In crafting a new sales tax proposal, Anchorage Mayor Suzanne LaFrance will test whether residents want to help the municipality pursue new sources of revenue or cut public services.
Following a decade of steadily declining state support, LaFrance has repeatedly referred to the municipality’s budget outlook as one approaching a “fiscal cliff,” narrowly avoiding cuts to already under-resourced departments.
“Only after a certain passage of time, which at this point is 10 years, and (seeing) the degradation of our municipal infrastructure and our roads do we get to the point where we can say, the community now can feel this impact of dollars and we need to address it,” Office of Management and Budget Director Ona Brause said.
LaFrance’s 3% sales tax proposal, the details of which were released late last week, is intended to address a growing infrastructure maintenance backlog and affordability crisis for housing and child care in Anchorage. If passed, the tax could generate as much as $176 million annually, a third of which would be paid for by commuters and Anchorage visitors, city Policy Director Nolan Klouda said.
The mayor’s proposal, set for introduction on Tuesday, joins three other lodging and sales tax proposals that have already been presented by Assembly members for April’s ballot. All are set for discussion, and a possible vote, at the meeting.
“A lot of the proposals that are out there are about looking ahead, (and) stabilizing the municipality’s finances,” LaFrance said of the slate of new initiatives.
The approval of LaFrance’s proposed $657 million budget for 2026 is also on Tuesday’s docket. The budget, one her administration has emphasized is tight, is largely a continuation of the current year’s spending plan.
Since the unification of the City of Anchorage and the Greater Anchorage Area Borough, the municipality has funded its operations primarily through local property tax collections and millions of dollars in oil revenue passed down from the state. That funding has almost run dry, Brause said.
City officials have said if Anchorage can’t find a new source of funding, it will turn to more internal cuts. It could mean reductions to the number of police officers and firefighters, two departments that already struggle with staffing.
Breaking down LaFrance’s proposal
A possible sales tax has been in discussion for years, LaFrance said. The most recent proposal, led by the Anchorage Economic Development Corp., failed to make it past the Assembly earlier this year.
If any of the sales tax proposals pass, the municipality would join Homer, Palmer, Seward, Soldotna and Wasilla, all of which already have sales taxes in place. LaFrance’s proposal includes exemptions for most groceries, rent and mortgages, gasoline, utilities and medicine and medical services.
A third of the money raised by LaFrance’s initiative would go toward property tax relief. This is estimated to lower Anchorage’s overall property tax burden by more than $53 million, which is the equivalent of $105 in savings per $100,000 of taxable assessed value, the Assembly memo states.
Another third would be split between housing and child care. The municipality plans to build a housing fund of at least $50 million, before funneling more than 90% to improve child care access and early education. The housing fund would make a “big contribution” to the mayor’s goal to build 10,000 homes in 10 years and be used to leverage other kinds of private investment, Klouda said.
If passed by voters, LaFrance’s proposal would not go into effect until 2028 — putting together the staff, software and systems to start collecting the tax could take more than a year. The preparation work will cost approximately $6.5 million, according to a summary of the proposal’s economic effects.
The municipality would work with as many as 31,000 Anchorage businesses to onboard the tax regulations and assist with tax return filings, the summary states.
Dwindling funding streams
Abundant oil money flowed into Anchorage for decades through state municipal assistance and revenue sharing programs, much in the same way Permanent Fund dividends are handed out to Alaska residents each year, Brause said. In 1984, the state supported almost 30% of the municipality’s operating budget. A projection for 2026 indicates that this figure has dropped to less than 1%.
The municipality has used a mixture of one-time funding sources to fill in the gaps created by diminishing state support. Pandemic-era recovery dollars, paid through federal programs such as the American Rescue Plan Act, were shared in a lump sum that generated interest over time, Brause said.
Additionally, a bank account resulting from the Anchorage Municipal Light & Power sale in 2020 has also served as a temporary revenue stream. It is beginning to run low, she said.
The municipality’s capital budget, which covers road and drainage projects, has taken a notable hit. According to the memo, from 2005 to 2014, Anchorage received more than $80 million on average in state support for these types of projects. This year, it received none.
As a result, the projects that have gone unfunded are large road reconstructions and safety improvements at the city’s aging public facilities, like the Alaska Center for the Performing Arts. LaFrance noted $1 billion in deferred maintenance for municipal drainage work alone. One-third of the new sales tax would help the city begin addressing these deficits.
Anchorage has made continual adjustments to its budget as the state withdrew its financial support. The state cut State Trooper patrols along the Seward Highway, and in 2019 funding for health and social service programs that formed part of Anchorage’s “safety network,” Brause said.
In 2020, voters passed an alcohol tax to pay for programs geared toward public safety and health and addressing homelessness. So far, 80% of the revenue has been used to pay for services once funded by the state. The tax now supports organizations like Victims for Justice and Standing Together Against Rape (STAR), and homeless shelters including Brother Francis. The remainder funds municipal operations.
“If the revenue was not replaced, we would have seen service cuts within Anchorage that would have made our circumstances worse,” Brause said.
The Assembly will meet at 5 p.m. Tuesday. They have until the end of January to finalize ballot measures.