Developers say oversight on Anchorage tax break is costing them, threatening future housing projects

Anchorage real estate developers who applied for a city program offering a tax break say it falls short of what was promised, threatening some projects and imperiling interest in future residential development.

In 2019, officials in Anchorage wanted to boost new construction and development projects downtown. The aim was to add more residential units to increase population density, which supporters said would lure more businesses catering to those new residents.

One mechanism to do this seemed simple enough: Members of Mayor Ethan Berkowitz’s administration, along with the Assembly, pushed a proposal that would give developers a break from property taxes for 12 years on projects that would add four or more units of new housing within the downtown business district.

“Incentivizing economic development in the form of housing development should both expand the tax base of the municipality and generate property tax revenue after the exemption expires,” wrote Chris Schutte, who at the time headed the city’s Office of Economic and Community Development.

The ordinance passed 10-1 in March 2019, and a companion measure was added the next year granting a similar tax break for projects geared toward affordable workforce housing.

But four years later, some Anchorage developers say the measure isn’t working out for them as advertised.

“It kind of feels like a bait and switch,” said Shaun Debenham, owner of a company that applied for the tax exemption as part of a deal to build a 48-unit development downtown named Block 96, made up of small studio and one-bedroom apartments rented at market rates.

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Debenham thought that after applying for and winning approval for the program, it would mean a 100% exemption from the property’s annual tax obligation.

But that clashes with a state statute barring local governments from exempting the portion of property taxes required to pay for public education. Under that provision, tax breaks for economic development projects can only be extended to whatever sum is left over after the local contribution for the jurisdiction’s school district is met.

This misalignment between the state’s rules and the developers’ interpretation of what the municipality was offering will cost Debenham’s company, according to his own ballpark estimate, somewhere around three-quarters of a million dollars over the 12-year life of the exemption program.

“It takes a project that was maybe just barely kind of penciling out, and makes it so it’s not as feasible,” Debenham said in an interview. “It makes the financing for the project much harder.”

Since the high-profile Block 96 development first got off the ground in 2020, construction costs have increased dramatically from factors caused by the COVID-19 pandemic and ensuing supply chain issues, sanding away the project’s once-thin profit margins. Building downtown is already expensive relative to other parts of the Anchorage Bowl, and both developers and urban policy advocates say the high costs are a barrier to adding denser, more affordable housing.

“We were reliant on those property tax abatements. And now the city has gone back on those and been unwilling to really work with us. And this is a time when we recognize the city is trying to get housing going in Anchorage,” Debenham said.

He is not the only builder who was disappointed by the tax break policy.

“The exemption didn’t pack quite the punch many of us had hoped,” said Gabriel Layman, president of Cook Inlet Housing Authority, which applied for the expanded tax break to help finance its Ch’bala Corners project in Spenard. That development added 48 units of affordable housing and was applauded by municipal officials when it came online last year.

Three of the other developers listed as seeking the exemption, according to an October 2022 filing with the Assembly, have either built or are building small numbers of luxury condominiums or — in one case — furnished short-term rentals. None of the businesses behind those projects responded to emails seeking comment on the impact of of the municipal tax exemption.

Assembly Chair Christopher Constant, who was on the Assembly when it approved the initial measure and who represents the downtown business district, said the onus is on developers to understand the extent of tax breaks permitted to municipal governments under state law.

“If his attorney told him this was allowed, then his attorney misdirected him,” Constant said of Debenham. “As hard a medicine as that is to swallow.”

Constant pointed out the original ordinance never specifies in its language the extent of the exemption.

While the municipal measure references the provision in state code, it does not explicitly mention the state’s rule. State code says local governments “may only exempt all or a portion of the amount of taxes that exceeds the amount levied on other property for the school district’s required local contribution.”

Debenham’s position is that if the municipality did not outright mislead developers, it at least dropped the ball on adopting clear policy and clean code. He wants the Assembly and Mayor Dave Bronson’s administration to come to the table to find a resolution that helps make the developers closer to whole, either by extending the partial tax break for more years or using public money to cover the discrepancy between the full and partial exemption amounts.

At this point, he said, he has not gotten clear communication on what the tax abatement will actually cover over the 12 years following the project’s completion.

“Thus far nobody’s been willing to talk to me,” Debenham said. “That’s doing a lot of damage not only to current projects … but also any goodwill going forward.”

The Bronson administration tried to lobby for a change to the state statute in this year’s legislative session in order to offer a bigger incentive to developers.

“Unfortunately, time ran out and we were not able to get state law changed. The best course forward is to pursue a change in state law. As of right now, property owners who are receiving the exemption must pay the minimum school contribution,” Bronson spokesman Hans Rodvik said in an emailed response to questions.

He added that Block 96 is an “historic public-private partnership that involved (Anchorage Community Development Authority), the developer and the Municipality.”

“Both the Administration and Assembly remain committed to spurring development,” Rodvik said. “We are pro-development and always keep lines of communication open between the Administration and developers to resolve problems as they arise.”

Construction work continues on the Block 96 project, though Debenham said if there is no remedy to the current lack of clarity on how much the project is obligated to pay in taxes, he may have to seek resolution through the courts.

“Definitely not something we want to do,” Debenham said. “We want to work with the municipality to try to bring extra housing to Anchorage.”