With only a few more votes to tally in the municipal election, Proposition 1 looks likely to fail.
The ballot measure asked citizens whether the borough assembly could take money from the Facilities Fund to pay bond debt. A majority of citizens said “yes,” but not the two-thirds majority it needed to pass.
As of Tuesday, 861 voters had said “yes” and 820 had said “no.” Some votes from absentee ballots and outlying villages remain to be counted, but several hundred would need to vote “yes” without a corresponding increase in “no” votes for the measure to pass.
The borough owes $5.2 million in the next budget cycle to pay school bond debt.
The number is actually higher than that, but $5.2 million is what the state promised to reimburse the borough but, as of this year, will no longer pay.
If the measure had passed, it would have given the assembly the option of taking up to $3.1 million from the principal of the fund to pay back the debt. But that’s not to be.
“We knew the bar was set pretty high with the two-thirds majority,” said Assembly Member Duane Dvorak, who proposed the measure along with Assembly Member Rebecca Skinner.
“I was hopeful, but I can’t say I’m surprised.”
The failure of the proposition means the borough is more likely headed for an increase in property taxes. It only narrowly avoided raising them last year, and the situation this year has not changed considerably as of yet.
But there is a scattering of other revenue sources the borough could investigate that might help close the gap.
Assembly Member Scott Arndt, who was the lone “no” vote against putting the Proposition 1 question on the ballot, said loopholes in personal property taxes and decoupling the severance tax from the property tax rate could help close the gap.
In regards to the first, he said charter boat owners and some others were exempt from personal property tax, and taxing them could raise revenue.
The second idea would disconnect the severance tax rate — which is levied on extraction of fish, lumber and mined resources — from the property tax, which is levied on land and buildings.
As of now, the two are the same rate of 1.075%, and go up and down at the same time. But decoupling them would allow for changes in one or the other. If the two were separated, Arndt said he’d push to raise the severance tax to 2%.
In 2019, the borough assembly considered decoupling the two, but it was voted down.
Arndt also suggested looking into the motor vehicle tax, which has not been adjusted in many years.
“Property tax has been carrying the burden for the community for too long,” he said.
There are other ideas too. Dvorak and Assembly Member Julie Kavanaugh have both expressed interest in investing the Facilities Fund more aggressively. Right now, the $42 million fund reaps between about $500,00 and $900,000 every year.
But it is invested very conservatively, as per borough code. It can only be invested in federal and state bonds, savings accounts and certificates of deposit, or into the Alaska Municipal League Investment Pool. Changing the rules so the money could be put in more lucrative investments could raise more cash.
“We’ve had that discussion in the last 18 months and it could be brought back up,” Kavanaugh said.
However, it probably won’t solve the borough’s budget woes in the near term.
Then there’s a whole list of other potential revenue sources that has floated around since 2017, when Borough Mayor Bill Roberts compiled it during his tenure as the borough’s assessor.
It includes a per-foot tax on fishing vessels, a borough sales tax, a gross receipts tax, higher taxes on tobacco and alcohol, and others. The assembly discussed it in July.
Of these, the tobacco tax is on track to go up to $3 a pack for cigarettes and increase by 75% for other tobacco products by next July. The assembly will take a final vote on the measure in December.
Few of the other options seem likely, at least for now. Sales tax would need a vote by residents, and it’s been voted down twice in the past. A sales tax outside city limits would also fail to capture much revenue, since most businesses are in the city. Fishermen and other boat owners would oppose the vessel tax, and it could drive them away.
Borough budget talks typically begin in January.