Tax cap proposal worries officials

Voting to reduce taxes may seem like a no-brainer. But Kenai Peninsula finance officials say that voters with brains would do well to think twice about an upcoming ballot initiative.

In November, Alaskans will have the opportunity to say yea or nay on a proposal titled "An Act Providing Property Tax and Assessment Relief." If the initiative passes, property taxes will be capped at 10 mills and increases in property assessments for tax purposes limited.

"I think it would be one of the worst things that could happen to this state," said Joel Wilkins, finance officer for the city of Soldotna. "It is going to hit the schools, the hospitals, the old folks and the disabled."

Municipal officials throughout the state are expressing concerns that passage could gut public services, damage the economy and launch a firestorm of litigation.

Most incorporated areas of the state would face substantial tax revenue cuts if the proposition wins in November.

The Alaska Municipal League, an organization of elected officials from cities and boroughs, is spearheading formation of a coalition to oppose the ballot proposal. The group is circulating a position paper titled "The Tax Cap Initiative Hurts Alaskans" and held a teleconference Feb. 14 to discuss a public education outreach effort.

AML members are speaking to other groups concerned about the potential ramifications of the tax cap, such as the Parent Teacher Association, chambers of commerce, senior citizens groups, the construction industry and service organizations, said AML Executive Director Kevin Ritchie.

"The number of groups that have contacted us are pretty broad, saying this is not a good idea for our state," he said.

"We don't think there is even one good reason to be in favor of this tax cap."

The details of the ballot initiative leave many questions unanswered.

Larry Semmens, finance director of the city of Kenai, said he understood the proposition to refer to municipal entities separately, so that the Kenai Peninsula Borough and its incorporated cities could each levy 10 mills of property taxes. Borough Finance Director Jeff Sinz agreed. His preliminary calculations show that passage of the proposition would cost the borough government about $4.5 million in tax revenue.

But others interpret the proposition more strictly as assuring that no taxpayer would ever pay more than 1 percent of the property value.

"My understanding is that the sponsor intends it to be 10 mills everywhere," Ritchie said.

That would magnify the financial impacts and necessitate dividing up tax rates in the 19 tax zones in the borough paying sundry combinations of city, borough and service area taxes. Total mill rates now range from 15.6 mills inside the city of Homer to 8.6 mills in unincorporated areas on the south shore of Kachemak Bay.

"If that is the case, there are serious implications, not least of which is who takes the cuts," said Semmens.

Service area property taxes support services such as Kenai Peninsula College, Central Emergency Services, the Nikiski pool and hospitals in Soldotna and Homer.

"It would absolutely be the kibosh for any kind of service area ever again," Soldotna's Wilkins said.

The proposal has other connotations as well.

n Future increases in property's assessed value would be restricted.

Semmens said that would hurt Kenai because its assessments are due for revision.

"In general, limits on the assessed value increase would hurt the city just as much as a mill rate tax cap," he said. "It could have a serious negative impact."

n Alaska's schools, which are the largest users of property tax dollars, could face more cutbacks. The Kenai Peninsula Borough School District accounts for most of the borough expenditures.

n The cap would include bonded debt. The AML, according to its position paper, predicts new public facility construction would halt, with related damage to infrastructure and construction businesses.

n Oil and gas property is taxed differently under state law. The companies would pay the same amount of money under the tax cap proposal, but a bigger portion would go to the state rather than the boroughs. This would affect oil producing areas: the North Slope, Valdez and the Kenai Peninsula.

The peninsula would lose about $1.1 million by that route, Sinz said.

Legislation proposed by Sen. Dave Donley, R-Anchorage, would redirect the state's windfall from the tax cap back to municipalities.

Sinz said the likely effect would be to take oil tax revenue from places like the Kenai Peninsula and redistribute it, mainly to Anchorage.

n Municipal officials say the proposition would override voters' ability to set local tax rates, force municipalities to tax groups now exempted and set inequities in place that would be difficult to undo.

"It is exceedingly unfair," Wilkins said.

The Legislature and the borough are looking at potential ways to soften the fiscal blow if voters approve the proposal. But the AML and others are rallying what they call a grass-roots effort to ensure that people understand what is at stake before they go to the polls.

"On the surface it sounds like a good idea," Ritchie said. "But when people find out about the impacts, the support really goes down."