By SHANNON HAUGLAND
Sentinel Staff Writer
Sitka is close to phasing out the 1 percent seasonal sales tax that for the past decade has gone toward covering the community’s share of school bond debt, the Assembly was told Thursday.
Finance Director Melissa Haley delivered the news to the Assembly at a special meeting on the budget.
Haley said projections are that the city will have enough to pay off the school bond debt by the end of the second quarter (June 30), eliminating the need for a city contribution through the 1 percent tax.
That means, she said, “We’re going to go into FY24 with a 5 percent year-round sales tax.” The city will continue to make debt service payments through FY31 through the school bond debt service fund, which had $4.9 million at the end of FY22.
Sitka’s regular 5 percent sales tax goes up to 6 percent from April 1 to September 30, with the extra 1 percent dedicated to the city’s share of school bond debt payments. The state covers the rest.
When the school bonds for projects at Sitka High and Baranof Elementary were approved in 1996, the city had expected the state to cover 70 percent of the cost. But the amount of the state’s share varied from year to year afterward, dropping to 50 percent some years and to none at all in others.
The most recent projections, until the latest estimates, were that the city could cease the seasonal sales tax around 2027, the finance office said.
The seasonal sales tax was approved by Sitka voters in a 2003 special election, with the proceeds to pay the local share to retire bonds for construction of the Performing Arts Center and other school building improvements.
The ballot question information said the seasonal increase “will expire once the bonds are paid off and/or sufficient revenues are collected as a result of the seasonal sales tax increase to pay off the bonds.”
Other general obligation bonds were approved for school capital projects in 2006, including the Blatchley and Keet Gooshi Heen renovation projects.
In 2013, voters passed by an overwhelming margin a proposition to pay the remaining GO bonds from the 1996 projects through the 1 percent of additional sales tax.
In some years, the state failed to cover the 70 percent of the bond payments, which pushed the estimated “sunset date” for Sitka’s 1 per cent sales tax out as late as 2029, Haley said.
But Haley said the state is making up for its previously missed payments on the bonds, and this, in combination with higher-than- anticipated city sales tax revenues this past year, means the city will have enough in the school bond debt service fund by the end of this fiscal year, June 30. The increased city sales tax income has come from the collection of tax from online vendors, and also from higher sales tax receipts locally during last summer’s record-high numbers of cruise ship visitors.
Haley said the city will give notice of the sales tax change to affected businesses once the projections are finalized. The loss of revenue from the 1 percent will not impact the city’s bottom line since all revenues from the 1 percent went to pay off school bond debt.
No new school projects are on the horizon, but the current city budget includes funds for a condition assessment of the schools.
New school projects are not eligible for the 70-30 state reimbursement program, city staff said.
The Thursday budget meeting was for special revenue funds and other governmental funds. Besides discussion of the seasonal sales tax, Haley reviewed balances and revenues for the city Permanent Fund, the Southeast Alaska economic development fund, Sitka Community Hospital fund, and the new student activities fund, which is funded by the new voter-approved 6 percent marijuana sales tax. It’s expected to provide $300,000 in its first year.
The Permanent Fund had a balance of $31.4 million at the end of FY22. But that included the $8.18 million in proceeds from the sale of the hospital property, which will be dedicated to the new boat haulout.
The purpose “is to grow the principal of the Permanent Fund to provide an ever-increasing income stream to the Sitka general fund in perpetuity to reduce the tax burden on the citizens of Sitka.” The Permanent Fund earnings will provide $1,160,886 for the general fund in FY24, Haley said.
Another special revenue fund is the Visitor Enhancement Fund, with revenues expected at $844,000 from bed tax collected. The Assembly has allocated $525,000 of that amount for tourism and convention marketing and services by Visit Sitka, which is operated by the Chamber of Commerce.
