Alaska Municipal League: state'determined property values and required local contribution shrink state school aid

Nils Andreasen, executive director of the Alaska Municipal League, told the Senate Community & Regional Affairs Committee on March 26 that the state'determined full value calculation and the required local contribution (RLC) are reducing state school aid and complicating local budgets.

"Property tax is really about funding services that affect property," Andreasen said, explaining that the state assessor''adds back optional exemptions and personal property to arrive at a statewide "full and true" value used to calculate the RLC under Title 14. The RLC is set at 2.65 mills for municipal school districts.

Andreasen told senators that when the RLC increases, state aid falls by the same dollar amount because state aid is calculated after subtracting the RLC (and impact aid) from the basic need in the funding formula. "Every dollar that is increased with the required local contribution reduces state funding for dollar for dollar," he said.

Committee members pressed how that dynamic plays out for cities already at their local tax limits. Senator Dunbar pointed to Anchorage, which she said is at its local tax cap and therefore cannot raise local contributions to offset a higher RLC. "Whenever this number goes up, Anchorage is harmed and there's nothing we can do about it because we're already at the legal limit," she said.

Andreasen and senators walked through how the state assessor''s methodology can produce a larger tax base than a municipality actually taxes. He explained Alaska is a non-disclosure state, which limits assessors' access to sales-price data and requires modeling to estimate market values. That, he said, contributes to the state'assessor's adding back optional exemptions and unassessed personal property into the full value determination.

The presentation reviewed exemptions that reduce a municipality's taxable base: constitutional exemptions (federal, state and local government property and certain nonprofits), mandatory statutory exemptions (notably the senior and disabled-veteran exemption), and optional exemptions municipalities may adopt. Andreasen said the senior and disabled-veteran exemption is the largest mandatory exemption by taxable value and noted that the state has not reimbursed local governments for that exemption since 1997.

Andreasen cited data showing that in 2023, 68% of the tax revenue in jurisdictions that levy property tax was collected through property tax and that fewer than two dozen of roughly 165 local governments levy property tax (mostly higher-population municipal school districts). He also said 2024 data showed roughly $27,400,000,000 in taxable value was exempted (including mandatory and optional exemptions) and that optional exemptions average around the high single digits percent of local tax bases in recent years.

Committee members discussed policy options Andreasen raised. Those included decoupling the RLC from the state funding formula so state aid would not be automatically reduced when the RLC rises; smoothing the growth of the full value determination or RLC to avoid sharp spikes in assessed value; and having the state perform full value determinations for all districts and make up the RLC for REAAs to address disparity. Andreasen said the Alaska Municipal League''s preference is for the state to fund education more fully and to inflation-proof the base student allocation.

There were no formal votes. Chair Senator Merrick thanked Andreasen for the briefing and the committee adjourned at 2:42 p.m.

The committee may consider related bills that would smooth full value determinations or cap growth of components of the RLC; Andreasen identified those proposals as addressing different problems and noted smoothing alone may not increase net state aid to districts if the RLC continues to offset state increases.