The Fairbanks City Council rejected an ordinance Monday evening that would have raised the city’s hotel/motel tax, also known as the bed tax, and reconfigured how the revenue was distributed.
Ordinance 6084, introduced in September by City Mayor Jim Matherly, 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.
The city council unanimously voted against the ordinance, citing concerns over possible negative effects on the tourist economy in the community and taking issue with the process of the ordinance, specifically the lack of working group discussion.
City Councilwoman June Rogers said a primary part of her opposition was a lack of work sessions and timely information on the matter.
“To get information so close to a time of making a major decision on something, I just feel that is poor process and I can’t accept that,” Rogers said, emphasizing that several members of the council had asked to have work sessions on the issue but none were held.
Councilman David Pruhs also spoke in strong opposition of the ordinance, noting that he felt the city had ample revenue reserves.
“We had our audit today and it looked really good overall. We are going into a budget cycle again and our cash balances are good, our revenue is there,” Pruhs said. “I think implementing this tax right now would be a mistake ... We have some other revenue sources that are available; we treat our employees as best as we can ... We should look at our budget, in a few months and make our decisions on what we should do then.”
According to projections from the City Council at the beginning of the year, Fairbanks was expecting $35.36 million in revenue and $34.73 million in expenditures for 2019. After several years of saving, the city has more than $10 million in savings as of May 20. According to city code, the city must keep a certain 20% of revenue in reserves, Matherly said Monday night, clarifying that the $10 million in savings is not an accurate representation of the city’s savings.
The city is debt-free, according to Matherly’s budget transmittal letter to City Council members.
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.
But in defending his introduction of the tax rate increase, Matherly said he wants revenue raised to keep up with anticipated increases in expenses.
The proposal saw hefty pushback from the tourism and hospitality industry in the Fairbanks community.
Greg Allison, former director of tourism at Explore Fairbanks and current Fairbanks Chapter President of the Alaska Marijuana Industry Association and co-owner of Good Cannabis, identified that there should be other ways of increasing revenue for the city.
“We’re seeing 30, 40, 50, even more out of state, out of country, visitors coming to our retail location and spend their money each day,” Allison said, referring to his co-owned cannabis business. “Those visitors that are coming in and spending their money towards the taxes, what the city is gaining just off the visitors is probably more than what was budgeted originally, because it wasn’t much that the city budgeted for revenue from the cannabis industry ... The question is, is there an option for the substantial amount of dollars that the cannabis industry has produced for the city to go towards general services and not even talk about targeting our visitors who are already spending 5% at a cannabis shop?”
Marisa Shara, president and CEO of the Greater Fairbanks Chamber of Commerce, also testified against the ordinance, specifically criticizing the concept of a targeted tax.
“It’s currently our position to oppose any tax that specifically targets any industry for the purposes of funding general government services,” Shara said, noting the organization would support industry specific taxes if and when the industry itself requests that tax for a specific reason.
Following testimony from more than a dozen Fairbanks community members and tourism industry officials, the vast majority of whom spoke against the ordinance, the ordinance returned to the city council for consideration.
In closing comments, the mayor said he anticipated which direction the vote would go but made a point of defending his decision making process, emphasizing that just because the city is currently operating well within revenue margins does not mean costs won’t go up and improvements can’t be made.
This is the third year in a row that Matherly has proposed a bed tax rate increase and the third time in as many years the proposal has been rejected. The mayor’s seat will be up for election in October.
This story has been updated to correct that Greg Allison is the co-owner of Good Cannabis, a Fairbanks dispensary.
Contact staff writer Erin McGroarty at 459-7544. Follow her on Twitter: @FDNMPolitics.