Local governments, taxpayers will pay for legislative inaction

Voices Of Alaska

Posted: Friday, May 14, 2004

With the proposed elimination of state revenue sharing for municipalities looming, and no state fiscal plan in place, the proverbial "buck" will stop at the doorstep of municipal government and local taxpayers.

If municipal revenue sharing ends at the same time the state continues to cut budgets, there is little doubt that local taxes to pay for critical public services will go up because of citizen demand for those services. But local property and sales taxes that are too high have specific negative impacts on the local economy and families.

There is a common misconception in Alaska that municipalities have excess "tax capacity." This has been part of the state budget balancing strategy for many years. According to state figures, local taxes increased 29 percent in the past five years, which largely mirrors the amount of state cuts absorbed locally.

In fact, municipal taxes have been increasing to replace the loss of municipal revenue sharing, the under-funding of schools, the implementation of new state and federal mandates and the replacement of discontinued state services.

The best comparison of the actual family tax burdens is done annually by the District of Columbia ("Tax Rates and Tax Burdens A Nationwide Comparison," 2002), which shows families in most large Alaska municipalities pay more in property and-or local sales taxes than families in as many as 35 other states. If this is surprising, call a friend "Outside" to compare property taxes.

So what about small rural cities that do not have enough private land for a property tax base and few stores to collect a sales tax?

1. Rural Alaska comprises much of what defines our state. Maintaining critical public services in all communities is part of the stewardship responsibility Alaska accepted at statehood.

2. Rural Alaska is like a self-replenishing ATM machine for urban areas. Nearly every dollar from federal programs or private economic activities going to rural communities flows through urban areas. A 1996 study shows that 25 percent of all jobs in urban areas service rural communities.

Small rural cities in Alaska are in desperate trouble. For 34 cities, revenue sharing was a quarter or more of their budget. Nearly one-third (24 of 74) of cities surveyed report they lack "the financial resources necessary to provide minimum public services/continue as a city or borough."

Last year, 31 cities nearly had their insurance canceled prior to the governor's allocation of $40,000 per community in one time federal funds. Still, nine lost their insurance or are pending cancellation.

According to rural fuel distributors, approximately 40 cities relied on revenue sharing to purchase fuel in bulk. If communities cannot afford to purchase winter fuel before the rivers freeze, air transport adds $1 to $2 per gallon. Additionally, projected fuel cost increases for this summer are already as high as 25 percent.

So what can we Alaskans do? First and foremost, we must demand that the state Senate allow Alaskans to vote on a permanent fund endowment plan. This solution doesn't reduce our dividends. Rather, it protects the permanent fund and gives Alaskans hope that more of the burden of state government won't be shifted to local property and sales taxes.

The state also must share Alaska's resources with communities. Municipal revenue sharing started in 1969 well before big oil revenues. If the state government cannot survive without oil revenues, it is illogical to expect communities to be able to do it. The House of Representatives included a "community dividend" revenue sharing in its Endowment Plan, which is supported by the governor.

A voter poll in April confirms that three out of four Alaskans support reinstatement of revenue sharing to help rural communities "that lack a tax base" as well as larger communities that already have "high sales or property taxes in place."

As citizens, we must insist that the Legislature allow Alaskans to vote on a fiscal plan this year because without it local taxes will skyrocket and many rural communities will fail.

Jim Cooper is the mayor of Palmer and president of the Alaska Municipal League.

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