Empire editorial: Give businesses a break, but do it with caution

Posted: Sunday, April 24, 2005

While many other Alaska cities are announcing they're on the brink of financial disaster, Juneau is in the enviable position of expecting a $6 million surplus next fiscal year.

The Juneau Chamber of Commerce is proposing the city take advantage of that surplus and give businesses a break in personal property taxes. Chamber officials have asked the city to raise its limit on how much personal property a business can own - not including real estate - before it pays taxes. Now the cutoff is $2,000, allowing about 1,100 of the city's roughly 2,700 businesses to not pay these taxes.

The chamber wants the city to raise the exemption to $100,000. The change would lead to a loss of about 20 percent of the city's revenue from this tax, or $500,000 a year.

Running a business in Alaska is costlier than many places in the country, and freeing up capital for local companies to reinvest in themselves could boost the economy. The city should increase the business property tax exemption.

But city leaders should consider the middle ground: Raise the limit of exempt business property, but not to $100,000. The current exemption of $2,000 is too low. But under the higher limit, 93 percent of Juneau's businesses would not pay this tax.

One suggestion, by Mayor Bruce Botelho, is to raise the business personal property tax exemption to $20,000. That limit would still exempt most of the city's businesses - about 2,200 - from the tax, but result in a $211,000 hit to city coffers rather than a half-million-dollar hit.

One reason to increase the personal property tax exemption is that businesses are already going to pay more taxes because of higher real estate assessments, based on the skyrocketing market. Giving business owners relief from a separate tax should ease the pain from their climbing assessments.

But other reasons for the surplus are also cause for restraint. Some of the additional city revenue comes from higher sales tax income, due to strong tourist seasons and the market for home improvement and construction materials. If the national economy experiences a downturn, these industries will suffer and the surplus will shrink. The city should not limit its tax revenue when times are good and prepare itself for less prosperous years.

In addition, the city has a number of projects that could be partially paid for with the surplus. Among these are major improvements to the downtown waterfront, a plan that would enhance the city as a tourist draw and boost business in the downtown area.

City leaders should help businesses out by raising the personal property tax exemption, but it should not go too far, because the loss of revenue could backfire on the very people they're trying to serve.

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