LUTHERAN QUILTERS – Members of the Quilts for Comfort Group stand between pews draped with some of the 205 quilts they made, in the Sitka Lutheran Church Tuesday. The group made the quilts for five local non-profits and one in Anchorage. The remaining quilts are sent to Lutheran World Relief which  distributes them to places around the world in need, such as Ukraine, as part of Personal Care Kits. Pictured are, from left, Helen Cunningham, Kathleen Brandt,Vicki Swanson, Paulla Hardy, Kim Hunter, Linda Swanson and Sue Fleming.  (Sentinel Photo by James Poulson)

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Daily Sitka Sentinel

Assembly is Told Taxes are Out of Balance

By TOM HESSE

Sentinel Staff Writer

Sitka’s relying too much on sales at the cash register to support its tax base, say city officials. 

At a work session prior to Wednesday’s Assembly meeting, city assessor Wendy Lawrence told Assembly members that only 35 percent of Sitka’s tax revenue comes from property taxes while 65 percent is from sales taxes. 

“Basically, what we’ve done is shifted the bulk of the tax to commerce, and as I said before, commerce is fickle,” Lawrence said. Referring to the low percentage of property taxes in local revenue sources, she said, “That’s a bit askew.”

City Administrator Mark Gorman noted that Lawrence was being kind. 

“Wendy, a bit, it’s hugely askew,” Gorman said. 

By contrast, the average for Alaska municipalities is to collect 83 percent of its revenue from property tax and 17 percent from sales tax. 

“The facts are, we gain the bulk of our revenue from sales tax,” Lawrence said. “Property tax has been the stalwart for revenue for centuries.” 

Lawrence didn’t say what the ideal balance is but instead cautioned that, historically, property taxes are more consistent through economic changes than sales taxes. 

“It just puts risk into your budget,” Lawrence said. 

The property tax issue gets more complicated in terms of long-term revenue. In 1989 Sitka voters approved a referendum amending the charter to cap the city property tax at 6 mills, a limit that can be raised upon approval of the voters in a regular or special election.

In the meantime the only way for the city to receive more revenue from property tax is for the fair market value of existing property to go up, and the addition of new property to the tax rolls.

Lawrence said there are some hurdles to having the tax income keep pace with inflation of property values.

First, there is the property tax exemption required by state law for seniors and disabled veterans, who get an exemption on the first $150,000 of valuation of their taxable property. The number of new enrollees for these benefits is climbing faster than ever, Lawrence said. 

There’s roughly $1.026 billion of assessed real property in Sitka, but $74 million of that is not taxed because of the law. This figure is up by $5 million since last year. 

Additionally, Lawrence said, the assessor’s office isn’t fully equipped to keep up with updating assessments, which are supposed to be based on 100 percent of fair market value. Real property refers to land and the buildings on that land, and around 3,500 of those parcels are on tax rolls in  Sitka. 

There are about 3,800 listings of taxable personal property in Sitka, which includes commercial and industrial equipment as well as boats and airplanes.

“We’re probably averaging about 500 properties a year and we’re valuing those by hand,” Lawrence said. 

That means many properties go for years without having their assessed value updated, and therefore probably aren’t being taxed at their current values. Lawrence said she’s working on a way to speed up the process but that’s years away. 

“You will see some gains in property but it’s not going to be quick,” she said. 

Overall, the valuation of taxable property went up by $18 million last year, an increase of about 1.7 percent. That means property tax revenue has hovered at around $5 million for  the last decade. 

“Basically, we’ve been chugging along at 5-point-something million for the last 10 years,” Lawrence said. 

While Sitka placed a property tax limit of 6 mills in the city charter, other municipalities have gone to a budget-driven mill rate, which means the tax for the coming year is based on the amount needed to fund the budget. Lawrence said this doesn’t cause as much increase in the tax rate as might be expected, but she said there’s a third alternative for those who are worried about mill rates being driven by budgets. 

“It sounds like it’s scary, but if you want to put some limitations on that, then cap your revenue,” Lawrence said. 

Basically the city could allow the mill rate to change in order to meet budget needs but only to a certain percentage of revenue needed. That would head off hypothetical scenarios of doubling the budget and hiking mill rates in the process. 

Assembly members were positive about the suggestions, though no action was taken because it was a work session. Assembly member Michelle Putz said the current system didn’t seem “realistic.” 

“It sounds like we’re just way off base,” Putz said. 

Putz also asked if such measures as increasing the sales tax cap or raising the sales tax to seven percent in the summer, would be counter- productive. Lawrence hesitated to address policy questions but did point out the obvious effect it would have on placing more reliance on sales. 

“It will get you the revenue that you need this year, but it will be very difficult to make a change,” she said. 

Sitka’s sales tax is one of the highest in the state, while its property tax rate is near the bottom. Some Assembly members tossed out a few questions about taxes that may hint at future action. Putz asked if there could be an excise tax on grocery bags. Tristan Guevin asked if groceries could be taxed at a rate lower than non-essential retail products, and more information on alcohol tax law led Aaron Swanson to ponder options in that field. 

“So if we were to raise the bed tax up to 10 percent then we can raise the alcohol tax up to 10 percent?” Swanson asked. 

“That’s how I understand it, yes.” 

Essentially, Lawrence said her research had shown alcohol taxes can only equal the highest rate of any sales tax. A bed tax is considered a sales tax and Sitka’s current bed tax is 6 percent. The Assembly can’t tax alcohol beyond the lowest sales tax number. 

 

 

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20 YEARS AGO

March 2004

Advertisement: Tea-Licious Tea House & Bakery 315 Lincoln Street Grand Opening! Freshly Baked Scones, Cakes & Pastries Innovative Salads, Soups & Sandwiches Harney & Sons Tea. Lunch * Afternoon Tea * Supper.

50 YEARS AGO

March 1974

Photo caption: National Republican Chairman George Bush takes a drink of water offered by Jan Craddick, Sitka delegate, during the Republican convention held here. Mrs. Craddick explained to Bush that the water was from Indian River, which means, according to local legend, that he will return.

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