Last weekend, KTNA solicited questions regarding the upcoming sales tax proposal on the October 3rd borough ballot. Below, we attempt to answer some of those questions. Questions are in bold.
How much money would this tax bring in?
It’s impossible to say right now. Since most businesses in the district are not subject to any sort of sales tax at the moment, there is no requirement for them to disclose their gross sales figures.
Where is the tax going to be used?
According to an opinion rendered by Mat-Su Borough Attorney Nicholas Spiropoulos, multiple sections of code and statute require that the funds be spent on Talkeetna’s sewer and water system. MSB Ordinance 17-075 states: “All taxes levied and collected under this chapter may only be used to finance the special services and service related capital improvements for the service area.”
What impact would the tax, if passed, have on sewer and water rates?
On September 13th’s edition of Su Valley Voice, and in prior interviews, Assembly Member Randall Kowalke said that, should the tax revenue exceed the needs for operation and capital costs, that he would like to see sewer and water rates reduced, but there is no certainty at this point as to if or when that may happen. As a service area, the only direct source of current revenue is provided by the ratepayers.
How would the proposed 3% tax on rentals be collected, and how are rentals defined?
According to MSB Ordinance 17-075, lodging rentals are subject to the sales tax unless the rental period is for at least thirty consecutive days. The tax would be in addition to the existing bed tax.
Why a year-round tax as opposed to seasonal?
Before the sales tax ordinance was introduced, the Talkeetna Community Council, Inc. board of directors, Talkeetna Chamber of Commerce, and Talkeetna Sewer and Water Advisory Board all expressed support of a seasonal sales tax to support the system. Assembly Member Kowalke ultimately decided on a three percent, year-round tax. He said he decided on year-round in order to include potential revenue from large winter events.
Is there a plan on how to use the revenue to fix the system?
On the September 13th edition of Su Valley Voice, Mat-Su Public Works Director Terry Dolan said that the borough is still discussing with the Alaska Department of Environmental Conservation what changes and upgrades might be necessary. He alluded to the possibility that the sewer lagoon might ultimately require significant capital improvement. He said that, while low-interest loans and other measures might be available, that demonstrating a solvent revenue stream would be part of securing those funds.
When would the tax start being collected?
According to MSB Ordinance 17-074, the tax, if passed, would begin on January 1st, 2018.
Will the tax help with the need for public restrooms?
It’s impossible to say for sure. Assembly Member Kowalke has said that additional public restrooms might be possible if enough funds are available from sales tax revenue, but in the most recent discussion on the topic, he says being able to lower rates would take higher priority.
I’ve heard 35% goes to Mat-Su for overhead. What is it going to cost to collect this tax?
According to an email from Mat-Su Borough Finance Director Cheyenne Heindel, the administrative cost would be approximately $10,000. Assembly Member Kowalke later clarified that this would be an annual cost. Kowalke said on Su Valley Voice that the administrative costs would cover the staff time of those already administering the borough’s bed tax to cover the additional workload. We have not seen evidence that 35% of this tax would be spent on collection and administration. If the $10,000 number holds true, it would mean $333,333.33 worth of taxable gross sales would be needed to cover the cost.
Why three percent? What if the borough decides to raise the sales tax rate in the future?
The borough would have authority over the tax rate in the future. Assembly Member Kowalke says that lowering the tax rate could be on the table in the future if the revenues generated were sufficient for operations and capital improvements in the future. Kowalke also said on the September 13th edition of Su Valley Voice that part of the reason for starting the tax at three percent as opposed to the lower rates discussed with the community is that it is easier politically to decrease the rate as opposed to increasing it in the future.
If you own property and pay property tax why can you not vote?
Because the vote is for a specific service area and not the Talkeetna precinct as a whole, only those residing inside the district’s boundaries will be able to vote. The district itself is a separate entity from the voting precinct as a whole for the purposes of elections.
While state law does not specifically cover voting on tax proposals within service areas, state law (AS 29.35.450) specifies that only those residing within an existing or proposed service area are allowed to vote on the establishment or abolishment of a service area. In the case of expansion of a service area, voters residing in the area to be annexed also have a say.
While service area votes are not all that common in this area, this rule recently applied when the Talkeetna Flood Service Area was expanded to incorporate East Talkeetna and the River Subdivision. In that case, both voters residing inside the existing service area, and those to be annexed were allowed to vote. All residents of the Northern Susitna Valley live in various overlapping sets of service areas, including road and fire services. The lines may coincide with those of overall voting precincts, but they do not always, as is the case here.
Since all borough tax funds go to the General Fund, and sales tax funds can not be delineated for special use, what guarantee is there the Talkeetna Sales Tax Funds will be spent as intended?
In the case of areawide taxes, it is true that funds generated must go to the general fund, according to Alaska state law (AS 29.35.110). This issue came up most recently in discussions about an areawide sales tax introduced with the intent of increasing school funding. Service areas, however, can have specific taxes levied specifically upon them, as is also laid out in state law (AS 29.35.470). Service areas have funds separate from the general fund where their tax money is held.
Water bills have gone up significantly in the past two years, even for low-volume users. Is that money being used to pay for repairs?
For each of the past two years, the water and sewer rate has gone up 25%. In each case, borough budget documents cite operating deficits as the reason for the increase. The estimated budget deficit for the system in the current fiscal year is over $500,000, though the rate of growth of that deficit has slowed. The system has taken funds from the borough’s revolving loan fund in order to make ends meet in recent years. Mat-Su Public Works Director Terry Dolan said in a past interview that, even if the system were to break even on operating costs, it does not currently have a budget for large-scale maintenance and repairs.