Built in 1965, city staff have determined that Crescent Harbor needs full replacement and piecemeal repairs cannot maintain the harbor’s operation any longer. The $14 million project will lean heavily on state funding and state-issued bonds. (Photos courtesy of CBS)

The Sitka Assembly will look to the state bond bank to help renovate Crescent Harbor and the Rocky Gutierrez Airport. Approved on first and final reading, the pair of resolutions raised ire with those worried about deepening Sitka’s debt load during the Assembly’s meeting last night (7-24-18).

Downloadable audio.

Sitka needs good harbors. Everyone on the Assembly agrees and the safety and functionality of Crescent Harbor, built in 1965 by the state, is deteriorating to the point where in-house repairs are not enough. While the topside looks fine, the underside is a ticking maintenance time bomb.

Ron Pratt, the Harbor Maintenance Supervisor, told the Assembly that after five decades underwater, metal fixtures are corroding and wooden beams decaying. “It’s only the uplift of the Styrofoam that is holding that dock together. If you could see underneath the dock, you would know why we need to replace it. It’s had a great life, but that life is over,” Pratt said.

The state has promised Sitka $5 million to replace Floats 1 through 4 of Crescent Harbor, but there’s not enough working capital in the Harbor Fund to cover the estimated $14 million project. That’s because Sitka did not raise moorage rates for many decades.

On Tuesday night (7-24-18), the Sitka Assembly approved applying for $8 million from the Alaska Municipal Bond Bank to take Phase 1 of the Crescent Harbor project across the finish line.

But not everyone on the Assembly liked that plan. Richard Wein and Aaron Bean balked at the notion of Sitka taking on further debt. Citing a 2017 financial report, Wein pointed out that Sitka already owed the Alaska Municipal Bond Bank $139 million dollars. As a point of comparison, the City and Borough of Juneau and City of Ketchikan and Gateway Borough have bonded debt of approximately $133 million. 

Wein didn’t want to see Sitka’s debt load go up any higher. “I think that should hold you pause because within the next several ordinances, we’re talking about going into the revenue market – the bond market – and borrowing more,” he told his fellow Assembly members.

Wein then suggested the city borrow money from it’s own permanent fund, thus avoiding lending fees from the state. Chief Finance and Administrative Officer Jay Sweeney countered that that course of action – Sitka borrowing from itself – was not legal.

“It’s not a legal investment by the Sitka General Code at the present time. Unless the Assembly were to change the Sitka General Code and make it a legal investment, I can’t consider it,” Sweeney said.

Wein said if he can find a co-sponsor, he wants to put forward an ordinance to change Sitka General Code to enable self-investment.

As for the harbor at hand, the Assembly chose to borrow more money from the state. The voting majority – Mayor Matthew Hunter, Assembly members Bob Potrzuski, Kevin Knox, and Ben Miyasato – approved the resolution due rapidly deteriorating condition of Crescent Harbor and the fact that the $5 million written into the state budget must be expended by the end of next year.

By a 4-2 vote, the Assembly approved – on first and final reading – seeking $8 million in state bonds to complete Phase 1 of the Crescent Harbor project and $4 million in airport terminal revenue bonds for renovations to Sitka’s Rocky Gutierrez Airport. 

These are bond applications only, so it’s unknown how much money Sitka will borrow in the end. Aaron Bean and Richard Wein voted against both measures. Assembly member Steven Eisenbeisz was absent.

Renovations to Sitka’s Rocky Gutierrez Airport will also be funded through revenue from Passenger Facility Charges (an estimated total of $6.8 million) through 2038. The TSA is also putting forward $158,570 to install new inline baggage screening equipment. 

Tuesday night, the Sitka Assembly also:

–Advanced a pair of proposals to restructure bed taxes (now called “transient lodging taxes”). One ordinance (Motion and Ord 2018-33), approved on final reading, would exempt those renting a hotel room from paying sales taxes on that room. That would only happen if voters ratify raising bed taxes to 12%. Another ordinance (Motion and Ord 2018-34A) to put that question on the ballot passed on first reading Tuesday night. At the last meeting, members of the visitor industry criticized this idea. Mayor Matthew Hunter reiterated how this maneuver paves the way for a future Assembly to one day impose an alcohol tax. “Alcohol is the only commodity that cannot be taxed higher than any other sales tax. That was a statute passed in response to lobbying by the alcohol beverage industry to keep communities from passing targeted alcohol taxes. So, should a future Assembly decide that they wish to raise alcohol taxes, this would allow that to happen,” Hunter said

