In Sitka, voters are considering raising the cap on property taxes from 6 to 8 mills. The Assembly put the question on the ballot at the direction of a Citizens’ Task Force. (Emily Kwong/KCAW photo)

To raise or to not raise the cap? That is the question before Sitka voters today (10-04-16). Proposition 1 asks if Sitka should raise the local limit on property taxes from 6 mills to 8 mills. If the ballot question passes, $1 million of that money would go towards the Electric Fund to help pay off the Blue Lake Dam.

Supporters of Prop 1 say it’s as step in the right direction towards financial stability. But opponents think there are better solutions to resolving the city’s budget deficit. Sitkans from both camps met to air their views last Thursday (09-23-16), during a live call in show hosted by Raven Radio. You can listen to full 90-minute forum here.

Downloadable audio.

As far as mill rates go, Sitka has one of the lowest caps in the state: 6 mills.  It’s been that way since 1990. Back then, Prudhoe Bay was entering peak oil production. Sitka’s roads were freshly paved and the population was steadily increasing. It was a different time for Alaska and for Sitka.

The question on Tuesday’s ballot asks voters to raise the cap from 6 to 8 mills. (CBS Sample Ballot)

John Stein, who is voting “Yes” on Prop 1, argued that times have changed. “It was a history of chronic underfunding of future expenses. There was no plan put in place to refund and repave and rebuild our utilities and our roads and our sidewalks. We enjoyed those years of low mill levies and it’s time to pay the piper,” Stein said.

Sitka is further challenged by diminishing state support. In FY17, Sitka received only $700,000 from the state, compared to $3 million four years ago. If the city budget were a basketball team, that’s like having your center – the guy who catches all the rebounds – catch the flu.

Gary Paxton, Marjorie Parmelee, and Robin Sherman, who joined Stein for the forum, all agreed that Sitka needed to looking within for solutions. “How do we ensure that those people in our town that are incredibly valuable to us can still afford to live here?,” Paxton asked.

But the group disagreed about whether raising property taxes should be a part of Sitka’s overall strategy for making ends meet. The “Yes” and “No” camps differed on three fundamental points: 

1) Can Sitka homeowners afford an 8 mill property tax?

For Marjorie Parmelee, who worked in the city’s Financial Department for 25 years, the answer is no. In her opinion, a two mill bump is too extreme. “I think this whole pill would be lot easier to swallow if we were at 1 millage rate instead of two at a time. 33% is a huge hike at one time. Especially when we’re already reassessing our property,” Parmelee said.

The city is working to bring all of Sitka’s properties up to market value, two thirds of which haven’t been assessed since 2003. When complete, this would generate an additional $1 million in revenue, but the city won’t be seeing that money for four to five years.

Robin Sherman, who is voting “Yes” on the ballot question, pointed out that once property values go up, the Assembly can lower the mill rate. That’s how property taxes work. And, she added, high property values aren’t a bad thing.

“A big part of the value of your home is the attractiveness of your community. And I think part of the reason why property values are so high in Sitka is that this is a really fabulous place to live,” said Sherman.

Sitka has the third highest property values in the state of Alaska, behind Juneau and Anchorage. But at six mills, it has one of the lowest property taxes in the state too. (Image from CBS Zoning Map)

2) Should Sitka shrink the size of city government? What will be lost if it does?

At present, the City and Borough of Sitka has 156 members in 17 departments, which oversee Sitka’s utilities, roads, buildings, harbors, public safety, and other services. Right now, the city administration is forecasting a $2.5 million deficit in the general fund to maintain city government at it’s current level.

Paxton questioned whether Sitka’s needs were that dire and felt that city government could be reduced. “The sky is not falling. This is a time in the next five years  – maybe you’re postponing disaster – that you need to be really prudent about what you do and how you spend your money,” he said.

Some callers agreed that city government should shrink. One cited new vehicles in the city’s fleet and capital projects as examples of exorbitant city spending.  Other callers disagreed, asserting that the city can be trusted to spend its money wisely and that too much was at stake if Sitka reduced further, such as the quality of the school or the safety of the roads.

