The Juneau Assembly’s annual debate over the city budget is winding down. But it still hasn’t settled on how to exempt food from sales tax.
Most Assembly members want to exempt groceries from the city’s sales tax and come up with a way to make up for most of the foregone revenue. Last month, consensus appeared to be forming around tying the new exemption to an October ballot question. It would ask Juneau voters to approve an extra 1% seasonal, summer sales tax.
The city finance director estimates that on average, residents’ savings from the year-round food exemption would outweigh the extra sales taxes they would pay on everything else six months of the year by $143. And, thanks to summer visitors, the seasonal tax is estimated to make up for 94% of the lost revenue.
This week, Assembly members formally introduced several other options. Some of these ideas compete with each other, and some could work together.
Instead of universally exempting food from sales tax, Mayor Beth Weldon is backing a rebate program only for lower-income residents. It would be similar to an existing rebate program for lower-income seniors.
Weldon said the dollar value of the annual rebate is negotiable, but it’s intended to be about as much as a household pays in sales taxes on food.
Instead of a 1% seasonal sales tax, Assembly members Carole Triem and Maria Gladziszewksi are interested in a smaller, 0.5% year-round sales tax increase. It’s estimated to cover about three-quarters of the cost of exempting food. Gladziszewski said that might get more support from the business community.
Ending a tax break on sales by nonprofits is also on the table. The Assembly initially discussed all sales by nonprofits, but the ordinance the Assembly introduced this week specifically targets sales of tangible stuff; services and rentals by nonprofits would still be tax-free.
The sales tax issue has an unusual budget backdrop. In absolute dollars, the city is flush right now because of federal support from pandemic relief programs over the last two years. But it can’t count on that going forward. City Finance Director Jeff Rogers said if you strip away the one-time money, the city appears to be spending several million dollars more than it can reliably bring in.
For now, that doesn’t mean streets won’t get plowed or that school class sizes will balloon. The budget the Assembly settled on in committee on Wednesday isn’t going to make big changes to address the budget gap. Most members of the Assembly are OK with riding out at least the next fiscal year with savings.
And, even though City Manager Rorie Watt had recommended nudging property taxes up a little to 10.66 mills — the owner of a $400,000 home would pay $40 more a year — the Assembly voted to keep the property tax rate flat at 10.56 mills.
Assembly member Alicia Hughes-Skandijs had a notable dissent on the mill rate. To cover most of the cost of exempting food from sales tax, Hughes-Skandijs had a property tax hike in mind that would raise the property tax bill on that $400,000 home by $400. She recognized her idea was a nonstarter.
“I just think, we’re talking in tenths of mills, not my very unpopular idea of a mill to pay for the sales tax off of food,” she said.
Still, she said she thinks the honest, responsible thing to do is to cut back on city services or raise taxes.
Public hearings and the Assembly’s final votes on the property tax rate and city budget are scheduled for June 13.
The timeline for the sales tax proposals is fuzzier. The Assembly may be able to hash out what to ask voters to approve in time for that same June 13 meeting. Or, they might not. Versions of this have come up several times over the last three decades.
To get a sales tax question onto the local election ballot in October, the Assembly’s drop dead date to act is Aug. 4.