While the Feds are continuing to cut taxes (and we hope to good effect), Fairhopeans are looking at a first-time-ever city sales tax. Almost six months ago this divisive topic was brought up by council member Dan Stankoski. He mentioned the local option sales tax in passing during a presentation on the 2006 city budget. He got muttered boos from the public at the council meeting, the opponents used much stronger language the following days.
In early May it appeared that the topic of a 2 percent city sales tax would actually become an agenda item, but the council president, Bob Gentle had it removed shortly before the meeting. Guess that’s OK, ‘cause when he pulled the tax topic, Bob was quoted as saying that the city’s financial situation was “rosy.”
Mayor Tim Kant might agree with that assessment if we take “rosy” to mean nearly “red.” Red, as in deficit. The mayor outlined the upcoming projects and existing commitments that cause him concern over the ability of the city to meet all of its obligations. Most were hurricane related: Katrina and even Ivan. With the 2006 hurricane season almost upon us, budgets should have lots of contingency funding baked in if the city is to maintain its quaint appearance for visitors and quality of life for residents. And of course, Mayor Pay-as-You-Go Kant mentioned the $2 million library bridge loan as another financial burden he worries about. After all, he lamented, “I’m not like the federal government; I can’t print money.”
So what does Fairhope do? The last scheme to raise revenues was a massive increase in fees for businesses in the city. This was a really bad idea, given the fragile state of many (maybe most) local businesses (hurricanes, high gasoline prices and the continued loss of convention business from The Grand). This must eventually have become obvious to the budget planners as they reconsidered their increases and halved the new rates. While this made things a bit easier for the shop owners and service providers, it failed to meet the city’s need for increased revenues.
The solution of the moment is to balance the budget with development impact fees. Sounds pretty good, but a lot of the money collected should go to growing the infrastructure, not to paying current debts. So unless Fairhope replaces Kant with Ponzi, this may not be the answer to the city’s immediate or even long-term fiscal needs.
So why not a city sales tax? Lots of cities have them. In fact Fairhope is the only city in Baldwin County, and one of the few in the state, not to have a local sales tax. Is it the historic influence of the Single Tax Colony? The Colony’s foundation is set in the utopian theories of Henry George: Communal ownership of land with only its value taxed This is an influence, but the city has become much more, both in size and in complexity than just the “Colony.” In addition, the state and county require payment of sales and income taxes by even those Fairhopeans living on Single Tax Colony-owned land – completely counter to the precepts of Henry George. So adding 2 percent shouldn’t be too big an additional shock to even the most rabid Single Tax adherent’s emotional balance.
OK, again why not a city sales tax? Some opponents say if you raise taxes the politicians will just find more unnecessary places to spend money. By my calculation, the proposed sales tax would add less than 10 percent to the annual budget. This isn’t a big, new program amount. Ten percent is about what you would need as a modest cushion for unexpected events – like another hurricane. If having it spent on frivolous small things like trips to Bora Bora to look at street-side plantings is a temptation, earmark it for a specific purpose. Stankoski had this in mind when he first mentioned a sales tax; he would have it designated for recreation. I say keep it in reserve in a hard-to-open “lock-box” account.
Now why not? Council member Debbie Quinn objected to the sales tax saying that while we may need it now, it cannot be “turned off” when the immediate crisis is past. Although I don’t buy the idea that there will not be a need for additional funds for the next unanticipated “crisis,” once this one is past, she brings up an important point. A sales tax cannot be turned on and off in response to immediate needs. The mechanism for collection takes time to set up and the money comes in as a stream, not a lump. You have to have it set up and running to ensure that when you need the money, it’s available.
The list of “Why nots” can go on and on, but the need for additional revenue is real. The future is uncertain economically (The market dropped over 200 points today) and environmentally (Hurricanes: how many and where?). A sales tax is an acceptable, simple and stable source of added dollars. The mechanism to collect a sales tax exists for the county and state. Collection for the city can be added easily and since the tax is a pass-through, implementation adds nothing to the cost of doing business (unlike increased fees). The neighboring communities all have a sales tax (most higher than the 2 percent proposed), so there would be little change in competitive advantage. And although the sales tax is regressive, as all consumption taxes are, the upscale nature of so many Fairhope shops pretty much makes this issue moot.
Fairhope: Get a sales tax now!
(Don’t feel overtaxed – Alabama is second lowest in the country for total tax burden.)
Contact Pete Gleszer at jubilee@lagniappemobile.com.
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