Sunday, December 03, 2006
Fairbanks Officials Propose Potpourri Of Nuisance Taxes To Replace Lost Property Tax Revenue
In the wake of the decision by Fairbanks voters to gut their local property tax scheme during the October 2006 municipal election, Fairbanks city officials have been scrambling to plug an expected $9 million budget shortfall caused by the sudden catastrophic loss of property tax revenue. Some officials are pushing for a special election this coming spring to give Fairbanks voters a chance to reconsider their October decision, but this requires a unanimous vote by the Fairbanks City Council to authorize a special election (pictured at left - Mayor Steve Thompson, courtesy of the Fairbanks municipal website). One effort to call a special election has already been indefinitely shelved by a city council member. So officials are looking at alternative revenue sources. Four different schemes, one already adopted, are involved. Full story in the December 3rd, 2006 edition of the Fairbanks Daily News-Miner.
To briefly recap, Proposition 3, which caps the Fairbanks city property tax rate at 0.5 mills, drew 56% of the vote, while Proposition 4, which transfers the authority to approve or reject any sales taxes from the six-member Fairbanks City Council to the voters, attracted 61% of the vote in the October 2006 municipal election. Proposition 3 is estimated to reduce Fairbanks property tax revenue by as much as 75%. Full discussion of the Fairbanks election HERE. Here are the four replacement revenue schemes:
1). Emergency Services Protection Fee: Already approved, applies to all residences. The $20 per month fee, to be appended to residential garbage collection bills beginning in January 2007, is expected to bring in $1 million in revenue each year.
2). Worker head tax: The latest version would impose a $20 monthly head tax on all people who work within the Fairbanks city limits. It would apply to any worker, regardless of age, who earns at least $200 a month. Workers with multiple jobs paying that much would be taxed for each job, but could apply for a refund from the city the following spring for all but one job. Active duty enlisted military personnel would be exempt from the tax. Employers would be required to withhold the tax from employee paychecks and pay the city every three months. City officials have also recently considered requiring employers to match their workers’ payment at some level. Expected revenue, based upon a projected 20,000 affected workers, would be $4.7 million per year. However, there are bureaucratic complications attendant to this alternative. First, businesses would need to keep three years of back records, increasing their paperwork. Second, one council member, Vivian Stiver, fears the tax could sharply raise the city's administrative costs while still falling short of covering the budget deficit.
3). Gross-Receipts Tax: This scheme would tax businesses at a rate based on the volume of a business’ combined annual receipts. Two options are being considered. The first option, favored by Mayor Steve Thompson, is a regressive option under which the tax rate would decrease for companies that handle a high volume of sales — large, chain retail stores, for example, or car dealerships — and remain higher for smaller vendors and businesses with low sales volumes. The mayor has proposed a specific scenario of regressive incrementation from 0.5% for small businesses to 0.15% for large businesses. The second option would scrap the percentage approach and use a progressive system of brackets, where businesses would fall into a certain category based on their volume of receipts: a “mid-sized” business would pay more than a “small” business, for example. Business operators would total the money received for transactions over a payment period and apply the tax rate or category to that value.
While the News-Miner story provides no dollar figure for expected revenue from this source, they report that, based on Mayor Thompson's scenario, a coffee shop or other small business doing $250,000 in annual sales would pay $1,250 a year under a 0.5 % receipts tax while a large company doing $20 million in receipts would pay $30,000 under a 0.15 % tax.
Other local or state governments use a gross-receipts tax, including the state of Alaska before the trans-Alaska oil pipeline was built. However, the State of New Mexico has discovered that its state, county and municipal gross-receipts taxes generally lead companies to pass costs on to the consumer, making the impact similar to that of a sales tax.
4). Vehicle Registration Tax: The city’s finance committee has discussed a potential tax on motor vehicles. Based on early discussions, residents living inside the city or borough who drive their cars or trucks inside the city would need to buy a city-issued sticker from vendors for their vehicles. Under the discussions, decals would cost $100 for cars or pickup trucks and more for commercial vehicles. Visitors would not be required to buy a decal for their vehicle, but area residents who failed to buy and display a sticker would be fined.
Additional Findings: One concern about the proposed gross-receipts tax is its application only to businesses within the Fairbanks city limits. It's possible that a few businesses might be tempted to relocate outside the city limits to avoid this tax. As a result, North Star Borough officials have discussed the possibility of a borough-wide receipts tax this coming summer while taking a look at potential alternatives to the Borough's own tax structure. Borough Chief of Staff Bob Shefchik stated that if the city implements a gross-receipts tax first, the issue could resurface at the borough level. Coupled with a city tax, a borough-wide tax would further reduce property taxes and could make the city’s tax easier to enforce by removing the financial incentive for businesses to relocate outside the Fairbanks city limits merely to escape the gross-receipts tax.
Unfortunately, the combined effect of these taxes could, in some cases, nearly erase all property tax savings incurred from the passage of the two ballot measures. While the annual head tax payment for a homeowner family with two workers would equal $480 per year, considerably less than what they were paying in property taxes, adding in the new “emergency services” fee for a family owning a home assessed at $200,000 would cause that family to lose most of the $954 in annual property tax savings resulting from the passage of the October ballot measure. So back to square one.
Analysis: In October, Fairbanks voters not only gutted their property tax scheme, but also seriously hamstrung the City Council's ability to replace the lost funding by removing its sales taxation authority, boxing it into a narrow range of esoteric, cult-like revenue recovery options. The head tax applies equally to rich and poor alike, inherently unfair. Proposing that employers match individual head tax contributions is not only anti-business, but discriminates against small business. The proposed gross-receipts tax can be complicated and increase paperwork. One of the gross-receipts options is clearly regressive and discriminatory against small business. Where do you think the large corporations came from? They started out as small businesses. When Walmart opened their first store in Bentonville, AR, would they have survived this array of esoteric taxes? Perhaps they would have moved to another location, or maybe would have gone out of business. We need to be GROWING small business, not bankrupting it.
Any jurisdiction needs a diverse revenue stream to effectively provide basic public services and accrue a reasonable nest egg to provide initial emergency relief in the wake of disasters while immunizing against catastrophic revenue losses from a single source. However, the revenue streaming must be fair and simple in order to work. Property taxation, sales taxation, and business taxation are the standard routes. A fair schedule of fines and fees can serve to supplement revenue, to "put the icing on the cake", so to speak. Fairbanks' proposed alternatives, forced upon them by a recalcitrant population, clearly do not meet this criteria. Why is there no talk of revisiting the local schedule of fines and fees to see if any can be raised to more realistic levels? Perhaps if Governor-elect Sarah Palin can follow through on her campaign promise to restore revenue-sharing, this will ease Fairbanks' revenue woes somewhat and buy their government some time to address the underlying concerns of Fairbanks residents. The Yes votes on Props 3 and 4 were emotional decisions rather than logical decisions. The Fairbanks city government needs to reach out to the people, uncover their underlying concerns, and reconnect with the community to prevent a recurrence of this irrationality. People who vote Yes on such measures are clearly pissed off at their government.
Tags: politics , Alaska , brrreeeport , election , Fairbanks , taxes