Anchorage Daily News

Supporters of Prop 9 say it will repair the city's tax cap. They claim that a unanimous vote by the Assembly in 2003 broke the tax cap wide open and allowed a surge of new spending. In fact, here's what happened.

The Assembly and Mayor Begich decided that payments from city-owned utilities should be taken out of the tax cap. City utilities are exempt from local taxes, but they do make payments to city government in lieu of taxes -- about $15 million a year.

The 2003 change made a certain amount of sense: After all, the city charter requires a cap on taxes, not on payouts from city utilities. At the same time, Mayor Begich and the Assembly lowered the allowable tax collections by the same amount as the utility income. The utility money came out of both sides of the tax cap calculation, so the change didn't raise or lower taxes at the time.

In the following years, the 2003 change did allow the city to collect more from city-owned utilities without forcing an offsetting reduction in taxes. The extra money got added to the city budget because it fell outside the tax cap.

Proposition 9 will put city-owned utility payments back in the cap. However, this charter amendment is not the tax rollback many voters have been told it is.

While Proposition 9 says utility money must be included in how the cap is calculated, it also raises the allowable cap by the same amount. As such, the new formula set by Proposition 9 does not automatically force property taxes to go down.

What Proposition 9 does do is impose some constraint on future raises in what city-owned utilities must contribute through payments in lieu of taxes. For now, those charges are not covered by any cap. So, you might call Proposition 9 "The Utility Payment-in-lieu-of-Taxes Control Act."

In fact, Proposition 9 gives the Assembly room to raise taxes if the money coming in from city utilities should drop. That is not some speculative scenario. The Alaska Supreme Court is considering a case that could require the city water utility to refund $40 million in disputed customer charges stemming from the payments it made it lieu of city taxes. If that happens, the water utility will be strapped for cash and its in-lieu-of-tax payments to the city will likely drop. Under Proposition 9, the city would be free to raise taxes to fill the resulting gap, without breaking the tax cap.

Passing Prop 9 won't strike a decisive blow for lower taxes, despite what its backers may intend. On the other hand, Proposition 9 won't put the city in a fiscal straitjacket, either.

What it will do is make a complicated situation -- calculating exactly how to apply the city's tax cap -- more confusing. It will keep a bunch of lawyers busy and leave next year's Assembly and mayor scratching their heads about how much they are allowed to raise from taxpayers and city utilities.

When voters are contemplating a change in our city government's constitution, they should be pretty confident about what the change will do. That's not the case with Proposition 9. To avoid adding unnecessary confusion to the city charter, vote NO.

If the goal is reducing property taxes, the proponents should write an initiative that clearly and cleanly does that, without the confusion created by this proposition.

BOTTOM LINE: Prop. 9 won't automatically cut property taxes and it is a legally confusing mess.

HOW THE ANCHORAGE TAX CAP WORKS

(Taken from Anchorage Chamber of Commerce White Paper: "Anchorage's Tax Cap: After 25 Years, How are Taxpayers Doing?")

"Each year the Tax Cap is recalculated. The amount of taxes collected the prior year serves as the base for the next year.

"This base is adjusted for several factors including changes in population and inflation, construction that was not taxed the prior year, and voter approved spending such as debt service on bonds."

The population adjustment is the average change over five years. The inflation adjustment is the previous year's change in the consumer price index.

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