Assembly debates bed tax, introduces sales tax cap increase

The Kenai Peninsula’s lodging industry is mounting opposition to the Kenai Peninsula Borough administration’s proposed bed tax.

The borough assembly is considering a ballot proposition to instate a borough-wide bed tax of 6 percent, with a 3 percent exemption for cities with their own bed tax. Borough Mayor Mike Navarre’s administration proposed the tax as a way of helping to offset the borough’s spending without having to deplete the fund balance, which the borough is drawing on this year to fund the budget passed by the assembly.

However, owners of lodges and vacation rental businesses are speaking against the measure, saying the tax is singling them out amid the peninsula’s tourism industry to bear the burden of taxation. At the first public hearing on the tax during the borough assembly’s meeting Tuesday, multiple lodge owners objected to the tax.

Much of the objection came from the Homer area, which is heavily dependent on seasonal tourism. Mike Warburton, owner of The Ocean Shores hotel in Homer, said in his testimony he favored a more equitable tax on all tourism-related businesses rather than focusing on lodging.

“We still feel the unfairness of singling us out, lodging, when we are the highest property tax payers of anybody in the tourism industry,” he said.

Four people testified at the meeting from the borough’s Homer annex site, all opposing the tax. Debbie Speakman, the executive director of the Homer Chamber of Commerce and Visitor Center, said about 86 of the chamber’s 500 member businesses are categorized as lodging and that the tax would add to the burden they already pay with the combined city and borough sales taxes.

“The majority of Homer’s visitors are from Anchorage and the Mat-Su,” she said. “These visitors already give us plenty of feedback about our 7.5 percent sales tax. Adding another 8 percent on top of the 7.5 percent calculates to visitors spending one less day, eating one less time and spending less at the retail shops. It’s not just a few extra dollars, and they do notice.”

Navarre’s argument for raising taxes is that it is irresponsible to spend down the borough’s fund balance amid a changing administration in the fall and an ongoing state fiscal crisis. A memo from Navarre’s chief of staff Larry Persily identifies that nearly two dozen other cities and boroughs in Alaska have tried to raise taxes recently “to help cover reductions in state funding and other revenues needs.”

The administration originally proposed the tax set at 8 percent in the borough with an up to 4 percent exemption for cities that instate their own bed taxes. Under the 8 percent tax with the possible 4 percent exemption structure, Navarre’s office estimated that the borough could bring in between $3.1 million and $3.8 million per year, with amounts varying within each of the cities.

Assembly member Dale Bagley tried for several amendments to the bed tax proposal. One that the assembly approved was to reduce the amount of the proposed tax from 8 percent tax with an up to 4 percent exemption to a 6 percent tax with an up to 3 percent exemption.

He moved for another to set a recommendation that a part of the tax be used primarily to promote tourism to the peninsula. The borough funds the Kenai Peninsula Tourism Marketing Council in its budget every year, usually around $300,000. When the borough last asked voters to approve a bed tax, it failed, and Bagley said he’d be interested in what the voters think this time.

“We can’t actually dedicate the funds to tourism promotion, but we can put in this suggestion that this be used for tourism promotion,”he said. “I think that will help take some of the money from the bed tax and put back into promoting that industry.”

However, the assembly voted the second amendment down 6-3. Assembly member Paul Fischer said he didn’t think the assembly or the public understood the amendment well enough to support it and it bypassed the purpose of the sales tax, which in the borough is intended to support the Kenai Peninsula Borough School District.

The tax received support from some commenters. In public comments submitted in writing to the assembly, multiple people said they wanted the borough to ask voters to approve the tax to help bear the burden of the borough’s budget.

“This industry is using our infrastructure, using our new gas lines, using our port, using our roads, using our tourists to make very impressive incomes,” wrote Phil Gordon of Homer. “In the interest of fairness to the members of the community, this industry must stop avoiding their share of taxes.”

In response to objections to the bed tax, Assembly President Kelly Cooper sponsored an ordinance to raise the sales tax cap in the borough from $500 to $1,000. It’s the same ordinance that went to voters in October 2016 and failed by a wide margin, but this time around, many of the lodge owners opposing the bed tax said they would prefer increasing the sales tax cap and would support it.

The borough’s finance department estimated that the sales tax cap increase would generate between about $2.9 million and $3.1 million annually, according to a memo from Cooper and Navarre to the assembly.

“Increasing the maximum to $1,000 would apply throughout the borough, having a much smaller impact on individual sales,” Cooper wrote in the memo. “At most, this would increase borough sales tax by up to $15 for purchases over $500. It is our intention that this will be considered as an alternative option for a revenue source.”

The assembly voted to introduce the sales tax cap ordinance with a shortened hearing, so they can vote on it to send it to the ballot in October at the Aug. 15 meeting.

The final hearing on both ordinances will take place at the Aug. 15 meeting, the cutoff date for anything to make it onto the Oct. 3 ballot.

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

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