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Sales tax? Anchorage voters chime in on property-tax reduction options.

Sean Doogan
A series of meetings is being held for Anchorage residents to discuss the idea of reducing property taxes by instituting alternative means of gathering revenue for Alaska's largest city. A lot of ideas were floated at a Tuesday night meeting at the Anchorage Senior Center, but many of the answers simply created more questions. More meetings are scheduled in coming weeks. Sean Doogan photo

Should more people help shoulder the burden of paying for Anchorage municipal services? That was the question posed Tuesday night to more than 60 people who had gathered at the Anchorage Senior Center in Midtown. The discussion was the first of four public forums on whether the city needs to diversify its tax base, and how to do it. Other sessions are scheduled over coming weeks. On Tuesday night, sales taxes featured prominently in the discussions, but not everyone agreed with the idea.

The total amount of money the city can raise to fund its budget is set by a tax cap passed by voters in 1983. It limits the amount of the city budget to what it was the year prior, plus inflation, an adjustment for population increase, and increased Anchorage property value due to development.

Mayor Dan Sullivan believes the city needs to diversify its revenue, and spread the cost of services around. Sullivan is sponsoring four nights of discussion on the issue to determine if the municipality should look at other taxes to ease the burden of property owners.

By the numbers

Currently, the municipality relies on property taxes for most of its revenue. Of the $475 million used to fund the municipal budget in total this year, $253.2 million -- about 53 percent -- came from people who paid property taxes. Other taxes, like the bed tax, tobacco tax, and an 8-percent tax on rental cars, total $88 million, or 19 percent of the Anchorage 2013 municipal budget. Anchorage does not currently have an alcohol tax. Fees, interest, and federal and state money fill in the rest of the budget. Another $234.9 million in property taxes this year went to the Anchorage School District.

According to the Municipal Office of Management and Budget, this year, property owners in Anchorage paid about $1,522 in taxes for every $100,000 worth of property they own. With the average value of an Anchorage home about $350,000, that adds up to $5,327 per year -- about $444 per month.

“Every time the green cards (municipal appraisals on property and taxes) go out, my phone rings with people telling me they need a break,” Mayor Sullivan told the crowd at the Senior Center.

With the exception of visitors and a few locals who rent cars or hotel rooms in Anchorage, and people who smoke, no one else pays for city services. Or do they?

“I don’t think it would be fair to say that people who rent don’t pay, even indirectly, property taxes,” said Brian Murphy, who owns some rental units in Anchorage. Murphy said the cost of property taxes are figured into his per-unit rental cost, and therefore how much he charges. But if property taxes came down and were replaced by a sales or other form of tax, Murphy doesn’t believe renters would see any savings.

“The rents are a factor of the market, and there is very low vacancy rate out there right now,” Murphy said. And indeed, an annual statewide survey released recently found that in 2013 Anchorage had the lowest vacancy rate in Alaska.

Currently senior citizens (people over the age of 65) and disabled veterans get the first $150,000 dollars of their property value exempted from taxes. But with an aging Anchorage population, it costs the city $30 million per year -- money that is paid for by the rest of the city’s property owners, who also cover another $16 million in exemptions for churches and non-profits.

Seeking alternatives

The crowd at the Senior Center on Tuesday night was encouraged to come up with other means of taxation, to cut back on how much Anchorage property owners have to pay.

Some attendees wanted to replace all property taxes with a sales tax -- a move the Muni said would take at least a 16-percent tax rate on purchases, with almost no exemptions. Others wanted to create a sales tax that would take up some of the property tax burden. The municipality said a 3-percent sales tax would bring in between $235 and $118 million, depending on exemptions for things like rent, utilities, and real estate purchases.

East Anchorage Assemblyman Paul Honeman, who watched the Tuesday meeting, said if a sales tax had to be the answer for over-burdened property owners, it should have a short life, at least at first. Honeman supports a three-year term for an Anchorage sales tax -- a tax that he said should have to be reapproved by voters at the end of each term.

Others offered ideas like instituting an alcohol tax, increasing the tobacco tax, or finding a way to tax commuters who come into Anchorage -- especially tourists and people who live in the Mat-Su Valley and work in Anchorage.

“They drive on our roads, use our police services and flush our toilets,” said Aaron Pascar, a retired Anchorage homeowner.

Another notion discussed was a so-called wholesale tax that would potentially offer $126 million each year by taxing 0.7 percent of all business transactions within the municipality.

Surplus of ideas

A lot of ideas were floated at the Tuesday meeting, but many simply created more questions than answers -- especially when it came to talk of a potential Anchorage sales tax.

There have been four attempts to implement a sales tax in Anchorage since the early 1990’s. All have failed miserably at the polls.

And, if a sales tax were to be approved by voters would it be year-round, or seasonal? And: how many exemptions should there be? Should food, medicine, and services be free from a sales tax?

Mayor Sullivan said he realizes that the issue of a sales or other form of new tax will likely be resolved after he leaves office. But he does support diversifying the city revenue stream.

But there may be another hurdle to stride when it comes to implementing new ways for the city to pay its bills.

While people offered many differing ideas and opinions about new taxes at the Tuesday meeting, there was one opinion most in the room could agree on: Anchorage needs to do a better job in how it spends money.

“A lot of money we spend here is wasted,” said Pascar. “If they would spend less, they wouldn’t have to collect so much.”

CORRECTION: This story originally reported that the Anchorage School District received $274.3 in property tax revenue. It actually received $234.9 million. 

Contact Sean Doogan at sean@alaskadispatch.com