Proposal could seek sales tax reduction
As current law stands, Wrangell has the highest municipal sales tax in the nation.
An application by two Wrangellites to place a proposed taxation ordinance before the Borough Assembly could change that, however, by seeking to reduce Wrangell’s sales tax to 5.5 percent from its current 7 percent rate.
The initial application for a suggested change to 5 percent, filed by Wrangell residents Ernie Christian and Rhonda Dawson, failed last week in part due to requirements covering initiative petitions under the Wrangell’s Municipal Code.
Christian and Dawson applied on June 29 as co-sponsors for an initiative to be added to the borough’s general election schedule. That initiative would ask voters to reduce Wrangell’s sales tax rate from its current 7 percent to 5 percent.
The draft of the proposed ordinance used in the rejected application contained language that referred to Wrangell code section 5.08.020. A newer proposed ordinance drafted by the pair this week, however, removes that language, and also includes a caveat that a majority of qualified voters in the borough would have to approve any future changes in the sales tax rate.
In a letter to Christian and Dawson, Borough Clerk Kim Flores spelled out the reasons for the deficiency in their first application.
“Upon review and consultation with the borough attorneys … the Application for Initiative Petition received June 29, 2012 is insufficient under the requirements of Alaska law and the Wrangell Municipal Code,” the letter stated.
The insufficiency in language Flores referred to deals with whether or not the initiative established a sales tax to be set at 5 percent, or amended the existing sales tax down to a rate of 5 percent.
Alaska law and the borough’s municipal code require proposed ordinances to comply with simple, accurate language so that voters can express their will at the ballot box.
“Initiatives that are confusing or misleading may frustrate the ability of voters to express their will,” Flores added in her response to Christian and Dawson.
Christian said he and Dawson, and the new 5.5 percent language of the submitted proposal, will be a way of putting cash back in the pockets of Wrangellites and visitors to the borough.
“The city has been at a 7 percent rate for a while, since we were trying to pay off the school bonds for the new pool and gym. That was in 1986,” Christian said. “We have been at the highest rate in the nation for a while. This is a move that, if approved is going to put cash in the pocket of everyone on every sale, including fuel purchases.”
According to Flores, even though the pair has generated new language for the proposed ordinance, they have not officially applied with her office.
“If they want to resubmit the application for an initiative, they can do that,” Flores added. “At this point they have not, however, refiled a proper application with the borough.”
If and when a new proposal is submitted, the reduction of Wrangell’s sales tax could be a boon for shoppers, but the consequences to the borough’s budget could be severe – and shape the way some public services are offered to residents.
According to an email from Borough Manager Tim Rooney to the mayor, members of the assembly and department heads, the 7 percent rate is estimated to bring in $2.35 million in 2012-13, and that a reduction to 5 percent, based upon the initial ordinance application, would result in a loss of $671,429, for a total of $1,678,571 collected on sales in the borough.
Currently, sales taxes in Wrangell are divided three ways, with 4 percent going to roads, 28 percent to the school district, and 68 percent going to the general fund. In Rooney’s email, he states that if the rate is reduced to 5 percent, streets would receive $26,680 less, schools would receive $188,000 less, and the general fund would be reduced by $456,569.
“Since the schools have to receive a minimum amount, this burden would then be shifted to an already reduced general fund,” Rooney stated. “To balance the general fund under the above scenario, spending would need to be reduced 11.6 percent.”
Rooney added that while the idea might seem attractive to some, the consideration of a balanced budget is of a greater importance.
“While ‘reducing taxes’ always sounds attractive and makes for a nice headline, it would be nice to see what specifically are Mr. Christian and Ms. Dawson’s plans to balance the budget,” Rooney stated. “Again, while it is easy to say ‘reduce your spending by 11.6 percent’, actually doing it is something much more difficult.”
Planning for what could be the outcome of a lowered rate, Rooney stated he would act to halt funding for a number of borough-supported entities.
“As your administrator, my plan would be to reduce non-essential community services immediately,” he stated. “This means funding for non-essential services like the Chamber of Commerce, KSTK, Wrangell Senior Program would immediately be (stopped.) Quality of life and non-essential items like the pool, library, and park services and employees would certainly be impacted.”
Rooney has also asked department heads in programs that may be impacted to look at their budgets – and be prepared for what may come of a potential vote on the issue.
“As you go through department after department of the general fund, it would become increasingly difficult to eliminate that much from the budget without cutting even essential services,” he stated. “Seriously, open your budgets… now find $671,429 we are wasting. Good luck.”
Christian said he and Dawson would refile their application for an initiative, using the 5.5 percent tax rate this week.
“The main reason for the change to 5.5 percent is that it still balances the sales tax fund,” Christian added. “The city shouldn’t be worried, even though they do when you cut their revenue stream. The bottom line; this is the peoples’ money and they should be able to decide this.”