Bed tax decision delayed until March

The proposed bed tax before the Kenai Peninsula Borough Assembly won’t go anywhere until at least March.

The assembly approved an amendment at its Tuesday meeting to add an extra public hearing for the proposed tax ordinance at its March 6 meeting. The ordinance, if passed, would place a question before voters on the October 2018 ballot whether the borough should institute a 6 percent areawide sales tax on temporary lodging and overnight camping with an up to 3 percent exemption for cities that put a similar tax in place.

The ordinance, proposed by assembly member Dale Bagley, is the revival of a proposed ballot proposition the assembly defeated earlier this summer before the Oct. 3 election. Instead of the proposed bed tax, the assembly opted to ask voters whether the borough should increase the cap on taxable sales from $500 to $1,000, which the voters soundly defeated by an approximately 19.4 percent margin.

Bagley said he reintroduced the proposal as a way of shoring up the borough’s deficit spending after the assembly approved a budget projected to draw about $4 million out of the borough’s fund balance. Most other municipalities in the state have a bed tax of some kind, he wrote in his memo to the assembly.

“If this is approved it would impose a maximum bed tax of 9 percent in the borough, including the existing 3 percent sales tax, and in cities that charge up to 3 percent general sales tax there would be a maximum of 12 percent for temporary lodging including this tax and the existing sales taxes,” he wrote. “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.”

Under the proposed timeline, the question would go before the voters on Oct. 2, 2018 and, if passed, would go into effect April 1, 2019 to allow for time to implement it. He also said during the assembly finance committee’s meeting Tuesday afternoon that he wanted to work out a way for some of the funding to be directed back to the industry through the Kenai Peninsula Tourism Marketing Council and the Kenai Peninsula Economic Development District, two nonprofits to which the borough provides funding.

“After our conversation with the mayor’s office, I’m probably going to try to figure out a way to tie in some funding to KPTMC and KPEDD,” he said. “…Especially if it gets postponed until March, I’ve got plenty of time.”

However, assembly member Kelly Cooper introduced an amendment to add an extra hearing for the ordinance at the March 6 meeting, effectively delaying any action on it until that meeting.

Former borough mayor Mike Navarre’s administration proposed the tax the first time around as an option to help bridge the spending gap. Navarre’s former chief of staff, Larry Persily, helped craft the original proposal and testified in favor of Bagley’s proposal at the meeting Tuesday.

“You’re leaving money on the table by not having a bed tax in the borough,” he said. “… As visitors to the peninsula, we enjoy our time here and we come down because of what the peninsula offers, not because a hotel room or a B & B may be a couple dollars cheaper by not having a tax. We know that our enjoyment when we visit the peninsula depends on public services.”

Business owners in the lodging industry came out in force against the bed tax the first time, largely in the Homer area, which depends heavily on revenue from tourism. Multiple lodges, bed and breakfast and hotel owners wrote to the assembly, either opposing the tax or supporting its postponement until March.

Marcia Kuszmaul, president of the Homer Bed and Breakfast Association and the owner of the Juneberry Lodge, wrote in her public comment to the assembly that they should explore other alternatives and postpone discussions until March.

“As we have stated before, we question the efficacy and the equitability of a bed tax and recommend the assembly explore very feasible alternatives such as a tourism tax that can be lower and include all businesses that benefit from tourism, not just accommodations,” she wrote.

One lodge owner, Joe Connors of Sterling, testified against the tax at the meeting. Lodge owners are already taxed differently than other businesses because they have to calculate tax per head per night, rather than the total duration of a guest’s stay. That subjects most of a visitors’ bill to the $500 per transaction cap on the amount of a sale subject to tax. He argued that it’s unfair to levy a tax against a specific business sector and advocated for increasing taxes on other industries as well.

“We are being treated totally different than any other entity that sells anything in this borough,” he said. “… I want to pay my share. But I want everybody to pay their share. And it’s incumbent upon you to spread it out.”

Quick said during his presentation of the mayor’s report that he and Pierce had already planned to cut about $200,000 out of the budget by not hiring back additional positions to the mayor’s office and had asked department heads to travel as little as possible and that all new hires should come through the mayor’s office. He did not provide explicit details but said the mayor’s office had been going line-by-line through the budget to look for savings.

“We think we’ve found a way to balance the budget, which is great news,” he said.

The assembly will next take up the ordinance at its Dec. 5 meeting.

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

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