Prop 1: Tax shift likely to avoid school funding taking a hit

With 2014 budgets already passed money will have to come from somewhere

The property tax money lost to the borough general fund, if Proposition 1 passes during next week’s election, will likely result in the tax burden shifting to out-of-town homeowners and to local businesses as the school district and service areas look to fulfill already passed 2014 budgets.


The Kenai Peninsula School District budget joins more than 10 service area budgets and the borough general fund in facing total potential losses of $1.3 million in revenue from Prop. 1, which made the ballot through a citizen initiative sponsored by James Price and Fred Sturman of Alaskans for Property Tax Relief Now. They seek to raise the allowable property tax exemption from $20,000 to $50,000 annually. The increased exemption would apply only to a single parcel of land registered as owner’s permanent home for 183 days during the year.

Kenai Peninsula Borough Mayor Mike Navarre said he is not opposed to the essential idea behind Proposition 1 but noted that it could be done with a more comprehensive look at specific impacts on budgets and service areas through a change to the tax code rather than the citizen initiative approach.

With about 65 cents of every dollar collected by the borough going to fund schools, the possibility of Proposition 1 affecting the school district budget exists if the tax burden is not shifted elsewhere. A cut in school funding of $845,000 is not likely, according to Navarre, who said for that to happen he would have to recommend a school district budget reduction equal to the amount lost to Proposition 1.

The more likely response is a general property tax increase of .19 mills to cover the lost tax revenue, Navarre said.

“The reality is that the assembly passed the budget,” Navarre said. “The most likely scenario is to make up the difference.”

Price says the borough’s stance on the effect of Proposition 1 is disingenuous.

“There is no way that 65 cents of every dollar of real estate tax collected is going to schools,” Price said. “Because 100 percent of all sales tax already goes to schools.”

Price and Sturman continually seek to reduce taxes and government expenditures and were also behind the Borough’s current assembly term limits, which the assembly seeks to overturn with Proposition 3A and 3B on the October ballot.

Proposition 1 is in response to unreasonable assessment increases on property during the last five years, Price said.

According to 2014 budget documents, property tax revenues have increased by $2.34 million since 2011, while the mill rate has remained flat at 4.50. Half of the increase came from real estate the rest from oil and gas taxes.

“We’re just shaving the cream off the top,” Price said.

Kenai Peninsula School District Superintendent Steve Atwater said no formal communication has come from the borough saying revenues would be down or that the school district’s share of the general fund would be reduced as a result of Proposition 1 passing. Addressing the 2015 budget process, Atwater said it would not begin in earnest until after the October student count, which is complete on the 25th of next month.

“If the borough did communicate that, we would make an adjustment,” Atwater said. “We can’t raise money.”

Regardless of shifting the tax burden from local homeowners to commercial property and businesses, the school district could see a short-term loss in revenues that require the district to dip into the “fund balance” as a result of Proposition 1 passing, Navarre said.

After spending $1.24 million from the district’s savings account to get through district’s 2013 fiscal year, the district is expected to cut the money from the 2015 budget. The over spending is something that Price noted as a mistake on the district’s spending, because it was fully funded.

With assessor Tom Anderson out of town, his office was not able to answer any questions regarding property assessments and valuations in the borough. All questions were referred to borough finance director Craig Chapman.

At least 23 taxing districts across the borough apply a range of mill rates, from borough general fund levies to roads to fire service area levies to recreation levies. For example, owners of a $150,000 house in Soldotna pay $7.67 per $1,000 of assessed value for the city, the borough, the hospital and emergency services, which equal $1,150. With the $20,000 deduction the property owner pays $997. If Proposition 1 passes and $50,000 becomes the standard exemption for year-round residents, the tax payment drops to $767.

In Nikiski the general cost of taxes for a home of the same value with no exemption, the current exemption and the proposed Proposition 1 increased exemption are $1,500, $1,300 and $1,000 respectively, at a mill rate of $10 for every $1,000 of assessed value.

The current $20,000 property tax exemption affects $200 million worth of property borough-wide; the senior citizen exemption of $300,000 — $150,000 by mandatory state law and $150,000 by borough ordinance — is applied to another $690 million worth of property; a total exemption of real property tax for veterans of the military with a 50 percent service-connected disability or more exempts $250,000 worth of property and up to a $500 exemption for totally disabled citizens. Also available are a $10,000 volunteer firefighter and emergency medical services provider exemption, farm deferments and conservation easements.

Chapman said the above property tax exemptions to real property lived in by residents cost the borough about $4.4 million in tax receipts annually, $2.3 million if you remove the state mandated $150,000 senior exemption. That number would jump up to $3.6 million if Proposition 1 passes.

Money lost to the service areas funds, such as the Bear Creek Fire Service Area and the Road Service Area, will have to be sought by local mill rate increases, which are likely.

Navarre said that Bear Creek is almost certain to seek a mill rate increase of 56 cents per $1,000.

According to Chapman, the service area board would appeal to borough mayor during the next budget process and the mayor, if in agreement, would present the request to the Kenai Peninsula Borough Assembly.

“Only the assembly can raise mill rates,” Chapman said.

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This story was corrected to reflect the relative costs of property taxes in Nikiski when the current $20,000 dollar exemption is applied to a house assesed at $150,000.