Taxes & the Local Government By Rodney Dial May 23, 2013
I hoped we had a few leaders on the borough who would demand results and accountability for all the increased spending, but sadly that was not the case. Do we not have one person with the courage to say “increased funding does not necessarily equal increased results” or “provide us with a cost-benefit analysis for all the school Apple laptops, IPods, all the travel costs for flying students on Alaska Air for sports, debate teams, etc”. Are we destined to hear the education lobby in this community scream “world to end if we don’t get more funding” and “It’s all about the students” every 10 months? Do the borough leaders honestly expect we won’t go through this all over again in less than a year? Now I want to make it clear that I support our teachers; they are good people doing a difficult job. I never thought it was fair to place the blame for failing students entirely on them, when parental involvement is one of the most important elements for success. However… Have a beer some night with a teacher and they will tell you in 10 minutes that a major factor with the increasing school budget is the number of administrators, not teachers. School enrollment peaked at 2400 in 2002, and is 2165 now; however local education costs have gone through the roof. In truth, education funding will never be enough for some. They are unwilling to reconsider their paradigm that increased spending means increased results and consider that a fiscal balance must be reached for our community to survive. Considering that this group is generally the same as those voting to increase spending on everything else, I thought I would show a few examples of why we can’t increase the education budget by millions per year, as some constantly advocate for. Examples of why Ketchikan is going broke and can’t give everyone, everything they want… Libraries:
Fire Stations:
Community Visitor Centers
Borough Building (White Cliff Building) As you may recall local government complained of the conditions of the old borough offices for years. At the same time a local group, Historic Ketchikan, was trying to determine a use for the old White Cliff building and eventually decided to turn it into a performing arts center. The proposal was submitted to the voters and rejected by a large margin. The following is my opinion of what happened next: The director of Historic Ketchikan at the time was also the borough mayor. This person, wanting to save White Cliff for personal reasons and realizing that the public would not support bonds to renovate the building for borough offices (based upon the aforementioned failed vote) looked to bypass voter approval. The Mayor, working with the Borough Manager constructed a carefully crafted RFP (Request For Proposal) for new borough offices. The goal was to renovate the White Cliff building without voter approval; however the RFP was designed to “appear” that the RFP was open to any entity that could provide suitable office space. Two things to keep in mind at this point. 1. An RFP is supposed to be designed to allow government to obtain a service, product, building, etc. at the lowest price (competitive bid) and 2. Unethical people can skirt the intent of an RFP by crafting it in a manner to include or exclude anyone/anything they want to. For those of you who remember, the best deal at the time for low cost borough offices was to lease vacant space in the mall. The directors of the mall were making every effort to make a superior and attractive proposal for borough offices. As I recall, the old bowling alley building was also offering space for borough offices. The RFP closed and the mayor and borough manager claimed the mall did not qualify due to a technically. What came next was a procedure where the borough sold the building to Dawson Construction, who in turn renovated it and leased it back to the borough with an asking price of 10 million, bypassing voter approval and fulfilling the primary goal of Historic Ketchikan at the time. Now, if you live if the land of unicorns and rainbows and think the interaction of Historic Ketchikan, the Mayor, and the selection of White Cliff (which was the most expensive choice for borough offices) was a mere coincidence… well, then you probably just want to be ignorant. The borough could have leased private property and eliminated all future maintenance issues and significantly reduced costs. The selection of the White cliff Building for borough offices was done without voter approval, through a rigged RFP and has cost the taxpayers millions extra since 2009.
10 Million dollar White Cliff building that the borough owned before it sold it and then bought it back… Of course the Coup de grâce (definition: ku-de-gras, A blow of mercy to end the suffering of a severely wounded person or animal) of local government waste is….Berth IV In the following picture the cruise ship on the right side is moored to Berth IV. What is remarkable about this photo is that the few pilings constituting this berth may make it the most expensive in the nation, perhaps the world. I could not find a single example of a berth this size in the world that even comes close to what this will cost Ketchikan taxpayers over the lease period.
