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10/8/2013
Assembly on path to suit

By NICK BOWMAN

Daily News Staff Writer

The Ketchikan Gateway Borough Assembly voted 4-3 on Monday to move forward with a lawsuit against the state concerning education funding. Assembly members James Van Horn, Bill Rotecki and Alan Bailey voted against the motion.

Following an executive session in which the Assembly discussed the issue, Assembly Member Agnes Moran moved, with a second from Assembly Member Todd Phillips, to "direct the manager and attorney to take the steps necessary to initiate a complaint against the State of Alaska on the claims described by the manager and to seek participation of other municipalities."

Borough Manager Dan Bockhorst said after the meeting that the participation of other municipalities is not required for the borough to move forward with litigation.

At issue is the 2.65 mills in property taxes that the state requires all organized boroughs to contribute to their school districts.

The argument favoring litigation has been that the state has unconstitutionally penalized boroughs for organizing by obligating a local contribution. When legislation passed requiring areas of the state to incorporate, the state assured municipalities that they wouldn’t be penalized for doing so.

Robert Hicks, an attorney contracted by the borough to research the issue and measure the chances of success, produced a report for the borough in which he said success was possible only if the Assembly had the "will to prevail."

Monday’s vote set a ball rolling that might not come to rest for years as the borough prepares a case and then tussles with the state in civil court.

"There’s been a tremendous amount of discussion and deliberation," Bockhorst said after the meeting. "The decision rendered tonight is a very well-informed decision."

The Assembly delayed a vote concerning litigation at the Aug. 5 meeting after Borough Attorney Scott Brandt-Erichsen reported his opinion that he didn’t "share the same level of optimism as Mr. Hicks and the manager on some of the potential claims," according to a memo by Bockhorst.

In his memo to the Assembly, which had been confidential before the Assembly voted Monday to make it part of the public record, Bockhorst lists 18 claims supporting a lawsuit against the state.

The first three claims, which Brandt-Erichsen agreed give the borough a "fair to good chance of success," are based on the idea of the local contribution as a "dedicated tax." The memo reports that the borough attorney is less optimistic about the other 15 claims.

The three claims state that the local contribution violates the state Constitution because it is "an unconstitutional dedicated tax," and that it "violates the prohibition on expenditures without appropriations" and "deprives the governor of the veto powers" granted by the state Constitution.

Earlier in the meeting, Assembly members voted 4-3 to remove a $150,000 appropriation for the borough’s law department "for litigation regarding school funding and related matters," with Agnes Moran, Mike Painter and Bill Rotecki dissenting.

The majority felt that it was presumptuous to appropriate funds, even if they went unused, before the Assembly decided whether to pursue litigation. With the decision made, Bockhorst told the Daily News that the appropriation will be brought before the Assembly again at its next meeting.

The $150,000 was an estimate made by Brandt-Erichsen, and, if approved by the Assembly, will be used to cover the development of the complaint against the state, including outside legal counsel and research necessary to inform the suit.

Bockhorst was reticent to say how far a $150,000 appropriation would take the effort to sue the state, but said the proposal "encompasses the amount of money necessary to pursue this in a credible, legitimate manner."

As a backdrop to the litigation being considered, it was announced during Monday’s meeting that borough, City of Ketchikan and City of Saxman property values have climbed 5.7 percent from last year, which means the fiscal year 2015 required local contribution will be $250,000 higher.

The figures were part of a report from the Alaska State Assessor’s office. Total property values in the borough climbed nearly $100 million from 2012 to 2013.

Also on Monday, the Assembly voted 4-3 to set a sales tax holiday for Oct. 19. Assembly members Glen Thompson, Mike Painter and Moran voted against the holiday.

A sales tax holiday was considered in March this year, but was voted down after a large showing of teachers and parents supporting additional funding for the Ketchikan School District.

The Assembly voted at that meeting to instead dedicate $50,000, one day’s worth of sales taxes, to the district.

Moran said on Monday that the Assembly had already decided against the sales tax holiday in March and shouldn’t allocate money for the holiday that it already spent on schools.

Thompson agreed, saying that, if a holiday is truly necessary, the Assembly might want to reconsider how it collects sales taxes.

Using fuel and groceries as examples, Thompson said the Assembly could charge a number of cents per gallon for fuel or it could exempt food from sales taxes.

Following up on Thompson’s comment, Rotecki said he "would love to hear an amendment" to exempt food from sales taxes. Thompson said he would be willing to make such an amendment at a future meeting if he was given more information on how that would affect the borough’s finances.

Painter argued that the proponents of the holiday are trying to capture "want purchases" resulting from the permanent fund dividend, which was delivered to most Alaska residents on Oct. 3. He said the sales tax holiday is "not for everyday needs" of people who need a break.

Phillips countered that savings six cents on the dollar meant a lot for most people.

Assembly members authorized Borough Mayor Dave Kiffer to submit a letter with the City of Ketchikan presenting the fiscal year 2015 capital project priority list to Gov. Sean Parnell. Saxman was excluded from the letter — but its projects remain on the list — because the Saxman City Council didn’t approve the list as approved by the Assembly and the Ketchikan City Council.

Also on Monday, the Assembly directed a change to how nonprofit organizations are exempted from property taxes. Nonprofits historically have been required to file for an exemption every year.

With the change supported on Monday, organizations will submit an initial application as they usually would, but after being approved the first time would only be required to recertify every four years.

Those certifications will be brought to the Assembly for approval provided that the "use of the property has not changed" and "the corporation is actively registered with the Alaska Division of Corporations," according to the agenda.

The Assembly meets next on Oct. 21.