Alaska News

Alaska’s local governments are the next ripple in pandemic’s economic consequences

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The lights are off in Glitter Gulch.

This time of year, the hotels and tourist shops in the Nenana River gorge outside the entrance to Denali National Park and Preserve should be waking from a drowsy winter as temporary workers prepare for another season at the salmon bake and the hotels that line the Parks Highway.

Instead, the ongoing coronavirus pandemic has kept those businesses closed along with thousands of others across Alaska. If that freeze in business is the first ripple from a rock that has been thrown into Alaska’s economic pond, cities and boroughs are beginning to confront the second ripple: An abrupt loss in tax revenue.

That loss is more than an abstract figure. If local governments cut spending and raise taxes, a pandemic-driven slump could worsen and linger.

“You can turn it from a recession that’s going to last six months to economic decline that’s going to last half a decade,” said Mouhcine Guettabi, a professor of economics at the University of Alaska Anchorage’s Institute of Social and Economic Research.

In most towns and boroughs across Alaska, the pandemic has arrived during budget season, and elected officials are considering how to balance their books. The decisions are hardest in tourism-dependent towns, because the pandemic is affecting the four-month window when tourists normally arrive.

In the Denali Borough, where hotel bed taxes pay for more than 80% of the budget and cash reserves are limited, the choices may be the toughest in Alaska.

“It’s potentially pretty catastrophic in terms of borough revenues and in terms of our local economy,” said Borough Mayor Clay Walker.

John White, who owns and operates Nenana Raft Adventures, stopped his preseason preparations to offer a blunter comment: “The Denali Borough, it’s like Chernobyl.”

This summer was expected to be a banner year for Alaska tourism, with more than 1.5 million tourists visiting the state, the vast majority traveling by cruise ship to coastal ports. More than half a million were expected to travel overland by bus and train to Interior Alaska, including the Denali Borough.

As late as March 11, the borough’s main concern was what to do about the bus that is the death site of “Into the Wild” subject Christopher McCandless.

But coronavirus-driven restrictions are now vaporizing the tourist season. On Thursday, the Centers for Disease Control and Prevention extended a cruise ship “no-sail” order for three more months. Canada is sticking by its decision to keep cruise ships docked until at least July.

“A preliminary analysis of businesses directly tied to summer tourism shows we’d have around 18,000 fewer jobs during the July peak if there were little to no tourism, which seems likely at this point,” wrote the Alaska Department of Labor in a forecast published this week.

Karina Aguilar, ordinarily works summers at the Denali Princess, a lodge bigger than the Hotel Captain Cook and owned by Princess Cruise Lines. She said she should be up in Alaska by May 1, but that’s been delayed. Company officials haven’t yet canceled the entire tourist season.

“In rafting, we talk about ‘summer teeth’: Some are in the river, some are in the boat, and some are in your mouth. I think we’re in for a season of summer teeth," White said.

The department offered a hypothetical chain of events. Imagine a bartender laid off of work. That person can’t pay rent, cover bills or go shopping. Their landlord or favorite store then can’t pay local taxes. The local government, facing a loss of revenue, has to cut spending or lay off its own workers.

In the Denali Borough, most government spending is on education and public safety, Walker said, proud that the borough has been able to fund local schools to the maximum possible.

Reductions might mean less staff at the local landfill, or fewer teachers in local classrooms, causing another ripple as those layoffs themselves have effects on the communities within the borough.

At this point last year, according to Department of Labor figures, local governments employed 42,583 people: teachers, police officers, firefighters, accountants, janitors, librarians and more. That was more than state government or any private industry, including retail and restaurants, fishing, oil and gas, or construction.

Nils Andreassen is director of the Alaska Municipal League, a statewide organization that represents boroughs and cities. He said his organization found sales taxes, rental taxes, bed taxes, fisheries taxes, utility revenue and fees for service could be down $150 million “in the short term,” with different effects in different places.

“For some of them, it’s a 20% impact, for some it’s 50%, and for some it’s 80%,” he said.

Skagway, which expected more than 1.4 million tourists to visit its Klondike Gold Rush-era attractions, is expecting to lose 90% of its revenue, mayor Andrew Cremata said.

But that town has huge cash reserves, enough that even with the downturn, it paid a dividend to local residents, is covering the cost of groceries for some, and is underwriting the cost of medevac insurance.

“If we have nothing happening here, we can make it two years, is what we figure,” he said.

Juneau is planning to raise property taxes and spend from savings, the Ketchikan borough and Haines borough are planning budget cuts and spending from savings, and other municipalities are planning similar steps. The Municipality of Anchorage operates on a calendar-year schedule and doesn’t rely on sales taxes or bed taxes to a significant degree.

“The Municipality does have a diverse tax base as well as other non-tax revenue sources that support public services, however the potential effects of COVID-19 on the budget are not fully known at this point,” spokeswoman Carolyn Hall said Friday.

The Denali Borough doesn’t have big cash reserves, but it does have something working in its favor: The borough is the only one in the state to fund its government one year in advance. Money for the budget that starts July 1 has been in the bank since last year.

That helps in the short term, Walker said, but it doesn’t eliminate the problem altogether. Tourism could be affected for years.

“If it carries into next summer without a vaccine, without a significant snapback (to tourism), we’d have to make some really difficult choices here,” he said.

Walker and other municipal officials said they are hoping for aid from the federal or state governments. Andreassen coordinated a phone call between mayors and Alaska’s Congressional delegation on Friday, and Gov. Mike Dunleavy’s six-point economic-aid plan calls for aid to “replace lost revenue due to negative economic impacts associated with COVID-19.”

State officials were unable to provide details on Friday.

“We’re beginning those conversations,” Dunleavy told reporters.

“Those conversations will probably increase next week,” he said, with the state considering whether (and how) to use federal aid to reimburse communities for their lost tax revenue and the costs of responding to the pandemic.

At Nenana Raft Adventures, White said he considers himself lucky, despite the problems at hand. His wife is from Thailand and has been stuck in Bangkok. They’ve been communicating online since.

“We’ve got a major tsunami coming our way here in Denali, but there’s a lot to be thankful for,” he said. “As bad as it is in Alaska, I think we’ve got good people in the administration, I think we’ve got good people in the state.”

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