Juneau avoids much of feared drop in sales tax revenue due mostly to higher fuel, other prices

Mark Sabbatini
6 hours ago
4 min read

‘We're about $3.2 million short of our budget, but we are about $6 million higher than we expected, given the exemptions’ on food and utilities, finance director says

By Mark Sabbatini

Juneau Independent

Juneau’s sales tax revenue hasn’t suffered as large a drop as expected since a voter-approved exemption on food and utilities took effect during the past year, but that’s mostly because of higher fuel and other inflationary costs, according to a report presented to Assembly members last week.

Local officials a year ago predicted Juneau could lose more than $10 million in revenue a year with the sales tax exemptions. City Finance Director Angie Flick told the Assembly Finance Committee last Wednesday "we're about $3.2 million short of our budget, but we are about $6 million higher than we expected, given the exemptions."

"I'm happy to tell you that the sales were strong, but I will tell you that sales were strong mostly due to inflation," she said.

Fuel costs have soared since the U.S. war with Iran began in February, and tariffs and other policies implemented by President Donald Trump have been cited for other price hikes on items ranging from food to steel.

The city’s budget for the fiscal year that ended June 30 initially anticipated $70.1 million in sales tax revenue, with $66.9 million actually collected, according to Flick. She noted a series of events during the past year and a half affected both expectations of income and actual sales tax revenue.

"If you'll remember last summer we had a new federal administration, people were losing jobs, government contracts were being cut, grants weren't happening," Flick said. "I don't know how you felt about folks wandering downtown. It didn't feel like downtown was very busy, even though we had the same number of ships and tourists as we did the year before."

Flick said this summer, she sees more cruise ship passengers walking around with shopping bags downtown.

"So we're seeing stronger numbers as it relates to the summer increase of visitors as well. So there's a number of things that created the strong sales," she said.

Angela Rodell, a member of the Affordable Juneau Coalition that sponsored last year’s tax-cut measures, said in an interview Tuesday the sales tax revenue earned by the city after the exemptions were enacted shows fears expressed by city leaders were overblown.

She acknowledged higher costs the city may face due to inflation need to be considered, but in a broader context that also evaluates increases in tourism and other economic activity. Also, Rodell said the financial forecasting of city leaders has been off-target in recent years.

"They tend to overestimate what they think they're going to need and underestimate what they think they're going to get in revenue," she said.

Exemptions from Juneau’s 5% sales tax for residential utilities and essential foods (excluding items such as hot prepared foods) took effect last Nov. 20. Also passed by voters in last October’s election was a proposition lowering the cap on property taxes to nine mills instead of 12.

This year two ballot measures are seeking to offset some of those impacts by imposing a 1% seasonal sales tax between April and September, and restoring the property tax cap to 12 mills.

Flick said there are now six months of data to evaluate impacts, but plenty of additional factors to consider when city leaders begin planning next year’s budget later this fall.

"If inflation is driving up sales, it's also going to be driving up our costs," she said. "As we look at (next year) we know that we've got larger increases for wages per our negotiated agreements, and we'll have to look at how these various price drivers are affecting the city's expenses as well. I mean just in the most basic of operations where we've got street sweepers and bulldozers and police cars and fire trucks running around that are consuming fuel and having to buy at higher rates."

The city is still working with some merchants to clarify when the sales tax exemptions apply, and additional work will be needed starting Oct. 1 when several tax modifications passed this year take effect, Flick said. Among the changes is raising the sales tax cap on a single purchase to $50,000 rather than $15,000, meaning buyers will pay the current tax of 5% on the first $50,000 of an item or service, with the rest exempt. The change does not apply to vehicles costing $50,000 or less.

"We're doing as much outreach as we can," Flick said. "I think there will be a learning curve over the next quarter for sure."

The recent tax changes approved by the Assembly are intended in part to offset revenue loss from the voter-approved sales tax exemptions, and were part of months of budget deliberations that resulted in several million dollars of cuts to administrative and program costs.

Rodell said the budget trims made this year are a good initial step, but believes more are possible and increasing local taxes — either through this year’s ballot measures or Assembly action — isn’t warranted given the sales tax results for the city during the past year. She said she also believes the exemption measures passed last year are achieving their goal of making everyday costs for residents a bit more affordable — which may also have boosted spending by locals.

"I don't have any evidence other than anecdotally — you do hear people who feel like they can buy a little bit more at the grocery store, or buy that extra little thing at Fred Meyer for kids' school," she said. "So I think there may have been a little bit more spending."

• Contact Mark Sabbatini at editor@juneauindependent.com or (907) 957-2306.