News from Patrick Flynn

Understanding Anchorage’s Tax Cap

Editor’s note: I produced this piece so that it could be utilized by local media, thus it’s perhaps a little more didactic than usual.  Hopefully that doesn’t detract from its informational value.

During my tenure on the Anchorage Assembly there’s been a recurring discussion about how we employ state revenues. To put it as simply as I can, the question is whether they are considered part of our tax revenues and therefore “under” Anchorage’s tax cap, or are they used after we set the mill levy and therefore “outside” the tax cap. And I’m sorry if that isn’t very simple.

I’ve written extensively on this topic in an effort to help folks understand how the tax cap works, how it increases and what aspects of municipal governance (bonds, mostly) fall outside the cap. If you wish to better understand the mechanics please visit my blog – – and enter “tax cap” in the search engine.

Which brings us to a proposal submitted by my colleague, Bill Evans, that would amend Anchorage’s charter (our local constitution) to require state funds be placed under the tax cap. I enjoy working with Bill but, despite his good intentions, this is a flawed idea.

State funding for municipal governance has waxed and waned throughout my lifetime in Alaska. When revenues are up all is well; when revenues are down state appropriators cut that funding. The question is how local governments, and Anchorage in particular, manage those fluctuations?

One answer, as mentioned above that has been employed in the past (and may be again), is to use state monies for tax relief after the mill levy is set. Either way, you still pay the same amount in taxes yet revenue capacity is maintained in the event the state reduces or eliminates local assistance. Should the state do so we, the citizenry of Anchorage, get to decide whether to use that revenue capacity (higher taxes), reduce spending (lower services) or some combination thereof. While that’s not an easy conversation it’s not one we should be afraid to conduct.

Should Mr. Evans’ proposal be enacted this option and the associated conversation will not occur – we’ll simply have to cut services. But that’s not the end of the story; the more pernicious aspect of Mr. Evans’ proposal is that it eliminates any ability to use one-time funds to provide tax relief.

Here’s a specific example: during the Great Recession the Congress authorized a stimulus package aimed at reviving the US economy. One aspect of that was direct aid to local governments. The Assembly employed funds allocated to Anchorage to provide property tax relief. Had Mr. Evans’ proposal been in place we could not have done so unless we were willing to make commensurate cuts the following year.

In other words, Mr. Evans’ proposal could very well prevent tax relief.

Recognizing that each of us has a different view of how much government we should have I think we can generally agree that we want local government to be efficient and effective. Street maintenance, public safety and quality schools are services we value. We can disagree on the details, but we should not unnecessarily hinder our ability to discuss how to meet those needs.



Editor’s note part 2: Regular readers may have noticed the ability to comment has been closed.  Unfortunately the mischief-makers of the web have made a concerted effort to spam this site so the web gremlins who watch over it felt it best to deactivate that feature.  You are, of course, always able to comment on my FB page, send me an e-mail or even call!

This contribution was made on Thursday, 03. December 2015 at 11:12 and was published under the category Fiscal matters. You can follow comments on this entry through the RSS-Feed.

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