Anchorage Daily News

WASILLA -- With more than half a million dollars in state funding headed their way, Wasilla City Council decided this month to slash property taxes to zero for three years.

The decision to cut property taxes will save the average Wasilla homeowner about $60 each year, city finance director Ted Leonard said recently.

Mayor Dianne Keller, who sponsored the idea, said earmarks from the Legislature, in part, allow the city to trim its tax bill. Wasilla is in line for $316,729 in the state capital budget for energy assistance and another $228,390 for employee retirement expenses. The capital budget goes into effect July 3 unless Gov. Frank Murkowski signs it before then.

Leonard said the city would lose about $236,000 this year due to the council's moratorium on property taxes. Keller had said previously that the Alaska Conference of Mayors had agreed to offset property tax rates if the Legislature granted revenue-sharing money to Alaska communities.

The city didn't eliminate the property tax in the June 12 decision, Leonard said. Should the city find itself in a financial bind, or if the Legislature neglects to pass a permanent revenue-sharing measure, the council can raise the property tax rate again.

Even so, the move generated enthusiastic approval from local conservatives.

"I was so astounded that our organization did some research and we can't find anywhere in the state of Alaska where anyone has done what you're doing, eliminating property taxes," Link Fannon of Houston told the City Council. Fannon, a Houston councilman, is president of the Mat-Su Property Owners Association.

"When Houston looks at you guys and what you've done and where you've gone, you're a perfect example of where we can grow."

Wasilla Councilwoman Diana Straub said she thought the city should have kept some level of property tax and used the money to get a leg up on upcoming projects.

"We could lower from .3 mills to .2 mills and still honor our commitment to AML (the Alaska Municipal League)," Straub said. "Perhaps not all of our residents feel they have every single city need met."

Straub's proposal died for lack of support. The council, with Straub the lone nay vote, passed the city budget, good for the next two fiscal years.

Any municipality cutting property taxes altogether, especially in Alaska, is a rarity; just lowering property taxes is rare enough, said Uwe Kalenka of Anchorage, president of Alaskans for Efficient Government.

Kalenka said he knew of few examples in the Lower 48 of local government trimming its tax bill.

Penny Nixon, Matanuska-Susitna Taxpayers Association co-chair, applauded the city's plan. Nixon has opposed Mat-Su Borough sales tax proposals but supports a city sales tax.

It's a matter of trust, Nixon said. Wasilla has consistently lowered property taxes the past several years, dropping to only a fraction of a mill.

The Mat-Su Borough has never guaranteed to use sales tax receipts to offset property taxes. Borough lawyers have consistently barred the Assembly from promising to lower property taxes if voters enact a sales tax. One Assembly can't bind a future Assembly is the legal opinion.

Then the Assembly in August 2005 imposed a cap on the amount of any tax revenue it could collect.

Now, Nixon said, a Mat-Su sales tax might work. The revenue cap limits the amount of tax the borough can collect from one year to the next to a percent increase based on population growth and inflation.

"Since the adoption of the tax cap, if we were to have a sales tax, it would offset the revenue from property taxes," Nixon said. The Borough Assembly would therefore have to reduce property tax rates by the amount of sales tax collected.

That's if the revenue cap stays in place, he said. Borough laws allow the Assembly to repeal or significantly change it next year. Nixon is pretty sure that will happen. To that end, his group plans to have a ballot initiative ready next year so voters can make the revenue cap permanent.

Daily News reporter Rindi White can be reached at rwhite@adn.com or 352-6709.