PALMER — Mat-Su Borough Manager Mike Brown detailed more than a dozen various funding options to the Assembly at their meeting on January 5 after work from the Committee on School Funding and Tax Cap. The committee was made up of Assembly members Tim Hale, Jesse Sumner, and Deputy Mayor Tam Boeve and met six times between September and the end of last year. Brown said that Mat-Su Borough School District Superintendent Dr. Randy Trani and Assistant Superintendent Luke Fulp were present for the final two meetings to discuss how the Assembly would close the funding gap left by the state portions of School Bond Debt Reimbursement not paid by the state of Alaska.
“Over recent years the state of Alaska has not appropriated funding to cover it’s share of school bond debt, so the committee took a look at what solutions would be out there for the borough if the state were to not appropriate funding moving forward, which seems to be a very probable likelihood,” said Brown. “When we looked at proposed solutions in the committee, we came up with two really, to break it into two. For fiscal year 22 we believe with what the Governor has in there for 50 percent of their portion of the reimbursement, that $8.5 million, we believe if that comes through we have mechanisms in place to be able to cover the balance between what the state would not have appropriated.”
The school bond debt reimbursement payments not made by the state date back to a $5 million shortfall in 2017. In FY21 with no funding appropriated, there would be a $16 million gap. Brown said that new revenue options would not be as likely to come to fruition because of the months of development required to accumulate. However, the Mat-Su Borough code states that the mill rate may be raised to pay for bond payments the state has failed to fund.
“Allows for an increase in total amount of education annual debt service if the soa fails to provide mat funds for education debt service,” reads MSB.03.04.046 pertaining to local education funding.
MSB 3.04.076 pertaining to the tax cap says “Tax cap is set at 10.5 mills, but, if the state of Alaska fails to provide mat funds for bonds, mill rate increases to pay the boroughs portion of voter approved bonds may be added to the respective areawide or non-areawide mill rate at any time during which the bond issuance is being repaid.”
Brown presented the Assembly with three excise tax options which would not require approval from voters. An excise tax on fuel could yield between $200,000 and $800,000 at five cents per gallon and does not currently exist in the Mat-Su Borough, while Anchorage has a 10 cent per gallon fuel excise tax. Assemblyman Rob Yundt II asked for specific comparisons between Anchorage and the Valley.
“I just want to make sure if we do look at any of these in the future, we don’t drive our buyers into another market,” said Yundt.
Brown also presented a possible raise in tobacco taxes or a severance tax, also known as a ‘gravel tax’ that could be funding options. Tobacco is currently taxed at $2.25 per pack in the borough and brings in approximately $8 million annually, which Brown said could be increased. A gravel tax of 25 cents per gallon could yield up to $1 million annually.
“Without new revenue or state appropriation, the borough would be faced with covering that approximately $17 million debt on an annual basis. Admittedly though, that declines over time,” said Brown. “Really the rationale behind why we broke it out that way is it’s not realistic, if we were to consider new revenue options, that we would actually be able to generate that revenue In time to affect the FY22 budget, so we’re really looking, if we’re looking to new revenue options, at having to really program that for FY 23 and out years. So what we really want to do is focus on those long term options that create a sustainable solution over time.”
Brown also presented options for sales taxes that would require voter approval. An overall sales tax option of one percent areawide could yield up to $9 million annually. Currently, marijuana is taxed at five percent and brings in between $1.2-1.5 million annually to the borough. The borough also currently has a bed tax at five percent, but tourism declined in 2020 due to COVID-19.
“That one could fluctuate dramatically depending on how tourism is performing,” said Brown.
In fiscal year 2020, the bed tax brought in $991,427 and is projected at $625,000 in FY21. Brown presented seven other revenue options that would be one-time options and not recur. Those other revenue options include refinancing existing bonds, land sales and land sales on school parcels for portions that are not needed by the schools themselves. Brown said that Finance Director Cheyenne Heindel was already working on presenting a refinancing of existing bonds that could provide up to $5 million in one-time savings.
“The proposed solutions here that we’ve provided the Assembly and Mayor really are options that could be employed. We the committee didn’t really see one option that just solves the problem, but there are some of these that could be potentially used in tandem to create sustainable revenue to offset the funding shortfall,” said Brown.
Yundt asked for an estimate on what the price of oil would have to be to provide the state with enough revenue to pay their portion of the school bond debt. Lobbyist John Harris answered.
“Over 100. Yeah, considerably over 100 now,” said Harris. “The way things are, depending upon how much of the earnings reserve accounts you use for general government.”
Assemblywoman Stephanie Nowers questioned if the stock market would not be a better indicator than oil prices of state revenues and asked about how online sales tax could effect the budget outcomes. Recalling the city of Wasilla’s tax increase to pay for the Menard sports complex and the new Wasilla Police Department, Borough Attorney Nick Spiropolous clarified that the Assembly could not tie funding to one source, but that the code did allow for an increase in mill rate to cover the state’s unfunded portion of school bond debt.
“Much like our tax cap would work, where it authorizes going above 10.5 if absolutely positively needed to pay bond debt. Once that bond debt is paid off, if we had no outstanding bond debt our tax cap would be 10.5,” said Spiropolous.
Mayor Vern Halter stated his opposition to eliminating a portion of the extra exemption for seniors and disabled veterans provided by the borough. Currently, the Mat-Su borough total exemption of $68,000 equals about $4.2 million annually. Following the presentation by Brown from the committee on school funding and tax cap, the Assembly voted to have a special meeting on February 15 at 4:00 p.m.
“What we hoped to achieve by doing this tonight was tot get it on public record, share it with the Assembly, allow you all an opportunity to kind of digest that, and then hear from your constituents as to kind of what were those options that might be favored and which ones were obviously something that they would not want to see,” said Brown. “We were kind of hoping that this would start that conversation and allow that process to kind of run its course and to see where we might end up in February.”