April 3, 2002 The Juneau Empire says a state sales tax would hurt local governments

Posted: Monday, April 08, 2002

On April 1 the Juneau Assembly joined other Southeast Alaska communities in taking a firm position against the proposed 3 percent statewide sales tax. The sales tax measure was proposed by House Finance Committee to help close the state's fiscal gap by as much as $240 million.

The biggest problem with the 3 percent tax is that it exacerbates an already wide disparity in the amount of local sales tax levied by municipalities across the state. Anchorage and Fairbanks have no local sales tax while Wrangell charges 7 percent and Petersburg 6 percent.

Juneau now charges a 5 percent sales tax including a 1 percent discretionary sales tax due to expire later this year. The 3 percent tax in Juneau would amount to approximately $17 million.

Therefore, for those communities that have relied on local sales tax to support funding for education, general operations, and special community projects, the added tax would only inhibit the autonomy of local government to meet its future needs.

Wrangell and Petersburg have been hard hit economically. The options available to those communities to grow out of their economic malaise would be severely limited by the impact of the additional 3 percent consumer tax burden. Residents encumbered by a 10 percent sales tax would not likely vote for additional discretionary taxes.

Juneau would feel the crunch, too, the next time residents are asked to pony up on a discretionary sales tax measure if already faced with sales taxes in the 7-8 percent range. If the Constitutional Budget Reserve sees erosion in local sales tax revenues, the end result would likely be an increase in property taxes or a reduction in local services such as Capital Transit, Eaglecrest, public safety, parks and recreation. Sales tax revenue also is used for the construction and maintenance of facilities.

Consider, too, that Alaska's competitive status with Canada and Seattle would be degraded by the added tax. Seattle already covets Alaska consumers by waiving sales tax. Canada does a big business with Alaskans due to its rate-of-exchange advantage.

Higher state sales taxes also will drive more consumers from their hometown stores to the burgeoning Internet marketplace.

Alaska needs an economic stimulus plan, not another wet blanket on local consumer spending.

Last week the House Finance Committee took a big step forward when it moved legislation that would raise $1 billion based on the $240 million statewide sales tax and an annual draw of about $800 million from Alaska Permanent Fund earnings.

On Tuesday, Sen. Rick Halford observed that the people of Alaska tend to look at the annual budget shortfall with an eye of skepticism, since the alarming numbers bandied about in the early days of the session become less by the end of the session.

To date, the revenue shortfall for the year is estimated at $865 million. An improvement in oil revenues is expected to further reduce the gap.

Even so, the future of Alaska's financial demands remains shaky. More resources are needed for education, and stimulating the state's economy, as addressed in the current funding formula.

There is the sticky issue of a $1 billion backlog in state construction projects. The Department of Health and Social Services will continue to face skyrocketing costs beyond the state's control.

Closer to home, the economy of Southeast Alaska is going to suffer from a reduction in operating funds available to the Alaska Marine Highway System.

In 1976 the permanent fund was established as a trust to pay for state government. Will the people of Alaska be willing to sacrifice a portion of their dividends to ensure the financial future of their state? ------

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