The prospect of returning to gravel roads was unacceptable for Stein, who is the former Mayor of Wasilla. “Up in the northland, we couldn’t maintain roads that had more than 300 vehicles a day on them. There’s issues like dust and grit and dirt and all that kind of thing when roads deteriorate. I think that’s a huge quality of life issue,” he said.

Right now, the city administration is forecasting a $2.5 million deficit in the general fund to maintain city government at it’s current level. (KCAW photo/Robert Woolsey)

3) Is raising property taxes the best way to resolve the city’s budget deficit? 

For Paxton, the answer is no. He’d prefer to see the sales tax be 6% year-round. For Sherman, sales taxes hikes hurt local business and and low income families. Property taxes, she argued, are more equitable. 

But the real reason she supports the measure is because if it passes, the Assembly will dedicate one mill of revenue to the electric fund to assist with paying off the Blue Lake Dam. That infusion would buffer the need for an electric rate increase beyond 5% this year.

Sherman is worried that if electric rates aren’t tempered and the winters remain warm, it will be lights out in Sitka in more ways than one.

“The dam is the big expensive item but generation is useless if your distribution system is falling apart. So I don’t want to skimp on the maintenance that we need because I want to know that my lights and my refrigerator and my heating system are going to work,” Sherman said.

This notion, though, of bailing out the electric fund with money from property taxes – not utility payments, bothered Parmelee. “Enterprise funds need to support themselves. That’s the whole goal. That’s the whole way government is set up. Are we setting a precedent?,” Parmelee asked.

Completed in 2014, the Blue Lake dam cost $154 million. The dam was mostly paid through bonds, which the city must pay down annually through 2049. (Photo courtesy of Lance Ewers).

Now, if the ballot question on Tuesday passes and the Assembly raises rates by 5% next week, Sitka will be able to close the budget gap for the electric fund.

But what about next year? In an e-mail to KCAW, Utility Director Bryan Bertacchi said that if electric usage continues to decline, FY18 may demand a rate increase up to 15%. The Blue Lake dam is just that expensive and a huge part of the reason why Sitka finds itself in a tough spot: having to pay it’s biggest bill with less money than it’s had in decades.

Paxton, for his part, felt that that next five or ten years will be tough, but that Sitka can pull through. “Listen, Sitka’s best days are still ahead and we’re going to sort this baby out,” he said. Especially, he quipped, if the city is blessed with a cold winter. 

Gary Paxton, Robin Sherman, Marjorie Parmelee, and John Stein join KCAW’s Emily Kwong to talk about the pros and cons of Proposition 1, which would raise the cap on property taxes from 6 to 8 mills. (Emily Russell/KCAW photo)

Last Thursday (09-22-16), Raven Radio hosted a live, call-in show devoted to Proposition 1. That’s the ballot question asking Sitkans if the city should amend the charter to raise the cap on the mill rate from 6 mills to 8 mills.

We invited four Sitkans – Gary Paxton, Robin Sherman, John Stein, and Marjorie Parmelee – to talk about how they’ll be voting and their perspective on Sitka’s financial pressures, including property values, electric rates, the Blue Lake Dam, and the cost of living.

Proposition 1 Forum (Full Audio – 90 minutes)

Downloadable audio.

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Raven Radio has also broken up forum audio by section, so you can weigh the pros and cons of the ballot question yourself. Election Day is Tuesday, October 4th.

Background on Proposition 1: What is it? 

Downloadable audio.

The question on Tuesday’s ballot.

If passed, the local limit on property taxes (i.e.”the cap”) would increase from 6 mills to 8 mills. That means that if the Assembly decided to levy an 8 mill tax this year, instead of paying $6 for every $1000 a property is valued, property owners would pay $8. To determine how tax would change for an individual property, use this calculator on the city’s website.

If the ballot question passes, the Assembly will dedicate one mill of property tax revenue (that’s roughly $1 million) to the electric fund. Their goal is to use this money to stabilize the fund and keep this year’s electric rate increase at 5%. This spring, a Citizens’ Task Force recommended raising property taxes as well. 

