Proposed sales tax cut means cheaper goods but fewer public services

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A ballot initiative to lower Wrangell’s city sales tax by one and a half percent is up for a vote of the public in the October first general elections.

Alaska is one of only five states in the US that doesn’t have a statewide sales tax. That means its communities are free to establish their own, or not.

Many towns in the state have opted for none.

But Wrangell does have one and right now, it’s at seven percent. That means every time you buy a taxable item in town, you pay an additional seven percent of the item’s cost in tax.

Wrangell’s rate stands alongside Kodiak’s as the highest sales tax in the state.

But where does that seven percent go?

That money the city pulls in from the tax helps fund many of its public services.

That’s anything from the police department and public schools to the spring health fair and Fourth of July fireworks.

Former mayor Don McConachie explains that these tax-funded services are divided into necessary and optional categories.

“The city, through their tax dollars, are obligated to have water, sewer, police protection, and all the rest of that type of entity for the public. They are not required to have the amenities. The amenities being funding for the radio station, X amount of dollars it is giving to the fireworks, X amount of dollars it has given to other outside interests,” says McConachie.

That means, when money is tight, it’s often those amenities that are cut first.

This initiative would lower the city sales tax to five and a half percent.

It would save customers one and a half pennies per dollar spent, or a buck fifty on a hundred dollar purchase.

Ernie Christian currently sits on the borough assembly. He is also one of the people who drafted the sales tax initiative. He says more money in people’s pockets now means more money for them to spend later.

Tim Rooney doesn’t work for the city of Wrangell anymore, but he was the borough manager when initiative was first brought to the table.

He says the money the community will lose as a whole outweighs the individual benefits.

“My question would be for a citizen, what will that dollar fifty buy you in Wrangell? However, collectively, what does that dollar fifty collected from everyone buy for Wrangell. And all of that would go away,” says Rooney.

All of those buck fifties add up to about $503,000 a year.

And that brings us to the proposed cuts.

Jeff Jabusch is the interim borough manager. However, he was the finance director who drafted the proposed cuts with Rooney.

With half a million dollars in annual revenue gone, Jabusch says the city would need to make some substantial changes.

First would be the end of the two annual tax-free shopping days. That would save the city a total of $30,000.

Second, the mill rate would go up and by association, property taxes would be higher.

Both of these changes would increase the city’s revenue to help offset its losses.

Next, there would be a series of funding cuts.

The general fund, which helps support the library and public works, would lose about $100,000. That’s not good news for snowy streets in winter. Again, Don McConachie:

“We are used to certain things happening all year round. I think you will find people will not enjoy not having snow plowed on a regular basis—where they’re going to wait until there’s two inches of snow out before they send a plow out and different things like that.”

In addition, the senior citizen program would lose $15,000. The health fair would lose $3,000 and $4,000 would be gone from the Fourth of July fireworks budget.

And there is one hot-button issue up for nearly $200,000 in cuts: public school funding.

The state government requires that the city give the schools a certain amount of money every year. It used to be in the neighborhood of $600,000. A few years ago, it was lowered to the $400,000 range.

But, Wrangell decided to keep funding the schools at the higher level.

The borough is also required to pass along certain federal funding to the schools…

Again, Jeff Jabusch:

“So the total we give them is like $1.5 million. But from taxes—sales tax and property taxes—the amount has been somewhere around $600,000.”

So, the approximately $200,000 proposed cut would be Wrangell going to the local funding level it’s actually required to give.

Jabusch says the schools wouldn’t necessarily be hurt right now, but there is concern about the future.

“As the federal money dries up, and we’re anticipating that, it’s going to be more difficult, if we go back to the $400,000, to come up with some additional money for them down the road. Whereas, if you leave it where it’s at, you’re in a better position down the road,” says Jabusch.

The city is keeping that financial buffer in place in case federal funding is cut in the future.

Ernie Christian says he doesn’t think the proposed cuts would be good for the city.

“I want to make sure everybody knows, these proposed cuts were developed by the borough manager and the finance director. And I think they were political cuts. And I voted against them. You know, I would never support any cuts to the schools, but that’s what they came up with. So these were developed by staff, not by the assembly. So if the proposition goes through, I think they need to come back in front of the assembly to determine if you really need to cut anything,” says Christian.

Tim Rooney says while things like the library, health fair, and chamber of commerce are important to the community as a whole, they are still considered amenities when it comes to budgeting.

“I think Mr. Christian is misinformed. Any time that you cut $500,000 from a budget, you’re going to have to make painful cuts, and cut unnecessary programs. Some of those unnecessary programs were listed on a page in the budget and that budget was approved by the entire borough assembly. So I would think that if he felt, or if they collectively felt that was a political move, they wouldn’t have approved it,” says Rooney.

Don McConachie says while it’s up to personal opinion how much responsibility the government should have, everyone would feel the consequences of a cut like this.

“I think that if the tax does get reduced approved by the voters, that it will be a detrimental effect to all of the people residing in this community as a whole,” says McConachie.

This initiative will go before the voters on October first.

In the spirit of full disclosure, this public radio station—KSTK—faces a cut of $9,200 if the initiative passes.

To read the section of the Fiscal Year 2013-2014 proposed budget that deals with the sales tax initiative, click here, and go to page 55 on the viewing screen (which is page 45 of the document).

Listed below are the proposed reductions and revenue increases from the budget.

REDUCTION LIST:

General Fund Department Reductions – $97,490

Give School Minimum Required From Taxes – $196,947

Lobbying Expense – $5,000

Lobbyist – $31,200

KSTK – $9,200

Health Fair – $3,000

US Customs – $1,400

Community Promotion – $18,000

Employee Appreciation – $6,000

Senior Citizen Program – $15,000