Electric Fund
Dear Editor: The following letter was sent to Mayor Matt Hunter and members of the Assembly.
I am writing in response to your discussion of reducing or eliminating subsidy of the electric fund in the 2018 municipal budget. While I recognize the need to balance the budget and appreciate the intention behind this proposal, I am concerned that it will be ineffective at best, and may actually do more hard than good. I hope that you will consider continuation of the subsidy and seek to balance the budget through other sources of revenue.
Increases in the electric rate to date have yet to raise the funds needed to pay debt service on the Blue Lake Dam and other electric infrastructure projects. More significant increases in the rate are likely to result in reduced consumption of electricity, as residents conserve and consider switching fuels, for example, from electric heat to oil, or electric power to diesel. For a local, albeit more extreme example of the effect of electric price on consumption, it’s worth reviewing the very steep drop in electric use in Juneau in 2008 after an avalanche forced the city to switch to expensive diesel generation. Higher electric rates will also result in increased delinquencies and non-payment among lower-income residents, forcing the City to spend more time and resources on collections, and causing real hardship for families whose electricity is turned off for non-payment. Finally, conservation and delinquencies are likely to result in the need for even higher rates, with similar results.
Income-based subsidies for the electric rate are also problematic. First, it’s hard to determine where to draw the line for eligibility, because wherever the line is drawn households that are just above the line are likely to be as needy as those immediately below it. Second, this approach will require the city to expend resources on income verification and address inevitable reports of fraud. Finally, an income-based subsidy will have the perverse effect of incentivizing lower-income households to use more power, while ineligible households pay more and use less. This will result in resentment among households that have too much income to qualify for a subsidy, but are still too poor to afford the increase in rates without hardship.
What Sitka really needs is to sell more electricity. Raising prices will discourage consumption, which will be particularly counter-productive for the city’s commercial and industrial business, such as seafood processors and new indoor growing operations, which could otherwise generate more municipal revenue. We would be much better off finding creative strategies to encourage use of our clean electricity, such as loan and grant programs for conversion to residential heat pumps and offering new incentives for households to purchase electric vehicles.
Most households have tight budgets. In seeking new revenue, the city should ideally focus its efforts on households that can truly afford to pay more, and opt for taxes and fees that cannot easily be avoided by purchasing fewer goods and services, or buying them elsewhere. I thought that an increase in the property tax was the best of our undesirable options for raising additional revenue. Now that a majority of voters have rejected that option, I would reluctantly support some combination of a tax on home heating oil, elimination of the senior sales tax exemption, and/or an increase in the summer sales tax.
Robin Sherman, Sitka
