DAVIDSON explained in estimating a possible savings of $17,708,600 by the consolidation of school districts, she used figures for administrative costs contained in the Department of Education's report entitled "The Report Card of School Districts." She noted the packet contains a fiscal note from the Department of Education, but it does not show the actual savings that could be realized by the merging of school districts. Number 168 SENATOR ZHAROFF asked if in estimating the value of property not currently taxed by local government, did it include federal lands, Native allotments, regional and village corporation lands. MS. DAVIDSON answered that it was estimated only on taxable property. SENATOR ZHAROFF commented that he would like to see figures on how much revenue is generated by school districts under PL 874, because probably as much as 90 percent of the PL 874 monies that are generated by the non-taxable property in the state goes to the state and 10 percent goes back to the districts. Number 225 LAMAR COTTEN , Deputy Commissioner, Department of Community & Regional Affairs, stated the department supports the concept of SB 280. They believe there are a number of non-financial benefits to areas to consider organizing as boroughs such as promoting economic development, the implementation of planning, approaching certain social programs in a more comprehensive regional basis, and the ability to finance a capital construction project along with some state assistance. Mr. Cotten said DCRA's position is that they like the thrust of the bill, but they are concerned about the areas that in some cases may have high evaluations but also have a number of circumstances that restrict them from receiving the benefits of taxation that the other new rural boroughs have achieved. He noted one of the reasons there isn't a property tax in Bethel is because there is such a scattering of taxable property and non-taxable property, whether its an old Native townsite, or Native allotment, or other restricted deed. Consequently, politically, a lot of local governments have steered away from having a property tax because one neighbor pays and the other one doesn't. Also, another issue to consider, particularly in the Western Alaska region, is the income levels, the high unemployment and the ability to attain a 4 mill levy. Number 335 JACKSON WOMACK , Chief Executive Officer for the Yupik Nation, testifying from Bethel, speaking to what he believes is the unconstitutionality of the legislation, stated tribes possess the right to form their own government, to make and enforce laws in both civil and criminal matters, and tribal governments are not subordinate to state government. SB 280 is an infringement to the right of self-government. SENATOR TORGERSON stated that nobody is taking away their right to tax anything, but the question is if the public monies that go to them as a sovereign nation should come to them from areas other than within their own taxing jurisdiction. He added they want the state of Alaska to continue to pay for their services and yet not recognize any of the authority that the state of Alaska wants to impose upon the rest of its residents, and that is unconstitutional. Number 400 EDDY JEANS , Foundation Program Administrator, Department of Education, advised that the department did prepare a fiscal note, however, at this point, it only deals with the phase-in provision under the foundation program. Mr. Jeans explained that under DCRA statutes, once a borough has been incorporated, it has up to two years to assume the educational duties. Under the foundation program, the municipalities receive an additional grace year of no required local effort, a 2 mill equivalent of a 2 mill tax levy in the second, 3 mills in the third and 4 mills in the fourth. Utilizing the time frames contained in SB 280, the first fiscal note the Department of Education could build was in the 2001 as a fiscal cost. The real impact will be in the Impact Aid Program. Under that program, the state of Alaska currently recognizes $30,000,000 to $35,000,000 annually that goes to school districts in the foundation program. When a municipality has a required local effort, as they do in Alaska, and when a district contributes over the 4 mill required local effort, the amount of impact aid that the state may recognize in the foundation formula is reduced by the proportion that they exceed that required local effort. Mr. Jeans advised that the Department of Education proposes to run a schedule of the foundation program as it is today, and then run it out to the year 2007, when they would actually recognize all of the boroughs being incorporated and show how this is going to impact the deductible impact aid of the foundation program. Based on the projected assessed values, the foundation program would recognize approximately $12,000,000 in increased required local effort. He added he believes that once the schedule is completed, it will be offset by a large chunk of loss in impact aid revenue that is recognized in the formula. Number 430 SENATOR TORGERSON commented that the legislation does not set up any taxation methods, it is just the formation of the boroughs. The recommendations on how this is done is going to be part of the negotiations between now and the time these boroughs are formed. The intention of the bill is to get everybody thinking about and forming their boroughs. SENATOR ZHAROFF said he is not opposed to any borough formation or the state being sectioned as boroughs, but he supports a process where it comes from the people up rather than from the government down. He believes the legislation sets up a time frame that causes some problems. Number 445 SENATOR ZHAROFF asked if any of the boroughs are having financial problems. He is aware of one borough that has a concern with the amount of non-taxable land within its boundaries. LAMAR COTTEN responded that he was not aware of any, and he noted the last five that have been organized all have fairly strong tax bases. He also related that another issue the