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Amid Alaska’s fiscal crunch, voters in cities across the state are being asked to consider local tax increases

  • Author: Devin Kelly
  • Updated: August 26, 2017
  • Published August 26, 2017

Elected officials in the Kenai Peninsula Borough were debating a new tax on hotels, motels and other accommodations last month when Larry Persily put some feelers out.

Persily, the borough mayor's chief of staff, wanted to show members of the borough Assembly that the Kenai Peninsula wasn't alone in considering taxes. He wrote an email distributed by the Alaska Municipal League to more than 100 communities.

"We're all in the same leaky fiscal boat of declining state assistance for education, school debt service reimbursement and community assistance," Persily wrote. "If your administration or assembly or city council is considering or has approved for voter consideration a new tax or tax increase, could you let me know?"

More than two dozen responses came in: A number of cities around Alaska had already placed tax measures on October municipal ballots, for reasons that ranged from state cutbacks to a need for new capital projects to rising costs associated with alcohol and drug use.

The last time residents of tiny Craig, in Southeast Alaska, voted on a tax proposal was in 1995. The community wanted to build a swimming pool, recalled John Bolling, the city administrator and a longtime city employee. The measure passed.

Now, two measures are set to appear on Craig's ballot. One is a $5-a-day room tax directed at tourists. The other is a 10 percent marijuana tax, which is double the existing sales tax.

About 1,100 people live in Craig. Fishing and timber fuel the economy. Yet the local government has also relied on state assistance for many years, Bolling said. With state money drying up, Bolling said, the city wanted to cut costs but also find ways to raise revenue and avoid spending down city savings to pay for services.

Members of the Alaska Legislature, meanwhile, have been reluctant to support new statewide taxes, like an income tax or sales tax. But that places pressure on local governments, said Kathie Wasserman, executive director of the Alaska Municipal League, a nonprofit advocacy network for Alaska's local governments.

"I hear the Legislature say, 'Oh no, we don't want to raise taxes on these beloved Alaskans,' " Wasserman said. "No, they want us to do it."

Cities use taxes and fees to raise money, Wasserman said. She's observed local governments regularly propose tax increases to help cover inflation and changes in services, she said. But since the state recession began in 2014, she said, tax measures to fill in lost revenue have been popping up more often — including more contentious measures tied to sales taxes or bed taxes.

Here's a sampling of other communities asking voters to approve new taxes in October, based on Persily's survey:

Fairbanks

The city of Fairbanks plans to ask voters on Oct. 3 to approve a property tax, in large part to replace lost state revenue. It means homeowners would owe $126 more a year in taxes on a $200,000 home. The city hopes to raise up to $1.7 million to make up for a budget gap.

Voters approved a similar measure once before, when the city was trying to retire debt, Mayor Jim Matherly said in a phone interview.

"If it doesn't pass, I'll have to do some slashing," Matherly said.

Wasilla

Wasilla voters will decide in October whether to increase the city's sales tax from 2 percent to 3 percent for two years, or until $2.5 million is collected.

The money will pay for a new police station, officials say.

Mayor Bert Cottle said in an interview that those expenses were more likely to be covered by state capital grants in the past. That's largely gone away, Cottle said.

Petersburg Borough

About 3,100 people live in the Petersburg Borough in Southeast, halfway between Juneau and Ketchikan. If a boat stops to fill up on fuel in the harbor, the city collects a tax on the first $1,200 in fuel.

In October, voters there will decide whether to increase the sales tax cap to $1,500. Officials are also asking voters to undo a law that residents must be physically present in the borough to pay sales tax.

State assistance to the borough has fallen by $250,000 in the past two years, said finance director Jody Tow. She said the borough puts forward tax measures every few years, but she expects it to happen more regularly in the near term.

Some tax proposals debated elsewhere this summer didn't make it through the chambers of assemblies and city councils.

The Matanuska-Susitna Borough Assembly scrapped a ballot measure for a 3 percent sales tax to pay for education, and the city of Juneau dropped a proposal to raise its bed tax by 2 percent.

Juneau's city government has, however, tightened its tax exemptions in recent years in response to the state's fiscal crisis, said Jesse Kiehl, a member of the city council.

Voters in Bethel and Unalaska will be asked to consider "sin tax" measures in October aimed at raising money to contain problems with alcohol and drug use, officials say.

While there are differences in the various tax measures and the levels of success, there's an overarching message to Alaska's lawmakers, said Wasserman of the Alaska Municipal League.

"If we get cut any more, you're going to see more communities have to do this," Wasserman said.

In the Kenai Peninsula Borough in 2016, voters rejected measures to raise the cutoff in sales taxes and gradually reduce a property tax exemption for seniors. Ballots in the decade before that saw just two tax-related measures, according to Persily, a former journalist who has worked on various sales tax proposals over the years.

In the end, the Kenai Peninsula Borough Assembly rejected Mayor Mike Navarre's proposal for a new bed tax.

Instead, voters will be asked in October, for the second consecutive year, to consider raising the sales tax cutoff.

Alaska Dispatch News reporter Nathaniel Herz contributed to this report.

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