The Legislature’s passage of Senate Bill 100 on the final day of the regular session on May 17 could now give municipalities new flexibility for economic development tax incentives.
The bill is being transmitted to Gov. Bill Walker, who must still sign it.
Other provisions important to local governments, including clarification of state law related to municipal liens along with new authority for second class boroughs to establish emergency service areas, were included in the final version of SB 100.
This is an example of what often happens in the legislative process, when language from other bills that are pending in different committees is added to a fast-moving priority bill in the final stages of enactment.
In this case, SB 100, which originally dealt with an urgent problem related to municipal liens, had passed the Senate and was in the House Rules Committee, where the provisions from three other bills were added.
The economic development language in SB 100, taken from Wasilla Rep. Cathy Tilton’s House Bill 156, deals with municipal incentive property tax reductions, for redevelopment of deteriorated property as an example.
Current law limits these incentives to five years and also sets conditions that many projects are unable to meet, local officials say.
SB 100 eliminates the limit, leaving it up to municipalities to set the duration of the incentives, and eases the conditions that must be met, which were argued to be too rigid.
Municipal officials supported the changes.
“In times of economic downturn like Alaska is now experiencing, tools like this provide communities with a way to invest in themselves that can pay dividends in the future,” said Bill Popp, president of Anchorage Economic Development Corp.
Seward’s Assistant City Manager Ron Long also weighed in, writing in a letter that the current law with the five-year limit may have worked for smaller projects but is too short for many development projects.
“Today’s larger and more capital intensive development projects can’t find enough certainty in a five-year agreement that might not be renewed to be part of a viable business plan,” Long wrote.
He cited Seward’s Marine Industrial Center, now in phase one and preparing for phase two, as an example of a long-term project with substantial local benefits, and where an extended tax-break could help.
Present law not only restricts the incentives to five years but also limits the incentives to properties meeting certain criteria: that properties have not been on the tax roll before; that they would generate sales outside a community of goods or services produced in the community; that they would reduce imports of goods or services; and that they have not been used for similar purpose within six months.
Statutes now require all three of these tests to be met for a property to qualify, and they are too rigid, Popp said in his letter.
“These criteria are overly onerous for municipalities and are the main reason why this tax abatement tool has never been used,” Popp wrote.
Senate Bill 100 changes this to where only one of the criteria rather than all of them, must be met.
Modifying the requirement, “gives municipalities the flexibility they need,” Popp wrote. “Our communities are all different and a truly effective tool is one that gives local control over property tax-based incentives.
Other candidates for the enhanced incentives include renovation of Anchorage’s historic Fourth Avenue Theater and the derelict Northern Lights Inn in the city’s Midtown area, Fleek-Green said.
The extended tax incentives could attract developers and help make the projects pencil out, she said.
The final version of the legislation also includes authorization for a municipality to grant property tax exemptions if fire protection systems are installed in the building. An exemption, if granted, cannot exceed 2 percent of the assessed value of the structure, according to the bill.
Language from another bill, Rep. Mike Chenault’s HB 148, was also rolled into the final version of SB 100 in the Senate Rules Committee.
Chenault’s bill would allow second class municipalities, such as the Kenai Peninsula Borough, where Chenault’s district is located, to establish an emergency service area along state highway corridors and adjacent public lands.
This provision is mainly aimed at the need for emergency services along the heavily-traveled Seward and Sterling highways through the Kenai borough.
Under current law it is difficult for the borough to provide emergency services along the highway corridor. With this authority now in SB 100, the problem would be solved.
A critical provision in SB 100, and the original purpose of the bill, which was sponsored by Sen. Dennis Egan, D-Juneau, is to correct a problem for municipalities created by a 2012 state Supreme Court decision that had an indirect effect of invalidating many municipal liens on properties, for example for unpaid utility bills.
To be valid under the 2012 Supreme Court decision, municipal liens had to have a link to a state law, and because liens based solely on municipal ordinances were not included in the state’s code of civil procedure, a result of the 2012 decision, the link to a state law was broken.
This weakened the ability of local governments to file liens. Many municipalities across the state endorsed Egan’s bill as an urgent priority.