Legislature(2009 - 2010)BELTZ 211


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03:37:56 PM Start
03:38:19 PM HB10
04:10:56 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SCS CSHB 10(CRA) Out of Committee
            HB  10-MUNICIPAL TAXES: COSTS/EXEMPTIONS                                                                        
3:38:19 PM                                                                                                                    
CHAIR OLSON announced the consideration of HB 10.                                                                               
SENATOR  MENARD moved  to adopt  the Senate  committee substitute                                                               
(SCS)  to  CSHB  10(FIN),  labeled   26-LS0063\W,  as  a  working                                                               
document.  There being  no objection,  Version W  was before  the                                                               
CHRISTINE  HESS, Staff  to  Representative  Reggie Joule,  Alaska                                                               
State  Legislature, said  the SCS  continues an  exemption for  a                                                               
Northwest Arctic Borough  (NWAB) tax. The Red Dog mine  is in the                                                               
NWAB  and  it  is  the  world's largest  zinc  mine.  The  DeLong                                                               
Mountain transportation system is part  of that mine. It includes                                                               
a  52-mile road  and a  portside loading  facility. The  language                                                               
exempts the road  and facility from the  fair value determination                                                               
for the required local share  for schools. If the DeLong Mountain                                                               
terminal was  included it would  significantly increase  the NWAB                                                               
local contribution. The borough  has participated considerably in                                                               
the  development   of  a   modernized  school   facility  program                                                               
throughout the region,  and it has approved about  $76 million in                                                               
bonded indebtedness  - so  it is  already contributing.  The road                                                               
and  portside  facility  are  owned   by  the  Alaska  Industrial                                                               
Development & Export  Authority (AIDEA) so it  is publicly owned.                                                               
The SCS extends the exemption until November 2012.                                                                              
3:40:48 PM                                                                                                                    
SENATOR FRENCH  said that exemption  is an extension of  a sunset                                                               
date in  Section 6. He  doesn't see any other  explicit reference                                                               
to  the Red  Dog mine  -  "all that  stuff  is just  buried in  a                                                               
statute that has a sunset, and  we're pushing it from November of                                                               
this year until November 2012."                                                                                                 
MS. HESS said it is more  complicated because it has been amended                                                               
many times.                                                                                                                     
SENATOR FRENCH asked what the fiscal impact will be.                                                                            
MS. HESS  said, "Arguably there's  no fiscal impact"  because the                                                               
exemption has never sunsetted.                                                                                                  
SENATOR FRENCH asked the impact if it did.                                                                                      
MS. HESS said she has no idea.                                                                                                  
3:42:17 PM                                                                                                                    
CHAIR OLSON said  if there isn't a payment in  lieu of taxes that                                                               
comes from  the mine,  "then they'd  be looking  to the  state to                                                               
make up for those funds."                                                                                                       
SENATOR FRENCH surmised that it would be a machts nichts.                                                                       
CHAIR OLSON said there is a wash, to a certain degree.                                                                          
SENATOR FRENCH asked if this was added to HB 10 recently.                                                                       
MS. HESS  said it is being  added here. Senator Olson  has a good                                                               
point. The  NWAB enters into  a PILT  [payment in lieu  of taxes]                                                               
agreement with  the mine. If  the tax base assessment  is changed                                                               
the borough would  have no way to recoup the  money, because they                                                               
don't renegotiate  until 2011.  It is not  a situation  where the                                                               
borough  could just  ask for  increased revenues  from the  mine,                                                               
which is the borough's main source of revenue.                                                                                  
SENATOR FRENCH asked  why the House didn't add  the exemption. It                                                               
is significant.  He has supported this,  "but I just want  to let                                                               
the public know what's happening."                                                                                              
MS. HESS  said the  exemption was originally  added to  the AIDEA                                                               
bond bill, but that bill hasn't picked up steam.                                                                                
3:44:36 PM                                                                                                                    
CHAIR OLSON said  the sponsor was gracious enough to  allow it to                                                               
be added to HB 10.                                                                                                              
REPRESENTATIVE  MAX  GRUENBERG,  Alaska State  Legislature,  said                                                               
this is old wine  in a new cask. The provision  was added in this                                                               
committee and there  will be a concurrent resolution  for a title                                                               
change.  It  will  allow  the borough  to  continue  the  current                                                               
arrangement, "and  it would be  just much more expensive  for the                                                               
borough if  this thing  sunsets with no  good benefit."  He would                                                               
have been willing to accept this  in the House. The language will                                                               
likely  not burden  the bill  in the  House, although  he doesn't                                                               
know about  the Senate Finance Committee.  He is happy to  see it                                                               
in the  bill, and he  hopes it will help  the bill. This  bill is                                                               
the same  as last  year's with two  exceptions. The  exemption on                                                               
APU [Alaska  Pacific University]  used to  say "shall",  and this                                                               
