The unlimited property tax exemption enjoyed by Kenai Peninsula senior citizens is once again being looked at as a tool for stabilizing borough finances, the borough mayor told Kenai business leaders Wednesday.
Kenai Peninsula Borough Mayor John Williams described the borough’s budget in detail for members of the Kenai Chamber of Commerce and said the Senior Citizen Property Tax Exemption is one of the major issues he believes “must be addressed this year.”
By state mandate, Alaska senior citizens are granted a tax exemption on the first $150,000 of assessed valuation of their property.
In the Kenai Peninsula Borough, seniors receive an unlimited exemption from the borough’s 6.5 mill property tax.
Last year the borough assembly sought to cap the exemption at $200,000, meaning seniors would have to pay property tax on any assessed value above that amount. On a $300,000 house, for example, seniors would have had to pay $650 on the $100,000 excess. The measure failed.
During his presentation Wednesday, Williams said, when the borough made the exemption “absolutely and totally unlimited” just over 20 years ago, the impact was $131,000 in lost revenues to the borough.
“This year, the unlimited exemption will cost the borough general government $2.7 million in lost revenues,” Williams said.
Additionally, the exemption will cost the service areas Central Emergency Services and the hospital and road service areas more than $1.5 million, he said.
“In total, the Kenai Peninsula Borough will lose $4,382,600 in revenues to support this entitlement in fiscal year 2007,” Williams said.
He said now there are more than 500 homes in the borough, valued in excess of $300,000 that pay nothing in property taxes due to the senior tax exemption.
The lost revenue comes at a time when the borough is facing large increases in the amount it is being mandated to pay for the public employee and teachers retirement systems (PERS-TRS).
“The borough and the (Kenai Peninsula Borough) School District now face a mandatory payment next year of nearly $12 million,” Williams said. “This is an increase of nearly $5.5 million over the current year.”
He said his administration is committed to a lean and efficient government, and will continue looking for ways to do the best job possible for the least cost to taxpayers, “but this increase in retirement costs, combined with other rising costs we have no control over, is going to require that we continue to look carefully at how the borough does business, and how our government is going to pay for the services the citizens expect us to deliver.”
Williams said he and his staff worked closely with the assembly during the budget process last spring, and projected a “stabilized fund balance in the $14 million range.”
“Today, I am pleased to announce that our just completed Comprehensive Annual Financial Audit of FY2006 has shown that our beginning fund balance for this year stood at $15,285,303,” he said.
Williams also said he will look to see how the tax burden between property taxes and sales taxes can be more balanced. He said 20 years ago, 60 percent of total revenues came from property owners and 40 percent came from sales taxes.
“But over time, that balance has shifted significantly so that property owners are now paying a much larger share at nearly 68 percent,” he said. “And unless something changes, that burden will continue to grow to over 70 percent by 2010, which is only two fiscal years out.”
He said the option of a 3 percent borough sales tax is one tool that could be used to bring balance back to the tax ratio.
“I will make the decision in the next few weeks on how my administration will propose to address this growing property tax burden in the fiscal year 2008 budget,” he said.
Williams also said any change in the senior property tax exemption would contain “substantial protections for our seniors.”
Phil Hermanek can be reached at phillip.hermanek @peninsulaclarion.com.
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