The Kenai Peninsula Borough Assembly voted Tuesday to increase the borough sales tax to 3 percent beginning Jan. 1.
Current estimates suggest the 1-percent increase in the sales tax will generate between $8.3 million and $9 million during a full fiscal year.
By a nearly unanimous 7-1 tally, members agreed with the administration argument that it was time to bring revenues from sales taxes more in line with revenues derived from property owners through the borough’s 6.5-mill property tax levy.
Mayor John Williams has said he would soon introduce an ordinance cutting the property tax by a full mill over the next two years, saving homeowners $100 a year on each $100,000 worth of assessed value.
The assembly considered but ultimately rejected an amendment offered by Assembly President Ron Long to limit the tax increase to .5 percent. Long’s amendment reflected recent financial information from the administration suggesting a half-percent increase coupled with a .5-mill decrease in the property tax would be adequate to balance the budget without further depleting the general fund balance.
Assembly member Gary Superman, of Nikiski, favored increasing the tax to the full 3 percent, saying it was time to give property tax owners a break.
“Property taxation is the most hated tax of all the people in America. It ranks up there number one in any surveys that have been done,” he said. “We have an opportunity to make that shift here to have a meaningful impact on our mill rate.”
The borough currently gets about two-thirds of its revenue from property taxes and the other third from sales taxes. That’s backward, Superman said. A 3-percent sales tax coupled with a mill levy decrease would bring the two revenue streams about even, he said.
“A 1-percent (sales tax increase) is meaningful,” he said.
Originally, Ordinance 2007-07 had proposed that the sales tax increase go into effect on July 1, at the beginning of the new fiscal year (2008).
However, the administration and assembly opted to shift the start date to January of next year for two reasons --to eliminate the need for local businesses to scramble to gear up for the higher tax and to avoid any conflict with state statutes that require at least a two-year wait before government action can reverse or significantly change an action resulting from a voter initiative.
In October 2005, voters approved a proposition capping the sales tax a 2 percent and requiring that any future increases be approved at the polls by 60 percent of voters. The assembly had voted to push the sales tax to 3 percent in June 2005 as part of an omnibus revenue enhancement measure (Ordinance 2005-09).
Last fall, a referendum seeking to repeal all parts of Ordinance 2005-09 failed. Referendum rules, however, required that even the sales tax increase reversed by voters in 2005 had to be included in the 2006 ballot measure.
During the interim, many voters apparently changed their minds about taking away the assembly’s ability to increase the sales tax by simple ordinance, and last October a majority voted against repeal of Ordinance 2005-09, effectively handing control of the sales tax levy back to the assembly.
A 1964 ordinance approved by voters established a 3-percent ceiling on the sales tax. Going above that would require a vote.
It is not clear at this point --indeed it is the subject of a lawsuit --whether the 2006 vote completely negated the effect of the 2005 initiative capping the sales tax at 2 percent and requiring the 60-percent majority.
Vicki Pate, a member of the Alliance of Concerned Taxpayers, which backed the 2005 initiative and the 2006 referendum, told the assembly Tuesday she believed it would be against the law for the body to vote on a sales tax increase before October of this year.
By October, the two-year period set by state statute precluding legislation altering the effect of an initiative action will have passed.
The alliance, commonly referred to by its acronym, ACT, has filed a lawsuit against the borough arguing that the municipality lacks the authority to raise the sales tax because the 2005 initiative result still applies.
The borough is ready to challenge that assertion in civil court, but no trial date has been set.
Hal Spence can be reached at harold.spence@peninsulaclarion.com.
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