committee changed it to "may" to make it an optional exemption.                                                                 
3:46:54 PM                                                                                                                    
REPRESENTATIVE GRUENBERG  said Section  1 is  new. Representative                                                               
Chenault added it at the  request of the Kenai Peninsula Borough.                                                               
The borough collects taxes on behalf  of the City of Seward. That                                                               
has required software costs for  the borough. This will allow the                                                               
borough to recoup  those expenses - which is only  fair. This was                                                               
offered in the Senate Finance Committee and the bill died there.                                                                
REPRESENTATIVE  GRUENBERG said  there  was a  provision that  was                                                               
added  to the  bill  in  this committee,  last  year, by  Senator                                                               
Thomas  to raise  the $20,000  residential exemption  to $40,000.                                                               
That was  controversial, so it is  gone. The rest is  the same as                                                               
last year's bill.                                                                                                               
3:48:31 PM                                                                                                                    
REPRESENTATIVE  GRUENBERG  said  Section  2  allows  a  widow  or                                                               
widower of  a disabled veteran  to continue to receive  their tax                                                               
exemption  for  their  primary residence,  unless  they  remarry.                                                               
Section 3  allows APU to get  a tax exemption for  the underlying                                                               
building that is used as  an instructional facility for students.                                                               
The doctors who are there  are adjunct professors. The lease-hold                                                               
interest is taxable. "We redrafted  this provision, page 3, lines                                                               
5-12, to include the 'however' clause  on line 10, because it was                                                               
just  incorrectly   written."  It  was  an   incorrect  statutory                                                               
reference.  Section  4  allows  a  tax  exemption  for  fraternal                                                               
organization buildings  that are often  used as meeting  halls in                                                               
small  communities.  Section  5  is  the  cop-in-the-neighborhood                                                               
bill. "This  is the sixth year  we've been looking at  this and I                                                               
hope it will be the last."  It encourages police to live in high-                                                               
crime  areas  to help  control  crime.  It  would be  helpful  in                                                               
Nikiski,  Mountain  View,  and  other  areas.  The  widow/widower                                                               
exemption will take place on the next calendar year.                                                                            
3:50:49 PM                                                                                                                    
SENATOR  MENARD   asked  if  a  fraternal   organization  denotes                                                               
something like the Filipino community.                                                                                          
REPRESENTATIVE GRUENBERG said yes, or like the Elks club.                                                                       
CHAIR OLSON suggested the Freemasons or the Masonic temples.                                                                    
REPRESENTATIVE GRUENBERG  said yes,  and it  must be  ratified by                                                               
the voters.  This has been  carefully looked at. Each  section of                                                               
the bill is disconnected but put together for convenience.                                                                      
SENATOR FRENCH asked if APU is now paying taxes.                                                                                
3:52:10 PM                                                                                                                    
REPRESENTATIVE GRUENBERG  said they  were not, but  the municipal                                                               
assessor  recently  assessed  it.  There  is  litigation,  but  a                                                               
legislative  fix is  better. It  is a  collegial solution  rather                                                               
than an adversarial one.                                                                                                        
SENATOR FRENCH asked for clarification  that the APU had not been                                                               
paying taxes,  then it  got hit  with taxes,  "and you  are their                                                               
white knight."                                                                                                                  
REPRESENTATIVE GRUENBERG said he hopes so.                                                                                      
CHAIR OLSON asked if Representative  Gruenberg is in favor of the                                                               
$40,000 exemption from the original bill.                                                                                       
REPRESENTATIVE GRUENBERG  said yes. An initiative  is circulating                                                               
in  Fairbanks that  "goes  up to  $100,000."  If the  legislature                                                               
doesn't do  something about this  request for tax  relief, "we're                                                               
going  to see  a real  tough situation,  because that  initiative                                                               
will  pass and  it  will throw  municipalities  into chaos."  The                                                               
legislature should help citizens without busting municipalities.                                                                
CHAIR OLSON said the burden of taxation will shift to others.                                                                   
REPRESENTATIVE  GRUENBERG said  it will  shift to  the commercial                                                               
sphere. "But  I'm concerned  with this gun  over our  head; we're                                                               
going to be faced with a  worse solution." It was $40,000 [in the                                                               
original bill],  but a responsible,  defendable step needs  to be                                                               
taken. If  the legislature turns  its back, the voters  will take                                                               
it out of its hands and cause a very, very serious situation.                                                                   
3:54:35 PM                                                                                                                    
CHAIR OLSON asked what prompted  the municipal assessor to assess                                                               
APU's building.                                                                                                                 
DOUGLAS  NORTH, Alaska  Pacific  University,  Anchorage, said  he                                                               
believes   it  was   when  the   Anchorage  Baptist   Temple  was                                                               
complaining that its faculty members  were taxed on property, and                                                               
they pointed  at APU as an  example. APU prevailed in  that case,                                                               
