Bed tax back on assembly agenda

The much-debated bed tax proposal may get second life, if the Kenai Peninsula Borough Assembly chooses to introduce an ordinance reviving it.

Assembly member Dale Bagley has submitted an ordinance for introduction at tonight’s assembly meeting that would place a question on the October 2018 ballot asking voters whether the borough should institute a 6 percent tax in the borough on temporary lodging and overnight camping with an up to 3 percent exemption for cities that have similar taxes in place. If the assembly approves it for the ballot, voters would still have the final say.

The proposed tax is identical to one the assembly shot down in August, opting instead to place a question of raising the cap on taxable sales from $500 to $1,000. Voters rejected the measure in the Oct. 3 election, with 59.7 percent saying no. The proposition had been a backup to the bed tax, sponsored by Borough Mayor Mike Navarre’s administration and Assembly President Kelly Cooper, because heavy objection from the lodging industry throughout the debate on the bed tax combined with disagreement on the assembly seemed on its way to stopping the bed tax before it went to the ballot.

Bagley, who argued in favor of the bed tax question because the voters defeated the sales tax cap question by a wide margin the previous year, wrote in his memo that the bed tax would help address the borough’s current deficit spending problem.

“As the voters defeated (the sales tax cap proposal) in October, the borough remains in a position of needing to take steps to fill that shortfall,” he wrote. “I proposed that we pass the temporary lodging tax ordinance and submit it to the votes for consideration in the next regular election. If approved it would be effective April 1, 2019 to allow time to properly implement it.”

The assembly passed a budget in June that increased funding for education but didn’t raise raise the mill rate or another type of tax, leaving the borough with an estimated $4 million budget gap. Navarre had originally proposed an 8 percent bed tax in the borough with an up to 4 percent exemption for the cities that had implemented a similar tax, but the assembly amended it to the 6 percent with up to 3 percent exemption during the debate.

Bagley’s ordinance submitted for today’s meeting does not include a revenue estimate, but the fiscal note attached to the proposed tax from August estimated that the tax would generate about $510,000 in its first year and about $2.3 million in the subsequent years, not including an estimated approximately $68,414 in startup costs.

Bagley noted in his memo that the Kenai Peninsula Borough is one of the only municipalities in the state that does not have a bed tax. The way the proposed tax is structured, the maximum tax rate in the borough outside cities would be 9 percent, with the 3 percent sales tax added to the 6 percent bed tax. Within the cities, it could be up to 12 percent, with the cities’ sales taxes added to the borough’s sales taxes.

“Several hundred thousand visitors travel to the Kenai Peninsula each year and while they contribute to the area’s economy, they also create a large demand on public services in the borough,” he wrote. “These additional sales taxes would support education but would also make other revenues available for services funded by property taxes and reduce the impact on the fund balance.”

Advocates of the tourism industry and lodging owners objected to the assertion that the borough does not have a bed tax — several years ago, the borough changed the way sales tax is calculated for lodging, requiring it to be calculated per day, thus avoiding hitting the sales tax cap of $500 and paying tax on each individual transaction.

If introduced, the first public hearing is scheduled for the Dec. 5 meeting.

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.

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