Community perspective

Measure No. 1 on the Aug. 28 primary election ballot proposes to allow municipalities to increase homeowner property tax exemptions from a maximum of $20,000 to a maximum of $50,000. It includes a rider that allows further increases up to the annual increase in cost of living. Sounds nice. If you own your home, your taxes could go down a bit, right?

Yes, that’s right, but it doesn’t mean your cost of living goes down. Because, alas, there’s no free lunch, and winners get balanced with losers.

If homeowner exemptions are increased, then all other properties will find a higher rate imposed upon them to make up for the suddenly “missing” revenue. These include commercial property, oil pipeline facilities and rental properties. In addition, the homeowner’s tax rate would also increase on the remainder of taxable value.

The homeowner would pay more on a smaller value. Stores would pay more and therefore charge more. So homeowners and renters would pay more for all goods. Renters would get the double whammy — paying more at the stores while rents go up.

That’s not the end of this mythical tax “cut.” The homeowner pays income taxes, and, if he itemizes deductions, he now has a smaller deduction for property taxes, and therefore, owes more to the feds. Commercial property owners still get to write off the full amount of taxes, so they stay even.

Since the pipeline would pay more to local government, by law its owners would pay less to the state government. (So the state would have less incentive to fix its oil taxes and more incentive to tax elsewhere.)

And the renters, of course, don’t get to write off the taxes paid by landlords.

Wait, there’s more. Suppose the homeowner lives in a road service area — and lots do. Why, revenue to the road service area would fall for that year, by the tax rate times $30,000 value times the number of owner-occupied homes in the service area. It would be a major hit. Oh, the service area could counter next year, coming hat in hand begging residents to vote “yes” to raise the tax rate. But one badly underfunded year can really damage a road, and the majority might not vote “yes” to raising taxes.

Still more: Volunteer fire service areas, encompassing much more area than road service areas, would have essentially the same problem — a significant reduction in that year’s revenue, and the same problem with a next-year vote on tax increase.

The truth is that fiddling with taxes is a very nuanced and hazardous thing. The best way to reduce taxes is to reduce the overall size, and therefore cost, of government.

The best constraints on our local government are the revenue cap, which prohibits increasing taxes above the current year’s revenue except for cost of living increase, new bonds and new private property/improvements (i.e. the Fairbanks North Star Borough sells an acre into private hands, or an owner finally builds on vacant land).

Any year the assembly doesn’t “tax to the cap” reduces the revenue cap, and that saved amount can never be restored into the formula. As a consequence of actions of conservative-year assemblies, the cap is lower by more than $20 million than it would have been if the borough had annually taxed to the cap.

Another successful constraint operates on both local and state government: the budget must be balanced.

Tax exemptions are nice things to bestow, but they come with a cost. If the senior citizen, the disabled vet or the homeowner’s first $20,000 property value isn’t paying a dime, someone else has to pay that dime.

Don’t pretend businesses will. Businesses pass on all expenses, including taxes, to customers. Business customers in turn pass on all expenses to their customers. Locally owned businesses will face a steeper slope of competition than big chains. Only individuals get stuck.

One final word: Once we’ve enacted a gift to a select group of citizens, such as seniors or homeowners, it will become impossible to undo that gift. Think of it as being forever.

So if you think taxes are too high, don’t vote for Ballot Measure No. 1. Instead, study assembly and city council candidates, and vote for the conservatives. At least they’ll try to hold down costs, keep government smaller and struggle for ways to actually reduce taxes.

Bonnie Williams, of Fairbanks, is a former member of the Fairbanks North Star Borough Assembly and a retired administrator at the University of Alaska Fairbanks.