—Authorized an application for $1.5 million in state grant funds to replace aging electrical equipment at Eliason Harbor and $200,000 for corrosion protection at Thomsen Harbor. Harbor users would bear the rest of the cost of those projects through rate increases. Assembly member Aaron Bean voted against the resolution for that reason

–Postponed a decision on extending a five-year lease agreement with the Seafood Producers Coop for continued use of the city’s Marine Services Center

–Entered executive session to discuss a forbearance agreement with the Baranof Island Brewing Company and a sublease extension with the Nugget Restaurant

–Appointed Dr. Paul Bahna to an unexpired term on the Library Commission

–Recognized August 4th as “U.S. Coast Guard Day” and honored Sitka-based personnel of the U.S. Coast Guard. The 600+ active duty and auxiliary personnel serve Air Station Sitka, Cutter Kukui, Aids to Navigation Team Sitka, Marine Safety Detachment Sitka, and Electronic Support Detachment Detail Sitka

Command Master Chief Joshua Ewing and Commander Mike Frawley of Air Station Sitka receive a certificate from Sitka Mayor Matthew Hunter in honor of U.S. Coast Guard Day. (Photo courtesy of Sara Peterson)

Downloadable audio.

I have a question for you: have any of your relatives come to visit this summer? Maybe you put them up at a hotel in Sitka, in which case, they paid what’s known as the transient lodging tax — 6% of whatever their room cost. The money goes towards the city’s Visitor Activities Enhancement Fund.

The Assembly wants to raise that rate to 12%, but it takes voter approval. If such a question appears on this year’s October ballot and passes, then the Assembly will exempt those paying a transient lodging from the local sales tax. On Wednesday (7-11-18), Assembly amended Ord 2018-34 to raise bed taxes to 12%, instead of 14% as originally proposed.

Taken together, these ordinances (Motion and Ord 2018-33, Motion and Ord 2018-34) neutralize each other and make no significant positive impact to the city’s bottom line. So why do this?

Mayor Matthew Hunter explained this ordinance pair would qualify Sitka to raise taxes on something else entirely — alcohol. The reasons are a bit complicated, but has to do with the fact that Sitka can only tax liquor as much as their highest sales tax. 

In 2002, the Alaska legislature approved the biggest alcohol tax in state history. The beverage industry lobbied the state and cities without a liquor tax (such as Sitka) were prohibited from creating one. “[Sitka] cannot tax alcohol as much as some other communities do. We can only charge as much as any sales tax that we have,” Hunter explained. “So, if the bed tax were raised, that would open up another opportunity for the Assembly to mitigate the cost of alcoholism and alcohol in our community. I know the police department deals heavily with alcoholism in this town.”

This was a baffling pivot for many on the Assembly, as the proposed ballot question makes no mention of how raising bed taxes creates a gateway for a future Assembly to raise alcohol taxes. “I’m so darn confused with what we’re trying to do here, that I believe the electorate is going to be extremely confused as well,” said Steven Eisenbeisz. 

Leaders in the tourism sector spoke against targeted taxes in their industry. After all, passing this measure would give Sitka the highest bed taxes in the state. Sherry Aitken of Visit Sitka noted that owners of local restaurants and bars with liquor licenses were not present at the Assembly meeting to weigh in.

“I feel like it would be unfair of us not to let the alcohol distributors in town have the opportunity to speak to you and make their case on why they may or may not think it’s important. They make think it’s fine. I’m guessing probably not because most people don’t like taxes,” Aitken said.

People don’t like taxes, and they don’t like confusion. That’s ultimately why Assembly members Richard Wein, Aaron Bean, and Steven Eisenbeisz voted down this idea. But it takes four Assembly members to kill an ordinance. Bob Potrzuski was absent, so both ordinances passed. That means the Assembly will revisit this notion of a transient lodging tax overhaul at their next meeting on July 24th.

Towards the end of the meeting, Hunter said his intent with these proposals was to create solutions, “small ways to increase modest amounts of revenue for our city government.” Speaking to Wein,  Hunter then said, “I can’t wait for you to bring some solutions to the table in the future.” Wein responded, “It will take a lot more meetings and a lot more head banging.”

Another pair of ordinances did not gain traction at the Assembly table. One to eliminate the sales tax on groceries and utilities, pending voter approval to raise  property taxes, failed 2-4. Only Hunter and Knox voted in favor. The ordinance to put that property tax question on the ballot was postponed.

This meeting is one of the last for the current Assembly. Hunter is stepping down from the Mayoral position. The filing period for his seat and two others (currently held by Bob Potrzuski and Ben Miyasato) will open on July 23rd. Elections are October 2nd. See the City Website for more information.