Examining the promise of a property tax cap

Editor's note: This is the seventh in a continuing series of articles relating to a 2-percent sales tax measure that will be on the October ballot. Look for more information in the Frontiersman's Tuesday editions about the sales tax measure and its various effects on borough residents, as well as how the measure compares to the sales taxes that are levied in the cities of Wasilla and Palmer.

MAT-SU -- Voters will be deciding in just a matter of weeks whether to institute a borough-wide sales tax and, although it won't be appearing on the ballot with the sales tax proposal, the measure is accompanied by a key component.

The Mat-Su Borough Assembly agreed earlier in the year to adopt a resolution to cap the borough-wide property tax at 11 mills if the sales tax measure passes. The promise of a property tax cap won't be seen on the October ballot because state law prohibits local governments from enacting legislation that cannot be overturned by the next elected body. To put it simply, one assembly cannot bind the next.

Nevertheless, if the sales tax measure passes this fall, a property tax cap will go into effect next July, along with the sales tax. But will a cap at 11 mills truly offset the money brought in through a borough-wide sales tax?

According to borough historical data, the mill rate in the borough has crept from an areawide mill levy of 9.2 mills to 15.78 mills in 1994, sinking back to 11.59 in 2001 and up to 13.133 for this fiscal year.

According to Karl Borglum, the Mat-Su Borough's assessor since 1992, the jump from 9.2 mills in 1990 up to 15.78 in 1994 can be largely attributed to the crash in the oil market, which took a little time to register on the real estate market. In 1988, shortly after the crash, the real property assessed value dropped from approximately $2.37 billion down to $1.8 billion in 1989.

"In a period of about five years, we lost almost 40 percent," Borglum said.

The values continued to drop until 1992, when the real property assessed values rose just over $100 million.

Since that time, the real property assessed values have been rising at a steady rate. Over the past 10 years, Borglum said, real and personal property values have risen an average of 5.6 percent each year. So if the assessed values are rising each year, why bother raising the mill rate?

Well, Borglum said, as the Valley's population grows, more and more needs arise -- some of which are big-ticket items such as schools for additional students. The added taxes that may be brought in by increased real property values, according to previous information from John Duffy, are simply not enough to meet the demands of the growing population.

That is not to say real property values can be trumped up to meet the fiscal demands of the growing borough. Such inflation is strictly prohibited by state law.

Borglum explained that the assessment process is an involved science that relies on as much real estate sale and market data as can be obtained by the borough assessment office. The assessing procedure does not, Borglum said, determine a person's taxes -- it determines the value of the property owned. There is value in any piece of property, Borglum explained. Whether taxes are collected on that property or not is a completely separate issue.

The assessments are performed, then submitted to the public for review. If property owners disagree with an assessed value, they are free to challenge the figures at the borough.

"The burden of proof belongs with them," Borglum said.

Once the appeal process is over, the borough's annual assessment information is handed over to the state for a yearly audit. If the state finds errors -- if it is decided that the real property assessed value of land in the borough is either too high or too low, or if it finds any number of other errors -- a letter of major error is issued.

"The state can issue a letter of major error over anything," Borglum said. "This division has never had a letter of major error in my tenure here."

Because real property assessed values continue to rise, some borough residents, such as Lazy Mountain resident Barbara Leiss, have suggested the borough follow in the footsteps of California and, as through Proposition 13, place a cap on assessed property values.

"[If not], the mill rate will be 11 mills, but the assessed value [is] skyrocketing," Leiss said.

The action prohibits assessed property values from rising while the home is owned by the same person. Once the home is sold, the assessed value can spring to the current market value.

But state law prohibits the borough from instituting such a proposition. Title 29 states that the borough must fairly assess all taxable property. If a clause capping assessments were to be instituted, it would currently conflict with state law, Borglum said.

So, without a change to the state law and the Alaska Constitution, assessments will continue to be collected according to estimated market value. But the question remains, how will the property tax cap affect borough residents?

In 10 out of 10 years, the borough areawide mill levy has been above 11 mills, for two years stretching to 15.78. The average homeowner, according to information from the borough, owns property with an assessed value of approximately $131,700. At 11 mills, that means $1,448 to $2,078 per year in property taxes.

Because the property tax cap should be able to remain in place for longer than one year, borough officials have said many times that the property taxes will likely drop below the 11 mills in the beginning, possibly to 9 mills. At 9 mills, the above property would generate $1,185 in annual property taxes.

But whether a difference of nearly $1,000 in potential annual property taxes is enough to warrant a positive vote on the sales tax is a matter for the voters to decide in October.

"If they want this sales tax to fly, then they're going to have to convince the people," Leiss said.