Two Kenai Borough ballot propositions in the Oct. 4 election are about sharing the responsibility for our community among taxpayers and maintaining a fair balance between property tax and sales tax.
Proposition No. 3 would raise the amount of a single purchase subject to sales tax. This is about correcting a growing reliance on property taxes and bringing the borough’s 51-year-old sales tax code closer to today’s economy.
Proposition No. 4 would phase-in over many years a reduced property tax exemption total for future senior citizens. This is about continuing to help seniors, while dealing with the reality that the senior citizen population is growing much faster than the rest of the borough population, adding more property value to the tax-exempt list every year and increasingly shifting the tax burden to non-seniors.
The sales tax proposition would raise the amount of a single transaction subject to sales tax from $500, set in 1965, to $1,000, starting Jan. 1. It also would exempt residential rent from borough sales tax. Without the change, renters would be disproportionately hurt by the taxable increase every month. Affordable rental housing is important for the borough and its residents and, as such, exempting residential rent from sales tax is consistent with that public policy goal.
The net revenue gain to the borough from those two sales tax changes is estimated at $2.9 million annually. All of that money would go to education, as required by borough code. The borough this year expects to collect about $30 million in sales taxes, which is slightly less than last year. Because the borough contribution to the school district is $48 million, property tax dollars cover what sales taxes do not.
An increasing share of borough general fund dollars is coming from property taxes — and that gap is projected to widen. This proposition would help reverse that trend. It is a reasonable step toward rebalancing tax responsibility between shoppers — locals and visitors alike — and property owners.
Another consideration is that state assistance to municipalities and schools is on the decline and expected to continue in that direction, and additional sales taxes would help the borough deal with those state cutbacks. State revenue sharing to the borough is down almost $750,000 from fiscal 2016 to 2017, with no guarantee there will be any money in the years ahead. The legislature last year called a halt to state reimbursement for new school construction debt, with no guarantee that will be restored in the years ahead.
Ballot Proposition No. 4, the senior citizen property tax issue, would not reduce the tax exemption for any senior who currently receives it or turns 65 before Jan. 1, 2018. They would continue to receive their full exemption as long as they are residents in the borough. Seniors currently are exempt from borough and service area property taxes for up to $350,000 of their home’s assessed value. That breaks down to:
• A $150,000 tax exemption required by the state. (The state used to reimburse municipalities for the cost of that mandatory exemption, but stopped in 1997.)
• A $150,000 exemption that is optional for cities and boroughs in Alaska. Currently, only the Kenai Borough and North Slope Borough provide that optional exemption. (None of the cities in the Kenai Borough adopted the optional $150,000 exemption.)
• And a $50,000 residential property exemption offered all Kenai Borough homeowners.
The Oct. 4 ballot proposition would phase out only the optional $150,000 senior exemption. Nothing else would change. The proposition would phase out that exemption in three steps for homeowners who reach age 65 on or after Jan. 1, 2018.
• Owners who turn 65 between Jan. 1, 2018, and Dec. 31, 2020, would receive a $100,000 optional exemption, for a total exemption of $300,000.
• People who turn 65 between Jan. 1, 2021, and Dec. 31, 2023, would receive a $50,000 optional exemption, for a total of $250,000.
• There would be no optional exemption for anyone who turns 65 on or after Jan. 1, 2024, and their total exemption would be $200,000.
As of this year, $815 million in senior-owned property value is exempt from borough and service area taxes, up 75 percent from 2009. That represents about 12 percent of all real property in the borough (excluding oil and gas property). The state’s latest estimates show the borough’s over-65 population increasing from 8,600 in 2015 to almost 15,000 by 2030 — close to one-quarter of the borough’s entire estimated population.
Failure to ease the growth of the senior tax exemption in the borough budget would mean an increasing shift in the tax burden to other property owners, including younger families just starting out. I believe the ballot proposition strikes a fair balance between all age groups, and gives residents time to prepare for the changes.
None of this will affect the borough’s hardship provision, which caps eligible seniors’ borough property tax bills at 2% of their household gross income. That protection is important for our most vulnerable seniors.
Whichever way you choose to vote, I ask you to exercise your right and responsibility as a borough resident to cast a ballot Oct. 4.
Mike Navarre is the mayor of the Kenai Peninsula Borough.