Tax cap initiative won't make Alaska better place to live

Posted: Sunday, November 05, 2000

The idea of capping property taxes has a lot of appeal -- on the surface. After all, when was the last time someone complained of paying too few taxes or receiving too many services for those taxes they pay?

The problem with Ballot Measure 4, which would cap all Alaskans' property taxes at 10 mills, is that it attempts to impose a remedy for primarily an Anchorage and Fairbanks problem on the entire state.

It's not just a bad idea, it's poor public policy.

Kenai Peninsula residents apparently realize that. There's been no groundswell of support for the measure here.

The tax cap initiative will be on Tuesday's general election ballot. Of the six ballot measures facing Alaskans that day, it has the potential to be the most harmful.

The most damaging aspect of the measure is that it takes away local control in the setting of each community's tax rate. Every Alaska community is different; the tax cap initiative ignores those differences.

Even within the Kenai Peninsula Borough, there are differences in what each community pays in taxes. Some areas have chosen to tax themselves for such things as recreation services and senior services -- things other communities might consider to be frills. If people are willing to pay for those services, they should not be denied that opportunity because of some arbitrary tax cap set by people in another community. Those services deal directly with "quality of life" issues and distinguish one community from another.

A one-size-fits-all property tax for each community in the state begs several questions: How do Alaskans want to live? Are Alaskans ready to give up services on which they depend and which government provides? If not, who should pay for those services? Why should voters in Anchorage and Fairbanks determine the taxes paid within the Kenai Peninsula Borough?

The tax cap not only has the potential to cut services, it also could hurt real estate values since the measure would limit increases in the assessed value of individual properties to no more than 2 percent per year. That means fair market value would no longer be the basis for assessing property.

While capping the property tax could force local governments to broaden their tax base, most large communities in the state already levy both property and sales taxes. Anchorage and Fairbanks are the notable exceptions.

In a state that this year gave each man, woman and child nearly $2,000 for being a resident of the state and in a state that levies no personal income tax, it's hard to believe Alaskans are paying more than their fair share in taxes. In fact, Alaskans enjoy one of the lowest tax rates in the nation.

The tax-cap initiative seems to be a misguided attempt to punish local government, but for what is unclear. Unfortunately, in the long run, it will be the taxpayers who are hurt most. This initiative is the wrong remedy for some people's anger at government.

It's hard to say with certainty what the result of the tax cap would be if it passes. Because borough and city officials on the peninsula have been wise managers of the public's money, it's likely peninsula residents would suffer less than those elsewhere.

However, according to research by Scott Goldsmith and Alexandra Hill of the University of Alaska Anchorage Institute of Social and Economic Research, the following effects from the tax cap could be anticipated:

n The economy would initially lose about 1,920 private jobs and 1,640 public jobs. Private industry eventually would replace about half those jobs.

n About 2,220 households would leave the state, depressing housing demand, but making housing more affordable.

n Taxes on property of equal value would be higher for new buyers than for long-time owners.

n Initial cuts in local services and in the size of local governments statewide would be about 11 percent. Without new sources of revenue, the cuts later would be about 22 percent.

It's illogical to think that state government would step in and pay for the revenue local governments lose from the tax cap. State aid to municipalities has been steadily dropping as legislators grapple to fill a budget gap caused by the decline in oil. This is unlikely to change, with or without a tax cap.

Alaskans should vote "no" on the tax cap if they want to be able to control not only taxes, but also their quality of life, at the local level. Anchorage and Fairbanks voters should not be allowed to set property tax rates for the rest of the state.

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