MSB holds informational open house about fuel excise tax proposal

How does the Mat-Su Borough manage and attempt to stay ahead of debt? That’s the question at the heart of the proposed fuel excise tax that is on the ballot for an advisory vote next month before the Mat-Su Borough (MSB) assembly takes the issue up again later this year.

A handful of residents attended the second of six open houses on September 23 in Willow, set up to provide information about the proposed fuel excise tax. MSB Manager Mike Brown, Deputy Manager George Hays, MSB Mayor Edna DeVries and Finance Director Cheyenne Heindel were on hand to explain how the idea for the tax came about, what the intended use of the revenue if the tax is passed, and why it is being proposed now.

Brown said he was not advocating for the tax, but wanted to provide information for voters ahead of the election “I’m here to explain why we see a need to consider other options for funding.”

Brown says the fuel tax, which is set at $0.07 cents per gallon and is estimated to bring in approximately $5 million dollars annually, was born after looking at the current and projected debt schedule facing the Borough and realized that in the future, the debt could present a challenge as it could eat into property taxes collected to pay for services.

“It becomes increasingly a bigger part of our annual outlay in terms of the services we provide.” Brown said part of the discussion for proposing a new tax was going in with a “pay-as-you-go” mindset that would avoid interest and save money.

“We looked for ways that don’t involve lost opportunity associated with financing (projects). When you finance, someone is making money and it’s probably not you.”

He said it was also about sharing the cost and consider a broader-based tax. “There are a lot of people that use our roads out here that aren’t contributing in any way to maintaining or improving our roads, because right now, we use property taxes.” In the MSB, there are roughly 300 miles of unmaintained roads, and the revenue from the fuel excise tax could help address the needs.

Some residents pushed back that commuters from Anchorage, recreational visitors, or tourists to the Borough are not primarily using Borough roads, but state roads, and the idea that all of the users to help pay for improvements is unrealistic and creates an additional burden to Borough residents.

Others observed that the Borough has grown over the past decade, and along with that has come an increase in homes and businesses being built, so too should property taxes, leaving some to question if there shouldn’t be more revenue from that.

“When we adopt a budget, it’s a balancing act,” said Heindel, explaining that indeed, during the COVID-19 pandemic, many people were moving and buying property above what the property was valued, resulting in a substantial growth in the sales prices of houses and e huge increases in property values Borough-wide. She said that per state statute, the MSB values houses as close to market as possible, but at the same time, the assembly has dropped the mill rates that kept the taxes at a zero increase. “They looked and asked what the average mill rate has to be to prevent the average home from seeing an increase in taxes?”

Heindel said last year, the growth was about 5.8%, a significant drop, and with not as much property on the market, the area-wide increase was under $25.00.

Brown said the third consideration behind the proposed tax is to prevent a “squeeze,” or potential future budget strain. Currently, the MSB debt is 12% of the budget, and current projections put the debt as high as 32% in ten years.

“We’re going to see where debt becomes an increasing component to what we have to spend annually,” he told the audience. “I would argue it gets to a percentage where we probably look at it as a community and wonder if this is where we want to be in the future?”

Brown told residents that in the past, the state would reimburse school improvements at a rate of 70% state-wide, but with the state budget crisis, there has been a moratorium placed on that, and that he looks at the state as an unreliable fiscal source, pointing to legislation passed by the assembly last week to reconcile a $4.7M hole in the budget created by the state not honoring those obligations, despite it being in the Governor’s budget, but the state legislature removed it.

“I think, as a community, we need to figure this out for ourselves, because you cannot depend on the state.” Brown projects that by 2036, there will be no state assistance for capital improvements. “I think in the future, we are going to be budgeting in a way that is less trusting of the state.”

He reiterated that the projected debt was the primary catalyst for introducing the fuel excise tax, pointing to the current mill rate is 1 mill, or 12% of the mill rate. The Borough is projecting that in 2030, it will be 1.6 mills, or 19% of mill rate, and by 2036, it could be 2.7 mills, or 32% of mill rate. The current area-wide mill rate is 8.485 mills.

The projection comes with the assumption that there will be no state support moving forward, 20-year bonds remain at 5% interest rate, and the three $30M road packages and two $50M school packages in place. Brown says there has been no support from the state for road bond packages since 2011.

The initial ordinance in which is the fuel tax was first proposed was for road improvements, which is why marine and aviation fuel is exempt from the proposal. The assembly amended the proposal to split the revenue with 50% to be used for future road projects, as opposed to financing. The other 50% is to be used for property tax relief. When asked why the exemptions remain if not all the revenue is being used for the roads, Brown said there is an opportunity to re-examine the exemptions, but that is for future discussions. He did reiterate that heating oil will remain exempt from the proposed tax.

“If it becomes a revenue generation in terms of property tax relief maybe that should be reconsidered.”

There were other ideas discussed, such as selling property the Borough owns, though most agreed that there is not enough property to sell to generate the same amount of revenue, and that over 90% of the land in the Borough is owned by the state and the Borough has taken legislative action for land transfers, but nothing has come of it to date.

“We’ve not gotten any legislative support...yet. It’s still on our legislative priorities,” said Brown.

The MSB has also looked at increasing existing taxes on beer, tobacco, and marijuana, as well as introducing taxes on alcohol, gravel, and an area-wide sales tax, which could generate $14M, but Brown has not proposed that because it could harm Borough relationships with the cities. It has also been rejected twice in the last five years.

Borough residents still have plenty of opportunities to learn more about the fuel excise tax before heading to the polls in November. The next information session is scheduled for October 6 at Meadow Lakes Elementary School at 6 p.m. There will also be sessions on October 13, 22, and 23. To find more information about locations, please visit www.matsugov.us/fuel-excise-tax-proposal