The Peninsula Conference of Mayors meeting last week in Soldotna raised concerns about a bill now before the Alaska Legislature that would limit future increases on assessed property values to just 2 percent annually.

Under the bill, assessments could not rise above the previous year’s assessment by more than 2 percent except to account for added improvements or renovations. That measure, House Bill 23, sponsored by Wasilla Republican Bill Stoltze and others, could put a serious crimp on revenues if it were to become law, the mayors said.

“As you all know, we are mandated by the state to assess at the full-market value of the property,” said Kenai Peninsula Borough Mayor John Williams.

The borough, he said, attempts to meet that mandate by staying within a few percentage points above or below a mean target value of 95 percent. If assessed values slip below 90 percent of full-market value, the state makes up the difference by taking educational funding dollars.

Williams said he sympathized with property owners who have seen sizable increases in their property values in the past few years — as much as 14 percent in the central peninsula and 8 percent on the lower peninsula.

“That’s a horrendous amount,” he said. “I still cannot bring myself to the fact that we should limit ourselves to 2 percent.”

Kenai Mayor Pat Porter agreed with Williams, saying costs were going up, including the increased liability municipalities face in their employee retirement plans.

Taxpayers would have to share in paying off that liability, she said.

Tom Boedeker, city manager of Soldotna, said artificially limiting the assessed value wouldn’t negate the need for revenue to pay for city services, the costs of which continue to rise. If assessment increases were limited, the mill levy would have to go up.

Ideas such as allowing assessments to recover to market value levels at the time a property is sold also could be problematic. That could create situations where one owner paid a low tax on his property, while a neighbor owning an equivalent home might pay far more.

“When you create separate classes of people through property ownership, it creates havoc in the system,” Williams said.

Kachemak City Mayor Phil Morris said he believes the federal government intends to use inflation to recover from debt and that will drive up the dollar value of real property. It also will drive up local government costs as the prices for goods and services respond to the inflationary pressure.

“If you make artificial caps on things like taxes and property values are going up with inflation — the real inflation, not the consumer price index — it’s not going to work,” he said.

Boedeker noted the difficulty some property owners with homes along the Kenai River are facing today, namely that property values are climbing so fast that meeting the annual tax burden has become difficult. While their properties may be worth far more today than they paid just a few years ago, he said, they’d have to sell to realize that profit. However, House Bill 23 is “not a good solution,” he said.

Bill Popp, assistant to Mayor Williams, is tracking state legislation. He said the bill has not yet had a preliminary hearing before the House Community and Regional Affairs Committee.

The peninsula mayors discussed several other bills now before state lawmakers.

House Bill 12 would require the unfunded liability in the teacher retirement systems be paid off within seven years, and the state’s portion of the unfunded public employee retirement debt be paid off in the same timeframe.

School districts are the employers where teachers and the Teachers Retirement System (TRS) are concerned. The state and municipalities are the employers with regard to the Public Employees Retirement System (PERS).

Because the state has done a poor job of tracking unfunded PERS retirement debt, determining what portion of that debt — estimated at well over $8 billion — should be assessed to the state, and what portion to the municipalities, is increasingly problematic, perhaps impossible.

Williams noted that the Alaska Municipal League has taken a position that municipalities should not be liable for any more than 15 percent of the unfunded PERS debt. The state should cover the other 85 percent.

If adopted, House Bill 12’s mechanism for reducing the amount of the unfunded liabilities in PERS and TRS would begin in fiscal year 2009, which starts July 1. The bill is slated for hearings in the House State Affairs and Finance committees.

“This is something we all need to track,” Williams said.