As the new borough administration continues to look for ways to balance the budget, some of those ideas will have effects in the borough’s cities. City managers, council members and others got together this week to discuss the latest plans from the borough administration.
What impact does the mayor’s proposition have on the municipalities?
That was the central question from assembly president Wayne Ogle Monday, when representatives from all the borough’s cities were on hand in Soldotna to give some feedback on Borough Mayor Charlie Pierce’s latest proposals for finding new money to balance the budget.
Three of the four ideas up for discussion aren’t new and haven’t been met with much support in the past. Raising borough sales tax, establishing a borough bed tax or tourism tax and repealing the seasonal sales tax exemption for non-prepared foods.
The newer plan is to marry a bump in sales tax to a change in property tax. Both the mayor and assembly member Kelly Cooper have developed versions of this. Pierce’s cuts the mill rate, but asks for a five percent sales tax. Cooper’s asks for only half a percent raise in sales tax and puts in place a mill rate hike if that were to fail at the ballot, so the incentives are different.
“The six-tenths mill rate, I’ve been accused of that being a stick and a stick. I don’t believe that to be the case," Cooper said. "I believe that to be an opportunity to be part of the solution. In my opinion, we do have to look at cuts, and our administration is working hard to do that to keep things flat or reduce where they can. I think that that mill rate helps the borough get to where they need to get and still allows the municipalities to do what they need to for there revenue generation.”
And that was the central concern to anything dealing with sales tax adjustments. The cities derive most of their operating revenue from sales tax. So if the borough starts raising its rate, that draws down on the pool for everyone.
“It’s not necessarily that we’re opposed to the borough considering a sales tax increase," said Kenai city manager Paul Ostrander. "It’s just the amount in one year, going from three to five (percent) is our biggest concern. It’s the significant increase in one year that we think, potentially, gets us close to the point where there’s no additional capacity beyond that amount, or at least an appetite from residents to continue to see the sales tax cap increase.”
The record for voters approving more or new taxes isn’t good. That’s one reason why some of these ideas are back on the table. They’ve failed before, but there’s still a hope that they’ll be accepted. Alternative to that, though, is the notion of getting rid of some exemptions. The seasonal exemption just on sales tax for non-prepared food items costs about $3 million a year. That’s most of the borough’s budget deficit. Soldotna city manager Stephanie Queen noted that having control over that particular tax was a big reason Soldotna moved to become a home rule city in 2016.
“When borough voters originally voted to stop taxing non-prepared foods, the assembly gave the cities the option to keep doing so and we continued to keep doing so, until more recently, when borough-wide voters denied that opportunity for the city of Soldotna. Our community got together really quickly, organized a charter commission, adopted a charter, became home rule. Because that $1.2 million out of our $8 million a year was so significant that they weren’t willing to give it up and accommodate that revenue some other way," Queen said.
Some exemptions could be done away with by the assembly without going to voters, but that’s not necessarily an easier sell. Whatever plan does finally make the cut, most at the meeting agreed, will need some serious salesmanship behind it. Homer city council member Rachel Lord says that means changing the conversation to focus on specific line items tax money gets used for, like a school roof or a road.
“I think it’s going to be a tough sell. Any revenue generation. Because I think that we do have a frame of conversation and thought pattern that taxation is a full on taking and loss of opportunity. That is across a lot of members of our elected bodies and our residents and that is a problem.”
Time will tell how much more consideration these plans get. The simple increase in sales tax, from three to three and a half percent will get a public hearing when the borough assembly meets next on May 15th.