Sitka’s Citizen Task Force opened up a conversation about property taxes this week (12-7-15). Not necessarily how to raise them, but how to adjust them — both up and down — to balance the municipal budget.
Note: Although Sitkans have rejected property tax increases in recent years, they have raised sales taxes on several occasions — mainly to support schools. Learn more here.
Find the information that the Citizens’ Task Force is using to help develop recommendations for solving Sitka’s ongoing financial problems here.
The problem, according to city assessor Wendy Lawrence, is that a good financial move for Sitka in 1990 has become a liability now.
Twenty-five years ago Sitka capped its property tax rate at 6 mills. Or $6 of tax per $1,000 of property value.
Sitka voters set the 6 mill cap more or less in stone, by amending the municipal charter. At least seven other communities in Alaska also capped their property tax rate.
Lawrence believes the property tax cap was effective in forcing Sitka to pursue once-abundant state funding for projects. But times have changed.
“If you want to cap something, you could cap that revenue growth. And that really is the way advanced municipalities do it.”
Revenue growth is assessor-speak for everything else: sales taxes, for instance, and all other fees collected by a municipality that are subject to change from population shifts, tourism, or other development. Lawrence says Sitka should consider holding the line on this type of revenue, and using the enormous capacity of the property tax to stabilize the budget.
“Property tax is designed to be a budget-balancing piece of budgeting. It’s just designed to be that way, so you don’t have to go from year to year and wonder where you’re going to make up revenues. Because there are so many moving pieces.”
For a community as stable as Sitka, she says the elements of the budget are surprisingly variable.
“There’s debt service, there’s school education funding, there’s general fund funding, there’s state and federal revenues, there’s sales tax that fluctuates with the market — as all of those moves, the revenue that’s needed from property tax is the piece that balances the budget.”
Lawrence says the tax base is large enough to absorb budgetary swings. The value of all combined real property in Sitka is just over $1-billion dollars. Billion with a “b.” Raising the tax rate by just a mill — or even a fraction of a mill — could provide the city a million dollars’ leeway in balancing the budget, and give the assembly room to maneuver in tax policies where they’ve been frustrated, like protecting the senior citizen sales tax exemption.
Lawrence sees property tax and the mill rate as part of a simple math problem. And she thinks Sitka is well-positioned to take advantage of a more flexible and modern approach to taxation. Prior to coming to Sitka this past April, she spent five years in the state assessor’s office studying tax policy.
“So across the state, Sitka has a very diverse taxation policy. It’s one of the things I considered before coming here. It’s got a good mix of real property, property tax, and sales tax. And we just need to do a little bit of refinement.”
Currently Anchorage, Fairbanks, and the Mat-Su all have uncapped property tax rates. In Anchorage, which has no sales tax, the mill rate has swung between 14 and 16 — most recently, it dropped between 2013 and 2014, from 15.56 to 14.98. The mill rate dropped in Fairbanks between those years as well.
Lawrence argues that uncapping Sitka’s mill rate will actually create stability in the municipal budget, as state funding grows more uncertain. It’s not an intuitive idea, and the members of the Citizens’ Task Force did not appear very enthusiastic to embrace it. From the audience, city administrator Mark Gorman reminded the task force that Sitka voters have rejected property tax increases two times in recent elections, and “they would require a very compelling story” to agree to lifting the cap.
Task force member Hugh Bevan called the plan “a grand bargain,” and warned that “the more complicated it is, the less likely it is to pass.”