News from Patrick Flynn

With all the heat and light (pun intended) surrounding the New Year’s Eve fireworks issue, readers may be forgiven if they haven’t heard much about the so-called “Taxpayer Protection Act,” a charter amendment introduced by Chris Birch and wholeheartedly endorsed by the Municipal Taxpayer’s League.  If eight Assembly members vote yes and the Anchorage voters subsequently grant approval in April then the following language would be added to Anchorage’s charter (our local constitution):

The base amount for calculating the next year’s tax increase limit shall be the amount of property taxes to be collected in the current year.

Having read through the proposed change, supporting documentation prepared by the Department of Law and MTL’s literature I’ve come to a conclusion that may surprise proponents of this measure: it doesn’t seem to do a darn thing.  The premise of the so-called TPA is encapsulated in an Assembly Memorandum crafted by the Department of Law on Mr. Birch’s behalf.  You can read the whole thing by clicking the link above, but the salient paragraph reads thusly:

Integral to the Tax Cap is the “base” used to calculate the limit. For more than twenty years, the base was the amount of property taxes collected in the prior year.  However, a second interpretation used the amount of taxes that could have been collected (a higher number) as the base, potentially exposing taxpayers to dramatic property tax increases.  (Emphasis retained from the original document.)

If that were the case I could understand the MTL’s interest as some nefarious future mayor could conceivably, at least theoretically, convince a future Assembly to recalculate a future tax cap based not on actual prior years’ tax collections but on prior years’ tax capacity.  The result, the MTL believes, would be a dramatic increase in taxes.  But before joining the MTL in their leap of logic lets review three other items.  First, take a look at a post from November, 2009, entitled “Tax cap primer.”  Next, re-read a portion of the existing tax cap language:

Except as provided in this section, the total amount of municipal tax that can be levied during a fiscal year shall not exceed the total amount approved by the assembly for the preceding year by more than a percentage determined by adding the average percentage increase in the Federal Consumer Price Index for Anchorage from the preceding five fiscal years plus the average percentage growth or loss in the Anchorage municipal population over the preceding five fiscal years …

In other words the proposed charter amendment is, most likely, redundant.  Finally, here’s an exchange between myself and municipal attorney Dennis Wheeler [Julia Tucker is Assembly Counsel, Deitra (Dee) Ennis works for Mr. Wheeler in the Department of Law]:

From: Flynn, Patrick P.
Sent: Thursday, December 30, 2010 10:48 AM
To: Wheeler, Dennis A.
Cc: Tucker, Julia
Subject: AO 2010-92

Dennis,

In reviewing AO 2010-92 and related materials I am curious about lines 17-18 in the AM, prepared by the Department of Law, which reads in part:

“However, a second interpretation used the amount of taxes that could have been collected (a higher number) as the base,…”

Prior to introduction of this ordinance I had never heard this interpretation (nor conceived something like it to have any legal standing) and, since it seems to be the basis for the legislation, am curious as to its origin.  Could you provide further background?

Regards,

Patrick Flynn

________________________________________
From: Wheeler, Dennis A.
Sent: Monday, January 03, 2011 10:54 AM
To: Flynn, Patrick P.
Cc: Ennis, Deitra L.; Tucker, Julia

Patrick – The closest I’ve come to finding a “second interpretation” that was generated by this office is a May 2006 opinion.  I’ve attached it here. It was specific to the use of “one-time” funds and concluded that the Assembly could apply the use of “one-time” funds in such a manner as to either reduce or not reduce the tax cap base for the following year.

For your consideration, I’ve attached a sampling of prior year tax cap calculations that help illustrate the differences, although I admittedly find it helpful to have OMB walk through these to illustrate the variations from year to year.

Dee Ennis in our office worked with Mr. Birch on the project.

________________________________________
From: Flynn, Patrick P.
Sent: Monday, January 03, 2011 11:46 AM
To: Wheeler, Dennis A.
Cc: Ennis, Deitra L.; Tucker, Julia

Thank you Dennis,

I was aware of the ability of the Assembly to employ one-time funds after the mill levy is set to offer a one-time reduction in property taxes (and preserve a higher tax cap).  Is it your interpretation that this practice would no longer be legal if Mr. Birch’s proposed amendment were enacted?

Regards,

Patrick Flynn

________________________________________

From: Flynn, Patrick P.
Sent: Thursday, January 06, 2011 2:59 PM
To: Wheeler, Dennis A.
Cc: Ennis, Deitra L.; Tucker, Julia

Dennis (or Dee),

I would appreciate a written response (electronic is fine) to my question.  Given that the only known mechanism for keeping the tax cap higher than actual taxes collected is the use of other revenue sources, not subject to the tax cap, to “refund” taxes after the mill levy is set; if enacted, would AO 2010-92 preclude such an action as described in Mr. Boness’ memo?

This is not an academic question.  If, for example, MOA were to sell one of its enterprise activities (e.g. ML&P) the Assembly might wish to share some of that windfall with taxpayers.  If doing so would impact future revenue collections, much as using settlement proceeds to provide tax relief in the final year of the Mystrom administration constrained his successor’s budget planning, we need to take that into consideration.

Regards,

Patrick Flynn

I still haven’t heard back from the Department of Law on those last two e-mails so, at this point, I guess this means there are two ways to interpret this proposed charter amendment:

1. It has no practical effect but (temporarily) assuages a segment of Anchorage voters, or
2. It would preclude a future Assembly from granting a one-time tax break to Anchorage residents unless said Assembly was willing to cut a commensurate level of services the following year.

Given all that, what would you do?

Regards,

Patrick