Residents of Wrangell concerned about the state’s evolving budget proposals joined those from Cordova, Nome and other rural communities in testifying on House Bill 57 over the weekend.
Proposed by the House Finance Committee as part of a package of budget cuts, HB 57 proposes cutting state payments to municipalities for school construction debt. Homer Rep. Paul Seaton (R-District 31) co-chaired the proceedings on March 4, seeking input ahead of an amendment process scheduled for Tuesday.
Wrangell is among the communities that would be affected by the cut, having four years of payments left on such bonds. It was expecting $166,500 from the state for Fiscal Year 2018, which starts in July. If HB 57 is adopted as is, the community would only get half that, with the rest of the expense to be picked up by the city.
The Legislature had last year issued a five-year moratorium on new school bonding projects in light of its ongoing budget deficit, but the new round of prospective cuts would target cost sharing for school facility construction already completed. Until now, the state has covered 70 percent of municipalities’ bond debt in the arrangement.
Speaking for the borough, city manager Jeff Jabusch explained to House Finance the move would be a difficult one for Wrangell to adjust to.
“Wrangell, like other communities, has seen a reduction in revenues that have come from the state over the last couple of years,” he said. “The state continues to pass these burdens onto communities.”
Despite Alaska’s other cost-sharing reductions to the city over the past couple of years, Wrangell has so far passed balanced budgets without having to raise its property taxes.
That may soon have to change. Noting the city’s current property tax rate and the state-mandated exemption of 18 percent of retired homeowners, Jabusch informed the committee: “We are limited in the ways we can raise taxes without raising taxes on a portion of our population.”
The Senate Finance Committee is further mulling a five-percent decrease to the Base Student Allocation formula, which could shift another $197,000 burden onto the borough. A potential two-percent increase to its contribution to the state pensions fund could mean another $70,000 per year to Wrangell’s liabilities.
“Every one of those things is a big deal,” Jabusch explained. “Communities are going to have to raise taxes and do other things.”
Responding to his comments, Seaton asked if Jabusch had any alternatives to offer.
“I get the ups and downs the state has faced, and difficult job for those in charge of the fiscal budget,” Jabusch acknowledged. He pointed out that among the proposals being considered in Juneau this session is institution of an income tax set at 15 percent of a resident’s federal liability. Under that scenario, a reduced Permanent Fund Dividend would still be paid to Alaskans each year, and checks could be put toward the income tax liability if one desired.
Jabusch felt continuing individual PFD payments doesn’t make sense under the circumstances, particularly when having to raise taxes and also cut services. While some families do rely on the extra thousand or so dollars each year, he noted a good portion of that money goes toward federal taxes in any case, and that a number of people use the funds for nonessential purposes.
“I know this is not politically popular, and there are many other ways to support those who really need help through various social programs. But handing a check out and taking it back through state and local taxes just doesn’t make sense.”
He noted that Alaska is currently the only state in the country to have neither a sales nor income tax. Its distribution of a dividend check in such circumstances also was a novelty.
“No other state does this. And when you’re in a crisis, it makes no sense,” he explained afterward. “Certainly it’s something that the communities, if they choose to keep giving a dividend, they have no choice but to keep reducing services.”
Still, in terms of debt he pointed out that Wrangell will be in a relatively safe position. In four more payments its government-owned debt for schools will be paid off, leaving it with low-interest loans for sewer and water treatment upgrades through the federal government. The electrical utility and harbor facilities were currently debt-free.
“We’re probably in better shape than anybody,” he said.
While discussions are ongoing, the House Finance Committee is still taking public input on the bills before it. “If they have additional testimony that they would like considered they can send that to HouseFinance@akleg.gov. We will put that in our records and we will look at those details as well,” Seaton explained at the close of Saturday’s hearing.
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