Kenai Peninsula voters will get to reconsider a tax measure that failed at the ballot box last year in the upcoming Oct. 3 election.
The Kenai Peninsula Borough Assembly approved a ballot measure for this year asking voters if the borough should raise the cap on taxable sales from $500 to $1,000 on all taxable sales other than residential rentals, which will retain the $500 cap. If voters approve it, the measure is estimated to bring in an additional $3.6 million for the borough and smaller amount for each of the home-rule cities.
Voters rejected a similar measure last year by a wide margin, the only difference being that residential rentals were exempt entirely. However, the assembly chose to send the question to the ballot again this year after Borough Mayor Mike Navarre’s administration repeatedly advocated for a new source of revenue to shore up the borough’s fund balance. The approved budget for fiscal year 2018 will draw more than $4 million out of the borough’s fund balance, in part due to declining property and sales tax revenue and in part due to increases in funding for education and other borough services.
Navarre advocated for the ballot proposition in a presentation to the joint Kenai and Soldotna chambers of commerce during a luncheon Wednesday, saying the borough budget either needs new revenue or further spending cuts. Navarre proposed the sales tax cap increase last year but said he thought it failed because it was not communicated properly to the voters.
“I did say that if the cap on sales didn’t increase, it would likely manifest in an increase in the mill rate, and I proposed a mill rate increase this year, because the cap on sales (taxes) failed last year,” he said. “I felt responsible and wanted to make sure that our revenues meet our expenditures on an annual basis. That’s what should happen.”
The most significant place to cut from the borough’s budget is in its contribution to the Kenai Peninsula Borough School District — approximately two-thirds of the borough’s budget, about $50 million, goes to the school district. Navarre said he doesn’t have a problem with that — “it means our priorities are in the right place” — but he said he didn’t see support in the public or on the assembly for cutting from education, so new revenue is the other option.
The sales tax cap has been set at $500 since 1965, shortly after the borough was formed, and does not adjust for inflation. Today, inflation would have pushed that to $3,500, Navarre said.
It’s hard to compare sales tax rates around the state, as there are no broad-based state taxes and the municipalities have different mixes of taxes to balance their budgets — for example, the Municipality of Anchorage has no sales tax and relies on property taxes, so its property tax rates are higher, while the city of Juneau has both property taxes and sales taxes but its rates are different than the Kenai Peninsula Borough. Looking at just the sales tax caps among different municipalities, the Kenai Peninsula’s $500 cap is one of the lowest, with Nome and Kotzebue having no cap and Juneau’s set at $12,000, while North Pole’s is set at $200, Navarre said.
The assembly chose to send the question to the ballot as an alternative to the administration-proposed bed tax, which set off alarm bells in the lodging industry and drew many commenters to oppose it, particularly from the Homer area. Many of them specifically said they supported the sales tax cap increase as an alternative to the bed tax.
The fund balance is important for the borough for several reasons, Navarre said, including being able to cover its daily expenses because tax revenue is not a steady stream, covering unexpected expenses and aiding in the borough’s financial outlook during its audits, which determine the borough’s credit rating. If the sales tax cap doesn’t increase and the borough keeps using its fund balance, a mill rate increase is almost certain, he said.
“Absent some other anomaly that generates revenues, that is almost certainly what will have to happen,” he said. “I want people to know that because taxes and options for where the burden falls are something that has consequences. If you don’t choose one, you have to choose the other.”
Navarre also advocated for Proposition 2, which is a question of whether the borough should issue bonds to pay for repairs to the George A. Navarre Borough Administration Building’s heating, ventilation and air conditioning system. The system, which has been a problem for years, needs to be replaced, which the borough administration estimates will cost about $5 million. The boilers have not been replaced since the building was constructed, he said. If approved, the proposition allows the borough to issue up to $5 million in bonds, separated into three phases to allow work to continue at the building while the system is being replaced.
Navarre said he understood spending money on a government building is not popular, but the update will protect a borough asset and provide a better working environment for the employees in the building, which includes borough and school district employees.
There are also savings and safety aspects of the bonds. Currently, to make up for the lack of efficient heating in the building, many employees use space heaters near their desks, which creates both a huge power draw and a fire risk.
“At some point, that boiler is going to completely fail,” he said. “It’s already difficult enough getting parts. And when that happens, I can assure, the cost of disruption and the cost of getting it done at that time is going to be much, much more expensive.”
Voters will have the chance to consider the two propositions on Oct. 3 as well as Proposition 1, a citizen-generated proposal that asks if commercial cannabis operators should be allowed to operate in the borough outside city limits. Only voters who live in the borough outside the cities can vote on the cannabis measure, but all borough voters can vote on the other two propositions.
Reach Elizabeth Earl at firstname.lastname@example.org.