Taxes have dominated the conversation at the Sitka Assembly in recent months. (Photo courtesy of Pixaby

Taxes have dominated the conversation at the Sitka Assembly in recent months. (Photo courtesy of Pixaby)

Taxes have dominated the conversation at the Sitka Assembly in recent months. As the city struggles to come up with an additional million dollars for the Sitka School District, assembly members have considered — and mostly rejected — proposals to raise the summer sales tax, double the tobacco tax, and repeal the senior sales tax exemption.

At this week’s meeting (5-27-15) the issue erupted, with a heated debate over how much is too much for citizens to pay for city government.

But there were also hints of some possible long-term solutions.

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[[Buzz of voices in the assembly chamber]]

That is the sound of the assembly chamber at about 7 p.m. on Wednesday, an hour into what became a marathon, five-hour meeting.

And that sound is, well, unusual. At this point in most assembly meetings, the rows of chairs in the audience have a smattering of city staff, the odd citizen with something before the planning department, and a couple local reporters resisting the urge to play Words with Friends.

Not this week. Almost forty people packed the chamber — mostly to testify on proposals to raise the sales tax cap and repeal the sales tax exemption for senior citizens. But some came just to vent.

” Our rates for moorage has gone up. Our utilities have gone up,” Dave Fowler told the assembly, during public comment. “The inflation is wracking all of us, I know personally what I have to pay for a loaf of bread or a gallon of milk…I just don’t understand why we just go on spending and spending and spending while guys like me are suffering.”

“I’ve lived in Sitka for fourteen years, and I’ve always heard business people complaining about how the city is not pro-business, and I’ve never understood that. But,” said Ann Wilkinson, choking up as she discussed the May 12 decision to raise the sales tax cap in the middle of the charter fishing season, “May 12, 2015 is the touchstone of Sitka turning their back on businessmen that are bringing business into Sitka and supporting our community.”

“I’m upset,” said former mayor Valorie Nelson, nearly shouting into the microphone. “I’m upset by all these increases. How can I not be? I love this community. So there. It’s said. If you’re going to take this [exemption] away from the seniors, then you need to look at it rationally. Not knee-jerk, like everything you do. Raise the water, raise the sewer. Look at it rationally!”

Most speakers were not quite as emotional. Many, for instance, said they were fine with raising the sales tax cap, as long as they had enough time to plan for it.

But assembly members clearly felt under attack, and pushed back.

“We really need to have a conversation about what we prioritize, and what we’re willing to pitch in to contribute to support,” said member Tristan Guevin. “We’re not funding the schools at the cap. Do we want to fund the schools at the cap like we have in the past, so that people in the school system now and in the future can get the same level of education as those who have come through it and succeeded?…Those are collective decisions, and this is about a social responsibility. It’s about supporting our fellow citizens, about making things more equitable.”

With assembly members facing opposition to proposals like repealing the senior sales tax exemption, another option has emerged: property taxes.

To put this in context, the assembly is facing two different but related challenges.

One is immediate: how to fill the million-dollar gap in the city budget for the coming year, driven by state budget cuts and shortfalls at the Sitka School District and Sitka Community Hospital.

The other challenge is long-term: how does Sitka create a sustainable tax base to pay for city services?

During a work session before the meeting, Sitka’s new assessor Wendy Lawrence said, essentially, Sitka does things backwards. In most of the state, cities get most of their revenue from property taxes. But Sitka has a 6 mill property tax cap written into the city charter. The city hasn’t raised rates since 1989. As a result, Sitka now gets about 65% of its tax revenue from various sales taxes, while only 35% comes from property taxes.

Lawrence told assembly members that statewide, it’s the opposite: only 17% of municipal revenues come from sales taxes, while 83% comes from property taxes. Those numbers include oil and gas taxes in some parts of the state, but even with those pulled out, property taxes make up about 75% of municipal revenue.

And that’s the way it should be, Lawrence said. “A property tax has been the stalwart of budgets for centuries,” she told the assembly. “It is the more stable tax base.”

And any way you look at it, Sitka’s property taxes are low: the city has one of the lowest millage rates in the state, at 6 mills. The statewide average is more than 11 mills. (A mill is one thousandth. So a rate of six mills means the property tax is .6% of the property value).

And Sitka’s per capita property tax revenue is about half that of Juneau or Ketchikan, and about a third less than Petersburg or Kodiak.

All of those cities also have sales taxes between 5% and 7%, comparable to Sitka’s.

(The source for these numbers is the 2014 Alaska Taxable report, Tables 1, 2 & 3, pages 17-24. Lawrence put together the report in her previous role as Assistant State Assessor.)

Member Michelle Putz summed up her conclusions.

Putz: So, essentially, I believe I hear you saying we really don’t have a realistic tax structure in Sitka. Is that true? Just admit it. That’s what you’re saying. And I agree with you.

Lawrence: It’s skewed, and we have challenges. Yes, we do.

That brought Putz to another tax proposal before the assembly. This one would put a question on the October ballot asking voters to raise the property tax cap to 7 mills, generating about a million dollars for the school district. But, Putz, said, would that just be a band-aid?

 Putz: What I’m also hearing you say, then, is that while we have a proposal on our agenda tonight, it may not be a realistic or worthwhile proposal?

Lawrence: May I speak frankly?

Putz: I want you to speak frankly.

Lawrence: It will get you the revenue you need this year, but it will be very difficult to make a change [in the future] because it is within charter. If you want to make a comprehensive review. And I think a comprehensive review is in order.

In other words, raising the cap would bring in more money now. But if the city wants real flexibility, it should amend the charter to get rid of the cap altogether. Raising property taxes might give the city other options — like lowering sales taxes.

Lawrence said changes like this work best with a major public process — and not a quick one, if the anti-tax sentiment at this meeting was any guide. But, she said, cities do this all the time.

“We can do this,” she said. “We can make our community progressive in its taxation policies. You know, businesses want to invest in places that have sound taxation. And residents will feel more comfortable living in places that have sound taxation.”

In the end, the assembly voted to advance the measure increasing property taxes. But members were clearly interested in taking a more comprehensive approach. So taxes will likely be staying on the agenda for a while longer.

You can find more coverage of the Sitka Assembly here