Leading up to the recent municipal election, one of the topics of discussion in our home was how the hospital bond proposal would raise our property taxes. We realized we didn’t have a good grasp on what we paid in taxes in Homer compared to the rest of the state, so I investigated the situation. What I found was surprising, and others might also find this information of interest.

I called the finance department for a representative sampling of Alaskan cities to determine what their residents pay in taxes on their homes. That information is summarized in Table 1.

Regarding property taxes, Alaska’s two biggest cities, Fairbanks and Anchorage, pay the most – and Soldotna the least. I was relieved to find that Homer’s residents pay below-average property taxes.

My wife and I used to live in Anchorage, and one reason we left was the high property tax rate there. The information in this chart confirmed our decision to leave Anchorage and move to Homer. The mill rate for property taxes in Homer is almost half of what we paid in Anchorage. Although this information was encouraging, property taxes are only half the story of how residents are taxed.

Municipalities in Alaska derive revenue from two primary sources: property taxes and sales taxes. The rates of these taxes vary significantly from town to town. Anchorage has no sales tax, but residents there have chosen to pay for city government with high property taxes. To understand the total tax burden on residents, some way is needed to measure the total tax burden on the residents in a community.

Unfortunately, sales and property taxes are very different forms of taxation. Combining the two numbers to measure the total taxes paid by residents in a community is difficult.

Property taxes are expressed in the millage rate, the tax owed per $100,000 in property value for your home. For example, if you own a home worth $100,000 in Homer and the property tax rate is 10.26 mills, you would have a property tax bill of $100,000 x 10.26 mills = $1026. In this example,
10.26 mills = 1.026% = 0.01026

The millage rate can be confusing. If you express it as a percent tax and try to add the property and sales tax rates together, you end up with a number that doesn’t really measure the total tax burden.
To better understand the total tax burden on the average Alaskan, I developed a ratio called the “Combined Tax Factor.” The CTF ratio is the property millage rate in mills added to the sales tax rate expressed as a percentage. This ratio has no intrinsic meaning but can be used to evaluate the total tax burden on the residents of a typical Alaskan city against their peers. That data can be seen in Table 2.

Looking at the right-hand column in Table 2, we can better understand the tax burden the average Alaskan faces. The data shows that the town of Homer isn’t below average in total taxes paid. Homer residents pay close to the highest total taxation rate in the state and are only about 1% below the highest-taxed city in Alaska, Kodiak. Anchorage and Fairbanks still have a high Combined Tax Factor, but Homer is right up there with them.

After seeing this chart, it is easy to understand why the taxpayers voted against the recent hospital bond proposal here. Homer residents are already highly taxed and don’t want any additional new ones.

The defeated bond proposal should help inform the new mayor of Homer. New taxation in Homer will be very unpopular with the voters. Another concern for the mayor-elect is that if new taxes are imposed on the citizens, current residents of Homer could move elsewhere to find a more tax-friendly place to live.

If city leadership keeps jacking up tax rates, the city might face the prospect of a declining population, with residents moving to more tax-friendly cities. If they don’t think this is possible, a great case study is the city of Detroit. It was a thriving manufacturing center in 1950 and had a population of 1.8 million people. Today, only about 600,000 people live there and the city government struggles to pay for city services. The same thing could happen to our town.

You can see from this analysis that Soldotna pays the lowest combined tax rate in the state and is just up the road from Homer. Proponents of any new taxation in Homer ought to worry about losing residents to Soldotna. The move there would be an easy one.

The views expressed here are those of Greg Sarber. Read more Sarber posts at his Seward’s Folly substack.

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