Local governments need to take a hard look at revenues - Must Read Alaska
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Sunday, December 6, 2020
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Local governments need to take a hard look at revenues

By WIN GRUENING

With the national election behind us, it’s again time to turn our attention to the local economy.

Trump may be conceding, but the pandemic will not be receding, at least anytime soon.  This will continue to work against a significant economic recovery in our state and community.

While Alaska might expect additional federal relief next year, nothing is guaranteed.  If it does materialize, additional compromise and time will likely be required to achieve it. 

In Juneau, this year’s local municipal budget reflected a $3.1 million deficit (even while including over $10 million in federal Covid funding).  But city staff now projects a $9.9 million deficit, reducing the unrestricted general fund balance 45% to $12.2 million. 

Juneau’s budget faces a worse picture in FY 22. Even with a projected $1.1 million property tax increase, their budget deficit is expected to balloon to $18.4 million, fully depleting its unrestricted fund balance and reducing the restricted budget reserve 45% to $7.4 million. 

A deficit of this magnitude has severe implications for city finances.  In short, Juneau’s current municipal budget path has become unsustainable.

During this year’s budget deliberations, other than delaying some capital projects, options considered by the City and Borough of Juneau Assembly primarily centered around some variation of increasing sales taxes or property taxes. Thanks to CARES Act funding, neither was required.  

While the private sector suffered massive layoffs, city staff never considered serious operating spending reductions.  Instead, the Assembly approved $1.5 million in scheduled pay raises, new hires, and longevity pay.  Also continued was an effort to fund a brand-new childcare program that would add millions to future expenses.

Harder to understand, the Assembly is considering a $1.5 million grant to Sealaska Heritage Institute to subsidize its $14 million arts plaza under construction in downtown Juneau.

How much longer can the Juneau Assembly eat into savings for non-essentials while only looking to taxes as the solution to its deficit?

Another idea, largely ignored, is removing some of the 37 different sales tax exemptions currently in place – an action that would increase tax revenues – with minimal impact on most residents.  This has the advantage, unlike property taxes, of shifting some of the burden to visitors.

Some exemptions are not significant enough to warrant much consideration but one of the most unjustifiable exempts sales to or from certain non-profit entities. 

While one can argue that exempting certain non-profits from paying sales taxes helps them and, thereby, benefits society generally, no such argument can be made for exempting retail purchases by Juneau residents and visitors when they shop at non-profit retail establishments.

Some non-profits operate businesses in Juneau that sell goods and services in direct competition with private sector businesses that have no such advantage.

In Juneau, the Sealaska Heritage Store, Discovery Southeast Glacier Gift Shop, Juneau Arts and Humanities Council, the state museum store, and DIPAC are examples of non-profit sellers that are not required to collect sales taxes on retail sales such as art, books, jewelry, souvenirs, tours and other tourism related goods.

A separate exemption that deserves similar scrutiny also allows tribal entities, such as Tlingit-Haida Central Council, to avoid collecting sales taxes on retail sales and tourism related activities.

This issue is especially relevant as the Juneau Assembly considers the aforementioned grant request from Sealaska Heritage Institute, also an operator of a for-profit retail store in downtown Juneau. Why should taxpayers subsidize the operation of a high-end store that competes directly with Juneau’s hard-hit private sector?

Ironically, a recently removed tax exemption for sales on cruise ships was justified as being “fair” since onboard cruise ship activities theoretically compete with local stores.

Past estimates by Juneau City and Borough of non-taxable sales by non-profit entities exceed $27 million annually. This exemption, then, essentially forfeits up to $1.35 million in sales tax each year if the bulk of sales are by 501(c)3 and 501(c)4 organizations currently exempted under the code.  

Most cities and states do not have a similar exemption and have crafted ways to carve out exceptions for organizations like the Salvation Army, Girl Scouts, community sports leagues, etc.

While some municipalities in Alaska have taken a more conservative approach to their budgeting, Juneau is not among them. Given the uncertainty in how quickly the visitor industry and global oil demand will recover, caution is warranted in the months ahead. 

Municipal governments cannot afford to leave any option off the table (including across-the-board pay cuts and employee furloughs) when dealing with current and future deficits. 

Win Gruening retired as the senior vice president in charge of business banking for Key Bank in 2012. He was born and raised in Juneau and graduated from the U.S. Air Force Academy in 1970. He is active in community affairs as a 30-plus year member of Juneau Downtown Rotary Club and has been involved in various local and statewide organizations.

