The Kenai Peninsula Borough Assembly shot down one revenue option Tuesday night but has a number of others waiting for upcoming meetings.
The assembly has been wrangling over how to raise revenue to close the gap in its budget. Last year, the assembly approved a budget with no new revenue and an approximately $4 million budget gap, drawing down on its fund balance to pay the bills. With spending cuts and about a 5 percent increase in the property tax rate, the gap has been reduced to about $2.7 million. The assembly is considering other options to try to that could close it completely.
Those options include a bed tax on temporary lodging, tobacco tax, an increase in the months that borough collects sales tax on nonprepared foods, and an increase in the $500 cut-off point for charging sales tax on individual purchases. A bed tax would require a public vote, but the other three technically do not.
Assembly Members Kelly Cooper and Hal Smalley co-sponsored an ordinance that would have asked voters in the October election to increase the borough-wide sales tax rate from 3 percent to 3.5 percent, raising about $5 million a year. However, the assembly turned it down 5-4, with Cooper, Smalley, Paul Fischer and Willy Dunne voting in favor.
Cooper had proposed the sales tax increase as a broad-based revenue source to support the general fund, in part because all borough sales tax dollars go specifically to fund schools. A number of people came forward to offer support for a sales tax increase campaign to help it win in October.
“I would note that we haven’t had a sales tax or mill (property tax) rate increase in 10 years,” Cooper said during the assembly’s Finance Committee meeting.
Assembly member Dale Bagley is sponsoring an ordinance that would ask voters in October to approve a 12 percent tax on hotel rooms and other types of temporary lodging, called a bed tax. The lodging industry would be exempt from the general borough sales tax under the ordinance.
Kenai City Manager Paul Ostrander offered support for the bed tax over the proposed sales tax increases, and said the bed tax likely has a better chance of passing on the ballot because it targets more non-residents than a sales tax.
“There seems to be a focus that whatever the solution it is, it all needs to be one tax that covers the entire gap,” he told the assembly. “I would say it doesn’t need to be a solution that covers everything. If you look at the bed tax, it generates about $3.1 million … a bed tax generates most of that fiscal gap.”
Bagley has also sponsored an ordinance that would change the current tax structure on nonprepared foods, known as the grocery tax. Nonprepared foods sold in stores are currently exempt from borough sales taxes for nine months per year. Bagley’s original ordinance would have removed the exemption for the entire year, but he introduced an amendment Tuesday to reduce it to six months.
Fischer and Norm Blakeley said they would only support the change if it went to the voters. Bagley said he would consider adding ballot proposition language to the motion, and the assembly agreed to postpone the ordinance to the June 19 meeting.
During the Finance Committee meeting, Borough Mayor Charlie Pierce pitched the idea of an excise tax on tobacco to help raise revenue.
He didn’t propose anything formal Tuesday, but said his administration had been investigating it and would bring something to the assembly in the near future on it. “It does not require the ‘what-ifs’ of if it goes to the ballot, whether it will or won’t pass,” the mayor said.
Unlike a sales tax, which is collected on the purchase item, an excise tax is charged on volume, such the state tax of 10 cents per cigarette.
The mayor also told the assembly he will look into adding marijuana and alcohol to the tobacco tax proposal.
Sales tax cap
Assembly Member Kenn Carpenter proposed an ordinance that would remove the voter-approval requirement for the assembly to raise the cap on taxable sales. The assembly has sent a proposal to the ballot the past two years, asking voters to raise the cap from $500 to $1,000, allowing the borough to collect tax on sales up to $1,000. At the borough’s current 3 percent tax rate, that would add $15 in tax on a $1,000 purchase.
Currently, the assembly has to ask voter permission to raise the cap. Carpenter’s ordinance, set for hearing July 17, would remove that requirement. Voters haven’t raised the cap since it was established in 1964. Dunne noted that voters passed an initiative in 2005 to require voter approval to raise the cap, and could pass another initiative to require voter approval within a year via referendum.
Assembly Member Brent Hibbert noted during the Finance Committee meeting that voters had said no to the increase twice. “And the voters have told us three times on the bed tax and twice on the food tax.”
Land trust fund
Carpenter has also proposed withdrawing $1.75 million from the borough’s land trust fund to help pay for general government, with a public hearing set for June 19.
The proposal is a revision to a plan Pierce originally pitched to use part of the land trust to pay for the fiscal year 2018 budget, though Carpenter reduced the amount.
“It’s sort of trying to compromise from the $3.5 million deficit we were in,” he said. “I figure we can compromise, take half of that from the land trust. It’s even written there that we don’t have to use it, we can put it back in the land trust, but if we need it it’s there, available for a one-time option only.”
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