Sales tax cap increase goes to ballot

Editor’s note: This article has been updated to show that the borough’s optional senior property tax exemption would be phased out under a proposed borough assembly ordinance.

A measure to raise the cap on taxable purchases in the borough from $500 to $1,000 will go to voters this fall while another measure phasing out the borough’s optional senior property tax exemption will get one more public hearing.

The Kenai Peninsula Borough Assembly dealt with two ordinances amending the borough’s tax code at its Tuesday meeting. Both require voter approval before becoming effective next year.

The first measure raises the maximum taxable amount of a single sale from $500 to $1,000. The cap has not been raised in the borough since 1965, when it was set at $500. Had the number kept up with inflation, it would be more than $3,000 in 2016, according to the ordinance.

In recent years, more of the borough’s general fund revenue has come from property taxes than sales tax, and the gap is projected to widen. The increase seeks to even out the tax burden among residents, generating an estimated $3.6 million per year, according to a memo to the assembly from Larry Persily, special assistant to Borough Mayor Mike Navarre.

One provision that was removed was the five-year automatic indexing. The index would have adjusted the maximum taxable amount for inflation every five years. Assembly member Brandii Holmdahl objected, saying borough residents should vote on it.

“I think that a very integral part of this whole system is that voters are allowed to give feedback,” Holmdahl said. “When we take that away, it makes me really nervous.”

The assembly passed the amendment 5-3, with assembly member Stan Welles absent.

Residential rentals would be exempted under the new code. During review of the ordinance Tuesday, assembly member Brent Johnson said the borough should tax short-term rentals to capture more dollars from visiting tourists who are renting cabins for a few months at a time.

However, others had concern for the effect on renters. Multiple members of the public who commented said they were pleased that residential rentals would be exempt because renters frequently have lower incomes than those who own, making paying the rent more of a struggle.

Assembly member Kelly Cooper said she opposed taxing month-to-month rentals because renters on the southern peninsula often have to pay month-to-month because their landlords will turn them out for the summer to rent the space to visitors for a higher rate.

“That is really very common in the southern part of the peninsula,” Cooper said. “We shouldn’t assume that the month-to-months are the people who are visiting. It’s actually a lot of young folks — rental properties are tight and they have to take what they can take.”

Johnson withdrew the amendment to tax short-term rentals and left the ordinance as it stood.

The assembly also took up a controversial proposal to phase out the borough’s optional $150,000 property tax exemption for senior citizens. The state’s mandatory $150,000 exemption for seniors would remain, as would a $50,000 exemption for all residential property owners, for a $200,000 total remaining exemption. All current exemption holders would keep their current benefits. Additionally, the borough’s hardship provision caps property tax payments at 2 percent of a property owner’s annual household income.

The ordinance, also subject to voter approval, seeks to get out ahead of the increasing average age of Kenai Peninsula residents. The median age on the peninsula was 40.5 in 2014, with approximately a quarter of the population falling between 50 and 64 years old, according to the U.S. Census Bureau’s 2014 population estimates.

Between 2009 and 2015, the number of senior-owned parcels with a property tax exemption increased from 2,897 to 4,162 and the total value of senior-owned residential property in the borough exempt from property tax climbed to $815 million in 2015, according to a memo to the assembly from Persily.

If the exemption is not revisited, more of the tax burden will be shifted onto the younger population as the senior population swells, Navarre said during the assembly meeting.

“The senior population is growing at 10 times the rate of the regular population,” Navarre said. “If we get to a point where we have 50 percent seniors and 50 percent non-seniors, should the non-seniors pay twice as much in order to pay for the services for the seniors?”

Several people who attended the meeting said they were concerned that reducing the senior property tax exemption would deter people from coming here or possibly encourage older residents to move away. Alan Humphries, a pastor in Soldotna, said seniors offer value through their time and skills that could be lost if future generations of seniors have to work and do not have the time to volunteer or participate in other activities.

“They don’t have to work a job because most of them have a property tax exemption, and I realize it won’t affect them, but if you look toward the future, it’s going to affect that,” Humphries said. “I see (this) as a great incentive to get seniors to stay here year-round, all through the winter.”

The assembly postponed a decision about the senior property tax exemption until its July 26 meeting, but will have to take action at that meeting to make it onto the ballot for the election in October.


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