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  • Who said Trump was conceding? He has won some legal battles recently concerning the fraudulent activities in some states. NV, AZ, PA, GA, MI, & WI are still in play. The media doesn’t get to pick election winners – at least not yet!

    • Win, it would be interesting to see how much revenue would be raised if the senior property tax exemption (first $150k tax free) would be if repealed. That is about $1,600 per exemption. If half of Juneau’s 65+ population of 4,500 has the exemption (2,250) that is about $3.6 million. Many, but not all, are the same crowd that demands a 50 year old pool undergo millions in repair when we have a10 year faculty slowly deteriorating, want to make grants to the arts, etc.

      For those saying this will push granny out of her home, this exemption allows her to stay in a house too big for her needs while paying a significantly reduced tax bill and squeezes out working families who’d gladly purchase these homes, but are held hostage by the inflated price. There is little incentive to downsize for seniors until the last minute while waiting for the asset to appreciate more each day causing the asking price to soar.

  • Not only is Juneau spending down its cash reserves at a time when its economic future is almost certain to be considerably worse than the present, particularly when the federal Covid spending subsides, but it intends to increase long-term general obligation debt! The incentive to increase debt is that debt service isn’t included in the mil rate cap so it’s a way to increase property taxes over the cap without appearing to do so. An economist might say that the mistake the CBJ Assembly is making is that while they may agree that sales taxes and municipal fees like ski lift tickets and bus passes are elastic the Assembly believes property taxes are inelastic. Also, the CBJ Assembly refuses to look at the decisions state government will soon have to make and the impact on Juneau those decisions are likely to have. The Assembly is on a path that is sure to lead to a disaster, and while I don’t follow other Alaska municipalities all that closely I think Anchorage and Fairbanks are responding similarly. Remember, Fairbanks borrowed $125 million from the state to convert residents from oil and wood to natural gas trucked in from Cook Inlet! Then of course there are the rural towns and villages that choose to depend upon the state for all municipal costs. Yes, Alaskans could be in for quite the sleigh ride.

  • #Defund public employee unions!

  • With respect, Win, we reject your premise.
    .
    The concept of giving government more money because it’s the cottage industry keeping Juneau alive while Alaska’s, and Juneau’s, economies goes down the toilet is anathema to us.
    .
    The takeaway is Juneau officials are obsessed with spending Juneau into bankruptcy
    .
    … so constituents must be equally obsessed with finding ways to reward them with more money.
    .
    Our fond, if contrarian, hope is the City and Borough of Juneau shrivels like any other parasite that ran out of food after eating its host.
    .
    Might be fun, Win, to let your government self-euthanize, so Alaskan-Americans with integrity and common sense, in other words people like you, can rebuild your government into something small, economical, respectable, user friendly, something that represents but never rules.
    .
    Money’s there to make it happen. Pull Juneau’s share out of the Alaska Municipal League’s $640,985,495.37 “Investment Pool. Who knows, productive residents might even buy into a “start-up” if they thought somebody gave a damn about them as something other than Sources of Revenue.

    What’ve you got to lose?

    (//amlip.org/)

  • Sounds like it is time for Juneau to cut expenses and maybe move the Capital to some location is South Central Alaska….!!!..Heck the legislature has a nice new location in Anchorage and the Governor has a nice office there as well so just don’t bother going to Juneau this January and look at the buck they could all save..!!

    • With Juneau municipal government it’s always even worse than we thought. Juneau spent between $9 million and $17 million (depending upon whether you’re talking with the city or the cruise line association) of head tax money on a brass whale – the location for the brass whale actually. And the downtown retailers who collect the sales taxes from the cruise ship passengers begged the city government to put the whale somewhere else. The cruise ship association sued. The city lost on summary judgement, with the ruling citing established federal law going back to the 1830’s (which is a lot like the judge calling the city stupid). And get this, the city spent $900,000 of taxpayer (not head tax) money defending itself to lose on summary judgement. The cruise ship association could have asked for and received back both the $17 million and its legal fees, but it didn’t as it didn’t want to create a long-term enemy. Be sure to look at the whale next time you are in Juneau. This is the city assembly that spent months debating the Paris Climate Accord.

  • I think this country is looking at a BIG TIME depression in the future

  • Anchorage is even more out of touch of the realities of available money, with the ever expanding government jobs and spending the assembly and administration has undertaken this year. Meanwhile, businesses are closing the tax base is shrinking and the assembly just ignores the reality were find ourselves in.

  • We the people need to stop electing people based on their personalities, appearences, and social connections to start electing people based on their brain

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