When the City of Holbrook was faced with the pressing need for a new wastewater treatment facility in the 1990s, city leaders went to the citizens of Holbrook to request a one percent sales tax to fund the $5.7 million project.
Because a sales tax increase requires voter approval, the issue was put on the ballot of a special election held in November 1998 and voters approved the measure, with a sunset date for the tax set for the year 2020.
The city currently owes about $3.1 million on the treatment plant debt, and pays roughly $430,000 a year against that debt, according to Assistant City Manager and Finance Director Randy Sullivan.
With the one percent sales tax generating in the neighborhood of $800,000 per year, according to Sullivan, some question why the city doesn’t apply the entire amount earned each year to the debt and pay the treatment center off early, and by extension, allow the tax to expire early, as well.
“We could do that, but because of problems with the budget there’s no way we could cut $500,000 from the general fund,” said Sullivan. “When we’re talking $500,000, we’re talking having to cut 10 people. That means we’d have to start closing the golf course, the swimming pool…”
What allows the city to apply a portion of the revenue generated by the tax to the loan payment and the rest to the general fund is the wording that was printed on the ballot when the tax was requested.
“When the issue was originally taken to the people to vote, city leaders were talking about debt service. But nowhere on the ballot did it say we specifically have to use all of the revenue to pay for the debt service,” said Sullivan.
Sullivan said that previous city administrations would put the sales tax revenue into the city’s utility fund to pay the debt service, but would then transfer hundreds of thousands out of the utility fund to pay for other city costs.
“When (City Manager) Ray Alley came in, he started clearing out all of those budget transfers. We wanted the budget to be more transparent, for people to see where the money is really going. So, we put all of the tax revenue into the general fund and we pay the treatment plant debt service out of it,” said Sullivan.
“If the ballot language had specified all of the money had to go to debt service, then, yes, it should have been paid off a long time ago,” Sullivan noted.
The issue has created a lot of questions over the years, according to Sullivan, so he has consulted with the city’s attorneys to ensure they are correctly managing the tax revenue. He said should a ballot measure be initiated again, the city would make sure the wording is more specific.
“We’d word the language to say it’s just for capital improvement funds, nothing more, nothing less,” he explained.
Sullivan says the city is relying heavily on the sales tax revenue for basic city operations and the looming sunset in 2020 is problematic.
“We’re going to eventually have to ask people to pass it again,” he said.
Correction
In the March 2 edition of the newspaper it was incorrectly stated that the City of Holbrook had refinanced its wastewater treatment facility loan. In fact, the city is seeking to refinance the loan. The article also stated the remaining debt owed for the treatment facility was $439,000, when the amount still owed is about $3.1 million. The $439,000 is an approximate annual payment on the debt. We apologize for any problems these errors may have caused.
