Local governments annually deal with the question: Do we have the revenue necessary to match our planned expenditures? The budget process is straightforward, based on community needs and resident expectations and relative to a level of tax that doesn’t negatively impact growth and economic development. While this process isn’t without conflict, it is a routine responsibility of the local government, which has not only taxing authority but also the obligation to tax, under state statute.
In dozens of communities where there is a sales or a property tax, or both, economic development seems to be occurring. The key to growth has been incremental, stable increases in taxation rates, and/or a short-term increase in order to meet a specific community need. There’s a rational approach to taxation in place that works.
At the local level, residents can see the impact of that taxation. For just 40 communities, their law enforcement budgets are $75 million more than that of the entire budget of the Alaska Department of Public Safety. Local governments maintain an equal amount of road miles as the Alaska Department of Transportation. Local governments are responsible for almost the entirety of Alaska’s ports and harbors. When it comes to quality of life, local governments manage the majority of the state’s libraries, parks and recreation, swimming pools and many other public facilities. Local taxation keeps communities safe, ensures that businesses can move goods in and out or deliver services, and provides residents – and, importantly, families – livable communities.
As lawmakers wrestle with the state’s fiscal challenges, including how to pay for government services that Alaskans depend on, new or increased revenues cannot be left out of the conversation. In fact, legislators should not avoid a conversation about a broad-based tax. Options should be on the table that allow evaluation of the various tools at the state’s disposal, and debate focused on the costs and benefits to both community and economic development. This will include the equitable allocation of those costs and benefits, how to mitigate the regressive nature of some taxes, and overall thinking about what the tax base can bear.
That’s not a conversation to avoid but an essential and fundamental role of public policy and policymakers. There are a host of reasons that make this decision imperative. Here are two:
While state agencies have often seen increased budgets based on annual inflation, the same is not true to many programs of the state. Community Assistance, for instance, if measured against 1985 funding, would be 984% more than it is today. The program has been reduced by half a few times, but the formula that pays it out doesn’t keep pace with inflation. That means local governments are providing the same services for the state, with less revenue to support those services.
At the same time, the state is not adequately identifying the universe of need when it comes to maintenance and construction. The state reported for deferred maintenance this last year something like $1.9 billion, much of that the university’s. That doesn’t account for the Department of Education’s six-year list of $1.3 billion (which is more likely $2.3 billion if you look at average budgets over the years) in need just for school construction and maintenance. Or the $1.6 billion in need for water/wastewater improvements that are submitted to the Indian Health Service and reflect just those needs in rural and small communities. In reviewing municipal capital improvements lists, there are $2.6 billion in projects just for 30 of 165 local governments.
The state needs a new approach to revenue development, one that leverages its ability as sovereign to collect broad-based taxes and to distribute them in ways that effectively meet the needs of Alaskans. Where local governments have a sales or property tax, the greatest barrier to economic development is not those tax rates but lacking the necessary infrastructure in place to support growth and reduce the transaction costs of doing business in Alaska.
Legislators have an opportunity to address a systemic issue that will link economic development to state resources, improve the delivery of essential public services, and provide the state the means to make the investments necessary to meet today’s needs and tomorrow’s challenges.
Nils Andreassen is executive director of the Alaska Municipal League, a member-based and service-oriented organization of Alaska’s cities and boroughs. The views expressed here are not necessarily the official positions of the organization. AML members passed a resolution last November in support of a broad-based tax and economic and infrastructure development.