House amendment proposed to soften Mat-Su businesses, residents

A proposal to halt state assistance with debt service on Matanuska-Susitna Borough school bonds that would have hiked property taxes for Mat-Su residents and businesses was softened by an amendment on the floor of the state House Wednesday evening.

The House is working on the Fiscal Year 2020 state operating budget and expects to have the measure passed by the end of the week, after which it would go to the Senate.

At 50 percent funding, the proposal would still have adverse tax impacts on businesses, particularly Mat-Su Regional Hospital.

Had the total elimination of state debt support for municipal school bonds remained in the bill it could have added about $20 million to local property tax burdens, although Mat-Su Borough manager John Moosey said he is working on contingency plans, like spending cuts, that could mitigate the impacts.

The Senate is still working on its version of the budget and it is uncertain where senators will land on the question.

Ending school debt support for municipalities was an idea originating with Gov. Mike Dunleavy as part of the governor’s plan to cut state expenditures and balance the state budget.

Ending the state school bond debt support in total or part hits the Mat-Su hard because the state had agreed to pay 70 percent of the debt service on school bonds, leaving Mat-Su only having to pay 30 percent.

The local share would increase if the state contribution is reduced. Because the bonds were sold by the borough Mat-Su has a legal obligation to pay. The state contribution was always “subject to appropriation,” meaning that it was not guaranteed.

Withdrawal of the state funds leaves the borough stuck with the tab for the part not paid by the state.

Most of the governor’s plan has been rejected in the House budget proposal but the part ending municipal debt service support was adopted by the House Finance Committee last week. Mat-Su legislators Reps. Cathy Tilton, R-Wasilla, and DeLena Johnson, R-Palmer, who are members of the Finance Committee, voted in committee to add the language cutting 100 percent of debt support.

On the floor amendment on the budget, which reduced the cut in school debt support to 50 percent, Johnson voted yes, or for the 50 percent, while Tilton voted no, meaning she wanted to retain the 100 percent cut.

According to figures from the Alaska Municipal League, which were supplied to AML by the borough, the full impact of the loss of state support would cause the local tax mill rate to rise by 1.99 mills from the borough’s current property tax rate of 10.331 mills.

The additional tax, if it happens, would push the total mill rate above the borough’s tax “cap” of 10.5 mills, but exceeding the tax cap is allowed for expenses related to debt service although approval by the assembly is needed, said Stefan Hinman, spokesman for the borough.

However, a 50 percent cut, as is now in the House bill, would result in the tax impacts being cut in half.

Among the large commercial taxpayers, Mat-Su Regional Medical Center would pay $196,480 yearly in additional property tax at a 100 percent cut and half that at a 50 percent reduction, according to the municipal league data; Enstar Natural Gas would pay $124,214 with a full cut; Fred Meyer, a large retailer, would pay $89,718 with a full cut; Alaska Hotel Properties would pay $80,890 with a full cut; and GCI/Alaska Wireless would pay $56,642 with a full cut.

As a regulated public utility Enstar would be entitled to put the additional tax into its natural gas service charge, which would be paid by local consumers.

It is unclear how Mat-Su Regional would handle the extra tax burden, or whether it would result in higher fees. The hospital was unable to respond to a phone query.

However, the hospital would also be affected by the governor’s proposal to reduce Medicaid reimbursements by 5 percent and to not allow increases for inflation. Like all hospitals in the state Mat-Su Regional treats a large number of Medicaid recipients to live in the region.