Palmer City Council eyes sales tax increase to cover some library construction costs

What you need to know:

• The Palmer City Council is considering temporarily raising the city sales tax from 3% to 4% from April 1 through Oct. 31, 2027, to help fund construction of a new public library. The council is scheduled to vote Feb. 24, and voter approval is not required.
• The increase is expected to generate about $3.3 million for the project, which is partially funded by grants, donations and an insurance payout for the old building. Officials say the tax hike is intended to avoid issuing $10 million in voter-approved bonds that would raise property taxes.
• Supporters say the sales tax spreads costs beyond city property owners, noting most library users live outside city limits. Some local business owners argue the higher rate could hurt city businesses and push shoppers to areas with no sales tax or lower tax rates.

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PALMER -- Palmer city shoppers could soon see an 18-month sales tax boost under a proposed update meant to help cover construction costs for the city’s new public library building.

If approved, the measure would increase the current tax rate from 3% to 4% starting April 1 and ending Oct. 31, 2027. The Palmer City Council is expected to vote on the matter during a regular meeting scheduled for Feb. 24. 

Palmer sales tax changes are not subject to voter approval, and the matter will not appear on city ballots in October.

The council voted unanimously to delay a vote on the proposal from a regular council meeting Tuesday to give business owners more time to weigh in on how the change would affect them, officials said.

The increase would be the city’s first sales tax update since 1996, city officials said.

The Palmer Public Library closed in early 2023 after a partial roof collapse caused major damage to the structure and portions of its collection. The building was fully demolished over the summer, and a temporary library is operating about a mile from the facility’s official site. A newly constructed library building is expected to open in 2027. 

The proposed sales tax increase would bring in an estimated $3.3 million in extra revenue, city officials estimate. That would cover most of the current shortfall between the $9.67 million in grants, donations, and insurance payouts the city has already raised for the project and the more than $12 million in expected construction costs for the new 20,000-square-foot facility. 

Property owners within Palmer pay the city 3 mills of property tax, or $300 per $100,000 in assessed value. That tax is in addition to a separate rate paid to the Matanuska-Susitna Borough. 

Palmer city voters in 2023 approved $10 million in bonds to fund the library project, a step that would increase property taxes for the average Palmer homeowner by an additional $170 a year per $100,000 for the next 20 years if officials took on debt for the full amount, according to city data. 

The sales tax proposal is designed as a way to fully avoid using that funding method, city officials said. Taking on that debt puts an unfair burden for construction costs on a fraction of the library’s actual users, said Council member Allison Collins, who sponsored the measure. 

Only about 18% of Palmer Public Library users live within city limits, according to library data, with the remainder traveling from outside the city, where the tax is levied.

Even if the council approves the sales tax change and it brings in the expected $3.3 million, the city would still need to raise about $3 million more to pay for the library’s interior needs, including furniture and possible construction cost overruns. Collins said she is hopeful the money can be raised through new grants and donations. 

Friends of the Palmer Public Library volunteers are launching a monthlong fundraising push that includes an orchestra performance Sunday and a St. Patrick’s Day celebration coupled with a 5K and 10K race through Palmer scheduled for March 15. Organizers have also asked local businesses to place library support collection boxes on their front counters and pledge sponsorships. The group hopes to raise as much as $1 million to support the project before construction is completed.

The sales tax proposal does not include language blocking the city from also selling bonds to pay for facility costs, although city officials said such a step is unlikely.

The sales tax proposal is similar to a voter-approved temporary tax increase used by Wasilla more than a decade ago to fund its public library, which opened in 2016. That measure increased Wasilla’s city sales tax to 3% starting in 2013 and sunset when the city reached its $15 million revenue goal about two years later.

If approved, the new sales tax would boost Palmer’s rate to 1.5 percentage points above Wasilla’s current rate of 2.5%. That step could drive customers out of downtown Palmer to businesses outside the cities, where no sales tax is collected, or to Wasilla, some local business owners told the council during Tuesday’s meeting.

It could also hurt some service-based businesses that build Palmer’s tax into their pricing rather than listing it as a separate line item, they said.

“What it does is it gives a competitive advantage to those businesses that choose to locate themselves outside the city limits. It makes it so that it doesn’t make financial sense to be here inside the City of Palmer,” said Josh Tudor, a former city council member who owns an IT service business in the downtown area. “And I really want to make sure that as a community, we are attracting businesses, that we’re looking to grow and looking to have a positive impact with our small businesses, and not seeing them as something to take money from.”

-- Contact Amy Bushatz at contact@matsusentinel.com