Borough residents face double taxation under governor’s wage tax

EXISTING ‘REQUIRED LOCAL CONTRIBUTION’ IS A TAX

By DAN BOCKHORST
GUEST COMMENTARY

In an address to Commonwealth North last month, Gov. Bill Walker claimed that Alaska is the “only state in the nation that doesn’t have a broad-based tax.”

Scott Kendall, his chief of staff added that the lack of a broad-based tax creates what he called the “Alaska disconnect,” which occurs when growth leads to higher State costs without providing revenue to pay for the higher costs.

Remarkably, Gov. Walker overlooked in his comments the State’s Required Local Contribution for schools, which has been in place for more than a half-century and currently generates more than one-quarter of a billion dollars for the State annually.

Last year, Alaska Supreme Court Justice Daniel Winfree stated plainly that the Required Local Contribution “is a State-imposed mandate that municipalities raise specified funds for the State’s public schools system; it is a revenue source for the State — and a tax by any other name remains a tax.” (State v. Ketchikan Gateway Borough, 366 P.3d 86, 2016).

The State Required Local Contribution tax certainly does not suffer an “Alaska disconnect.” The RLC tax revenues are $11 million (4.6 percent) more this year than they were last year. Compared to five years ago, annual State RLC tax revenues have grown by more than $35 million (16.3 percent).

The State RLC tax is broad based; it applies to those living in Alaska’s 19 organized boroughs and 15 city school districts (684,797 Alaskans – 92.5 percent of the state’s population).

However, the State RLC tax is not universal; 19 school districts in Alaska — regional educational attendance areas or “REAAs” — are exempt from the RLC tax. There is no rational basis for the exemption (e.g., financial capacity). Residents of the 19 REAA school districts have simply chosen to remain unorganized since statehood, and thereby avoid the tax. In contrast, residents in Anchorage, Fairbanks, Mat-Su, Kenai, Kodiak, Juneau, Sitka, and Ketchikan were forced by the legislature and governor more than a half-century ago to form boroughs and pay the RLC tax.

Last year, the Fairbanks Daily News-Miner addressed the matter in an editorial as follows:

. . . [the State RLC tax] has caused division between areas of the state with borough government and those without: Why does the state require those in municipalities to pay more?

. . . It’s a fundamental disparity that has yet to be addressed by the state, and the amount local governments contribute is huge . . . .

. . . the issue is still in dire need of correction. . .

. . . this is a problem the state created itself, one it is currently exacerbating and one it must resolve to prevent resentment between state residents inside and outside boroughs. – Fairbanks Daily News Miner

This week, the Alaska Legislature convened a special session to consider a new tax – a tax on wages and net earnings from self-employment.

If the new wage tax proposal is enacted as presently written, residents of boroughs and city school districts will be double taxed.

Alaskans and nonresident workers in Alaska will pay the estimated $320 million annual statewide wage tax, which is equivalent to $432.53 for each of Alaska’s 739,828 residents. Of course, residents of Alaska’s 19 organized boroughs and 15 city school districts will also continue to pay the RLC tax, which currently extracts $251,962,124 – the equivalent of $367.94 for each of the 684,797 residents of boroughs and city school districts.

This means residents of organized boroughs and city school districts would pay the equivalent of $800.47 per capita in those two State taxes (1.85 times the $432.53 per capita tax for those who do not live in organized boroughs and city school districts).

If Gov. Walker’s wage tax is in our future in some form, legislators should modify the measure to institute a long overdue remedy to effectively eliminate the disparity of the RLC tax. This could be done by imposing two rates for the wage tax, one for residents of areas subject to the RLC tax and another rate that is 1.85 times higher for those who currently evade the RLC tax.

The State’s onerous and disparate tax in the form of the Required Local Contribution has existed for more than a half-century. The disparate taxation needs to end NOW.

Dan Bockhorst worked in the field of local government in Alaska for more than 40 years, including nearly 10 years as Manager of the Ketchikan Gateway Borough, 27 years as chief of staff to the State of Alaska Local Boundary Commission, and 4 years as the Haines city administrator.  He is retired and lives in Ketchikan.