Sitkans consider pros and cons of a property tax raise

To raise or to not raise the cap? That is the question before Sitka voters today (10-04-16). Proposition 1 asks if Sitka should raise the local limit on property taxes from 6 mills to 8 mills. If the ballot question passes, $1 million of that money would go towards the Electric Fund to help pay off the Blue Lake Dam.

Supporters of Prop 1 say it’s as step in the right direction towards financial stability. But opponents think there are better solutions to resolving the city’s budget deficit. Sitkans from both camps met to air their views last Thursday (09-23-16), during a live call in show hosted by Raven Radio. You can listen to full 90-minute forum here.

Downloadable audio.

As far as mill rates go, Sitka has one of the lowest caps in the state: 6 mills.  It’s been that way since 1990. Back then, Prudhoe Bay was entering peak oil production. Sitka’s roads were freshly paved and the population was steadily increasing. It was a different time for Alaska and for Sitka.

John Stein, who is voting “Yes” on Prop 1, argued that times have changed. “It was a history of chronic underfunding of future expenses. There was no plan put in place to refund and repave and rebuild our utilities and our roads and our sidewalks. We enjoyed those years of low mill levies and it’s time to pay the piper,” Stein said.

Sitka is further challenged by diminishing state support. In FY17, Sitka received only $700,000 from the state, compared to $3 million four years ago. If the city budget were a basketball team, that’s like having your center – the guy who catches all the rebounds – catch the flu.

Gary Paxton, Marjorie Parmelee, and Robin Sherman, who joined Stein for the forum, all agreed that Sitka needed to looking within for solutions. “How do we ensure that those people in our town that are incredibly valuable to us can still afford to live here?,” Paxton asked.

But the group disagreed about whether raising property taxes should be a part of Sitka’s overall strategy for making ends meet. The “Yes” and “No” camps differed on three fundamental points: 

1) Can Sitka homeowners afford an 8 mill property tax?

For Marjorie Parmelee, who worked in the city’s Financial Department for 25 years, the answer is no. In her opinion, a two mill bump is too extreme. “I think this whole pill would be lot easier to swallow if we were at 1 millage rate instead of two at a time. 33% is a huge hike at one time. Especially when we’re already reassessing our property,” Parmelee said.

The city is working to bring all of Sitka’s properties up to market value, two thirds of which haven’t been assessed since 2003. When complete, this would generate an additional $1 million in revenue, but the city won’t be seeing that money for four to five years.

Robin Sherman, who is voting “Yes” on the ballot question, pointed out that once property values go up, the Assembly can lower the mill rate. That’s how property taxes work. And, she added, high property values aren’t a bad thing.

“A big part of the value of your home is the attractiveness of your community. And I think part of the reason why property values are so high in Sitka is that this is a really fabulous place to live,” said Sherman.

2) Should Sitka shrink the size of city government? What will be lost if it does?

At present, the City and Borough of Sitka has 156 members in 17 departments, which oversee Sitka’s utilities, roads, buildings, harbors, public safety, and other services. Right now, the city administration is forecasting a $2.5 million deficit in the general fund to maintain city government at it’s current level.

Paxton questioned whether Sitka’s needs were that dire and felt that city government could be reduced. “The sky is not falling. This is a time in the next five years  – maybe you’re postponing disaster – that you need to be really prudent about what you do and how you spend your money,” he said.

Some callers agreed that city government should shrink. One cited new vehicles in the city’s fleet and capital projects as examples of exorbitant city spending.  Other callers disagreed, asserting that the city can be trusted to spend its money wisely and that too much was at stake if Sitka reduced further, such as the quality of the school or the safety of the roads.

The prospect of returning to gravel roads was unacceptable for Stein, who is the former Mayor of Wasilla. “Up in the northland, we couldn’t maintain roads that had more than 300 vehicles a day on them. There’s issues like dust and grit and dirt and all that kind of thing when roads deteriorate. I think that’s a huge quality of life issue,” he said.

3) Is raising property taxes the best way to resolve the city’s budget deficit? 

For Paxton, the answer is no. He’d prefer to see the sales tax be 6% year-round. For Sherman, sales taxes hikes hurt local business and and low income families. Property taxes, she argued, are more equitable. 

But the real reason she supports the measure is because if it passes, the Assembly will dedicate one mill of revenue to the electric fund to assist with paying off the Blue Lake Dam. That infusion would buffer the need for an electric rate increase beyond 5% this year.

Sherman is worried that if electric rates aren’t tempered and the winters remain warm, it will be lights out in Sitka in more ways than one.

“The dam is the big expensive item but generation is useless if your distribution system is falling apart. So I don’t want to skimp on the maintenance that we need because I want to know that my lights and my refrigerator and my heating system are going to work,” Sherman said.

This notion, though, of bailing out the electric fund with money from property taxes – not utility payments, bothered Parmelee. “Enterprise funds need to support themselves. That’s the whole goal. That’s the whole way government is set up. Are we setting a precedent?,” Parmelee asked.

Now, if the ballot question on Tuesday passes and the Assembly raises rates by 5% next week, Sitka will be able to close the budget gap for the electric fund.

But what about next year? In an e-mail to KCAW, Utility Director Bryan Bertacchi said that if electric usage continues to decline, FY18 may demand a rate increase up to 15%. The Blue Lake dam is just that expensive and a huge part of the reason why Sitka finds itself in a tough spot: having to pay it’s biggest bill with less money than it’s had in decades.

Paxton, for his part, felt that that next five or ten years will be tough, but that Sitka can pull through. “Listen, Sitka’s best days are still ahead and we’re going to sort this baby out,” he said. Especially, he quipped, if the city is blessed with a cold winter.