Soldotna's reserve fell $900,000 as mayoral leader seeks to undo sales tax

Soldotna's discretionary reserve shrank by about $900,000 last year, and the state bond bank has cautioned the city about its future borrowing, city reports show.

The latest report comes as the candidate leading the mayor's race says he wants to undo the sales tax increase the City Council passed in May.

The money in question is the city's unassigned fund balance, which the council can spend at its discretion. It stood at $4.07 million at the end of the fiscal year in June, according to the financial report City Manager Janette Bower prepared for the council's Nov. 12 meeting.

The Alaska Municipal Bond Bank Authority and its adviser, PFM, told the city that future bond issues "may receive increased scrutiny" unless its fund balance grows or it finds more money to repay debt, the report says. The report also says it isn't meant "to suggest the City is in financial distress."

Chuck Winters, who campaigned on reversing the tax increase, leads Mayor Paul Whitney 422 to 386 in unofficial results. Absentee, questioned and special needs ballots haven't been counted yet.

The increase takes effect Jan. 1, raising the city's sales tax from 3% to 3.5%. In the borough voter pamphlet, Winters wrote that he wants "to reverse the new sales tax increase and get back to the basics of living within our means."

As mayor, he couldn't undo it alone; that would take a council vote or a voter petition. Both council members on this year's ballot voted for the increase, and both are winning or unopposed. Winters also wrote that he would have vetoed "the recent tax resolutions."

The tax applies only to the first $500 of a sale, so it adds at most $2.50 to any purchase. It's the first change to the 3% rate since 1984. Staff estimated it would raise about $1.7 million a year, dedicated to capital projects and debt rather than day-to-day operations.

The report shows a longer slide in the city's fund balance. The General Fund, the city's main operating account, held $12.1 million at the end of June, down 37% since 2021 and down from a peak of $20.9 million in 2013. The discretionary portion is down 68% in five years. The report points to the city's spending on capital projects and community infrastructure and to rising operating costs. The latest figures are unaudited, and the audit is due in December.

The bond bank's warning isn't new. The same language appeared in a March report, before the tax vote. At a March work session, Bower said the bond bank approved the second installment of the city's Field House borrowing but "did kind of send a warning."

The council passed the tax 5-1 on May 13. Council member Dave Carey, the lone no vote, said, "I would like to see a vote of the people." Whitney, who votes only to break ties, said he supported the increase, pointing to the city's ice arena: "If we don't do it, there won't be any ice."

Replacing the arena's refrigeration system is now preliminarily estimated at $5.7 million, up from $5.3 million in March. The current system runs on R-22, a refrigerant "no longer produced or imported in the United States," the report says. The rink nearly lost its ice at least once this year, and the department found replacements on eBay for a broken part that's no longer made, the parks director said in October. The city has set aside $450,000 for design; paying for construction would take a future council vote.

Nick Sorrel, one of four people who testified against the tax, said residents were "repeatedly assured that taxes would not need to be raised" for obligations such as the Field House bond.

The council is set to certify the election and swear in new officials Nov. 12. The financial report is on the agenda as information, not for action.