Kodiak Island Borough Assembly members raised concerns Thursday that the borough's property tax revenue cap could force difficult budget choices as property values climb and state funding formulas create new pressures.

The cap limits annual property tax revenue to the prior year's total plus inflation and new construction. Assembly members warned that rising property values could force the borough to cut its mill rate to stay under the cap, which would also reduce severance tax revenue tied to that rate.

"I have a feeling that we could end up in a pretty strange place one of these days with this tax cap," one assembly member said. "We have property values going up drastically, and we are by law to assess at 100 percent, which is impossible."

The member noted that falling too far behind market values triggers state cuts to school funding under Alaska's education formula. The borough must assess properties at full market value, but keeping pace with rapid appreciation is difficult.

Another assembly member said the borough has cut building maintenance and repair budgets in recent years to meet the cap. "The last two years especially, we have been cutting things like R&R, and we have buildings falling apart," the member said. "Sometimes it is save a penny. What is it, a penny-wise dollar-foolish?"

The assembly member argued that current and past assemblies have been conservative with spending and suggested the borough should consider changing or eliminating the cap. "I do not think that this assembly or the past assemblies has been frivolous with money to the extent that maybe we should not look at doing away with this or greatly getting in there and changing it," the member said.

The cap also creates complications because the borough's severance tax is tied to the mill rate. If property assessments jump 20 percent and the borough cuts its mill rate to stay under the revenue cap, severance tax collections drop as well. "If all of a sudden this market goes crazy and the assessor goes out there and actually raises everybody's assessment, 20 percent or whatever crazy inflation rate that has been going on out there in the real estate market, and we cut our mill rate, we are also cutting our mill rate also applies to severance tax," the member said. The member noted that efforts to separate the severance tax from the mill rate have failed twice before.

School district costs are rising faster than state aid covers. Special education students requiring intensive support have nearly doubled in five years, from 55 to 106, according to one assembly member. "It is a tremendous expense for the school district, and it is something that is new," the member said, linking the increase to the opioid and methamphetamine crises. "We have not done a good job in explaining to the citizens where these new costs come from."