Wait for it…. Nearly 100 MILLION total! With annual lease payments between 1.8 to 3.4 Million! This represents nearly 7% of the City budget in 2013. How did this happen? This project was put in motion after it took the City leaders two votes to get the public to approve 20 million in bonds for Berth III. Realizing that voters would never approve Berth IV bonds on the back of Berth III, the City went around the voter and entered into a long term lease with a private corporation to build and maintain Berth IV. By doing so, Berth IV will cost us five times what Berth III cost, but it allowed the city to end-run the voter approval process. Supporters of Berth IV will try to claim that 1. It is paid for by cruise ship taxes, and 2. That it somehow makes money. The reality is that we could have built it for 20 million, saved 80 million (which BTW is more than the cost of the Pool, Fire Station and Library combined) if the city had RESPECTED the voters and made the case, instead of doing an end-run around them and entering into a long term lease. If I wasn’t worried about making this letter a book, we could make similar comparisons with other building projects completed in this community that are far larger and much more expensive than other Alaskan communities (e.g. Schoenbar, etc.) My point to all of this is THIS IS WHY BOTH THE BOROUGH AND CITY ARE RUNNING ON RESERVES AND RAISING TAXES. Want more money for education? Then maybe you should demand our leaders slow down on building these monuments of excess. Disclaimer: Liberals should stop reading here. The following information (facts) pulled from the City, Borough and State websites may challenge your belief system. THE LOCAL FISCAL TRAIN WRECK Property Taxes City of Ketchikan (two years of increases, with additional increase proposed for 2014) Ketchikan Gateway Borough (2013 increase with additional increase proposed for 2014) Combined City and Borough Property Taxes for 2013 12.2 Mills 2013 Property tax per home, based upon average home value of $250k = $3050 per year, or $254.16 per month. 2014 Property tax per home, based upon expected 4% increase in property values and mill rate increase to 12.95 = $3269.87, or $272.49 per month. Sales Taxes In Alaska only about one third of the 151 communities (62) levy a sales tax; the majority have no sales tax. Of those 62 the average rate is between 2-5%, and Ketchikan (City) has the second highest rate in the state at 6%. In Ketchikan the average sales tax paid per household based upon $50k per year in taxable purchases (note, rent is taxable and fuel has sales tax factored in) is $3000 or $250 per month. Other Local Taxes Pass-through taxes; includes business taxes passed on to the consumer when you purchase items in Ketchikan and PILT (Payment in Lieu of Taxes) from government units such as KPU. KPU was made the funding source of all non-profit grants in Ketchikan by the City Council trying to hide a tax increase a few years ago. This means that your utility bills are higher than what it costs to provide basic services to you, to fund non-profit, discretionary programs (you just don’t see it). Additional taxes and fees include; user costs such as the recreational center, pool, parking, harbor fees, etc. Keep in mind that the sales tax in Ketchikan used to be 5.5% until the ½% recreational sales tax was passed. In essence this means that if you use the recreational facilities you are paying for them twice…once on all purchases, and additionally each time you use the facilities. Facility use fees are expected to increase. When all taxes are considered, the average household burden in 2011 was $11,826 per year (source Community of Ketchikan Legislative Information packet 2011) Current cost is estimated at over $12,000 per household in 2013. The problem is…of course… that the average person has no clue they pay this amount of local taxes. You never see the taxes passed on by Safeway in the cost of the food you buy, don’t know how much less your utility bills could be, people don’t realize they pay sales taxes on fuel, are unaware of the taxes they pay on rent or mortgage, etc. Government has become quite skilled at hiding the incremental, never-ending increases chipping away at your standard of living. Consider for a moment that the mill rate in our community used to be 1 mill and the sales tax was 1%. Also consider that even if the mill and sales tax rates remained the same you always pay more each year as inflation raises the cost of goods subject to sales taxes, and real estate appreciates in value increasing your property taxes. Yes, yes, yes, I can hear the scream of the “I don’t mind paying more taxes crowd” as I write this letter. To this group I would submit that you are victorious… Ketchikan is the highest taxed community in SE Alaska and one of the highest taxed in the State. Our property taxes are now over 100% higher than Sitka, our sales taxes nearly 20% higher than Juneau. Your cries for ever increasing taxes remind me of others who shared your views with names like, Skinner, Ziegler, Jack Shay and others. Don’t worry tax and spenders….our taxes will be going even higher thanks to… Spending and Future Tax increases (per city and borough documents) • Harbor rates will need to be raised by 7 percent for every $1 million of debt and the city council is considering a pre-emptive move to phase in rate increases before bonds are Issued (City 2013 Budget Documents) • Comprehensive storm water management program requiring a revenue stream to pay for the program and recommended an initial startup fee of $10 per month per parcel increasing to $20.11 within six years. If KPU were not allocating resources to fun non-profits they would have more than enough reserves to fund this with no rate increases. •Wastewater Rates. In 2010, the City began a program to increase wastewater rates. In 2010 and 2011, rates were increased by five percent each, with a 12 percent increase in 2013. • Debt service has increased due to the issuance of bonds to finance the construction of the City’s new library and new fire station. This added $846,491 to the expenditures of the General Fund. • A 2 percent cost of living adjustment approved in 2012 increased expenditures of the General Fund by $ 205,200. • $2.5 million deficit (City). On January 1, 2013, the City will have five outstanding general obligation bonds totaling $16,309,271 and one revenue bond totaling $34,315,000. • Operating and capital expenditures are increasing by $2.64 million (2013 City). • Local Government now comprises 14.85% of the total workforce in Ketchikan. National average is less than half this amount. • City personnel costs up 300,000 this year alone. • City trying to charge North and South Tongass Fire departments for dispatch services (costs the city nothing as they maintain dispatch services anyway). • Assessed property values to increase 1-4% this year (on top of the Mill rate increase) • Borough losing millions in federal forest service PILT payments. • Borough increased education spending by $300,000 in 2013. • New airport parking fees. This is just the tip of the iceberg folks. Numerous groups want even more money from local governments and are likely to get it. New projects such as a skate park, new museum, Ocean Alaska funding, City office renovation, additional funding for a Performing Arts center, etc., will continue to increase community debt, and require years of additional tax increases. With each new building comes increased operating costs. All of this will, of course, continue to limit the funds available for additional educational spending increases. In closing I would ask this of those who may write a rebuttal letter; Have the courage to say somewhere in your letter, your upper limit do-not-cross line for taxes. Personally, I really want to know this from the “raise my taxes crowd”, how much is enough for you? Do we destroy the economic competitiveness of this community so you can have your every desire provided by government? We don’t have a revenue problem; we have a spending problem and we will soon have an economic problem if we tax our businesses like the shipyard out of this community. It’s time to stop being a sheep and start being a sheep dog,… or the wolf will continue to raid your home. Rodney Dial Received May 22, 2013 - Published May 23, 2013
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