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

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

Posted: September 25, 2013 - 9:25pm  |  Updated: September 26, 2013 - 11:43am

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.

 Reach Greg Skinner at

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.

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JohnPeterZenger 09/26/13 - 10:29 am
Price and Sturman,

...(along with a handful of others), continually seek to reduce taxes and cut government,

...and they do so, whether it makes any sense or not.

It's ideologically driven, it's not rationally derived, not logically concluded.

Consequences don't enter into it, it's mechanical, mindless and dogmatic.

It's a simple matter, they're like deadbeats, they like the government services that they benefit from, they just don't want to help pay for services.

They'd prefer someone else pay their way.

They don't care who pays or how much someone else pays, they just don't want to have to equally share in the costs of services.

They are the first to scream if services aren't up to their standards, but they continually want someone else to pay for those services.

We have a very high level of services, we're proud of working hard to achieve that high level of services, and we still maintain some of the lowest tax rates in the nation.

We have good schools, we have good services, we have a good and functional local government. We can be proud of our achievements.

We've also got some deadbeats among us who continually try to get out of being held accountable for their own civic responsibility.

They say cut, and cut and cut some more, government is bad. Trouble is, government is not bad, it allows us to come together and exercise our civic pride, create good schools, maintain good emergency services.

Why would we want to do away with what we work so hard to create?

It's an ideological play act for them, they don't worry if someone is adversely impacted by their play-acting. They don't worry about the consequences.

School budgets degraded? Not their worry. Fire service, ambulance service degraded? Neighbors costs go up because of degraded services? Not their concern.

As Sturman was quoted as saying, 'We didn't worry about that.'

They don't think through the impact of their actions on others, they attempt to make excuses for the consequences. They craft talking points that don't address realities.

Price says, 'We’re just shaving the cream off the top'.

What that really means is they'd like to skim the cream off the top and leave the rest to everyone else.

You can't even call the adverse consequences unintended, it's a matter that they don't worry about consequences.

Their concern is solely centered on themselves and on their political play-acting.

Through that self centered play-acting they show disdain for their neighbors and the community at large.

And they demonstrate their disdain for equally sharing in civic responsibility.

Allen 09/26/13 - 12:45 pm
Don't Shoot the Messenger

I don't think it's necessary to call James Price and Fred Sturman names to get the point across that increasing the residential property tax exemption from $20,000 to $50,000 may lead to a property tax increase for all (including the same residential property owners getting the exemption, so they'll pay more too). I appreciate Price and Sturman for bringing this exemption forward for residents to vote on.

Another factor that is overlooked is how property values for homes have been jacked up frequently over the last few years, so that, even though the Borough mill rate is low, homeowners are paying much more property taxes. An increased exemption will be a welcome relief from the cycle of higher property values every year, and therefore higher property taxes.

We need to look at how we establish property values, because the current process for residences is extremely unfair. That will take a change to the state law, however. And don't expect that from the current crop of state legislators.

I don't see a .19 mill increase to the Borough's 4.5 mills as that much of a burden to give homeowners some tax relief.

JohnPeterZenger 09/26/13 - 06:21 pm
What 'you don't see',

...isn't the only thing at stake here.

As to Price and Sturman, they aren't the messengers, they issued the message, so your attempt at an analogy of 'don't shoot the messenger isn't correspondingly similar or comparable in any way.

The issue is not only a question of just some possible minor property tax increase, as you presume, it's also the additional consequences of cutting revenue such as degraded emergency services which lead to higher insurance rates or worse. The hidden costs of play-acting at public policy politics.

As far as Price and Sturman, and their lot, they don't wish to bear their fair share of the tax burden.

Those who don't wish to contribute their fair share, those who want a free ride at someone else's expense are deadbeats.

It matters not whether you appreciate those deadbeats, that only makes one wonder if you're hoping for a free ride too.

In any case.

You've not addressed the hidden costs of cutting services.

You've not addressed what happens if attempting to shift the tax burden isn't sufficient to our needs and doesn't work.

If the 'problem' you're trying to address is a desire to overhaul property valuation assessments, cutting revenue is a very illogical and unintelligent method to employ. Not only does it not actually address your 'problem', it creates more problems.

That kind of thing sounds like the kind of public policy failure we get when we listen to people who don't understand what it is they think they are talking about and offer up dogmatic ideological nonsense as a 'solution'.

No thanks, I don't need irresponsible people who don't worry about consequences formulating public policy.

Vote No on Prop 1, it costs more than it promises to save.

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