Anchorage's current mayor is locked in a debate with his predecessors about how much the city's limit on property taxes can grow from year to year, the focus of an initiative on the April 5 city ballot.
With Proposition 8, a group led by former Mayor Dan Sullivan is seeking to amend city charter — essentially the city's constitution — and overturn an ordinance passed last fall by the Anchorage Assembly that loosened limits on the growth of the tax cap.
Sullivan, conservative groups like Americans for Prosperity in Alaska and other allies say the current Assembly created a "loophole" that undermines the intent of the cap and could open the door to bigger tax hikes in the future. They want voters to pass Proposition 8 and return to a more rigid interpretation of the tax cap.
Mayor Ethan Berkowitz, labor unions and some members of the Anchorage Assembly say the city needs more flexibility as state revenue sharing dries up. Berkowitz has spoken out publicly about the ballot initiative in the past week, saying it would prevent the city from giving out property tax rebates and cut into future budgets.
"A good community isn't free," Berkowitz said in an interview last week.
Meanwhile, a poll conducted by Dittman Research earlier this month found that Anchorage voters were largely unaware of the proposition. In recent weeks, Americans for Prosperity has been operating a phone bank out of its Anchorage office and calling voters about the issue.
Campaign attacks
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On Thursday, a radio ad in support of the proposition, featuring former Mayor Rick Mystrom, is set for broadcast.
"This great city of ours has grown and prospered under five different mayors, Republicans and Democrats, since the original tax cap was initiated in 1983," Mystrom says in the ad, a copy of which was provided in advance to Alaska Dispatch News by Anchorage political consultant Marc Hellenthal. "The tax cap has worked for 33 years and is still working."
An opposition group with a similar name, "Protect the Tax Cap," formed on March 22. The Alaska AFL-CIO has contributed $6,000 to the campaign, and Berkowitz has donated $500.
On Tuesday, the group started airing "No on 8" radio ads lampooning the proposition against the sound of shrieking monkeys.
"Don't monkey with the tax cap!" booms the voice of Alice Welling, the Anchorage actress and former Miss Anchorage.
The ad also tries to tie the ballot measure to the specter of fewer cops on the street, which Sullivan, in an interview, criticized as "scare tactics."
The ad's message that the tax cap is working, is so similar to the message of the "Yes on 8" campaign that Sullivan and others characterized it as a deliberate attempt to confuse voters.
But the fight ultimately isn't over whether the city should have a tax cap, it's how that cap is calculated.
Approved by Anchorage voters in 1983, the tax cap limits how much the city's total property tax, not the taxes of an individual taxpayer, can increase from year to year. It allows for taxes to grow based on factors like inflation, population increases and new construction.
Over the years, mayoral administrations have used different methods for calculating the starting point — the critical assumption of the previous year's total tax that forms the basis for that year's cap. For instance, Mayor Mark Begich's administration, which ended in 2008, used state revenue sharing to lower Anchorage property taxes, but not the tax cap. Dan Sullivan's administration, the next to occupy City Hall, criticized the Begich formula and in 2011, an Assembly ordinance directed the city to start the calculation at the actual amount collected, not the maximum amount allowed.
In October, the Assembly overturned the 2011 ordinance, giving the administration more flexibility in how to calculate the cap. But that also triggered the ballot initiative.
The Berkowitz administration built its first budget based on the method approved by the Assembly in October. It calculated the 2016 tax cap using the 2015 tax cap of $251.3 million as the basis. Opponents, like Dan Sullivan, say Berkowitz should have started with the actual taxes collected in 2015, a lower amount of $249.7 million.
The effect of the method used in 2016 was to raise the tax cap by $1.6 million. Under the Sullivan administration method, the tax cap would have been adjusted upward by only about $200,000.
The city's 2016 budget is below the larger tax cap by $262,405. If Proposition 8 passes, the lower cap will force the administration to cut the 2016 budget by $1.4 million.
Debating the impacts
Under the current calculation method, the tax cap behaves as if the Assembly taxed to the limit every year. That raises the cap more quickly than it would rise just with population growth, inflation and new construction. But a rising tax cap doesn't mean that taxes themselves will increase. Taxes are approved by the Assembly, whose members face voters every three years.
But the prospect of a rapidly rising tax cap has alarmed conservatives and proponents of lower taxes and smaller government, who say the cumulative effect would render the cap meaningless.
A spreadsheet provided by Cheryl Frasca, the city budget director under Sullivan, shows the city's tax cap would be about $32 million higher today if the Sullivan administration used the current method to calculate it. The cumulative difference since 2008 would be $141 million, according to Frasca.
Taxes wouldn't have necessarily increased by that amount, Frasca acknowledged in an interview. But she said the concern is that they could.
"It's the potential that exposes taxpayers to the potential for big increases. Which undermines the entire basis for the tax cap," Frasca said.
Bill Falsey, city attorney for the Berkowitz administration, said Frasca's scenario assumes the Assembly taxed up to the limit each year, which he said has not happened in recent memory. He said the claim by Proposition 8 supporters that property taxes would have increased more than $1,200 for an average homeowner since 2008 isn't accurate, for that reason.
Berkowitz has spoken out publicly against the initiative in the past week. He says the initiative creates the perverse incentive to tax to the maximum every year to keep the cap as high as possible.
If the city needed less money one year, say for snow removal, and that money wasn't otherwise spent, the city would have that much less the next year, tying the hands of city budget planners, Berkowitz said.
Berkowitz said the tax cap shouldn't work that way, and will affect Anchorage's long-term growth.
Sullivan said instead of refunds, surpluses should be used for one-time expenses, like winter storms or legal settlements. He said that amounts to tax relief by not asking taxpayers to pay for those expenses.
He noted the tax cap already has a mechanism for growth, and disputed the claim the proposition would lead to government waste, saying tighter budgets force the city to find ways to be more efficient -- a view echoed by Frasca.
"They've been able to manage their budgets and have some money left over," Frasca said. "I don't think that behavior is going to change."