Since 1987, Kenai Peninsula Borough senior citizens have enjoyed an unlimited exemption from paying property taxes on the value of their primary residences.
On Oct. 2, borough voters will decide if the exemption should be capped at an assessed value of $300,000, meaning seniors would pay taxes on any value over that amount.
At its core, Proposition 1 seeks to answer the question: How much of an exemption is enough?
The current property tax exemption has two parts.
The state of Alaska mandates that seniors 65 years and older, or their surviving spouses 60 years and older, be exempted from paying municipal property taxes on the first $150,000 of assessed value on their primary residences. In 1987, a borough ordinance made the exemption unlimited.
In the late 1980s, the state's exemption would have cost the borough about $131,000 a year, except that the state law required that the borough be reimbursed. Unfortunately, the state ceased reimbursing municipalities in the late 1990s, and since then the borough has absorbed the annual losses.
Over the decades, property values grew significantly, as did the number of qualifying seniors and surviving spouses. In some cases, retiring seniors moved to the borough and built very expensive homes on which they pay no taxes.
The value of senior citizens' homes freed from taxation by the state and borough exemption laws has grown from about $173 million in 1999 to $471 million in 2007, according to borough figures. When only the borough's exemption is considered, the exempted value has grown from $28.9 million in 1999 to $146.3 million this year.
The revenue loss to the borough is expected to be in the neighborhood of $5 million in 2007.
According to borough figures, there are 310 senior homeowners with primary residences valued in excess of $300,000. If the cap were approved, the borough would be able to tax almost $83 million in currently untaxed value, meaning the borough's 5.5-mill tax rate could bring in more than $450,000 in new revenue. Service areas would also benefit from portions of that newly taxable value.
Here is how Prop 1 would work for most seniors.
A senior whose primary residence was valued at less than $300,000 would continue owing no property taxes. A senior owning a $350,000 home would owe property tax on only $50,000.
Proposition 1 includes a provision for a hardship exemption available to qualifying residents based on gross household income. It would limit the taxes due on any assessed value over $300,000 to no more than 2 percent of an applicant's gross household income, a term defined as the "total annual compensation, earned or unearned, from all sources, of all members of the household."
Thus, a senior owning a home valued at $400,000 would pay no tax owed on the first $300,000. If the tax bill on the remaining $100,000 came to more than 2 percent of the senior's gross household income, an exemption would be granted for that portion of the tax in excess of that 2-percent figure.
If, for example, the tax bill for the property value in excess of $300,000 came to $900, the hardship taxpayer with an income of $20,000 a year would pay just $400, or 2 percent of $20,000. The remaining $500 would be forgiven.
Proposition 1 asks voters to decide if the borough should limit the exemption to the first $300,000 in assessed value.
A yes vote would establish the cap, while a no vote would continue the current unlimited exemption policy.
Seniors who have testified before the Kenai Peninsula Borough Assembly in the past few years regarding various proposals to cap or eliminate the exemption have been split on the issue, though the majority have opposed changing the current unlimited exemption.
An earlier version of the ordinance behind Proposition 1 included capping the same exemption extended to disabled veterans. However, that group was removed from the proposed ordinance, leaving only the exemption applying to seniors and their surviving spouses subject to the effects of the ballot measure.
Hal Spence can be reached at email@example.com.
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