Mat-Su Assembly to consider sales tax ballot measure

What you need to know:

• The Mat-Su Borough Assembly will consider whether to approve a ballot proposition asking voters to replace most of the borough’s areawide property tax with a new 6.5% boroughwide sales tax, with debate expected to start next month.
• The sales tax would replace the borough’s areawide property tax. A property tax that funds certain programs outside the city limits of Palmer, Houston and Wasilla, as well as property taxes that fund road and fire service areas, would continue. The 6.5% tax would be on top of rates already charged on purchases in Talkeetna, Houston, Wasilla and Palmer. It would apply to most purchases, including online sales.
• The proposed 6.5% rate is a starting point for consideration because the exact tax rate needed to cover borough programs is uncertain, officials said. Setting the rate too low could lead to budget shortfalls, they said.

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PALMER — Mat-Su voters could be asked whether to accept a new boroughwide sales tax on a ballot proposition expected for introduction at the Matanuska-Susitna Borough Assembly next month.

If approved for ballots, the proposition would ask Mat-Su voters whether to replace most of the region’s property tax with a 6.5% borough sales tax, a first for the region. It would go before voters in November.

Assembly members discussed the measure during a work session Saturday in Wasilla. It will be introduced early next month by Assembly member Michael Bowles, who represents District 1, which includes Butte, Sutton and portions of Palmer. 

The Assembly must vote on the matter by August to meet the annual ballot proposition deadline.

“If we put this on the ballot, then everybody in the borough gets to take a chop at this and decide for themselves how they want to be taxed,” Bowles said during the meeting.

The new sales tax would be in addition to tax rates already charged by the region’s cities and the Talkeetna special area, increasing the overall sales tax to 9.5% in Palmer, 8% in Wasilla, 7.5% in Houston and 9.5% in Talkeetna. It would also apply to most online purchases. It would exempt a variety of goods and services, including pharmaceuticals, animal feed and bank fees, Bowles said in an interview Tuesday. It would apply to the first $1,000 of any single purchase, he said.

The proposed sales tax is meant to fully replace the areawide property tax, Bowles said, but it would not eliminate all borough property taxes. The non-areawide property tax charged against lots and structures outside city borders and the road and fire service area property taxes that fund maintenance and safety on a region-by-region basis across Mat-Su would continue, he said.

Mat-Su property owners last year paid the borough $849 per $100,000 of assessed property value for areawide taxes, or 8.485 mills. That property tax would be eliminated under the proposal.

Those who live outside the cities paid $37 per $100,000 of assessed property value last year, or about 0.371 mills, according to borough budget documents. Residents in road and fire service areas paid an average of $290 per $100,000 in assessed value for each of those services, documents show. The sales tax proposal would keep the non-areawide and service area taxes in place.

Using a sales tax instead of a property tax to cover the cost of borough services, such as major road projects, would take the burden off property owners and renters and spread it to anyone who steps foot in Mat-Su, Bowles said Tuesday.

“The overall intent is to take the burden off solely the property owners, lower the residents’ tax burden, and to capture a broader tax base,” he said.

The proposed sales tax would also replace the region’s other subject-specific sales taxes, including the marijuana tax and a hotel or vacation-rental tax, he said. It would need to generate between $130 million and $150 million to pay for borough costs currently covered by the property and sales taxes it seeks to replace, he said.

Bowles said the measure is not designed to reduce government spending or create a way to cut programs. He said Mat-Su residents told him they would be willing to pay up to 10% in sales tax if it means eliminating areawide property taxes.

The measure comes as state lawmakers and the city of Palmer consider their own new sales tax measures. A proposal by Gov. Mike Dunleavy would require a statewide sales tax of between 2% to 4%, depending on the season. The Palmer City Council is scheduled to vote next week on whether to temporarily increase the city sales tax to 3.5% to help fund construction of the new Palmer Public Library.

If the measure is sent to ballots, it would be the second new tax question put before Mat-Su voters in as many years. Mat-Su voters last year overwhelmingly rejected a 7-cent-per-gallon fuel tax advisory measure meant to help the borough pay for road repairs, and the Assembly voted it down in early December.

How much sales tax is needed to fund the borough government?

The exact sales tax rate the borough needs to cover its bills is unknown because officials have no historical data or current estimates on which to base a calculation, Borough Manager Mike Brown said during the meeting Saturday. A 2019 study commissioned by the borough found a 5% areawide tax on up to $1,000 per purchase could bring in about $33.2 million — far short of the up to $150 million needed.

Bowles said he chose the 6.5% rate as a starting point, knowing Assembly members and the borough manager believe a higher rate is necessary to make the switch without bankrupting the borough.

An initial version of the proposal announced by Bowles last year envisioned the rate at 7% across the board, with the total paid to the borough fluctuating by city. That plan was abandoned because it would not bring in enough funding, Bowles said Tuesday.

Bowles said he expects his proposal to spark months of debate as the Assembly grapples with whether to place the measure on the ballot and works to ensure whatever rate they select brings in enough revenue.

Proposing a rate that is too low could cause problems later because it would not create a one-to-one match for current funding, Mat-Su Borough Mayor Edna DeVries said Saturday. While the assembly could vote to lower a voter-approved rate, it could not increase it without putting the matter back on ballots.

“What if those two figures don’t match, and the six-and-a-half should have been 8%?” she said. “What kind of services are you going to cut? You can cut down on how many fire trucks there are? Or ambulances? Or Assembly salaries?”

Adding a new borough tax could also hurt overall sales across the region, according to national data referenced in the 2019 report. Retail sales and food service sales, such as at restaurants, typically decrease by 1.5% and 2.3%, respectively, for every 1% increase in sales tax, the report states.

-- Contact Amy Bushatz at contact@matsusentinel.com