During their Tuesday night meeting (08-23-16), the Sitka Assembly considered two ordinances: one to eliminate the sales tax on groceries (Ord 2016-30) and the other to annually subsidize the electric fund to moderate rates (Ord 2016-31). Their idea is to put one of these ordinances into effect next summer, if voters approve a 2 mill increase to property taxes this fall.
Though the Assembly passed both ordinances on first reading, in order to give the public time to weigh in, their discussion seemed to favor cost savings at the supermarket over the utility office.
The Olympics wrapped in Rio on Sunday. And during persons to be heard, former city administrator Hugh Bevan joked that he needed something new to watch. “I’m going through withdrawals after watching the Olympics for two weeks, so I thought I’d come down and watch the political Olympics,” Bevan quipped.
While the contest in Sitka wasn’t as heated, the Assembly did stage a policy debate about what is driving up the cost of living in Sitka more: the grocery bill or the electric bill?
In one corner is Tristan Guevin and Bob Potrzuski. They co-sponsored an ordinance to repeal the sales tax on groceries. “Groceries” are defined as any items that qualify for the USDA Supplemental Nutrition Assistance Program, or SNAP.
“The exemption of sales tax from groceries is going to be bigger savings to Sitka households than subsidizing electric rates,” Guevin said.
Guevin made his case with numbers. Looking at a house that spends $12,000 on groceries each year, he estimated they would save $660 if the sales tax is removed. And if electric rates were to increase by 20%, that same household would spend $412.80. Overall, he argued, the savings difference indicates that groceries are more directly tied to the cost of living in Sitka.
Sitkan Hugh Bevan sent the Assembly his own savings comparison, for a household that spends $15,000 on groceries a year and an average monthly electrical consumption rate of 1,100 kilowatt hours. See that here: electric rate vs sales tax
“Think about the cost of having kids, of feeding kids. We don’t want to force these working families out of Sitka because that exacerbates our budget crunch. If we lose students from the Sitka school district, that means we’re losing formula funding and we’re going to have to put more money into the school’s budget,” Guevin said.
In the other corner is Assemblymen Steven Eisenbeisz and Aaron Swanson. They sponsored an ordinance to annually dedicate up to one mill of property tax revenue to the electric fund to “eliminate or at least minimize electric rate increases.”
Electric rates in Sitka are partially driven by the city’s bond obligations and a need to meet minimum rate covenants.For Eisenbeisz, that’s a huge burden to be putting on Sitkans shoulders. “Let’s not forget we have a very large debt load looming with the electrical fund and that that has to be paid off,” he said.
A mild winter drove electric rates up 5% this year and it would have been higher, but the Assembly subsidized the electric fund with $1.6 million from the general fund. Eisenbeisz is worried that if the Assembly doesn’t approve a subsidize every year, electric rates will skyrocket. And ultimately, grocery stores will pass down their higher operating costs to shoppers. Using Guevin’s numbers, he calculated that a markup in grocery prices by 2% would negate the benefit of a sales tax break.
“You’re spending just as much as you would have saved from the sales tax there. So, you definitely have downstream inflationary effects that this could present. That’s why I am supporting the electrical fund increase,” Eisenbeisz said.
Electric rates have not been set for next year. City administrator Mark Gorman said the utility department is looking at ways to reduce operating costs to avoid a large rate increase, previously estimated as high as 19%. “If there was no subsidy coming forward, I think we in city hall have a responsibility to look very closely at how we can reduce cost.”
In addition to reducing costs internally, the city is also encouraging customers to convert from diesel to electric heat, specifically through interruptible boilers.
Deputy Mayor Matthew Hunter supported programs that would do the same with super users, like the hospitals and the schools. “The city is trying to encourage people to put in electric boilers, that can be switched on and off by the electric department at times of relatively low load usage and excess capacity. People who have those get a decreased rate for the electricity because it can be unplugged at any time. I know there’s been talk of Mt. Edgecumbe High School, SEARHC, the Coast Guard…other large buildings that use a lot of electricity for heating could use this program.
The city has initiated such talks with SEARHC and the Coast Guard. Gorman said, “If we could get the Coast Guard on board, our fortunes would turn around very quickly. I think there’s things in the pipeline that are not going to materialize in the next year, but within the next three to five year period.”
These options for the electric fund seemed to sway the remaining Assembly members to favor a grocery sales tax repeal. Mayor Mim McConnell explained her stance, saying, “The most common denominator is the high cost of food. Everybody talks about that. And if we’re going to do anything good for the community, for helping people make it through this winter, doing the grocery exemption seems like the way to go for that.”
During persons to be heard, Larry Cruz reminded the Assembly that either policy could be undone in the future. “I just want that to be remembered that what you’re doing can be undone in two meetings,” Cruz said.
Eisenbeisz encouraged the Assembly to approve his ordinance on first reading anyway to gather citizen input. “More ideas from the public may come out, so I don’t want to stifle them.” Both did pass, groceries by a vote of 5-2 with Eisenbeisz and Swanson voting against, electric rates by a vote of 5-2 with McConnell and Guevin voting against.
The Assembly will revisit both ordinances at their next meeting on September 13, 2016.