Anchorage officials say they’re facing a fiscal cliff, and only have a couple years to find a new source of revenue before they have to consider major cuts to city services.
And by new source of revenue, they mean taxes. But can city officials convince skeptical voters to approve a new sales tax?
Anchorage Mayor Suzanne LaFrance said she knows what taxes can add to a community. She grew up in Palmer, which has had a 3% sales tax since 1983.
“I remember as a kid, you know, asking about that and being told, ‘This is how we pay for our police officers, and this is how we pay for our library,’” LaFrance said during an interview earlier this month. “And I remember feeling kind of proud as a kid, like I'm supporting important things in my community.”
LaFrance officials say about 80% of Alaska communities have some kind of sales tax, and the mayor said Anchorage should join that list.
For the past decade, the city has seen a decline in state support, losing about a billion dollars over that period. As that’s happened, more and more of the city’s budget has relied on property taxes, paid by property owners and absorbed, in part, by their renters. LaFrance said the city sits at an inflexion point.
“Right now, it's very clear that if we don't have new revenue, we are going to be facing service and other kinds of cuts,” LaFrance said.
LaFrance’s administration is getting ready to propose a 3% sales tax for the city, with the revenue to be divided into three buckets: property tax relief, housing and child care, and infrastructure and public safety.
Eight Anchorage Assembly members would have to vote to put the tax on the ballot, and more than 50% of Anchorage voters would have to approve it.
But getting voters to approve the tax may require addressing what University of Alaska Anchorage economist Kevin Berry calls “the Anchorage disconnect.”
“Since oil production ramped up in the 80s, we have not needed to tax ourselves to provide services,” Berry said. “And so we've got folks who have sort of lived through an experience of, ‘Hey, there's this disconnect between what I pay into the system, which at the state level is nothing for most of us, and what I get out, which is a fully-funded government.’”
Earlier this year, Assembly members and business leaders floated Project Anchorage, a similar 3% tax proposal that would’ve put two-thirds of revenue toward property tax relief and the final third to capital projects. The Assembly nixed the proposal before it even got to voters.
Berry said that’s reflective of a high level of scrutiny many Alaskans have when it comes to taxes.
“You see a lot of discussion where people want to get into the technical details of designing the perfect tax,” Berry said. “But we know that through any public process, things are never perfect. We're often working with possibly the best possible outcome out of a bunch of imperfect outcomes.”
That relates to another problem: who pays the tax.
Berry said sales taxes tend to be regressive, impacting lower-income people more. There are other tax proposals being kicked around by Assembly members too, but he said those face different considerations and questions.
For example, there’s a proposal to increase the room tax in Anchorage. But Berry asked, “Is this a salient thing, if people are considering bringing conferences or meetings to Anchorage, where, if they see a higher bed tax, they're going to decide no?”
And another proposal would add a tax to short-term rentals like Airbnbs. Berry said officials need to ask, “How is this going to change people's incentives? Or is this going to mean that some people can't afford their homes if they're not able to Airbnb their room out at a certain return?”
Overall, Berry said getting a tax across the finish line requires lots of community conversations.
READ MORE: 5 years in, how has Anchorage spent its alcohol tax?
One person who knows what it’s like to see a proposal fail and then pass is Tiffany Hall, CEO of Recover Alaska. Hall was a major proponent of the city’s alcohol tax, which initially failed in 2019. After the vote, Hall said she and others polled voters on what it would take to get them to say yes.
“Where people wanted the funding to go, whether or not they cared if it would sunset, whether or not it would relieve property tax, whether or not there were various government constraints built in,” Hall said. “And the thing they wanted the most was to know exactly how the money would be spent. So we focused on that.”
And part of that outreach requires something else, Hall said: money.
“We asked the sponsors to please not let it pass the Assembly to go to the ballot unless we already had over $200,000 in the bank,” Hall said. “Because the year before, the alcohol industry raised nearly $300,000 to advertise against it, and so we knew we needed a really strong campaign to combat that.”
The Assembly is set to introduce the mayor’s tax proposal, and consider the slate of other tax ideas, at its next meeting on Nov. 18.
