At their regular meeting last night (5-10-16), the Assembly heard the pros and cons of adjusting Sitka’s property taxes from Assessor Wendy Lawrence. There is consensus among the Assembly that now is the time to uncap the mill rate, but it will require a community-wide vote. It’s a bit of a gamble, but the Assembly argues adjusting property tax structure is the best bet for Sitka’s future.
Before we talk about mill rate structures, we need to talk about how the Assembly got to this point in the first place. First, the budget gap. The state has one. And Sitka has one too. About $200,000 for FY17. And next year, it could be even bigger. “2018 is going to be tough. We’re going to be coming up short by $2.5 to $3 million in revenue,” City Administrator Mark Gorman told the Assembly last night.
The city is in dire need of money to fund staff and services as we know it. And that is why they’re starting to look at property taxes. Speaking before the Assembly, Assessor Wendy Lawrence described property taxes as “the budget balancing piece of your revenue structure.” In fact, 13 other municipalities in Alaska have a budget-driven mill rate, one that ebbs and flows with the yearly budget picture.
The process of a budget-drive mill rate is pretty complicated, but the math is pretty simple. Lawrence explained, “After all the revenues are analyzed at the end of the year – that’s why property taxes are paid at the end of the year – you take whatever revenue is needed and you divide that by the tax base.” And voila! A mill rate is born. One year, it could by 8 mills. The next year 7.5 mills.
But there are cons to a budget driven mill rate too, mostly that the Assembly needs to be hands on with the budget. Lawrence said, “This structure really predicates on the fact that [the Assembly] is going to do some analysis and control expenditures and control the budget.”
Now, Sitka does NOT have a budget driven mill rate. We have what Lawrence called a rate-driven mill rate. It’s 6 mills, every year. “They way it’s structured now we’re subject to windfalls and shortfalls,” Lawrence said. “If the property tax base stagnates or declines in revenue, property tax will decline.”
Lawrence strongly encouraged the Assembly to cast their eyes around region and consider transitioning away from a fixed mill rate. “Budgets are being strained. I know there’s a few municipalities in the Southeast that are revisiting that capped mill rate, so we’re not the only ones,” she said.
And there are some other benefits to a budget driven mill rate. The city could cap how much revenue is brought in – Juneau does this – and offer exemptions, say to homesteaders with property valued at $50,000 or less.
Assemblyman Matthew Hunter asked a few follow-up questions about this
Hunter: So the smaller homes and those who rent a spot in a trailer park would have relief? And those who don’t live here year round or those who have a bigger home would have to pay a little more?
This narrative, of shifting the tax burden to those Sitkans with more or more expensive properties, echoes the recommendations of the Citizens’ Task Force, who want to raise rates by two mills. One bump in the mill rate equals 1 million for the city.
If this all sounds a bit rosy, remember that whether Sitkans will endorse this change is another story. The mill rate was set in 1989 and Sitkans voted against raising rates twice – once in 2010 and again in 2011.
The Assembly could mobilize to put property taxes before Sitka voters again this fall, but Gorman suggested they not rush, but reach out to to the public and hold a special election this fall. “This is complex stuff. We need to understand how we get the message across. What are we hearing from the citizens and what terms would they support. And do this in a very deliberate and engaged way and not rush something forward by the end of July,” Gorman said.
July 1st is when tax bills are mailed, so changing the mill rate would have to happen in June 2017. And overall, Assembly members, like Bob Potrzuski, seemed sold on having a special election this fall. “This is the issue. This is the issue that is facing Sitka in its long term stability or even its existence. If we continue down the road of 2 million, 3 million dollars a year that we don’t have, the next thing you know we’re shutting the doors,” Potrzuski said.
With the Assembly resolved – deciding to hold work sessions this summer exclusively about property taxes – the temperature of the public was not known. No citizens came forward to testify last night.