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Ballot Measure 1: Municipalities fret over Alaska property tax initiative

McKibben Jackinsky | Homer News

Not gathering as much public attention as Ballot Measure 2, establishing a Coastal Zone Management Program, Ballot Measure 1 still needs voters' response.

The ballot language reads: "This bill would allow a city or borough to raise the property tax exemption on a residence from $20,000 to at most $50,000. This kind of tax exemption must be put to a vote and approved by a local election. The bill also allows a city or borough to pass a law to adjust this exemption to reflect a raise in the cost of living."

Homeowner tax relief, a local option to determine the amount of the exemption and whether or not to adjust it based on inflation, and a tool for municipalities to diversify their revenue stream are listed by the Fairbanks North Star Borough, supporters of the initiative, as reasons to vote for the ballot measure.

Opposing the proposition, Marty McGee, assessor for the Municipality of Anchorage, said impact on homeowners is only part of the story. He noted millions of dollars in taxes that would be shifted to other taxpayers if the exemption were raised to $50,000, and urged voters to work with elected officials to limit municipal budgets or seek alternative revenue sources.

Mike Navarre, mayor of the Kenai Peninsula Borough, said in the past several years there has been concern about borough expenditures outdistancing its revenues, creating a need to dip into the fund balance to make up the difference.

"If the ballot measure passes, then we could provide an additional exemption on property taxes for residents and that seems like a good idea, but in every case, what you end up with is a loss of revenue," said Navarre. "So, do you provide the exemption and then increase the mill rate in order to make up for the loss? If you do, you shift it to higher value properties or business properties that don't allow for an exemption."

Passage of the ballot measure would mean a loss of about $1.3 million to the borough, said Navarre. Including service areas, which have individual mill levies, the loss would reach $2.5 million. Within the South Kenai Peninsula Hospital Service Area, Navarre estimated a loss of $175,000 if the personal residence exemption were raised to $50,000.

"Where do you go to make up that revenue?" said Navarre. "Do you increase rates at the hospital or do you increase the mill rate, which means property taxes go up, but because of the exemption they go down a little for residences getting the exemption?"

As summarized by the Legislative Affairs Agency, passage of the proposition in the Aug. 28 primary would:

  • Raise the amount of value that may be exempted from $20,000 to a maximum of $50,000 per home and
  • Allow an exemption to be increased if the cost of living increases.

The state would incur no cost for administering the exemption, but would experience a loss of revenue "if municipalities with significant oil and gas property within their boundaries enact the exemption to the maximum amount. This is a result of the shifting of the tax burden from residential property to nonresidential property."

Currently, the state levies a 20-mill property tax on oil and gas property. If that property is within a municipality that levies a property tax, the municipality's property tax is deducted from the 20 mills the state receives, thereby reducing the state's revenue.

To estimate the maximum the state could lose with implementation of the ballot measure, the Alaska Department of Commerce, Community and Economic Development estimated the revenue loss if four municipalities with significant oil and gas properties — the Kenai Peninsula Borough, the North Slope Borough, the Fairbanks North Star Borough and the city of Valdez — were to enact the $50,000 maximum exemption. The result: an estimated $1.1 million loss in tax revenue.

If passed, cities and boroughs, including the Kenai Peninsula Borough, have the option of enacting the increased exemption. Navarre said there has been support among voters in the past to raise the exemption, but he urged close examination of the impact that would have.

"It's all in the details," said Navarre. "It's a simple thing to say let's increase the exemption, but it's not so simple in actual practice."

This article was originally published by The Homer News and is reprinted here with permission. McKibben Jackinsky can be reached at mckibben.jackinsky(at)homernews.com