Anchorage budget commission recommends ending some property tax exemptions

An Anchorage commission says property owners are unfairly subsidizing tens of millions of dollars worth of property taxes for nonprofits, government agencies, churches and other entities.

In a report released Wednesday, the city's Budget Advisory Commission said the Alaska Legislature and the city assembly should close legal loopholes to reduce inequities and generate millions of dollars in additional tax revenues.

"Any tax system must be fair to survive the scrutiny of the public process and make participation a willful action," Shirley Nelson, chair of the commission, wrote in an introduction to the report.

The commission's report found that property worth more than $76 million didn't show up on the tax rolls, shifting taxes to property owners who don't enjoy the exemptions.

The 11-member commission, appointed by Mayor Dan Sullivan, is charged with advising the Assembly, the mayor and the Anchorage School District on budgets and budgeting process. This is its first review of property tax exemptions.

Nonprofit organizations are among the ones with tax exemptions, but the report concluded state and local laws are vague in their definitions of "nonprofit" for tax purposes.

The report also described as outdated a 2 percent state-mandated tax break on property with new sprinklers. And it said that state-mandated exemptions, including breaks for senior citizens, removed $48.1 million worth of taxable properties from Anchorage tax rolls in 2013, with the state offering no help in making up the difference.

To more equally spread the local tax burden, the commission is recommending state and municipal code changes that would allow Anchorage to collect payments from nonprofits and other state-exempt entities for essential public services to their properties -- police, fire and public works. Such payment-in-lieu-of-taxes agreements, already in place on a limited basis in Anchorage, could recoup between $40 million and $60 million in annual expenditures by the municipality, according to the report.

Hospitals, churches with large real estate holdings, labor organizations and Alaska Native corporations are also among those that could be affected if the report's recommendations are adopted by changing Anchorage and state law, though doing so would be both complicated and controversial.

Commission member Al Tamagni Sr., who chaired the subcommittee that authored the report, said some properties that currently receive exemptions should be reconsidered altogether.

"We have not done the research on that," Tamagni said Wednesday while presenting the report at the commission's meeting. "That's up to the political entities, the Legislature and the Anchorage Assembly.

"But you must keep in mind that these are all subsidies that the rest of us are paying."

If Anchorage did receive $40 million worth of payment-in-lieu-of-taxes from property owners with exemptions, the owner of a $300,000 home could see about a $350 reduction in property taxes, said municipal assessor Bryant Robbins, whose office provided the data used in the report.

The report lists thousands of government and non-government parcels that received property tax exemptions in 2014. It shows, for example, property owned by the nonprofit Providence Alaska was fully exempt from property taxes on six parcels. A for-profit hospital, Alaska Regional Hospital, does not receive exemptions.

An uphill battle

Any reduction or elimination in a property tax exemption would require changing state law. Copies of the budget commission's report were also sent Wednesday to Gov. Bill Walker and the presiding officers of the Alaska Legislature.

Senate President Kevin Meyer, an Anchorage Republican, said in a phone interview Wednesday afternoon he had not yet thoroughly read the report, but he was glad a group was looking into the topic. He said the question of whether government buildings should be exempt from property taxes has circulated for years.

At the same time, he said, it's a controversial issue that will likely take time to work through. What might be good for Anchorage may not be good for Fairbanks or Juneau, he said.

Legislators may also encounter resistance from strong constituent groups, such as labor organizations or Native corporations, Meyer said.

"With marijuana and the budget deficit, the gas pipeline … we probably can't and wouldn't do it justice this session," Meyer said. "But if there's some no-brainers everyone agrees upon, it's possible."

In her cover letter, Nelson, the commission chair, noted the timing of the report coincides with falling oil prices and the state's uncertain fiscal health.

The state's budget shortfall, along with expected reductions in revenue sharing, "have the potential to pass down costs locally, thereby increasing the load on current property taxpayers," she wrote.

The full report is available online on the Budget Advisory Commission's website.