Proposal draws more fire

Feedback has assembly doubting tax exemption cap will pass

Posted: Thursday, April 21, 2005

A controversial borough proposal to cap the currently unlimited property tax exemption enjoyed by seniors and disabled veterans drew still more fire from the public Tuesday, and some members of the Kenai Peninsula Borough Assembly are expressing doubts that the idea has enough support to pass.

Ordinance 2005-09, sponsored by Mayor Dale Bagley, includes several revenue-enhancement measures aimed at meeting an expected $6 million to $7 million budget shortfall in fiscal year 2006, which begins July 1. If adopted as written, it would cap the seniors-vets property tax exemption on primary residences at $200,000 and tax those residents on any value exceeding that amount.

Taxed at that level, the borough would be expected to realize an additional $377,000 in tax revenue annually at current assessment rates.

The assembly dispensed with a similar measure, Ordinance 2005-07, sponsored by assembly member Pete Sprague of Soldotna, that would have capped the exemption at $300,000, generating only about $108,000 in new revenue.

The assembly voted unanimously to kill that ordinance in order to concentrate on the mayor's ordinance, which included the similar, though lower exemption-cap provision.

Bagley's ordinance also proposed increasing the borough sales tax rate from 2 percent to 2.5 percent. In a recent memo, however, Finance Director Scott Holt told the assembly they should consider pushing the sales tax to 3 percent.

Tuesday's discussion did not include addressing the sales tax increase, but the fiscal year 2006 borough budget ordinance introduced Tuesday (Ordinance 2005-19) relied on the 3-percent sales tax rate. The budget ordinance is scheduled for public hearings May 3 in Seward and May 17 in Soldotna.

The mayor's ordinance also proposed that taxes on recreational package sales be calculated on a per-person, per-day basis, and that there be a cap on the amount of funds held in the borough's Land Trust Fund. Those issues, too, were not addressed Tuesday.

The assembly took no formal action on the tax measure, postponing any final decision until after public hearings.

However, with the vast bulk of public testimony heard Tuesday and at prior hearings being negative, assembly member Paul Fischer of Kasilof moved to drop altogether any reference to capping the tax exemption. Fischer made it clear he opposed the idea of a cap.

"All the public testimony we've had says, 'Leave it the way it is,'" he said.

Several members urged Fischer to withdraw his motion until after further public hearings are held in May. According to Borough Clerk Linda Murphy, defeat of Fischer's amendment could lead to procedural problems if the assembly wanted to cut out the provision at a later time.

Ron Long of Seward said he might well support killing the tax-cap proposal eventually, but he wanted it to remain on the table for now while other issues were discussed. One issue, Long said, regards whether people who pay no taxes on valuable homes within the borough but spend many months Outside each year should be entitled to the tax exemption.

It may be possible to close that loophole by tying eligibility for the exemption to eligibility for an Alaska Permanent Fund, an idea the assembly is exploring.

Another reason for leaving the tax exemption in the ordinance's current text was more immediate and had much to do with why the borough administration and assembly were even considering the move — the state's failure to live up to its bargain to reimburse municipalities for revenue lost because the state-mandated tax exemption on the first $150,000 of value on homes owned by seniors and disabled veterans.

A subsequent borough ordinance in the 1980s made the exemption unlimited, but that move was possible because local governments were recouping so much of the lost revenue from the state. They did, that is, until the state simply stopped reimbursing the municipalities in the late 1990s.

Three members of the assembly left for Juneau on Wednesday to appeal to lawmakers to approve House Bill 195, which would appropriate roughly $61 million over two years to cover about 75 percent of the revenue losses municipalities are expected to suffer in fiscal years 2006 and 2007.

"If we eliminate discussion about lowering the cap, I see us weakening our position," Sprague said.

It would give the borough's arguments for passage of HB 195 much more impact if proposed local legislation included a provision for compelling seniors and disabled veterans to begin paying taxes on their properties, he said.

HB 195 has been referred to the House Finance Committee, co-chaired by Rep. Mike Chenault, R-Nikiski, but it has not yet had a hearing.

Assembly President Gary Superman of Nikiski addressed the issue of the state's failure in comments earlier in the evening during discussion of a resolution he sponsored supporting HB 195. He said the resolution was meant to sound the alarm and get Juneau to listen.

"They are not listening to us," he said. "We are tied to the whipping post with much of the liability that has been sent to us, and there seems to be nothing but a deaf ear to the problem that we are facing as a municipality down here with a loss of this revenue."

Fischer said he had proposed eliminating the exemption cap at this time in anticipation of a motion proposed by the mayor that would amend the ordinance to exempt disabled vets from any property tax, but to require seniors to pay taxes on home values more than $200,000. Fischer said he would oppose any such division of the two groups.

Fischer did agree, for now, to withdraw his motion eliminating the exemption-cap provision but said he would be watching to see how the assembly handled other possible amendments in the coming weeks.

Assembly member Chris Moss of Homer said he still supports some cap to the property tax exemption, but predicted cap proposal would fail. He said Tuesday that he didn't believe there were enough votes on the assembly for passage at this time.

Assembly member Dan Chay of Kalifornsky Beach said he, too, was still leaning toward voting for some kind of cap but acknowledged there appeared to be a lot of resistance.

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