Assemblyman Gary Superman has introduced a resolution supporting an Alaska Senate bill that would raise the current optional residential tax exemption from $20,000 to $100,000.
If Senate Bill 122 becomes law, municipal governments would have the option of increasing the current exemption by as much as five times. The current exemption frees qualified property owners from paying taxes on the first $20,000 of assessed value in their primary residence.
Under SB 122, introduced by Sen. Joe Thomas, D-Fairbanks, municipalities and voters could chose to establish the level anywhere up to $100,000.
In a memo to his Kenai Peninsula Borough Assembly colleagues, Superman, of Nikiski, urged support of his resolution backing SB 122, saying that despite the Legislature nearing the end of its 90-day session, the bill still had a chance if there was a push from the public.
Superman said the option to increase the exemption level would be useful tool considering "the onset of augmented revenue streams, such as Municipal Assistance, PERS help and the sales tax increase."
He acknowledged there might be "some consternation" with the $100,000 level allowed by SB 122. In any case, a public vote would be required to reset the borough exemption level anywhere up to that ceiling, he said.
Superman argued that the exemption was necessary and could be responsibly implemented.
"With no prospect in sight for needed statutory changes in assessing, the homeowner will continue to be subjected to dramatic annual increases in valuation," he said, adding that the borough was "in a unique position with its sales tax stream."
The last time the exemption ceiling was raised was in 2004 when state lawmakers approved SB 136 pushing the $10,000 exemption to $20,000. Borough voters approved the increase locally that fall.
Since then, the borough has increased its sales tax from 2 percent to 3 percent, effective on Jan. 1 of this year, a move that is expected to dramatically increase that revenue stream. The sales tax increase may allow for a further reduction in the property tax mill rate next year, Borough Mayor John Williams has said. However, it has yet to be decided if such a decrease will be proposed as part of the FY 2009 borough budget now under construction.
SB 122 currently sits in the Senate Finance Committee. Earlier this session while in the Senate Community and Regional Affairs Committee, the measure got mixed reviews. Sen. Tom Wagoner, R-Kenai, recommended not passing the bill.
"I think it would put an undo burden on the tax bills of small businesses," he said Thursday. "I don't know what kind of game we're playing."
Giving real property tax relief is one thing, he said, but simply taking $100,000 in assessed value out of play doesn't lower the costs of providing vital municipal services.
Last year, the borough lowered its property tax levy a full mill to 5.5 mills, and the levy could be lowered again. Raising the exemption conceivably might force mill rates in the other direction.
"It doesn't matter what the deduction is, we still have to raise the same amount of money, and that will establish the mill rate," Wagoner said. "Nobody wants to pay taxes. But you have to weigh what services you want. Somebody has to pay for them."
SB 122, he said, reflects some ongoing Fairbanks tax issues, and was all about shifting the tax burden to someone else. That someone would be the small-business owner, he added.
Wagoner was responsible for the legislation that took the original $10,000 exemption to $20,000. He'd first suggested $50,000, but settled for $20,000 in a compromise, he said.
Craig Chapman, borough director of finance, agreed that exemptions, by their nature, shift tax burdens from the shoulders of one group to those of another. He agreed with Wagoner that the shift would be to small-business owners and residents with vacation homes on the peninsula, and perhaps to renters.
Hal Spence can be reached at email@example.com.
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