Updated: February 10, 2000

SB 242 would mitigate the effects of the pending 10-mill municipal tax cap initiative by proposing to use the increased state revenues of the existing state oil and gas property tax that will be created by passage of the initiative to fund the state's Revenue Sharing and Municipal Assistance programs.

SB 242 would only take effect if voters in the upcoming November general election adopt the 10-mill initiative.

Under present law, the state levies a 20-mill tax on oil and gas property. Municipalities may also tax the same oil and gas property. Taxpayers are allowed a credit against their state oil and gas tax liability for taxes paid to a municipality. For example, if a piece of oil and gas property is assessed at $10,000 and a municipality levies a tax of $9,000, the state would only receive $1,000, the difference in the two.

Currently, the state receives only about $22.5 million (less than 10%) of all the oil and gas property tax revenue collected statewide while municipalities with oil and gas property collect $223 million in revenue.

This upcoming November, Alaskan voters will consider 99PTAR, a statewide initiative that would place a 10-mill cap on local property taxes. The proposed initiative would, if passed, cap all municipal property taxes at 10-mills. The proposed tax cap is inclusive of any existing bond debt, however, under the initiative, a municipality may not go forward with bonds if the proposal increases the rate to over 10-mills.

For example, in 1999 one local borough collected over $196 million in oil and gas property tax revenue based on a mill rate of 18.53 of which 13.51 mills is levied to satisfy debt service and 5.02 is levied for its operating budget. Should the tax cap initiative pass, the borough would no longer be able to issue bonds until it reduces its mill rate below the 10-mill limit. Since the borough could no longer levy a mill rate of 18.53, the state would collect the balance of the state's 20-mill oil and gas property tax.

If the initiative passes then in FY'01 it is estimated that the state would receive an additional $8 million in oil and gas property tax revenues. Eventually the revenue the state will collect will rise to nearly $135 million annually, an increase of over $100 million more than what is currently collected now.

SB 242 is the answer communities all over Alaska have been looking for. It is a long-term solution to the problems the tax cap initiative would create if passed. It will provide a stable and predictable new funding source from new revenue the state would not otherwise receive for municipal aid programs thereby holding local taxes down.

DD/jja