and APU was not taxed on  the residences of the faculty; however,                                                               
APU has  been taxed since  then on "this other  building." Unless                                                               
there was  a specific exemption  granted by the  legislature, the                                                               
municipality  would not  be able  to  allow that  property to  be                                                               
taxed  as   a  private  lease-hold  arrangement.   The  Anchorage                                                               
assembly is  in favor of this  legislation that allows APU  to be                                                               
taxed the  same way the University  of Alaska is taxed  - to have                                                               
that tax calculated on the basis of private lease hold.                                                                         
3:57:15 PM                                                                                                                    
SENATOR MENARD asked how many acres APU has.                                                                                    
MR. NORTH  said there  are 178  acres, which  includes recreation                                                               
and academic  lands. APU was  originally a land  grant university                                                               
and used  those lands  to generate  income. It  is one  of those,                                                               
which is a private interest, that  is now being taxed at the full                                                               
value of the building instead of a lease-hold interest rate.                                                                    
CHAIR OLSON asked how many acres are taxable.                                                                                   
MR.   NORTH  said,   "The  only   one  that's   being  taxed   is                                                               
approximately 4 acres."                                                                                                         
SENATOR MENARD said that is more land than she realized.                                                                        
MR. NORTH said it used to  be more. Over the years the university                                                               
had to let some acreage go to maintain operations.                                                                              
3:58:55 PM                                                                                                                    
STEVE  VAN   SANT,  State   Assessor,  Department   of  Commerce,                                                               
Community, &  Economic Development, Anchorage, said,  "We haven't                                                               
taken  a  position  on  the  bill;  the  new  amendment  kind  of                                                               
surprises us  here." He  expected it  on the  AIDEA bill,  but he                                                               
believes  "the  department  has  taken  a  no  position  on  that                                                               
amendment too;  it's just kind of  surprising that is came  up on                                                               
this bill, is all."                                                                                                             
CHAIR OLSON asked the bill's overall impact to state revenues.                                                                  
MR. VAN  SANT said the exemptions  don't have an impact  on state                                                               
coffers since the $40,000 residential  exemption was removed. The                                                               
only one that relates  to what the state takes in  is the Red Dog                                                               
mine  amendment, which  affects  state education  funds by  about                                                               
$400,000. The area is valued at $200 million.                                                                                   
4:01:34 PM                                                                                                                    
SHARON   WEDDLETON,  Chief   Fiscal   Officer,  Municipality   of                                                               
Anchorage, asked for assurance that  the APU language still reads                                                               
"may by ordinance" rather than "shall by ordinance".                                                                            
REPRESENTATIVE GRUENBERG said yes.                                                                                              
MS. WEDDLETON said, in that case, Anchorage has no position.                                                                    
4:04:30 PM                                                                                                                    
TROY TANKERSLEY, Controller,  City of Wasilla, said  the city has                                                               
concerns with Section 1. Wasilla  collects its own sales tax, and                                                               
the  Mat-Su  borough has  an  initiative  for  a sales  tax.  The                                                               
concern is with "a borough  charging the cities an administrative                                                               
fee ... where rates, et cetera,  are not deemed within this bill,                                                               
so basically it gives the  ability to charge pretty much whatever                                                               
they'd  like, and  that kind  of goes  into the  property tax  as                                                               
well."  The Kenai  Peninsula Borough  undertook a  very extensive                                                               
software enhancement program  in 2005 and Mr.  Tankersley was the                                                               
accounting  supervisor at  that  time. Seward  did  not make  the                                                               
change  until  recently,  so  Seward did  not  impact  the  Kenai                                                               
borough in upgrading its software.  The borough may have incurred                                                               
more costs but not because of  new capital. For Wasilla and other                                                               
cities in its borough, he is against Section 1 in HB 10.                                                                        
REPRESENTATIVE  GRUENBERG said  he  stands  corrected. He  didn't                                                               
know about the timing. The intent  is that the borough may charge                                                               
the city  for costs  that are  actually incurred  from collecting                                                               
the tax.  It is not  to profit the  borough but to  recoup actual                                                               
out-of-pocket costs.  Presumably there  would be an  agreement or                                                               
contract between the two entities.                                                                                              
4:08:30 PM                                                                                                                    
MR. TANKERSLEY said  Section 1 does not say that.  It says that a                                                               
borough may charge a fee for  costs of collecting a tax. That can                                                               
be any kind  of cost -- administrative, personnel,  postage -- as                                                               
it relates to the collection of sales tax in general.                                                                           
SENATOR MENARD  moved to  report the Senate  CS to  CSHB 10(FIN),                                                               
labeled    26-LS0063\W,    from   committee    with    individual                                                               
recommendations  and  attached  fiscal note(s).  There  being  no                                                               
objection, SCS CSHB 10(CRA) moved out of committee.                                                                             

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