Bed tax

Visitors enjoy the weather while reading informational placards in the Golden Heart Plaza downtown Friday afternoon, June 7, 2019. 

Fairbanks city Mayor Jim Matherly has proposed an increase to hotel and motel bed taxes, sparking pushback from members of the tourism and hospitality industry in the Fairbanks area.

The City Council is scheduled to vote on the proposal Monday night.

Matherly’s proposal, introduced in September, would bump the bed tax, which is the tax a visitor pays for staying at any hotel or motel within the city, from the current rate of 8% up to 9.5% in 2019, 10% for 2020 and 10.5% for 2021. The proposed tax change retains the current provision giving the city 22.5% of revenue raised at the current rate, with most of the rest of the 8% tax revenue going to tourism marketing, but it also would give the city 100% of the revenue from the rate increases.

Jim Matherly

Jim Matherly

According to projections from the City Council at the beginning of the year, Fairbanks was expecting $35.36 million in revenue and $34.73 in expenditures for 2019. After several years of saving, the city has more than $10 million in savings as of May 20.

The city is debt-free, according to Matherly’s budget transmittal letter to City Council members.

But in defending his introduction of the tax rate increase, Matherly said he wants revenue raised to keep up with expenses.

“Although we are not drowning in debt right now, we have to come up with more revenue in order to avoid more financial challenges,” Matherly told the Daily News-Miner. “We must at least keep up with inflation. You can’t maintain current services while expenses are climbing and revenue is falling.”

In addition to maintaining a balanced budget, the city and the Fairbanks North Star Borough have seen an increase in revenue from the hotel and motel bed tax at its current rate with revenue growing 5.4% within the past year for the borough as a whole, according to a report from the state Department of Labor.

“It’s seen some nice jumps year after year,” Labor Department analyst Neal Fried said.

Fried noted that Fairbanks has seen a 2% increase in hospitality-related employment since last year, adding that cruise ships are projecting increases in traffic.

For Matherly, though, that’s not enough.

“It is true that tourism has increased, but we have faced a serious challenge due to the loss of funding that the state provides,” he said. “Also, there is a substantial correlation between city services and successful tourism. We have the huge responsibility of keeping our city safe and clean so that tourists will come back.”

Matherly has received pushback from a number of tourism and hospitality organizations, including the Downtown Association of Fairbanks, the Greater Fairbanks Chamber of Commerce, the Alaska Hotel and Lodging Association, Explore Fairbanks and the Alaska Travel Industry Association.

Deb Hickok, president and CEO of Explore Fairbanks, feels a specifically targeted tax would be a disservice to the community.

“If the city does indeed need money, which it’s not for us to answer, but it doesn’t appear to at this point in time. ... but if they do, it should be equitable across all sectors, across residents, across visitors,” Hickok told the Daily News-Miner.

Hickok expressed concern that increasing the tax rate may deter visitors from making the choice to visit Fairbanks, noting that the cost of traveling to Alaska already is a significant factor in a tourist’s choice to visit.

The mayor disagrees.

“I feel that the adverse effects the city will face from not having more revenue will negatively impact tourism more than this relatively small increase in bed tax,” Matherly said.

The hotel/motel tax was created in the Fairbanks area in 1979 with the 2% tax at the time designated to improve destination and tourism marketing. The tax has grown gradually since then to 8%. 

This is the third time in as many years Matherly has introduced a tax rate increase. Each previous time the City Council has rejected the proposal. The most recent proposal, Ordinance 6084, was introduced in September of last year. The City Council heard it for the first time in December and postponed a vote until this month.

The City Council meeting will begin at 6:30 p.m. Monday. All meetings are open to the public, and public comment on the ordinance will be accepted during the meeting. Testimony is limited to three minutes, with the comment period ending at 7:30 p.m.

Contact staff writer Erin McGroarty at 459-7544. Follow her on Twitter:@FDNMpolitics.