Since the inception of the Hotel/Motel Tax (also referred to as “bed tax” or “lodging tax”) in the City of Fairbanks in 1979, the City Council has demonstrated varying degrees of support for reinvestment of the bed tax into destination marketing via Explore Fairbanks. Securing funding for destination marketing via Explore Fairbanks has been a priority for the Fairbanks travel industry. Below are a few key junctures relevant to today’s discussion:
Initiated by the newly-created Fairbanks Convention and Visitors Bureau [FCVB] - now known as Explore Fairbanks – the Greater Fairbanks Chamber of Commerce and the travel industry in Fairbanks, the City Council under Mayor William Wood enacted a 2% hotel/motel tax in 1979 with a clear intent for economic development, especially destination marketing: “…for the purpose of and shall be limited to the funding of tourist and entertainment facilities for the general public, to promote the tourist industry, and the economic development of the City of Fairbanks." At the time, the ordinance specified that 90% of the funds collected will be returned to the visitor industry to market Fairbanks to the rest of the world through FCVB.
- Members of the City Council had articulated concerns about the effect that a growing bed tax had on the amount of property tax that can be levied by the City under its current tax cap. The case put forth was that under the tax cap, every new bed tax dollar collected dictated that one less dollar in property tax can be collected. At the time, the City retained 100% of every property tax dollar collected but 35% of every bed tax dollar collected. The result of reinvesting a consistent 65% of a growing bed tax back into FCVB/Explore Fairbanks destination marketing efforts was a declining amount of property taxes that could be collected to fund City services.
- On 07/15/2000, the Mayor and City Council approved Ordinance No. 5420 which was supported by the local travel industry. The ordinance had three main points: 1) during the upcoming election, the voters would have the opportunity to remove any bed collections from the tax cap; and 2) established 65% to FCVB/Explore Fairbanks; 6% to Fairbanks Industrial Development Corporation (FIDC) [Note: now known as Fairbanks Economic Development Corporation (FEDC)]; and “all remaining revenues for the funding of general services and/or discretionary grants”; and 3) a housekeeping detail that clarified what was already being done by adding “and for the funding of services for the general public.”
- On 10/03/2000, the voters approved the removal of any bed collections over the total 1999 collections ($2.23 million) from the tax cap. This successful vote was the direct result of a “Move Fairbanks Forward” campaign executed by the local travel industry in order to have a growing bed tax not interfere with the City’s ability to collect other taxes. Move Fairbanks Forward also successfully worked to pass a similar vote in the Fairbanks North Star Borough in 2003.
2003 to Present
In 2003, the City of Fairbanks further reduced the reinvestment of bed tax into destination which again flared tensions with the local travel industry.
- After discussions with a group of individuals representing various bed tax reinvestments, a new Ordinance No. 5520 passed in early 2003 which stipulates: 22.5% to the City of Fairbanks; $400,000 distributed annually to Fairbanks Economic Development Corporation ($100,000), Golden Heart Plaza/Barnette Landing Maintenance ($30,000), Discretionary Grants ($270,000); and the remaining to FCVB/Explore Fairbanks.
- Since establishment in 2003, this “remaining” to Explore Fairbanks has varied depending on how much bed tax has been collected in a year. Explore Fairbanks accepted the responsibility of this variance which has been at a low of 55% in 2003 to a high of 66% with an average of 63% in the last 10 years (2009 through 2017).
2016 – present City Budget
This ordinance marks the third year in a row that Mayor Jim Matherly has proposed to use the Hotel/Motel Tax to balance the City budget. In 2017, City voters rejected an increase in property taxes to fund City government. However, in 2016, 2017, 2018 and 2019 to date, the City Council not only balanced the budget but also has been able to increase the City General Fund’s estimated unassigned balance to $10,238,640 as of May 20, 2019. The City’s Capital Fund estimated balance stands at $10,569,166 as of May 20, 2019.
NOTE: In the Fairbanks area, in addition to the City of Fairbanks, two other governments collect an 8% tax from lodging facilities: the Fairbanks North Star Borough (excluding the cities of Fairbanks and North Pole), and the City of North Pole.