Alaska News

Our view: Tax cap going up?

Proposition 9, approved in Anchorage's April 7 election, is meant to keep a tighter lid on property taxes, and to put payments in lieu of taxes from city enterprises and utilities back under the city's tax cap. The proposition was badly written, leaving doubt about whether the main provisions will work as intended.

But one aspect of the proposition is clear: Starting next year, the city must calculate the cap based on a five-year average of inflation, rather than just one year as is now the case.

That change is almost certainly going to produce a higher tax cap next year.

Why?

Inflation is usually the biggest factor affecting yearly changes in the cap, says Sharon Weddleton, the city's chief financial officer. Yearly adjustments also take into account population growth and other factors.

Prop. 9 puts some high inflation years back into the tax cap calculation. Anchorage's inflation rate reached an 18-year high of 4.6 percent for 2008, when oil and gas prices rose to dizzying heights. And we had significant inflation for the prior three years: 2.2 percent in 2007 and 3.2 percent each year for 2005 and 2006.

This year, the national recession could drop Anchorage's inflation rate to zero or even negative 2 percent, says Weddleton.

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Those are just guesses. But assume they're accurate.

Property taxes for the city and school district combined amount to about $480 million. Without Proposition 9, a 2 percent deflation rate means the city would have to collect about $10 million less in property taxes in 2010, Weddleton says.

With Proposition 9 in effect, negative 2 percent inflation in 2009 would get averaged in with four years of high inflation. Result? The inflation component would allow the tax cap to go up 2.2 percent next year -- or a potential tax increase of about $11 million.

That said, Weddleton thinks averaging inflation over five years as part of the formula is a good idea. It evens out peaks and valleys in funding city and school district services.

That makes sense to us. And in any case, the cap is a ceiling, not a floor. Every year, the Anchorage Assembly can choose to collect less taxes than the cap allows.

Prop. 9 was advertised as a way to bring down the tax cap -- but a yes vote didn't bring it down as far as voters might have thought.

BOTTOM LINE: Prop. 9 did one good thing, at least -- adding a provision that levels out the effects of inflation on the Anchorage tax cap.

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