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First-term borough Mayor John Williams says that when he took office three years ago the borough was in financial disarray, its revenue streams out of balance and weighing too heavily on property owners, and capital projects mired in difficulties.

Today, he defends a record he says shows he met those problems head on, solving some, but leaving more work to do. He wants a second three-year term to complete more of those tasks.

His challenger Dave Carey, mayor of the city of Soldotna since 2001, believes the borough was not in such desperate straits as Williams claimed. Further, he asserts that much of the electorate feels disconnected from a government that is out of touch, and that the administration and the assembly have ignored public appeals as well as directions mapped out by voters at the ballot box. He believes he offers a change of style and an open ear.

Carey, a resident of Alaska since 1961, was a long-time high school social studies teacher and has taught political science at Kenai Peninsula Collage for 14 years. He served three terms on the Kenai Peninsula Borough Assembly, held a seat on the Soldotna City Council before becoming the city's mayor, and has held a seat on the Homer Electric Association Board of Directors for 20 years, including three terms as its president. In 2006, he ran an unsuccessful primary campaign against Rep. Kurt Olson for the Republican nomination for House District 33.

Williams also has a long history of public service, as well as private-sector experience. Before becoming borough mayor in 2005, Williams served six terms, 18 years in all, as the mayor of the city of Kenai. He has knowledge of both private and public finance. He taught petroleum technology and automation at Kenai Peninsula College for 17 years.

In a recent interview, he said it has been a tough but productive first term.

"We started out to do some fundamental changes here at the borough three years ago. When we came in, things were rather in disarray. It took us a long time to get it back in balance," he said.

As Williams took office in late 2005, the borough was nearing the halfway point of the fiscal year 2006 budget. The General Fund's working savings account, called the fund balance, was headed south. In the original FY 2007 budget, the first developed under Williams, the fund balance appeared headed toward $12 million -- the bottom of the safe zone recommended by the borough's financial advisors. The Legislature's decision to aid municipal governments around the state helped avert that plunge.

Meanwhile, the administration and assembly began taking local steps to reverse the downward trend in the fund balance, and today, the fund balance is closer to $18 million, roughly the middle of the recommended safe zone.

In his first administration, Williams pushed to re-balance the borough's two main revenue streams, the sales and property taxes. With assembly approval, the sales tax was raised from two to three percent effective Jan. 1, 2008, a controversial move given a fair degree of public opposition. Meanwhile, successive reductions to the property tax mill rate brought it to the current level of 4.50 mills, lower than any time during the last 20 years.

Today, the two revenue streams generate roughly the same amounts for the borough's general fund.

Williams points to completion of $100 million in capital construction either inherited by or begun in his administration, including a school, two hospital expansions, and the new 911 Emergency Response Center. Two new operating agreements were negotiated with the peninsula's two public hospitals. Meanwhile, local taxes continued to fund schools to the maximum allowed by law, he said.

Carey said he remembers attending borough assembly meetings soon after Williams took office in 2005. Voters that fall had decided against an increase in the sales tax proposed by Williams' predecessor, Mayor Dale Bagley. Carey said Williams' administration appeared to take the attitude that the voters were wrong.

"He spoke to us about the dire emergency we were all facing, that we were two years away from economic collapse," Carey said in a recent interview. "It was not a huge absolute that everything was going bad."

Carey argued that today revenue aplenty is coming in from rising assessments on private property, rising motor fuel prices that generated still more in sales taxes, plus enhancements to the sales tax stream from new rules for taxing tourist packages.

"The incumbent talks about cutting taxes, but if they raise assessments by a larger amount than they lower the mill rate, you're going to pay more," Carey said. "The only group that has paid less in taxes is the oil and gas industry, which pays 20 mills regardless."

State law sets a 20-mill tax levy on oil and gas properties. The borough takes its levy from that, with the rest going to the state. If the borough lowers its mill rate to relieve individual property owners elsewhere in the economy, it also gives up some revenue from the oil patch.

As for the assessments, state law, not the assembly, governs how borough tax assessors must value property. The borough has little control over the accounting regimen. It can, however, lower the mill rate, which has fallen from 6.5 mills to 4.5 mills under the current administration.

Williams said increasing the sales tax and lowering the property tax were the correct fiscal moves at the time. Carey's Soldotna could soon face similar revenue difficulties.

