Borough works to reduce need for property taxes to repay bonds

Officials believe the borough can cover the entire annual debt payment on $3.5 million in school maintenance bonds by taking advantage of strong sales tax revenues and higher federal aid payments — without turning to property taxes.

State lease payments for the community’s jail and investment earnings from Wrangell’s $10 million permanent fund savings account could help reduce the tax cost of the other bond issue on the Oct. 4 municipal election ballot — $8.5 million for rebuild and repair to the rot-damaged Public Safety Building — according to Mason Villarma, borough finance director.

Assuming the numbers work out as planned, the Public Safety Building bonds would cost an estimated $224 a year in property taxes on a $200,000 home, according to calculations prepared by City Hall for the ballot question.

Actual property tax bills each year depend on several factors: A property’s assessed valuation, the borough assembly-approved annual spending plan, other revenues coming into the borough’s general fund checkbook, and the property tax rate adopted by the assembly.

Voters may approve one, both or neither of the bond issues on the ballot.

Sales tax revenues are at an all-time high for the borough, providing additional funds that could go toward repaying the school repair bonds without touching property taxes, Villarma said.

For the fiscal year that ended June 30, the borough collected $3.53 million in sales tax receipts, more than $900,000 ahead of the conservative budget estimate of a year ago. Sales tax revenues have increased each year since 2017, particularly in the past couple of years as people had a lot of federal pandemic relief money to spend and as inflation drove up prices for goods and services.

In addition, the borough can use federal money to help repay the school bonds, Villarma said. Wrangell this year received substantially more money than last year from a federal program that compensates municipalities for untaxed land. In Wrangell’s case, that was $1.171 million this year under the Secure Rural Schools program, a big jump from $796,000 the previous year for tax-exempt federal land in the Tongass National Forest.

Most of the federal money goes to the school district each year as the borough’s contribution to the operating budget, but some could go toward repaying the bonds, too, Villarma said.

The nationwide municipal aid program has been around for several decades, growing out of logging battles in Oregon in the 1980s, as a way to help communities cope with the economic loss of timber industry closures.

While seeking voter approval to borrow $3.5 million toward repairs at all three schools, the borough and the school district also will request $6.5 million in state funding to complete the long list of needed repairs, explained Tammy Stromberg, the district’s business manager.

The district is hopeful it can get a priority listing on the Alaska Department of Education’s annual ranking of school maintenance projects statewide. The department submits its list for legislative funding each year, and the higher the ranking the better the odds of making the cutoff for that year’s state dollars.

But even a high ranking does not guarantee funding. Gov. Mike Dunleavy vetoed two-thirds of the funding appropriated by the Legislature for this year, leaving those districts that lost out to try again next year.

Wrangell’s school buildings are three and four decades old, and need new siding, roofs, windows and boilers, ventilation system improvements and more, Stromberg said.

“It’s going to cost money eventually,” she said. “It’s one of those pay now or pay more later.”

Villarma estimates the borough would have to pay about 4% interest on the bonds, working out to a debt service payment of $258,000 a year for 20 years to be covered as part of the municipal budget.

The bonds for “major renovation of the high school, middle school and elementary school will not require an increase to calendar year 2023 property taxes,” the ballot measure says.

“Interest rates like this won’t come back for a long time,” Stromberg said, referencing higher borrowing costs in the years ahead as the Federal Reserve raises rates to slow down inflation.

Wrangell paid off its last school bonds more than three years ago, leaving the borough clear of debt.

It’s been 16 years since Wrangell embarked on a major maintenance program for its school buildings, Stromberg said. During that time, the district has tried to piecemeal the work.

The Public Safety Building, also more than three decades old, needs a lot of the same work as the schools — roof, siding, windows, heating and ventilation system and other improvements to the structure that suffers from water damage and rot.

The borough’s financial plan is to cover most of the debt service on the bonds by taking advantage of significantly higher lease payments by the state for the jail at the Public Safety Building, Villarma said. and using more of the investment earnings from Wrangell’s $10 million permanent fund savings account.

In addition, the borough would continue looking for state and federal grant funds to help pay for the work, he said.

 

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