LaFrance proposes changes and cuts to Anchorage alcohol tax spending in upcoming budget

Nov. 14—In her proposed budget for 2025, Anchorage Mayor Suzanne LaFrance intends to spend a combined $22.6 million collected through taxes on alcohol and cannabis.

But within that appropriation is a subtle overhaul of how the municipality handles the accounting of those funds — specifically those collected through the levy on alcohol sales. The change amounts to a significant spending reduction for 2025, dropping alcohol tax spending from $21 million down to $15 million for the year ahead.

The alcohol tax, a 5% levy on retail sales, has been collected since 2021, and in the last several years has been a key instrument for funding programs dealing with homelessness. The 5% marijuana tax, which was approved in the 2023 municipal election, was collected for the first time this year and is now being factored into the city budget. (The state of Alaska also taxes cannabis products, though not at the point of sale.) Both taxes are outside the so-called "tax cap," a statutory limit on how much money can be collected from property taxes.

By law, both pots of money have to be spent on a general set of priorities, including housing, homelessness, public safety, substance abuse treatment, as well as child care and early childhood education. But beyond that, the administration and Assembly have a good deal of discretion.

"One of the impacts from the last few years, from the pandemic forward, has been ... some budgets that didn't reflect reality," said Ona Brause, director of the city's Office of Management and Budget.

Specifically, that applies to how the alcohol tax was administered, Brause said.

As the new fund source was being integrated into city budgeting starting in 2021, not all of the money it generated was being spent. Surplus dollars rolled into the next year. And so the amount of funding available looked bigger than the revenues coming in during a calendar year.

Even though the tax has brought in around $15 million annually, there were years under the Bronson administration when, on paper, it was supporting upwards of $28 million in programming, according to a presentation by the current administration to the Assembly in October.

Brause said one of this administration's tasks this budget cycle is bringing spending from the tax back in line with what's actually raised.

"The reality is (the Bronson administration) didn't get the money out. We appropriated the money, it fell into fund balance, it kept rolling over ... and it looked like that was how much money we had," said Assembly Chair Christopher Constant. "Suzanne's team made a difficult but correct action."

Funding for homelessness

Anchorage Health Department Director Kim Rash, whose department administers a huge share of the funds through grants and awards, described the programs it supports as "providing safety net services to our community."

In 2023, that included hundreds of thousands of dollars in awards to pay for counseling, meals at homeless shelters, legal advocacy, and mental health support programs in the Anchorage School District.

In past years, alcohol tax money also has paid for a huge component of the municipality's homelessness and sheltering response, although state and local operating budget dollars are used, as well.

Many of the services it pays for were not things the municipality did prior to the pandemic, which drastically changed the city's approach to spending on homelessness.

In a report on 2023 funding that Rash prepared, the largest single appropriation was for $2.23 million to the Aviator Hotel for providing 182 people with rooms as part of the non-congregate shelter program, along with food, case management, and peer support services.

The LaFrance administration proposal would reduce alcohol tax spending from $21 million in 2024 down to $15 million in 2025.

The biggest cuts are in grants and funding toward child abuse, sexual assault, and domestic violence. Instead of the $7.1 million budgeted for that category last cycle, this year the mayor's proposal is for $1.7 million.

Among the cuts is $2.2 million in early education grants and $1.75 million to the Anchorage Children's Trust. Another $1.5 million was removed from substance abuse and mental health programs, although some of those operations will still take place, but simply be funded through the operating budget instead of by the alcohol tax.

The administration also is roughly doubling how much alcohol tax money is going to pay for first responder services, from $1.5 million to nearly $3 million. Most of that change is the addition of $1.4 million to make the fire department's Mobile Crisis Team a 24/7 operation.

The amount spent on homelessness services from the alcohol tax revenues is more or less flat around $10 million. But there are shifts internally within that figure.

In April, the Legislature approved $4 million to help the municipality pay for year-round operations at its Midtown homeless shelter. In her proposal, LaFrance cut $2 million that previously paid for emergency cold weather shelter at the same location for four months. The administration is also proposing to drop $1.8 million for the Home for Good housing initiative run by the United Way of Anchorage.

The one major addition is $4.5 million for non-congregate shelter rooms at four Anchorage hotels over the winter.

Some of the proposed cuts have been criticized by affected organizations and residents. At an Assembly meeting last week a crowd of residents testified, calling for the city to reinstate funding for programs that they said are critical to crime prevention and community health:

Grace Yang, a youth member of the Anchorage Youth Court, said she was testifying because "essential funding for our organization was not included in the budget."

"This funding is very important because it would provide the money necessary for our organization to ensure our defendants get the restorative care they need," she said.

Constant said that many of the smaller grant recipients cut from the mayor's proposal will be "made whole," either through appropriations out of the operating budget or by using the new marijuana tax to fund them.

Marijuana tax spending

As for the marijuana tax, this is the first year the city has money from it to spend. The revenue goes into the Anchorage Child Care and Early Education Fund. The ballot measure required a new board to advise elected officials on the best uses for the money. In September, that group, called the Implementation Team, made its first set of recommendations.

"As of right now the proposed appropriations are somewhat similar to the Implementation Team recommendations," Brause said.

In a normal year, the administration expects to receive around $5 million from the marijuana tax. This year, because they have been collecting money through much of 2024, they have more in the bank and are proposing to spend a total of $8.6 million.

While there are general spending targets, the proposed budget does not get into specifics.

The biggest chunk, $2.4 million, would go to "existing licensed child care and early education entities to support key operational costs." Another $2 million is proposed for "targeted funding that drives innovation and is intended to inspire confidence and further investment in the sector." And $2 million more is earmarked for "early educator child care subsidies." That mirrors a recommendation from the report that the municipality test a program piloted in Kentucky, where the state paid the cost of child care for employees working in the sector to help shore up staffing.

Smaller amounts of money would go toward capital improvements and repairs at existing facilities, covering startup costs for new in-home care providers, and early literacy programs through the public library system.

The Assembly is in the process of adding to and amending the mayor's proposed budget, which is expected to be approved later this month.

Emily Goodykoontz contributed to this report.