Property Taxes: Are Anchorage Commercial Properties Paying Their Fair Share?

A couple of weeks ago Mayor Sullivan invited me to his office so that I could conduct an interview for Alaska Health Policy Review about his views on health policy.  At the end of that interview, I asked his permission to diverge to a completely different topic — property taxes.  He allowed the question…

I want to ask you one question that really comes from a completely different ball park. I want to talk about property taxes. I have only one question on this subject. I noticed in one of your press releases, I think you mentioned that property taxes were going up.

Sullivan: Yes.

AHPR: I’m the Executive Director for the Alaska Center for Public Policy, so health policy is one thing we do, but we also have an interest in a number of other things, including property taxes. I’ve done, historically, work on that. I don’t have the exact year, but a number of years ago, ISER did a study called “Anchorage Budgets and Property Taxes.” In that study, they determined that, for several decades, the percentage of business contributions to property taxes has been steadily falling, and the percentage of residential contributions has been steadily rising. They actually didn’t say very much more about the causes of that, they just pointed it out. It has the appearance that residents are increasingly, over the decades, paying more and more of businesses’ share of property taxes. I wonder if you could comment on that?

Sullivan: I don’t think that’s a fair characterization that they’re paying businesses’ share. I think what you saw is that Anchorage had pretty good residential growth over the last decade and probably not matched so much by growth in big buildings, if you will. A few new box stores, but for the most part, we had a decade from the mid-nineties through just a year or two ago of just dramatic residential growth. To, where, in fact, we’re pretty much out of land to grow residentially. So, we had quite a boom there. As far as the share, I think one thing that we’re going to be focusing on, if that statement was assumed to be true, that might contribute to it is it’s hard to assess commercial property as accurately as residential property.

Number one, each commercial property is pretty unique. An architect designs a building, and then they want to design another one. And you don’t see cookie-cutter commercial buildings like you do houses, with a very similar style, square footage, that sort of stuff. It’s very easy to assess residential property very near its full value. It’ very difficult to assess commercial property because there’s so few sales, and they’re so uniquely constructed, that it’s traditionally been that commercial property is under assessed in this town. That’s one of the things we’ve been working on, we want to get commercial properties assessed near their full value, just like residential property is. I think that will make up some of that gap. But, again, the other part of it is, you had a decade of amazing residential growth in this town.

There is more descriptive information, but not a lot of actual analysis, in the ISER document Anchorage Budgets and Property Taxes. So, where is the analysis?  Are residents paying their fair share of property taxes plus the share of commercial property taxes that businesses have managed to increasingly avoid in recent decades? Is the Mayor cutting municipal services that wouldn’t have to be cut if businesses paid their fair share of property taxes? Maybe, and maybe not.  We won’t know until an actual analysis is done, in contrast to the existing plethora of conjecture.

~ldw

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formerly Alaska Center for Public Policy

Posted on October 28, 2009, in Tax Policy. Bookmark the permalink. 1 Comment.

  1. Dr. Weiss: It may well be that your conclusion of commercial property taxation falling behind that of residential is the case, and wouldn’t mind if it is the case.

    However, in looking over your Compass piece a few things piqued my curiosity. The first is that of using 1980 as the base year for comparison. The early 80’s were good times for commercial R/E with low vacancies, strong rents and the resulting high tax valuations. But came 1984 with high vacancies, extremely low rents and a halving of building prices that were, frustratingly not reflected in tax valuations.

    It’s taken all of the two decades since for rents and valuations to rebound and I doubt that Anchorage rents returned to inflation adjusted levels of 1980. Then what gains have been made are now in a period of electricity and gas having tripled with other utilities having increased rapidly as well. These factors all reduce the income approach of building, and thus taxation, valuations.

    Next I reflected on the housing stock of 1980 with virtually none of the expensive homes of the hillside, south Anchorage and the Eagle River hills existing at the time. My guess is that the ration of home prices and quantity of homes have changed the ratio between commercial and residential over the decades, though the number of new hotel rooms may prove me wrong.

    Something else has happened here. Anchorage too has participated in the home price bubble of the L-48. Fortunately not to the same degree and even more fortunately the deflation is taking place at a slower and more tolerable rate. But a deflation is taking place as a tour of the homes for sale will confirm with most listings being offered BELOW tax appraisal.

    http://mysite.verizon.net/vzeqrguz/housingbubble/

    Lastly, I’ve a theory (ha! unproven) that while Anchorites are living in larger and more costly homes, due to technology changes they are doing more biz in less commercial space. These might range from the few “box” stores to the dozens of smaller less efficient stores of “the 80’s” to computers, faxes, cell phones allowing smaller offices to accomplish more to perhaps higher productivity in auto and other types of repair and maintenance facilities.

    If my theory of doing more with less is true and the property taxes on buildings are not paying business’ way, (subjective, I suppose?) that buildings be categorized on what they do and the typical gross revenue, ie high grossing, high traffic “box” stores paying a higher rate than if the same building were used for a marginal biz like miniature golf etc.

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