Bed tax

Visitors enjoy the weather while reading informational placards in the Golden Heart Plaza downtown Friday afternoon, June 7, 2019. 

After its recent rejection of Mayor Jim Matherly’s proposed bed tax increase, the Fairbanks City Council will consider raising funds a different way — by removing one of the mill rate caps, potentially raising property taxes by a small amount.

The city’s Finance Committee discussed an ordinance Tuesday to remove the mill rate levy from the city charter and chose to advance the ordinance to the City Council, which will take up the proposal at its regular meeting Monday night.

If the council approves, the mill cap removal would be placed on the October ballot. The ordinance is co-sponsored by Matherly and all council members.

The Finance Committee, which comprises the mayor and all six council members, agreed that removing the tax would help to keep the city solvent, as the amount of property taxes currently collected is not enough to keep up with inflation.

The members were clear in their intent to show a united front on the matter, which multiple council members called a “minor raise in taxes.”

The proposed amendment would delete a single sentence from the Fairbanks City Charter: “Of the total amount of taxes that can be collected, property taxes are limited by a maximum mill levy of 4.9, mills subject to Charter Section 6.5(B).”

The city uses a complicated calculation to collect property taxes from residents. There are two caps on how much revenue the city can collect, which Acting Chief Financial Officer Margarita Bell called a “cap within a cap.”

The first cap is simple: The city, with few exceptions, cannot collect more in total taxes — property tax and other tax revenue — this year than it did last year.

The second cap — the cap within a cap — limits the amount of property taxes the city can collect each year as dictated by the charter rate of 4.9 mills, which is $490 per $100,000 in assessed value.

There are a few notable exceptions to the caps, which add or subtract from the sum the city can collect. The total can be increased by the Consumer Price Index, claims and judgments, new construction and amounts approved by voters. It can be decreased by the hotel/motel, alcohol and tobacco tax and by a limit on the prior year’s surplus.

The council members agreed that the issue would have to be carefully worded on the ballot.

Councilman Jerry Cleworth said he wanted to make sure the issue was clear for the public. He worried that if the area were to enter a recession and property taxes dropped dramatically, “We’d be sunk.”

Until now, Cleworth explained, the gap in needed revenue has been covered by business license fees. However, he said he felt that raising business license fees was an unsustainable practice.

Cleworth mentioned that he paid nearly $1,000 for his business license. “And that hurts,” he said.

Further, revenues from businesses were falling.

As Bell explained, the difference to individual taxpayers of removing the mill rate cap would be relatively small. For example, if a resident’s property was assessed at $100,000, that taxpayer would pay $587 per year in taxes to the city, based on 2019’s numbers.

If voters removed the mill levy, that same taxpayer would pay $611 — a $24 difference. The revenue to the city would still be limited by the overall tax cap.

The ordinance to be presented to voters, should it be approved by the council, will have slightly different numbers that will account for a 1% increase in inflation. With inflation in mind, a taxpayer with a $100,000 property assessment would pay $618 to the city, should the mill levy cap be removed.

“It’s a slight difference for the residents; it’s a big difference for the city,” City Communications Director Teal Soden said. “Right now, that first cap allows us to keep up with inflation, but with this one, we’re not able to keep up with inflation.”

Were there no second cap, the city could have collected an additional $650,624 in revenue in 2019.

“If we’re trying to keep the services level and expenditures are going up and revenue is going down, then we have to get to the point where we have to start looking at what services we have to cut, and we really don’t want to have to get to that point,” she said. “And I think the council sees the value in that, too, and that’s why so many have signed onto that ordinance.”

The city has 193 employees, which includes the Fire, Police, Dispatch and Public Works departments.

Contact staff writer Cheryl Upshaw at 459-7575.