As the price of real estate rises and owners face ever-higher tax assessments, interest in some form of legislative relief appears to be growing in the Kenai Peninsula Borough and in Juneau.
The municipality can do little about assessments. The complex rules for making those annual calculations are set in state statute and out of the borough’s control.
The assembly recently voted to raise the sales tax a full percent to 3 percent effective Jan. 1, 2008, a measure proposed by Mayor John Williams. In response, Williams has promised to introduce an ordinance soon to cut the property tax levy rate by at least a full mill over two years.
The tax levy is a number the borough can control, Williams has said, and a one-mill cut from the current 6.5 mills to 5.5 mills would shave $100 from the annual tax bills of landowners for every $100,000 in assessed property value. Thus, the owner of a $500,000 home would save $500 a year.
State lawmakers are hearing from property taxpayers, too, and are considering a host of property tax proposals.
· For instance, House Bill 23 would prohibit municipalities from increasing assessments on real property by more than 2 percent per year, unless to reflect actual renovations or improvements. The measure appears to have little chance of passage this year -- it remains in the House Community and Regional Affairs Committee where it was has been since Jan. 16 -- but its sponsors, Rep. Bill Stoltze, R-Chugiak, and Rep. Mark Neuman, R-Wasilla, argue that it is time to cut the rate at which property assessments grow.
Though such a law would likely produce its own set of inequities, Williams said, it would have at least one welcome effect on the borough government.
“It would take a tremendous amount of adverse public misunderstanding about assessments off the borough’s shoulders,” he said. “The public, even as much as we talk about it, does not quite understand that the borough operates under stringent state assessment regulations.”
A state law limiting assessments could, over time, create odd tax inequities between neighbors in equivalent homes, Williams said. For instance, say there are two equivalent homes on adjoining properties that have had their assessments limited by a 2-percent-per-year regulation for several years. Then one of them sells for its real market value. Suddenly the new owner is paying a far higher tax bill then his neighbor because his is based on the more realistic assessment applied to the sale price.
· Another Stoltze-Neuman measure, House Bill 24, would prohibit municipal governments from charging fees for filing appeals of residential property assessments to municipal boards of equalization. The bill also languishes in the House Community and Regional Affairs Committee.
Last year, the Kenai Peninsula Borough began imposing such appeal fees ranging from $30 for properties valued of less than $100,000, up to $1,000 for appeals on properties valued at $2 million or higher. While the move has drawn some criticism, it has also helped reduced the number of appeals, allowing more time to address those that are filed. Out of roughly 63,000 assessments, the borough has seen only about 300 appeals, where before the new fees were instituted, the borough would get 600 to 700 appeals annually.
“It has stopped all inconsequential and nonsensical appeals over a few hundred dollars in assessed value,” Williams said.
· Bipartisan legislation, House Bill 60, sponsored by Neuman, Vic Kohring, R-Wasilla, Max Gruenberg, D-Anchorage, and Scott Kawasaki, D-Fairbanks, proposes to increase the state mandatory property tax exemption. Current law prohibits municipalities from taxing the first $150,000 of value on a senior citizen’s or disabled veteran’s home (or their surviving spouses over 60). House Bill 60 would push that up to $250,000.
When the state first instituted the exemption, it reimbursed municipal governments for the lost revenue. That practice stopped in the late 1990s as the Republican-led Legislature sought to cut government spending. Since then, municipalities have had to eat the revenue loss.
Meanwhile, the Kenai Peninsula Borough adopted a law in the 1980s that made the exemption unlimited. It was the only municipality in the state to do so.
Meant to aid and honor state pioneers, the two programs were, at first, financially easy to handle, costing the borough about $131,000 annually in lost tax revenue.
But an aging population and an influx of retirees have made the tax exemption program enormously costly. Today, the combined effect of the state and municipal exemptions costs the borough nearly $5 million a year, a loss that has led the borough administration to propose capping the local exemption at $300,000.
House Bill 60 includes no provision for restarting a municipal reimbursement program.
· However, in February, Sen. Con Bunde, R-Anchorage, introduced Senate Bill 79, which would compel appropriations sufficient to fully fund a state reimbursement program. In a sponsor statement, Bunde said lawmakers are hearing municipal complaints about the unfunded mandate.
“Thrown in with the retirement system debt, it is easy to see why many cities are considering closing their doors or discussing serious, debilitating cuts to their budgets,” Bunde said.
Senate Bill 79, if adopted, would make $40 million available to reimburse 24 boroughs and cities for their losses due to the state’s exemption law.
Hal Spence can be reached at firstname.lastname@example.org.
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