What is the Tax Cap?
The Tax Cap: A Voter-Mandated Limit on Taxes In October 1983, Anchorage voters approved an amendment to the City Charter known as the Tax Cap. While some think of it as a property Tax Cap, it actually sets a limit on how much all taxes, regardless of sources, can increase from one year to the next. Other taxes subject to the Tax Cap are: automobile registration, tobacco, aircraft registration, and motor vehicle rental. Proponents of the Tax Cap recognized that it was important that taxes be allowed to increase (although controlled) in order to keep up with demands of a growing community. Annual growth in taxes under the Tax Cap is permitted by adjustments based on:
- Five-year average change due to inflation;
- Five-year average change in population;
- Taxes on assessed valuation of new construction that previously wasn’t taxed;
- Taxes required to re-pay voter-approved bonds (debt service); and
- Increased operations and maintenance costs for bond funded projects approved by voters.
What does the Tax Cap Mean to Property Tax Payers?
A way to think of the Tax Cap is that each year it sets the size of the “bucket” into which all taxes to be collected must fit. The bucket’s size starts with the amount of all taxes collected the prior year, which then is adjusted for inflation, population, and debt service cost as described above. The first in to fill the bucket is the non-property taxes (vehicle and aircraft registration, vehicle rental, tobacco). The amount of room that remains in the bucket sets the amount of property taxes that can be collected. Because the total size of the bucket is limited, every additional dollar in a non-property tax reduces the amount of property taxes that can go into the bucket. The final Tax Cap is calculated in April.
Budget Talk: “Tax to the Cap” or “Below the Cap”
Statements often heard during budget deliberations are about how much the budget is “below the cap” or that the Municipality should “tax to the cap.” These statements mean:
- “Below the Cap” means that the budget does not require the Municipality to collect the maximum amount of property taxes permitted by the Tax Cap (i.e. property taxes are “below the cap”). This can be the result of less spending, or due to the availability of non-tax revenue to help pay for spending.
- “Tax to the Cap” means that the Municipality should collect the maximum amount of property tax permitted under the Tax Cap to support a higher level of spending
Does the School District Have a Tax Cap?
The Anchorage School District (ASD) is subject to the same Tax Cap. Anchorage only has one Tax Cap that applies to both the Municipality and School District. ASD goes through the same process each year to calculate the Tax Cap.