Sales tax proposal sparks debate among Anchorage residents and city officials

A proposed ballot measure to establish a 3% sales tax in Anchorage and reduce property taxes has enthusiastic support from many community groups and leaders, who say it would create a new way to invest in a declining city and transform its public amenities.

However, many others have voiced growing criticism over the tax’s potential to disproportionately burden low-income residents. Further fueling concerns, a recent study by economists with the University of Alaska Anchorage’s Institute of Social and Economic Research found that the tax would burden low-income residents the most and wouldn’t benefit renters.

“The majority of this property tax reduction from the sales tax is going to be going to businesses, and not households,” said Matthew Berman, professor of economics and an author of the study.

“The net effect of this tax is to increase taxes on households and reduce taxes on businesses,” he added.

Under the current version of the proposal, two-thirds of the tax revenue would be used for property tax relief, and the remaining 1% would be dedicated to building new public facilities and amenities approved by Anchorage voters.

The sales tax would be charged on most consumer goods, for a total tax of up to $30 per transaction, because only the first $1,000 of a sale would be taxable. The tax would sunset after seven years.

However, several necessities would be exempted from the tax, including child care and fuel, and the lowest-income residents could get an exemption from paying any sales tax. Except for fuel, the sales tax would be charged on top of the city’s other specific sales taxes currently collected, including alcohol, marijuana, tobacco and hotel taxes.

Assembly members Randy Sulte and Felix Rivera are sponsoring the ordinance, which arose from Project Anchorage, an effort led by the Anchorage Economic Development Corp.

“What I’m most excited about is the opportunity to really revitalize and stimulate the economy,” Rivera said.

The study, which was commissioned by AEDC and finalized last month, estimated that the tax would generate about $180 million in revenue a year. About $50 million of that would go toward new projects, after hold-backs for administrative costs and implementation, Sulte said. Project ideas currently being floated include installing year-round trail facilities at city parks, an indoor open-air market and food hall, and creating a “Ship Creek Riverwalk and Entertainment District.”

[Previous coverage: Anchorage Assembly to consider a 3% sales tax, aimed at property tax relief and city improvement projects]

Property owners, both residential and commercial, would see up to an about 20% reduction in property taxes, according to the study.

Proponents see the sales tax as a way to diversify the municipality’s tax base while reducing the city’s relatively high property taxes, and as a way to spark economic growth and bring new quality-of-life amenities to residents.

“Really the whole crux of it is, what can we do to stop this economic stagnation of our city? Because we are losing population year-over-year, ” Rivera said. “People feel like we’re stagnating as a city. People feel that. They tell me that. And so what can we do to reverse that trend?”

It’s not yet clear when the Assembly will vote on ballot measure. If two-thirds of the Assembly votes in favor of the sales tax, then it would be up to Anchorage voters to decide during the April city election.

Concerns over burden on low-income residents

Several Assembly members gave the sales tax proposal a frosty reception during a meeting last month, raising many questions and criticisms about its potential impacts.

Rivera said that in an effort to reduce the burden on low-income residents, multiple exemptions are baked into the proposition: Taxes wouldn’t be charged for food, rent, child care, medical services and goods, fuel, financial service transactions, wholesale purchases and item resales, like Facebook Marketplace transactions and yard sales.

However, the study found that, despite the exempted goods, the proposed tax would still be “highly regressive” — meaning that the lowest-income residents would end up paying the highest percentage of income to the sales tax, said Berman.

Total sales tax payments would be smaller and smaller fractions of people’s incomes, all the way up the socioeconomic spectrum to the wealthiest residents.

Minimizing the tax’s regressive nature is a priority for the business coalition that crafted the proposal, said Jenna Wright, CEO of AEDC and a leader of Project Anchorage.

Since receiving the data last month, they’ve added a provision for hardship relief that would exempt anyone at or below 80% of the federal poverty level, Wright said.

“Our solution to that was just to say, ‘Hey, look, these houses are struggling. Let’s just exempt them entirely.’ And then that really created more of a balanced approach for the rest of households that would be contributing a percentage of their income through the sales tax,” she said.