department has looked at and discussed over the years is that when people have looked at organizing a borough in the eastern part of Alaska, including the pipeline, the taxation that borough would be allowed to tax on the oil and gas property would be deducted from those funds that would go to the general fund. He said he is not sure how much of a benefit there could be to the state under certain circumstances such as that and these types of issues need to explored and talked through. Number 525 MICHAEL GATTI , Borough Attorney, Matanuska-Susitna Borough, testifying from the Mat-Su LIO, stated the Mat-Su Borough believes the legislation is a good start in incorporating areas into municipalities so they can start paying their own way. Responding to an inquiry made by Senator Zharoff earlier in the meeting as to the powers of a second class borough, Mr. Gatti said there are three mandatory areawide powers: planning, assessment and taxation, and education. There are a number of other powers that a borough can exercise by ordinance or through a vote of the people. Mr. Gatti expressed the Mat-Su Borough's keen interest in the legislation, and he said they believe other municipalities are quite interested in it as well. He noted there is an attack on the Mat-Su Borough's boundaries from another organized borough that is taking place, and while SB 280 doesn't address that, they believe the more boroughs that are organized and paying their own way, the less likelihood there will be of people trying to do "tax shopping" in an effort to get a better deal for their money. Number 544 SENATOR ZHAROFF asked what Mr. Gatti meant by "paying their own way." MR. GATTI responded that when saying "paying their own way," it means those municipalities that provide a local effort to provide those essential local services, tax themselves at a level that can contribute to the support of those services. He added, in general, they think the state has been paying for what in essence is local services for quite some time in the unorganized areas. Number 574 DENNIS WATSON , Mayor of Craig, testifying from Craig, said as a city they do their own planning, their own taxing, and he believes they are pretty effective at it, better than most boroughs and better than the state is. He said there is some problem as far as being able to access fishery taxes by a borough, but this allows that to happen in most places. The fishery taxes that are being collected in some of the boroughs out to the west of them are in addition to the state fishery tax or landing tax so it is an additional burden on the fishermen who are already in trouble right now. He related it has been a feeling of all the communities in the Craig area that a borough is not acceptable. He suggested the uniqueness of any area in the state as compared to another needs to be considered. TAPE 96-14, SIDE B Number 010 MS. MARLA ADKINS , testifying from Cordova, stated she is not opposed to a borough, but she is opposed to both borough and city governments. She observed that as far as closing the fiscal gap in Juneau, right now the state takes the raw fish tax for various areas, and if boroughs are formed, the boroughs will take that tax, so she doesn't see that as helping to close the fiscal gap. She is opposed to SB 280 in its current form, and she does not believe a borough should be formed without a vote of the people. Number 075 MS. DENNY WEATHERS , testifying from Cordova, stated her strong opposition to SB 280, basically because of level of service. If the area she lives in was incorporated into a borough they would lose their school system, and they cannot travel to Cordova for schooling. All they would get out of it is being taxed. ERIC WEATHERS , testifying from Cordova, also stated his opposition to SB 280. He and his wife live on an island outside of Cordova, and when he goes to Cordova to shop he pays city taxes. If they become part of a borough, it will mean more taxes for him. Number 101 MS. JANE BROWN , testifying from Glennallen, voiced her opposition to SB 280 because she believes it is unconstitutional. She pointed out that as far as Glennallen carrying its own weight, they live in an area where sanitation, garbage, sewer and medical are all private enterprise. She said as far as taxing the pipeline in their area, it is on the decline, and passage of the legislation will be a large burden on the individuals living there. She also pointed out that most of the land in that area is uninhabited swamp, and if it were taxed, it would probably decrease the value of the residents' property. Number 120 JOHN KUNIC , testifying in Glennallen, stated his opposition to SB 280 because there is no basis for a tax in that area and there is no industry. He also believes the legislation is unconstitutional. Number 128 SENATOR TORGERSON pointed out that for 1994 the assessed evaluation for the Copper River Basin is approximately $65,000,000, and if oil and gas property is included, it is another approximately $600,000,000, so there is some assessed evaluation. Number 132 HERMAN DILLBACK , a resident of Slana testifying in Glennallen, echoed earlier testimony that SB 280 is unconstitutional. He suggested incorporation should be based on an autonomy level that the communities have themselves in order to contribute to the revenues of the state. He said if the state is concerned about the revenue that it is sharing with the communities all over the state, communities that don't have an economy that will produce some sort of income and a revenue sharing to the state, he doesn't understand why they should be put in a situation where they are taxed and not able to produce any money as a personal income to support themselves. Number 152 DAN BILLMAN , a resident of Lake Louise testifying in Glennallen, said the real issue is school tax where residents of that area feel there is an unequal school tax. He suggested looking at other legal ways to tax statewide, but not to force the formation of areas that aren't ready for a borough government and putting that burden on its