That's money that the state's cash-strapped municipalities won't receive to fund local services such as police, fire and road maintenance, said Kevin Ritchie, executive director of the Alaska Municipal League.

The organization is recommending that lawmakers reinstate the municipal revenue sharing program to help pay for the unfunded, state-mandated tax exemption. Funding for revenue sharing was eliminated last year.

Alaska's senior population is expected to triple in the next quarter-century, and the program is expected to grow with it, further tapping local governments' abilities to pay for local services.

About 41,600 Alaskans are aged 65 or older, compared to about 36,000 people in 2000, an increase of nearly 16 percent in four years. By 2029, the number of seniors is expected to reach nearly 138,000.

In 2004, about 20,000 seniors and disabled veterans were enrolled in the tax-exempt program. About 88 percent of that total was seniors. Under the program, veterans, as well as seniors aged 65 and older, or surviving spouses aged 60 and older of an approved applicant, are exempt from paying taxes on the first $150,000 of the assessed value of their homes and property.

Last year, the total valuation of homes in the program totaled nearly $2.5 billion. Some $37 million in municipal property taxes was exempted.

In 2000, some 15,000 seniors and 1,700 veterans were enrolled and given an exemption of $28.2 million on a total assessed valuation of $1.8 billion in property.

"That affects municipalities' bottom lines; that's tax revenues they don't get," said state assessor Steve Van Sant. "The exemption doesn't mean that the tax money isn't needed, just that it's not paid to the municipalities. That burden then shifts to those who do pay."

Neither the state nor municipalities try to forecast exemptions, Van Sant said.

The state is experiencing sizable increases in the its overall population, its senior population and in the overall valuation of property, all of which is causing the tax exemption program to escalate, Van Sant and Ritchie said.

Only 25 of the state's 354 communities levy a property tax, raising about $780 million in 2003. Total land value of municipalities in the state is about $58.4 billion, according to information from the state Division of Tourism.

The tax exemption program was put into law in 1973 by the state Legislature. That year, 911 seniors - disabled veterans were added to the program in 1995 - enrolled in the program, receiving an exemption of $197,000. The program has grown every year since.

The statute says that the state will reimburse communities for the tax revenues lost under the program. The Legislature fully funded the program through 1985, and then gradually reduced the appropriation amount every year until 1997, when it eliminated the funding.

"When it was created, local governments said OK, but that they couldn't afford it," Ritchie said. "The Legislature told them don't worry about it, we'll pay for it. It is a state-mandated law that the state promised to pay for, but the rule is that current legislators can't force future legislators to appropriate money for anything. That's the rub."

As the state's largest population center, Anchorage taxpayers are forced to make up the highest portion of the exemption, said municipal assessor Marty McGee. Nearly 9,000 Anchorage residents are eligible for the exemption, including seniors and veterans. The city's exemption totaled $19 million on a total valuation of $1.19 billion, he said.

Property valuations in Anchorage have skyrocketed over the past several years, upward of 20 percent in some areas, reducing some of the impact from the program, he said. The average home is valued at $242,000 this year, compared with $219,000 in 2004.

Other areas that saw sizable exemptions, using 2003 figures, included Fairbanks at $5 million; the Matanuska Valley at $4.5 million; Kenai Borough at $2.6 million; and Juneau at $1.6 million.

The Alaska Municipal League also plans to focus on the state property tax exemptions during the Legislative session, Ritchie said.

Since funding for revenue sharing was eliminated last year, this constitutionally mandated exemption will cost taxpayers roughly $66 million a year, Ritchie said. Local taxpayers must pay for fire, police and other local services provided on state lands and facilities.