Juneau's fiscal future worries city's leaders

Officials mull over departmental reductions, increases in taxes

Posted: Sunday, May 25, 2003

With looming cuts at the state level and rising costs for city employees' health care and the public employee retirement system, Juneau's budgetary future looks less than rosy. Officials are brainstorming ways to reduce spending and generate revenue.

"There's no question, we are going to face some difficult decisions in the near future," said Assembly Finance Chairman Jim Powell.

Powell on Wednesday directed city staff to research a 3 percent tax on alcohol and tobacco as a possible revenue-generating measure. At the meeting, Powell proposed putting the tax up for a vote in the fall. City Manager Rod Swope said he was already keeping a list of possible reductions, fee increases, and tax-exemption changes.

In the next three weeks the city will finalize what is now a $178 million draft budget for fiscal year 2004. Originally, the budget came in with a $2 million gap due to a 25-percent cut in municipal revenue-sharing from the state, a decrease in business property values, and declines in sales-tax revenue. The city was able to make up for the losses with one-time cuts in department spending and some new fees, such as increased bus fares.

Powell described the budget situation as " pretty tight" and said he is not sure how the Assembly will address $500,000 in additional requests from area groups the city usually funds, such as Perseverance Theatre and the Juneau Convention and Visitors Bureau.

"We've always found money for them someplace, but it's tough because it's drying up and it's only going to get worse," Powell said.

If his proposed tobacco and alcohol tax passed, Powell said, the city could amend the budget, adding money for nonprofits. Powell also proposed setting up a board and asking nonprofits to compete for a set amount of funding every year.

The city already taxes alcohol and tobacco, and local retailers and distributors were not happy to hear of further taxation. Mike Elerding is president of Northern Sales Co., in Ketchikan, which distributes most of the tobacco in Juneau. He explained that on the wholesale level tobacco is taxed by federal, state, and municipal governments already, totaling about $15.50 in taxes per carton of cigarettes. Customers pay another 5-percent sales tax on top of that in Juneau. A carton of 200 cigarettes at A&P costs between $48 and $46, tax included. Adding another 3 percent would be exorbitant, he said.

"Juneau is in a situation where they need to cut spending instead of balancing their books on the backs of smokers," Elerding said. "Forty percent of the retail cost of cigarettes is taxes in one form or another - state, local, or federal."

Wholesale alcohol is taxed at the state level. Consumers also pay a 3-percent alcohol sales tax on top of the 5-percent sales tax. For a $15 bottle of wine, consumers pay $1.20 in sales taxes. In fiscal year 2003, consumers paid $592,499 in special alcohol sales taxes. Powell's proposal calls for an 11-percent tax on alcohol, which translates to $1.65 in taxes on a $15 bottle of wine.

"I like to have a beer once in a while. I like Alaskan Amber, but for me, I'm willing to pay the extra five or ten cents a drink," Powell said, adding that alcohol-related crime and public-health problems cost the city thousands of dollars every year.

Jack Manning, the president of Juneau's Alaska Cabaret, Hotel, Restaurant & Retailers Association affiliate, said alcohol taxes end up hurting local businesses more than larger chain liquor stores because bigger chains can afford to drop prices temporarily to absorb taxes. There also comes a point when taxes are more than freight, and people start buying over the Internet, which also hurts business, he said.

"You are asking people to pay more and more for what they are getting," he said. "It's not so much about my business as it's about the public and what they're willing to pay for a beer."

An additional factor stressing the budget process is the possibility that Gov. Frank Murkowski will use his veto pen in the next month to curtail some or all of state revenue-sharing contributions to city budgets, which could result in a $1 million loss to Juneau in fiscal year 2004.

"To cut a million dollars out of city departments is going to be painful. I think that's a pretty safe statement," said Deputy City Manager Donna Pierce.

In the event that the city does lose $1 million in revenue sharing, the Assembly would have to look at program and staff reductions or use money from a $5 million "rainy day" budget reserve account to cover the loss, Swope said.

"The Assembly will have to reconvene and we will have to re-open our budget and figure out a way of addressing it," Swope said. He said he already had asked his staff to begin compiling lists of possible reductions.

Reductions in state employment also put the pressure on Juneau's economy, and the city probably can anticipate more cuts, Powell said.

"As you look down the road, you have to realize that before the state solves its fiscal problems they are going to look every place they can to cut, unless they go to the permanent fund, the income tax or the sales tax," Powell said.

Julia O'Malley can be reached at jomalley@juneauempire.com.

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