If the ballot question does not pass, electric rates will go up by 11-20%. The electric department is in crisis because customers are using less – and thereby paying less – for the city’s hydropower. The electric fund is $2-$3 million short of where it needs to be to keep up with bond payments on the Blue Lake Dam and address maintenance needs.

How the Panelists Will be Voting

Robin Sherman and John Stein are voting “Yes.” Gary Paxton and Marjorie Parmelee are voting “No.” Here are their reasons why.

Downloadable audio.

Sales Tax: Is that a better alternative for Sitka? 

Gary Paxton proposes extending the sales tax to 6% year-round, which would require a citizen vote. This would generate $667,000 for the city. Robin Sherman argues against raising the sales tax. 

Downloadable audio.

Property Taxes: Is it time to raise the cap? And how do Sitka’s property values compare to other municipalities in Alaska? 

Of the twelve boroughs in the state of Alaska that have a property tax cap, Sitka’s is the one of the lowest: 6 mills. The cap was set in 1990, meaning property taxes haven’t raised in Sitka in over 25 years.

A breakdown of how Sitka’s taxes compared to other communities. Sitka has low property taxes, but a somewhat high sales tax. (Data from CBS Assessing Department)

Downloadable audio.

Electric Rates: How High is Too High for Sitka? 

The Assembly will be raising the electric rates this year. If the ballot question passes, the rate increase will likely be 5% – from 12 cents/kwhr to 14  cents/kwhr. But it may continue to increase if the electric fund does not generate more revenue by way of new customers and  increased load.

To help the electric fund, the Assembly agreed to another 5% increase this year. That would bring rates to 14.03 kwhr/month (on average). This would make utilities in Sitka more expensive than Juneau and Ketchikan. (Graph from CBS Utility Department)

Downloadable audio.

City Government: Is Sitka’s government too big, too small, or just right?

For its population and location, Sitka’s government is moderate in size. This year, the Assembly reduced city government by $1 million – which cut 4.5 positions (some through attrition) from various departments, including the police and fire departments, and saw closure of the library on Sundays. How much further should Sitka reduce city government? And what impact would have have to quality of life?

For its population and location, Sitka’s government is moderate in size. But could it be smaller, in services or personnel? The forum participants considered the options. (Table by Emily Kwong/KCAW)

Downloadable audio.

Blue Lake Dam: How do you want the city to address the bond debt for the Blue Lake Dam?

A significant proportion of the city’s budget deficit is due to the Blue Lake Dam. The bond covenant requires Sitka to generate 125% of operating costs and pay only interest on the bonds until 2030.  But, the city is struggling to keep up with those bond payments because electric usage has dropped significantly. For more information about the Blue Lake Dam shortfall, click here.

In the four years since the dam was approved, usage has declined to 104 million kwhr/year. With customers using less, the city is short several million dollars to keep up with bond payments. (Graph from CBS Utility Department)

Downloadable audio.

If the ballot question does not pass, what other sources of revenue should the City and Borough of Sitka pursue?

As one caller points out, property taxes are not the only tool for fixing Sitka’s FY18 budget deficit, which the city projects will be $3.5 million ($2.5 million for the general fund and $1.5 million for the electric fund)

The Assembly could reduce the size of government, levy other kinds of taxes, tap other funds and reserves, and pursue ventures that would generate revenue. The panelists shared their thoughts on where else Sitka should look for the money it needs.

Downloadable audio.

Affordability Challenges and Final Thoughts

Gary Paxton, Robin Sherman, John Stein, and Marjorie Parmelee, along with listeners, offer their final thoughts on Proposition 1. A landlord calls in to say he’ll be voting “Yes” and does not plan to pass along any increase in property tax to his tenant. Another caller says the city has been wasteful with its spending.

Downloadable audio.

Election day is Tuesday, October 4th. Precinct 1 voters will cast ballots at Grace Harbor Church on Halibut Point Road across from SeaMart. Precinct 2 voters at St. Gregory’s on Lincoln Street. Polls will be open on Tuesday, October 4th  from 7 a.m. to 8 p.m.