people. Number 180 BERNARD GOODNO , testifying in Delta Junction, spoke to the unconstitutionality of SB 280 and his rights as a citizen under the U.S. Constitution. He said it is not up to the state to force its people to do anything, and he wants a lot less government, not more. Number 190 MARLIN STARNES , a member of the Delta Junction City Council testifying in Delta Junction, said there are a lot of issues in the legislation that might have to be addressed if it were to work at all. He said reference was made to the 1994 estimated assessed evaluation, however, they have already lost approximately $50,000,000 in evaluation in that area. Number 205 GENE OTTENSTROER , testifying in Delta Junction, questioned where the revenues will come from to pay for all the "conveniences" that will come with the formation of a borough. In his opinion, putting a borough on Delta is a monkey on their backs that can only turn to the state and jump on theirs. The state will end up supporting another government and holding the bag in the end. He questioned under what authority the Legislature has to force them into a borough. SENATOR RANDY PHILLIPS responded that basically, the Legislature serves as the assembly for the unorganized areas of the state, so that's where the authority comes in. Number 241 MS. JEANNE PHIPPS , testifying in Delta Junction, stated SB 280 is unconstitutional. She asserted the right to property does not come from the state, it comes from the Creator. She said it is time for legislators to perform their oaths of office, which is first to uphold the U.S. Constitution. She urged to vote no against putting the people into bondage through a fraudulent incorporation. Number 275 P.R. MILLER , testifying in Delta Junction, said many areas in the Lower 48 are getting away from boroughs because they are a duplication of effort and taxes and a loss of money. He said Delta Junction is paying its own way, they are just not charging 7 mills on the pipeline to take care of Delta Junction. The state gets that money and funds it back to them in aid that they require. He suggested there should be a statewide sales tax, a statewide income tax and a statewide land usage tax, and then doing away with the boroughs and the state will make money in the long run. Number 315 ELSIE O'BRYAN , testifying in Juneau in support of SB 280, related she is deputy mayor of Houston, which is a second class city located within the Matanuska-Susitna Borough. She said the city of Houston has been subjected to inequitable treatment for many years on school funding. The residents within that area fund approximately 85 percent of all school costs from local tax dollars. She observed the Alaska Constitution calls for equitable treatment of all the people, but she questioned how it could be equitable to have one portion of the state contributing towards the services provided and another area not doing so. She said several people have talked about the unconstitutionality of forcing boroughs, but she would raise the question of the unconstitutionality of not forcing boroughs. Number 381 SENATOR ZHAROFF commented that there hasn't been a state income tax for many years so a lot of the revenue is generated from oil royalties, the fishing industry, etc., so it's not that you are giving people something that really isn't theirs. Number 412 MS. KATHLEEN SLOBODA , testifying in Glennallen, stated her strong opposition to the formation of a borough in the Glennallen area. She believes the bill was created out of spite because some people are unhappy that others, perhaps, are not having to pay as much as they are. The borough only creates infrastructure to increase the population, and with that increase of population, it just becomes another city. Number 456 RALPH TRONRUD , a school board member in Skagway, stated his concern with the legislation is that it mandates the formation of boroughs. He said Skagway is paying its own way, however, their area is in one of the proposed boroughs that's being looked at. He believes if Skagway was put into the same borough as Haines, which has a larger community, both communities would lose their autonomy. He suggested changing the legislation so that boroughs could form on a voluntary basis. Number 482 BARBARA KALEN , testifying in Skagway, said Skagway has been an incorporated city since 1900 and they have paid their own way. All of the land that has any commercial use, any residential use, any use whatsoever is in the city limits of Skagway. She said Skagway does not need another layer of government, and they do not like being mandated for something that they do not need and do not want. Number 500 ROY BRITTIAN of Copper Center, testifying in Glennallen, voiced his opposition to SB 280, and said he doesn't see why people should be forced into anything. A lot of people in the Copper River Valley area farm and most of them just barely make ends meet. Adding borough taxes is all they need to put them out of business. Number 530 ALFRED KRINKE , testifying in Glennallen, said if the Legislature is going to impose another layer of government, which a borough is, then you have automatically picked up a whole lot of expenses that people don't want to pay for. He suggested if the Legislature needs money to close the fiscal gap, there are several other ways of raising it. There being no further witnesses to testify on SB 280, SENATOR TORGERSON asked for the pleasure of the committee. SENATOR RANDY PHILLIPS moved that CSSB 280(CRA) and the accompanying fiscal notes be passed out of committee with individual recommendations. SENATOR ZHAROFF objected and stated he believes mandating the formation of boroughs is going to cause a lot of problems, particularly under the proposed boundaries. TAPE 96-15, SIDE A Number 005 SENATOR TORGERSON called for a roll call vote. The roll was taken with the following result: Senators Kelly, R. Phillips, Torgerson voted "Yea" and Senator Zharoff voted "Nay." The Chairman stated the motion to move CSSB 280(CRA) out of committee with individual recommendations carried.