Sales tax increase back on assembly agenda

The public will have a chance to weigh in Tuesday on a proposition to ask voters whether the Kenai Peninsula Borough should raise the sales tax.

The assembly is considering an ordinance that would ask voters to approve a sales tax increase from 3 percent to 3.5 percent borough-wide. A $100 purchase would increase from $103 to $103.50 on purchases in the borough outside city limits, with the amounts in the cities varying based on the individual local government’s sales taxes.

The increase, proposed by assembly member Kelly Cooper, would go into effect April 1, 2019 and would raise an estimated $1.4 million in the remaining three months of fiscal year 2019 and $5 million each year after that, according to a fiscal note attached to the ordinance for the assembly’s Tuesday meeting.

The sales tax increase is the most recent attempt to bridge the borough’s $4 million budget gap and preserve the fund balance. Cooper wrote in her memo to the assembly she proposed the sales tax increase as an alternative to the bed tax proposal, which was defeated at the assembly’s March 6 meeting.

“The shortfall cannot be solved by cuts alone,” she wrote. “The borough needs to look to both create new revenue sources and to broaden the impact of taxes levied so that a small proportion of the population is not overburdened by the impact of local government taxes.”

Borough Mayor Charlie Pierce’s administration has proposed an amendment to move the effective date to Jan. 1, 2019 to align with the city of Soldotna’s new 4.5 percent tax on cannabis, allowing the borough to modify its sales tax software at the same time to save time and expense, he wrote in a memo to the assembly. Assembly member Norm Blakeley has also proposed an amendment that would set a sunset date on the tax increase after four years, requiring voter approval in 2022 to extend it beyond that year.

“Although the economy is currently in decline, in four years it may rebound, eliminating the need for additional sales tax revenues generated by the 0.5 percent increase this ordinance would authorize,” he wrote in his memo to the assembly.

The borough’s sales tax has been set at 3 percent since fiscal year 2008, when it increased from 2 percent. It was previously reduced from 3 percent in fiscal year 1976, according to a sales tax rate history attached to the ordinance. Sales taxes in the borough are dedicated to support the Kenai Peninsula Borough School District.

The assembly will hear the ordinance at its meeting on Feb. 3 in at the assembly chambers in Soldotna.

Reach Elizabeth Earl at eearl@peninsulaclarion.com.

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