The Sitka Assembly is taking a hard look at raising property taxes. In an hour-long special meeting Tuesday night (6-28-16), assessor Wendy Lawrence outlined the pros and cons of increasing Sitka’s millage rate.

Downloadable audio.

When you say something like “the assembly is taking a hard look at raising property taxes” it’s the literal truth. All the assembly can do is look. Actually raising property taxes will come down to a vote of the people who, around three decades ago, capped the tax rate at 6 mills, or .006, or $6 of tax for every $1,000 your home is worth.

Any ballot question on the matter would have to be ready by August to go before voters in the regular election this October. So City Hall is aiming for a special election the first Tuesday in December.

And what should the new tax rate be?

“So if we’re looking at a revenue need of $3.25-million, the estimated budget-driven mill rate is 9 mills.”

That’s Wendy Lawrence, Sitka’s assessor. Lawrence has made a similar presentation to the Citizen’s Task Force, but now she’s homing in on one idea: Let’s uncap the millage rate in Sitka, and let the number float wherever it needs to be to balance the city budget.

This idea will not likely appeal much to voters unless, as municipal administrator Mark Gorman said, they decide it’s “in their self-interest.” He suggested that the assembly think ahead about making a floating tax rate palatable.

“If that were the direction of the assembly I think you’d want parameters, or guards on that. Juneau is capped at 12 mills, but they’re not there. I don’t think it would pass if you said we were going to 12. You would say it would only increase by a maximum of 1 mill per year, and go either direction. But there would have to be assurances that some future assembly wouldn’t say, Okay let’s open the faucet.”

Lawrence doesn’t think Sitka’s tax rate would ever exceed 9 mills, but she doesn’t want to cap it there. Sitka might want to temporarily raise the property tax to pay down bonds for some big project, for example, as it does now with the sales tax. She believes that Sitka’s growing tax base, between new construction and rising property values, will help keep the mill rate level, wherever it lands.

To improve the chances that voters would accept a higher tax rate, Lawrence suggests easing the burden of residents with modest properties with a tax credit allowed in Alaska law called “The Homestead Exemption.”

This law allows municipalities to exempt the first $50,000 of a property’s value from tax altogether. If the property tax were increased to 9 mills in Sitka, that would mean the owner of a mobile home worth $50,000 would pay $451 in property tax, instead of the $300 they pay now under our existing 6 mill tax.

But with the Homestead Exemption, that mobile home owner would owe nothing. Zero property taxes.

Using the same math, the owner of a typical Sitka home worth $350,000 currently pays $2,100 in property tax at 6 mills. Raise that tax to 9 mills and their tax goes to over $3,100, but the Homestead Exemption knocks the increase down by almost half, so the homeowner is only paying another $600 in taxes.

The Homestead Exemption comes at a price of course — a loss of about $500,000 to the city. But right now Sitka is looking at deficits of over $3-million dollars, and Lawrence said that more cutting can be done in city government to cover the difference.

And the Homestead Exemption is a new idea on top of some others that are already in play. As of this year, Sitkans pay electric rates that are subsidized by monies from the existing sales and property taxes. The Citizen’s Task Force recommended eliminating the sales tax on groceries.

As assembly member Matt Hunter observed in this exchange with Lawrence, there’re only so many breaks Sitkans can give themselves.

Hunter – If we’re going to exempt groceries, and we’re going to put in this homeowner’s property tax exemption, that’s another 1.5 mill equivalent that we need to increase it on top of that.
Lawrence – Absolutely.
Hunter – So we have all these things that we can do as a package, but…
Lawrence – Yeah. Our revenue limitations are significant.
Hunter – So if we set our cap at 9, well I guess we’re going to have to keep taxing groceries, or we’re going to have to divest ourselves of services we love.

Despite covering a lot of territory, the assembly did not start to formulate any ballot language in Tuesday’s special meeting. Mayor Mim McConnell agreed to hold another special meeting on this same topic, on Tuesday July 12, at 5 PM.