In exchange for a 2 mill increase to property taxes, the Assembly is offering to dedicate one mill of revenue to the electric fund to stabilize rates. But will voters approve? (Emily Kwong/KCAW photo)
During their meeting last night (09-13-16), the Sitka Assembly approved a key element of their plan to raise property taxes while making Sitka more affordable.
The ordinance says that if voters approve raising property taxes next month, from 6 mills to 8 mils, the revenue generated by one of those mills will go towards Sitka’s electric fund. The goal is to prevent electric rates from dramatically increasing, as the city strives to keep up with bond payments on the Blue Lake dam.
Before we get into the Assembly’s conversation, I want to back up a bit to the Citizens’ Task Force. Seven Sitkans were appointed by the Assembly last year to study the budget gap – it’s projected to be $2.5 million next year – and propose solutions for closing it. See their meeting minutes and reference materials here.
The Task Force recommendation was to raise the mill rate, but offer a tax break in return, something that would make Sitka more affordable. They called it the Grand Bargain. And the Assembly embraced that idea.
Mayor Mim McConnell: There’s so many people that are struggling with the high cost of groceries here.
Assemblyman Tristan Guevin: I’ve talked to a grandparent who sits in the dark because she’s worried about her electric bill.
In the spirit of the Grand Bargain, the Assembly considered two ordinances that would to return property tax revenue to citizens. One proposed removing the sales tax on groceries (Ord 2016-30). The other suggested subsidizing the electric fund, to keep rate increases low (Ord 2016-31). The Assembly has been getting a lot of emails on the merits of both.
McConnell said, “I keep going back and forth, it’s like everytime someone says something, ‘Oh yeah, good point.’ I feel like I’m on a ping pong table.”
Let’s take this ping pong metaphor a bit further. The biggest lob on team grocery is the immediate cost savings. At their last meeting, the Assembly determined that – on paper – removing the grocery sales tax would save households more money, a little over $100/month for a four-person household.
But Assemblyman Steven Eisenbeisz countered that if electric rates increase next year, that cost savings may be moot. “I don’t believe any of our local grocery stores would absorb a 20% increase in their utility bill – in their power bill specifically – and not in some form pass that on to consumers. So while I would agree with your facts initially, I would think over the long term the electrical subsidization would save more money,” he said.
The Assembly has subsidized the electric fund before: by $1.5 million last year and $1.6 million the year prior.
Guevin recognized this boost may need to continue to keep rates manageable. “The usage continues to decline so it’s kind of that spiral we could go down into you, if rates continue to go up and up and usage continues to go down and down,” he said.
Declining usage is the current trend in Sitka. Earlier in the meeting, Utility Director Bryan Bertacchi gave a presentation on future rate increases. Given the current budget, if electric usage in Sitka remains the same, rates would have to increase by 18%. He added that if usage declines by 1%, “we’re looking at a 20% increase in FY18 with no subsidization for the electric fund.” For many on the Assembly, the prospect of a 20% increase was to be avoided at all costs.
Deputy Mayor Matt Hunter argued that stripping away the grocery sales tax could even hurt the city. Quoting e-mails he received from the public, Hunter said, “So many people buy groceries for their boats or tour businesses and other such entities during the summer months. We’re going to lose out on revenue from visitors.”
Some e-mails took that logic even further and asked the Assembly: Why not put all the money towards budget gap? At the outset of the meeting, Eisenbeisz spoke to that option. He asked, “What are we really trying to do here? Are we trying to close a budget gap, which we see on another spreadsheet is once again at $2.5 million, or are we trying to shift around the burden? I believe there’s merits in both, but we’re trying to close a budget gap here.”
This third option – of letting the property tax stand on its own – hung in the air throughout the whole conversation. But ultimately, Assembly returned to that foundational idea of the Citizens’ Task Force that in order to get something, you have to give a little back.
Calling into the meeting by phone, Assemblyman Bob Potrzuski said, “There’s so many competitors for every single city dollar out there that I think we’re doing the best thing to the people of Sitka by saying, ‘We are going to pay our debts first. We’re going to take care of that first. That debit is not going to overwhelm us. It’s not going to drive businesses out of town, it’s not going to drive people out of town. We’re going to take care of the debt.”
And that clinched it. Speaking to KCAW today, city administrator Mark Gorman said he was enthused to see a policy idea generated by the Citizens’ Task Force go all the way to the Assembly – and pass. “I literally had goosebumps and wanted to punch the air and say, ‘Yay!’ Whether the ballot initiative passes or not, to me it’s a reflection of actualized civic engagement. The Assembly asked citizens to step up and get involved and give advice. They did that. The Assembly took that advice and acted on it. Now, it’s before the citizens.”
The Assembly unanimously approved the electric fund ordinance. It would go into effect on July 1st, 2017 should citizens approve increasing property taxes. And that’s a question that will only be answered at the polls next month.
