Kotzebue will vote on whether to go back to being a damp community

Voters in Kotzebue will choose whether or not to go from wet to damp in Tuesday's election.

If voters support the petition for local option change, the city would no longer be able to own and operate a package, or liquor, store. Instead, the sale of alcohol would be banned in the city and within five miles of city boundaries, though the importation and possession of alcohol would still be legal.

"I started in July having finished the petition application and went door to door, talking to folks. Some days I'd take a break because some of the thoughts and concerns I heard from folks just weighed heavy on my heart," said Hans B. Nelson, who crafted the petition to get the local option change on the ballot.

Nelson has a complex history with this issue that's helped lead him where he is today. When the package store opened six years ago, he was one of the voters who supported it. He used to drink and, at the age of 29, didn't think having a store in town would be a bad idea. Then, he quit.

"Six years to this day, I don't drink anymore and having lost a little brother to the effects of alcohol, who committed suicide almost a year ago, it really hit home for me as far as wanting to see some type of change with the effects of alcohol in Kotzebue," Nelson said. "It really opened up my eyes to possibly changing the way things are."

Since then, he's thought long and hard about what it means for the city of Kotzebue to own and operate a liquor store and now, he thinks it's time to shift gears.

"Six years, I think, is good enough for me as far as realizing there's issues that the city hasn't taken control of. They've put it on the back burner. It's a shame," he said. "I think it's unethical for a city government to be selling liquor to a community with a large amount of substance abuse and then to ignore it and say 'It's not our job to deal with detox and sober people up.' It lacks responsibility bringing in the sale of alcohol and not being a contributor to the solution of the things that follow alcohol."

The city's finances, however, are now intertwined with the package store, which is one of the reasons many in local government are opposed to going damp.

"The city's sources of revenue are sales tax, tobacco excise tax, small amounts of fees, and the package store revenues," said Joe Evans, city attorney for Kotzebue. "Sales tax revenues have been flat for a number of years. The tobacco excise tax is going to be flat, meaning it's not going to go up by hundreds of thousands of dollars over time, so that leaves the package store revenues as an important part of revenues generated by the city."

To understand how the city got here, it's important to go back several years.

In the early 2000s, Shore Avenue, or Front Street, was being eroded and cut away by storm surges. The city, through federal and state funding, put together about $40 million to rebuild its 1.2 miles of road and erect a seawall, Evans explained.

Once the project was completed, there was some money left over that the legislature wanted to re-appropriate, $1.7 million in total, to complete work on the Swan Lake Small Boat Harbor, which became a necessity once the sea wall prevented boaters from tying up on shore. The city purchased materials and began work and then, in May 2013, Gov. Sean Parnell vetoed the Swan Lake project line item.

"When the governor vetoed that, the city had a $1.7 million hole to keep it from completing the project," Evans said.

Voters approved taking out a loan of about $3.5 million for two major projects: Swan Lake and a youth center. Before the loan, revenues from the store went toward paying for new public works vehicles, rehabilitating playgrounds, and helping to subsidize the Parks and Rec department, which does not make money on its own. After the loan, its repayment became tied to revenues from the package store.

"The bank loan documents specifically call out that the first claim on revenues from the package store is the bank. That is, the city was required to say, 'Before we do anything else with the revenues from the package store for the term of this loan, we will use it to pay the loan off.' We won't simply put it in the general fund to help make up revenue shortfalls," Evans said.

Net revenues from the store average about $900,000 a year, with about $650,000 of that going toward paying off the loan annually. The city has 10 years to pay it back in full.

So, if the package store were to close this fall, Evans said the city would have to look both at slashing expenditures across the board and at the possibility of defaulting on the loan.

If it doesn't close, Evans sees the city paying off the loan and considering whether or not to take out additional loans down the road in the same manner, or using the revenue directly to fund projects.

"The state of Alaska has cut our revenue sharing by over $100,000 per year. The state has reduced our jail payment by about $100,000 and our insurance costs have gone up. To make a long story short, if we didn't have the loan, we'd be able to try and subsidize those including things like ambulance service," he said.

Evans also said if the town goes damp, profits from liquor will go to stores in Anchorage and Fairbanks and to the airlines for transport, rather than keeping it local.

On the other hand, Nelson would like to see the city cut the fat. He's concerned about the package store's audits which show improper reporting of intake and sales over multiple years.

"Local control is one of these arguments that the city is making that if we don't have local control, then we'll have no control and it will be controlled by outsiders. I think we've failed to take control of these issues because it's gone on for so long," Nelson said.

He also sees the city having a responsibility to the dry villages nearby which have easy access to legal alcohol in Kotzebue.

It comes down to money and mentality, he said, and that's what voters will face when they go to the polls in October.

This story first appeared in The Arctic Sounder and is republished here with permission.