The Tax-Free Food initiative on the Oct. 7 municipal ballot that would eliminate borough taxes on non-prepared foods (groceries) from Sept. 1 to May 31, would also impact general law cities, such as Soldotna, Seldovia and Homer, which, by state law, may only tax items also taxed by the borough. Thus, if the borough tax went away, the cities would also have to drop their food taxes as well, unless the borough specifically granted them the authority to set their own taxing policies.

The Soldotna City Council has formally asked for that authority, knowing the loss of the tax revenue from food would cost the city about $700,000 a year. That's 10 percent of the city's sales tax revenue in a city that gets 90 percent of all revenues from sales taxes. Homer and Seldovia have also asked for authority to decide their own food-taxing policies.

The assembly responded Sept. 16 by passing an authorizing ordinance, but a reconsideration move has delayed possible implementation at least until Oct. 14.

As mayor of Soldotna, Carey has chosen not to take a position on the tax-free food issue, he said, but he did offer that he thought the borough's fund balance was large enough to absorb its expected $1.8 million hit for at least two years.

Carey blamed the administration for taking steps to generate revenues that have hurt business and the public.

"They shouldn't have put restrictions on and found every method they could (to generate revenue), from taking the (property tax) exemption off seniors to the per-person, per-day" rules applied to recreation packages, he said. "They see people as a source of taxation, rather than those individuals we need to serve."

While the administration and assembly did cap the unlimited tax exemption seniors enjoyed on their primary residences at $300,000 (seniors now pay taxes on value in excess of that), the ordinance creating the per-person, per-day tax on recreation packages was a product of Bagley's administration and passed almost four months before Williams took office. Subsequent events, however, delayed its actual implementation until April 2007, well into Williams' term.

Williams said he thinks his administration has done a good job controlling costs. The primary functions of the borough -- education and waste management -- are costly enterprises, he said. The borough's service areas -- for fighting fires, meeting medical emergencies, maintaining roads, promoting recreation, mitigating floods -- certainly contribute to the overall tax burden, but were all creations of public demand.

The administrative arm of the government is a relatively small part of the overall budget, and its costs have largely been held in check during the past three years, Williams said.

"People do not realize what a very tight budget the 'borough government' has," he said. "Subtract waste management, service areas, all the extraneous things, and the hospitals and the like, and come back just to the general fund budget, you're talking about $17 million."

Williams said in a second administration he would focus on roads. The latest state capital budget provided some $8.4 million for roads projects, enough to take significant steps toward fixing some transportation problems, he said.

"It's been a long time since the borough has been able to pool a sufficient amount of money to do anything meaningful with our roads," he said. "We are going to move into roads in a big way."

Williams already has hired a civil engineer, who will help the borough prioritize a myriad of roads projects.

He also said he would undertake a borough pay study to determine how borough pay scales stack up against those of the private sector. The last study was conducted over a decade ago, he said.

Williams said it was "an absolute priority" to finish the expansion of South Peninsula Hospital. The borough also must address replacing costly medical equipment to keep that facility, as well as Central Peninsula Hospital, current.

On education, Williams noted the borough's long history of funding schools to the legal cap. The borough has a lawsuit still on the table alleging the state has not lived up to duties to fund education adequately and fairly. Williams said he doesn't think he'll have to use that hammer.

"I think the Legislature received a clear message from our borough that our education needs were not being met and they came to the forefront," he said.

Carey said if he were elected he would include as a major initiative an effort to promote comprehensive vocational training that would prepare Alaska's young people for the coming jobs on the gas pipeline and other civil construction projects.

"We are five to eight years away from a gas line. We need a workforce of over 5,000," he said.

Asked how the borough could make that happen, Carey said, "Economic development; take it on as a goal. If the borough mayor and the assembly set it as a goal, you'll find people will come to you."

Carey also wants to see the extension of the Kenai Spur Highway up the west coast of the peninsula completed. He acknowledged that it would take a lot of financing from the state and federal government, but building that road would broaden the borough's tax base.

He also said the borough needs to be very involved in ensuring the sustainability and protection of its water resources.

He promised to work hard at acquiring funding from Juneau.

Hal Spence can be reached at hspence@ptialaska.net.