The Haines Borough Assembly is considering a severance tax.
Assembly member Carol Tuynman suggested the revenue-generating measure, a tax on natural resources extracted from the borough, at an April 29 committee of the whole meeting.
In recent years, the borough has used savings, cuts and federal stimulus money to compensate for revenue losses due to the pandemic and the decline of state revenues. The current draft of the borough budget for the fiscal year beginning July 1 anticipates a 35% reduction in sales tax revenues and a 50% drop in school bond debt reimbursement from the state, compared to historic reimbursement.
“In the Commerce Committee it was brought up, are there other ways to get more revenue? And after thinking about it, and actually some people have mentioned it several times over the last couple of years, the idea of a severance tax on raw materials that are taken out of the borough (occurred to me),” Tuynman said at the April meeting.
Some assembly members expressed concern that a severance tax might discourage businesses from investing in Haines.
“This is definitely targeting the mine. Period,” assembly member Gabe Thomas said. “It just seems kind of counterintuitive to diversifying (our economy) if we’re going to tell people not to come here because we’re going to charge the heck out of you.”
Thomas’ opinion is echoed by mining interest groups in the state like the Council of Alaska Producers (CAP). In a 2019 document, the group said the state generated roughly $60 million from its mining license tax in 2018 and cautions against taxing mining at the local level.
“The current tax system in Alaska allows local governments to place special taxes on mining outside of the property tax system… The potential for a borough or municipality to impose, at any time, an unlimited and unpredictable severance tax on a resource it does not own creates serious business risk,” the document reads.
Municipalities with a severance tax say it provides additional revenue for supporting local services.
“It gives us the opportunity to keep our borough going. With fish tax reducing and other types of income from the state reducing, you need to make sure you keep your tax base,” said Jon Erickson, manager of the Yakutat city and borough.
At least four communities in Alaska impose a severance, or excise, tax on select natural resources—Yakutat, Kodiak Island Borough, Denali Borough and Aleutians East Borough. The State of Alaska also has an oil and gas severance tax, which, until recently, was the primary source of funding for the state’s budget. Other communities tax local resource extraction activities through property taxes and payment in lieu of taxes agreements.
“I think (severance tax is) not more common, maybe, because not everyone is familiar with it or aware of it as a potential vehicle. Some negotiate a (payment in lieu of taxes), instead. Either way, it’s an effective tool for local governments to fund essential services and to manage the public interest in the extraction of non-renewable resources,” Alaska Municipal League executive director Nils Andreassen said.
Industries subject to severance tax and the amount collected vary.
Yakutat taxes mining, gravel, sand, coal and timber. Timber is taxed at $5 per thousand board feet. Gravel, sand and coal are taxed at $0.20 per ton, and mining is taxed at 4% of gross production value.
Erickson estimates the borough collects $75,000 in excise tax in a year, mostly from the timber industry. The tax predates his time with the borough.
The Denali Borough taxes coal, limestone and gravel.
“(The severance tax) was one of the original revenue streams when the borough was established in 1990,” Mayor Clay Walker said. The borough receives roughly $50,000 a year from the severance tax, but it was more when coal exports were higher, he said.
In Kodiak, the 1991 severance tax, which applies to timber, mining, gravel and fish, is tied to the mill rate. The majority of the severance tax revenue comes from the fishing industry, which last year paid $1.17 million to the borough. Gravel generated $12,500 and timber, $41,000, according to finance director Dora Cross.
The Aleutians East Borough taxes metal ores and coal at a rate of 1.5% of the gross production value, gravel at $0.10 per cubic yard, and “commercial products of borough waters” at 2% of purchase price. Communications director Laura Tanis said the majority of the severance tax income comes from the fishing industry.
The Aleutians East Borough severance tax was approved by 64% of voters in the 2011 municipal election. “There was very little discussion and no public comments made during the (ordinance’s) introduction or public hearing. All assembly (members were) in support,” Tanis said.
Walker said he believes the coal industry was supportive when the Denali Borough established the tax.
“I wasn’t here when that all went down. As I understand, our larger contributor was in agreement with participating in the new government structure by willingly providing for that severance tax,” Walker said.
Most government officials interviewed by the CVN in the various severance tax communities hadn’t been around long enough to remember if the severance tax was controversial when first implemented. In general, officials said they don’t, at present, hear a lot of pushback about the severance tax in their respective communities.
“It’s not discussed. It just is,” Cross said of the Kodiak severance tax.
Severance tax isn’t the only way communities generate revenue from local resource extraction activities. The Northwest Arctic Borough received $14.9 million in payment in lieu of taxes from the Red Dog mine in 2018.
Between the Greens Creek and Kensington mines, the City and Borough of Juneau receives roughly $3.2 million annually in property taxes. The mines also pay the municipality’s sales tax for many of the goods purchased to support their operations, according to Juneau finance director Jeff Rogers.
He said implementing severance tax hasn’t been discussed during his time as finance director.
The North Slope Borough generates roughly $350 million in property taxes from oil industry operations.
The Haines Borough doesn’t have the option of generating property tax revenue from current mining and timber development projects as these aren’t located on borough land.
At the April 29 meeting, Mayor Douglas Olerud said the next step in the borough’s severance tax discussion will be researching how other towns generate revenue from extraction activities.
“We should reach out to Juneau and see what kind of arrangement they have with Greens Creek and Kensington and see if they do anything with any other industries there and maybe use that as a model to compare against Kodiak… and then we can have further discussion,” he said.