Referendum to cap rates

California did it many years ago and now Anchorage is considering rates caps. Could we/should we be ding this in every NZ city?

Proposition 9 tackles issue of tax cap

PROPERTY: Initiative would return city to former formula.

By DON HUNTER
Anchorage Daily News
dhunter@adn.com

Here's the deal about the most complicated thing on the April 7 city ballot.

It all started 25 years ago.

It's really important, because it will affect how much in property taxes the city can collect each year.

Supporters say it will cause property taxes to go down.

Opponents say it might cause property taxes to go up.

Understanding it takes you through a couple of wacky acronyms that sound like they fell out of a Walt Disney television show in 1959: MUSA. MESA.

WHAT IS IT?

Proposition 9 is a voter initiative about property taxes in Anchorage. The goal is to lower property taxes. The initiative aims to strengthen a tax cap originally passed by voters in 1983 and changed in 2003.

The tax cap limits how much the city can increase overall property taxes each year. Taxes can only increase from the amount collected the preceding year by a percentage that includes inflation and a five-year average of population change.

Proposition 9's supporters say the initiative would reduce the amount that property taxes could increase in the future. They say it would do that by adding to the mix payments to city government from city-owned utilities and city-owned businesses. Moving that money -- currently about $16.5 million a year -- under the tax cap would reduce the amount charged to home and business property owners, supporters say.


WHAT are UTILITY AND ENTERPRISE PAYMENTS?

City, state and federal governments don't pay property taxes.

But the state and federal governments do make what are called "payments in lieu of taxes" on government property inside the city.

City-owned utilities like the Anchorage Water & Wastewater Utility and Municipal Light & Power own "plant" -- utility equipment, lines, pipes and so on -- and the city collects "payments in lieu of taxes" on that.

The city also owns entities that do business, like the Port of Anchorage and Merrill Field. The city collects payments in lieu of taxes from them too.

The utility payments are called MUSA, which stands for Municipal Utility Service Assessments. The enterprise payments are called MESA -- Municipal Enterprise Service Assessments.


WHO SUPPORTS IT AND WHY?

The initiative is on the ballot because a group called the Municipal Taxpayers' League collected 13,000 signatures on petitions in little more than three weeks -- a very short time for such a drive. They needed about 7,000 signatures.

The Chamber of Commerce supports Proposition 9 too. The business group says having the utility payments as part of the tax cap would make the cap more effective and would stabilize changes in property taxes.

Five of the six leading mayoral candidates support Proposition 9. They are Eric Croft, Paul Honeman, Walt Monegan, Sheila Selkregg and Dan Sullivan.

Former Mayor Rick Mystrom is a strong backer too. In a newspaper column, Mystrom said taxpayers are paying about $17 million more each year than they would have if the cap had stayed unchanged.

The Taxpayers' League likens putting the MUSA and MESA payments back under the tax cap to dropping a brick into a bucket of water. The brick displaces a certain volume of water. The utility and enterprise payments would similarly displace a certain amount of property taxes, they say.


WHO OPPOSES IT AND WHY?

Former Assemblyman Charles Wohlforth was hired by the mayor's office to analyze Proposition 9. Wohlforth says the way the initiative is written could cause property taxes to go up instead of down.

He says that could happen because the initiative's wording would add the extra utility and enterprise payments to the tax-cap formula before the new tax-cap level is set. That means the utility payments would not offset any property taxes, according to Wohlforth.

Further, he argues, approval of the proposition could cause higher property taxes. That could happen if the city's MUSA and MESA payments shrink for some reason. One possible reason: The city could lose a water-rate case now before the Alaska Supreme Court and be ordered to reimburse its customers up to $40 million for charging them too much.

Acting Mayor Matt Claman opposes the initiative, citing Wohlforth's analysis.

An appointed citizens' commission that advises the mayor and the Assembly on budget issues listened to both Wohlforth and the Municipal Taxpayers' League.

The commission then recommended that the initiative's supporters withdraw it from the ballot and rewrite it to eliminate any confusion.

But it's too late to do that, and supporters don't want to, anyway.

HOW DID WE GET HERE?

The original cap on Anchorage property taxes was approved and added to the municipal charter by about 58 percent of the voters in October 1983.

That charter amendment did not mention utility payments.

But the Assembly passed its own ordinance the next year and added the MUSA payments to the amount of collections under the cap.

Several years later, the Assembly added MESA payments.

In 2003, Mark Begich was elected mayor. Oil prices were lower than today and the state government cut the amount of money it was sharing with cities and boroughs.

Begich and his new city executives said they were about $30 million short of having enough money to pay for city services.

Begich asked the Assembly to remove utility payments from the tax cap and collect them separately. The Assembly voted 9-0 in December to do so, with two members absent. At the same time, the amount the city collected from most of the utilities also went up.

Without the MUSA/MESA payments, the tax cap initially fell. But the cap has since risen to help pay for growing city and School District budgets.

In response to questions, the city's chief fiscal officer, Sharon Weddleton, said the increases in allowable property taxes for city services are the result of new voter-approved bonds, taxes on new construction, and population growth. The increases were not caused by the 2003 MUSA/MESA decision, she said.

Weddleton did a comparison of how much property taxes went up after the 2003 changes, and what would have happened had nothing changed. Her conclusion? A difference of only one-third of one percent.

But a lot of home and business owners started to get fried when their tax bills went up more than they had expected.

And tax bills have indeed risen. For example, a single-family home in an East Anchorage neighborhood assessed at $240,000 in 2003 paid about $4,000 that year in property taxes. By last year, the house was assessed at $340,000, with a tax bill of about $5,000.

That kind of track record is reason enough for voters to reimpose "a hard limit" on City Hall, initiative backer Neil Nichols said when the petition drive was launched in January.

Concerns about the initiative's wording are misguided, he said more recently.

"This is nothing new here," Nichols said. "They're trying to frighten the voters away from tax relief with smoke and mirrors."

But doubts remain.

"It's poorly written and I don't think everybody that votes is going to understand what they're voting for," the advisory commission's chair, Jason Bergerson, said when the group's "buyer beware" warning was issued last month.