Assembly can’t decide on revenue; mayor cuts schools, tourism funding

Three revenue options were on the table Tuesday, and the Kenai Peninsula Borough Assembly chose none of them.

The assembly turned down three funding options to support the borough’s budget on Tuesday — a tax on temporary lodging, decreasing the seasonal sales tax exemption on nonprepared foods and a code exception to allow the assembly to withdraw about $1.75 million out of the borough’s land trust fund to pay for government. A fourth, a proposed excise tax on tobacco and e-cigarette products, was withdrawn before the assembly could consider it.

Borough Mayor Charlie Pierce vetoed about $858,000 from the fiscal year 2019 budget the assembly approved on June 5. About $652,000 of that was slated to support the Kenai Peninsula Borough School District and $206,000 was for the Kenai Peninsula Tourism Marketing Council.

Pierce said during the Finance Committee meeting Tuesday afternoon that he chose to veto the spending because the assembly members can’t agree on where to get the funding to support it.

“When you go out and arbitrarily add $800,000 to a budget I presented earlier, you have to go out and collect $800,000 more dollars and I think there’s a real divide about how to go about doing that,” he said.

Pierce wrote in the memos for the two vetoes that the extra spending without additional revenue would have to come from the borough’s fund balance, pushing the fund balance closer to the required minimum amount. In the memo about the funding for the Kenai Peninsula Tourism Marketing Council, Pierce also wrote that his administration wanted to work with the group to reduce costs but found the group uncooperative on some requests to reduce spending. He said during the finance committee meeting that his office suggested relying more on social media rather than print products to reduce costs, which the group did not agree with.

“I think it was clear to us that our ideas and our suggestions kind of hit a wall, and there was less than any cooperation to move,” he said.

The mayor’s vetoes stand, but the assembly chose not to include them on the agenda Tuesday. Assembly member Hal Smalley — who introduced both budget amendments to increase the funding to the school district and to the Kenai Peninsula Tourism Marketing Council — objected to their inclusion on the agenda and moved to set a special meeting for the two vetoes on Friday, July 6 at 6 p.m. The assembly voted not to include them on the agenda in a 5-4 split both times, with assembly members Wayne Ogle, Paul Fischer, Kenn Carpenter and Norm Blakeley in the minority.

The assembly shot down member Dale Bagley’s proposed 12 percent tax on temporary lodging after nearly 90 minutes of public testimony, the vast majority opposing the tax. Lodge owners and hotel managers packed the assembly chambers to oppose the tax, saying their industry was being unfairly singled out and that any new taxes should be broad-based, like a sales tax increase.

If approved, the tax would have gone to the ballot for approval. That what some testifiers were afraid of — Sterling resident Dohn Cho said he was concerned that voters would see it as collecting money only from tourists and would be happy to approve it.

“If this goes to the voters of the Kenai, I know it’s going to pass,” he said. “And 12 percent is just too much… I think it needs to go back, and you can rework it a little bit.”

A form of bed tax has been on and off the assembly’s agenda for about a year. The assembly turned it down 6-3 without much extra discussion.

The assembly also shot down Bagley’s proposal to reduce the borough’s seasonal sales tax exemption on nonprepared food items, known as the grocery tax. Currently, borough residents pay sales tax on food from June 1 through Aug. 30 each year. Bagley’s proposal would have asked voters for approval to reduce the exemption to six months per year from nine. However, multiple assembly members said they didn’t want to tax food and shot the ordinance down 4-5, with assembly members Bagley, Blakeley, Smalley and Brent Hibbert supporting it.

Pierce advised that adding a proposition to the ballot creates significant work for the borough clerk’s office, which conducts elections, particularly for an ordinance the assembly members were sure would fail.

“I appreciate the effort to put it on the ballot,” he said. “I believe the initiative process should be respected and if there’s any changes made to it it should go to the voters, the folks that created it. But I also believe that this is an option that will fail and perhaps generate some additional unwanted initiative process (and) legislation for us.”

The land trust fund will remain unaltered for now, too. A third option for additional revenue to support the general fund came from Carpenter, who proposed an ordinance to withdraw $1.75 million from the land trust fund. After Pierce’s vetoes, the borough budget gap comes to approximately $1.8 million, and the land trust fund withdrawal would have largely covered it.

However, the assembly again balked at withdrawing funds from the trust, with some saying they wanted a clear plan from the administration about how the fund would be used in the future and invested before they used it. Pierce said he couldn’t develop a plan for how the fund would be used immediately, estimating it would be six to eight months before one could be finalized.

The school district was planning to use the additional $652,000 to hire more counselors to work with younger students to support mental health, said Superintendent Sean Dusek. While the district administration is disappointed about the cut, they understand the reason and are thankful for the borough’s support, he said. The assembly can still override the veto with at least six votes.

“We are the safety net,” he said. “We need to put services in place for students to learn.”

As it stands, the borough is still facing a deficit of approximately $1.8 million after Pierce’s vetoes. The assembly will meet again July 6 at 6 p.m.

Victoria Petersen contributed reporting. Reach her at Reach Elizabeth Earl at

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