The study also found that the effect on middle-income brackets was much more even, Wright said.

[Housing shortage keeps raising home prices in Anchorage as average jumps to more than $500K]

For Alaska, the 2024 federal poverty level is $18,810 for a single-person household, and it rises by $6,730 for each additional person in the household. To be exempt from the proposed sales tax, a two-person household would need to make $20,432 or less.

It’s not clear exactly how the poverty exemption would work in practice, but Rivera said he believes that piece of the measure is critical. The provision is a “blueprint,” and a process for hardship relief would be worked out as the tax program is built, he said.

Still, others are skeptical, like Trevor Storrs, president and CEO of local nonprofit Alaska Children’s Trust.

In some cities, low-income residents must get a tax exemption card that they can show to cashiers, he said.

“So now people have to go and show a card and show that they’re poor,” Storrs said.

Additionally, any process to prove one’s income is a barrier, Storrs said. It could keep many from accessing the hardship relief, especially the city’s most vulnerable residents, the homeless, Storrs said.

“It’s an added burden, added on to those who have the least amount of time and energy to do it,” he said.

The Children’s Trust and four other nonprofits — the Alaska Black Caucus, Alaska Literacy Program, Anchorage Community Land Trust and Alaska Public Interest Research Group — have called for a meeting with the Assembly to discuss their concerns and ideas to improve the measure.

Property tax relief

Homeowners and businesses have long been calling for property tax relief, Wright said.

“Here in Anchorage, we are in the — well within the top 5% of property taxpaying counties in the U.S.,” Wright said, citing a study by Tax Foundation.

That study, based on 2022 data for U.S. counties, shows that Anchorage taxpayers pay a median of $4,760 — more than three times the median payment and more than two-and-a-half times the average paid across the U.S.

But the property tax relief as proposed comes with a trade-off: paying more for most goods and services.

“The question is, who gets that trade-off? Who benefits from that, and who has to pay more?” said Assembly member Anna Brawley. Brawley doesn’t support the measure as it’s currently written, she said.

Using federal consumer survey data and property records, economist Berman found that, even after property tax relief, those in the lowest-income bracket would pay 3.6% of their income in sales tax — five times the percentage of their income as those in middle-income households. The wealthiest residents would pay an average of only about 0.1% of their income in the sales tax.

The majority of the $120 million annual tax relief would go to businesses owning commercial or residential properties, Berman said. About 41% would go to homeowners who live in their residences, he said. About 15% would go to non-resident individuals and corporations, many out of state, he said.

A list of the estimated tax savings for the municipality’s top ten property owners shows that those organizations could see a combined total of $3.4 million in tax relief.

Weidner Apartments tops the list, with taxes dropping by $670,153 to $829,714. The list was complied by the city tax assessor office at the request of Assembly members.

Some of the organizations own other Anchorage properties via subsidiary companies which are not included in the estimate, the tax assessor said. That means some organizations could likely see much larger total tax breaks.

Others who would save the most in taxes include Doyon Utilities; Providence; UPS; Calais Co.; Fred Meyer; Alaska Regional Hospital; Alaska Airlines; Enstar Natural Gas; and the heads of JL Properties, Jonathan Rubini and Leonard Hyde, who own or control the ConocoPhillips Towers and several other large properties, including the Calais buildings.

Renters would not see a financial benefit from the property tax relief, Berman said.

Some Assembly members say they are drafting alternate versions of the proposal. Chair Chris Constant said he is working on one that would focus the tax break on local homeowner-occupants.

“I just have a hard time providing such a huge tax benefit to a handful of very large commercial property owners, and shifting that burden right down to the renter in our community,” he said.

Assembly member Daniel Volland said he’s looking into a version that isn’t aimed at reducing real estate property taxes, and using more of the sales tax revenue to fund essential municipal services like snow plowing.

“I worry about us continuing to create further that divide between those who are already homeowners and those who are looking to break into homeownership,” Volland said.

A second public hearing is scheduled for the Assembly’s Dec. 3 meeting, and the Assembly will likely hold another work session on Dec. 6, Constant said.