‘Vote No Tonight, Please’: City Council Rejects Bed-Tax Hike Proposal After Industry Outcry

Jun 11, 2019

The Fairbanks City Council unanimously defeated Mayor Jim Matherly’s proposal Monday to increase the city’s hotel/motel tax to raise additional revenue for city services. The mayor says the city needs additional revenue as demand for services grows and state funding shrinks.


All six council members voted against the ordinance introduced by Matherly after a strong show of opposition by local tourism- and hospitality-industry representatives during a public hearing on the measure.

“Bottom line: vote no tonight, please,” said Kathy Hedges, the first of a dozen people to testify Monday. Hedges is the board chair of Explore Fairbanks, formerly known as the Convention and Visitors Bureau, and she’s worked in the travel industry for 30 years. She and 10 others spoke against ordinance during the hearing, because they said it would increase what they called a “targeted tax,” which harms a single industry – in this case, tourism.

“Right now, the decision you’re looking to make is that is it appropriate for us to tax one segment over the other? It just happens to be you’re looking at the visitor industry,” she said.

Lloyd Huskey, general manager of Candlewood Suites, talked about the anticipated impact of increasing the hotel/motel tax, often referred to as a bed tax.

“It makes us less competitive,” he said. “Every dollar that we charge more than anyone else makes us a less competitive destination.”

Huskey added that the tourism or hospitality industry might have supported the proposed bed-tax increase if its revenues would have been invested in something that would benefit the tourism.

“If this was going to a convention center, or more toward Explore Fairbanks, there might be a little bit more amiability to this,” he said.

But the ordinance instead was intended to help the city pay for a growing demand for services that’s outpacing its usual sources of revenue. That’s why Peter Stern said he supports the ordinance. He was one of the two people who spoke in favor of the measure.

“The city has cut the budget level of public works for road maintenance and winter maintenance to a point where it’s becoming extremely difficult to get good service out to the residents,” Stern said.

The city already gets a little more than a fifth of the revenue raised by the 8 percent bed tax. But Matherly said the city must find additional revenue sources, because state funding through such programs as community assistance has been shrinking.

“I believe it’s going to go down to nothing,” he said. “Just 12 years ago, we were getting two million (dollars) a year, and now we’re down to about 500-hundred thousand, 400-thousand.”

The mayor says he’s attempted to raise revenues through others means, with no success.

“Two years ago, I put an increase in property taxes on the ballot,” he said. “I got roundly hammered by that – it was turned down by the voters.”

Matherly’s ordinance called for incrementally increasing the tax from the present 8 percent to 10.5 percent in 2021. The measure would’ve given the city all the additional revenue raised by those increases – an estimated $600,000 this year, growing to a million dollars in two years. The mayor suggested that revenue would help pay for among other things additional police officers, who could in turn help reduce panhandling and harassment of tourists downtown by inebriates and homeless people.

“What will hurt tourism is public safety, and the issues we’re having around public safety downtown,” he said.

The council members acknowledged the need to raise more revenue, but cited concern over the ordinance’s impact on tourism. Some, including Valerie Therrien and June Rogers, faulted the mayor for failing to follow up with the council after it decided in December to delay consideration of the ordinance – which the mayor introduced in September.

“Unfortunately we didn’t have any more work sessions with regard to this,” Therrien said. “We just waited ’til now to make a vote on it.”

After the vote, council members agreed to begin work in the coming weeks on other ways to generate additional revenue.

Council OKs labor agreements, sets mill rate

Also Monday, the City Council ratified two amended labor agreements with unions that represent a total of 76 city workers.

The council approved a three-year contract with the International Brotherhood of Electrical Workers Local 1547 that will boost the pay and benefits package rate for 31 city workers represented by the union by 2-point-three-six percent. That would increase the total cost to the city by a bit less than a quarter-million dollars over the three years.

That ordinance passed by a vote of 5-0, with June Rogers abstaining. But council members split over the next vote, on a collective bargaining agreement for a new three-year contract for 45 city positions represented by the Fairbanks Firefighters Union.

“When you look at the cumulative rates from 2012 to 2019, this is the one bargaining unit that is very much out of sync with the other ones,” said Jerry Cleworth. He voted against the ordinance, because he says the health insurance was too generous, compared with other city union-employees’ benefit packages.

A fiscal note attached to the measure says the agreement would increase the firefighters’ pay and benefit package rate by 1-point-seven-nine percent and would cost the city just over $292,000 more over the three years. David Pruhs joined Cleworth in voting against the agreement, which passed 4-2.

Also during Monday night’s meeting, the council set this year’s property taxes at 5.871 mills. The resolution says the Fairbanks North Star Borough Assessor’s Office estimates the total net taxable value of real property in the city at just over $2.7 billion.