Sales tax hike may come up again

Consideration of multipart ordinance could lead to another vote

Posted: Sunday, January 08, 2006

When 54 percent of voters determined last fall that the Kenai Peninsula Borough Assembly’s decision to increase the sales tax from 2 percent to 3 percent had been a bad idea, they might have assumed the election ended any debate.

That assumption may be wrong. The sales tax could well end up on the ballot again, possibly in a special election later this winter, or next fall.

The 1 percent increase in the sales tax approved in early June 2005 was one revenue-enhancing element of Ordinance 2005-09. A citizens group succeeded in gathering sufficient signatures to challenge that increase at the polls in October — the vehicle was Proposition 5, which passed, reversing the sales tax increase.

Ordinance 2005-09’s two other elements, however, were not on the ballot. They included a requirement that tourist businesses offering recreational services (such as chartered fishing trips) charge sales taxes on a per-seat, per-day basis, a system critics have charged is too complicated, and a provision establishing a way to make annual withdrawals from of the borough’s land trust fund for use covering general government costs. Critics have likened this to a raid on the permanent fund by the Legislature.

The Oct. 4 election negated its sales tax increase provision and now the entirety of Ordinance 2005-09 has been officially challenged. Signatures collected in a separate petition drive launched by the Alliance of Concerned Taxpayers were certified by the borough clerk’s office in November and likely will result in a future ballot proposition.

At the Dec. 6 assembly meeting, Assembly President Ron Long, of Seward, introduced Ordinance 2005-51, which, if adopted, would repeal the sales tax increase (now, basically a bookkeeping issue) and repeal language in 2005-09 concerning the land trust fund — effectively returning borough law to its original language. A hearing was held on the new ordinance Tuesday, but action was postponed until the Jan. 17 meeting.

Adopting 2005-51 as is would leave just the per-seat, per-day sales tax issue for a future ballot proposition. In a memo to the assembly, Long said a ballot summary including all three elements of 2005-09 “would likely confuse the voters. ”

He also said that under Alaska law, if the assembly passes a law that has the same effect as called for in a certified referendum petition, the assembly would be precluded from reintroducing similar provisions again for two years — the same restriction applied when ballot propositions successfully overturn legislation.

ACT members have challenged this approach, arguing that Alaska’s Title 29 provisions on referendum elections appear to require that all of 2005-09 be on the ballot, not just parts. Indeed, ACT has always maintained that even the increase in the general sales tax ran counter to the state law, which they said requires sales tax increases to be approved by voters.

“Our position — the position of ACT — is that the statute says what it says,” ACT President Mike McBride said in an interview Thursday. The borough’s latest proposed ordinance, he added, violates the law by “cherry-picking” portions of 2005-09 for legislative repeal, while leaving the recreation sales tax portion for the ballot.

While Long expressed concern about possible confusion to justify simplifying a ballot measure, ACT members read things differently.

“We do not accept the assertion that the public is too stupid to understand this issue,” they said in a letter submitted to the assembly.

“People are smarter than that,” McBride said.

Long said Thursday that his phraseology was not meant to imply anyone’s stupidity, but he pointed out that even single-issue ballot measures have, at times, confused even well-educated voters.

Long asked for an early special election so borough officials would have a clear determination of the likely revenue stream as early in the budget-writing process as possible. The fiscal year 2007 budget (that runs July 1, 2006 through June 31, 2007) will be developed over the next five months and must be adopted before the start of the new fiscal year.

ACT has recommended against holding a costly special election and would prefer the issue be put on the regular municipal election ballot next October. The borough has said a special election could cost around $50,000. McBride said he believes it might be more like $65,000.

Recreation service providers say they are unclear if they should begin collecting the per-seat, per-day sales tax or not, given the issue is up in the air. Long did suggest this week that the effective date of the recreational sales tax change could be reset to Jan. 2007.

McBride said that was another reason not to rush into a special election. In any case, he said, even if voters ended up approving that change — an outcome he doubts would happen — the assembly would have plenty of time to adjust the 2007 budget accordingly.

Discussion during debate over 2005-51 included the possibility that strict adherence to Title 29 would mean putting the 1 percent general sales tax increase back before the voters.

Earlier in Tuesday’s meeting, Mayor John Williams pulled no punches in telling the assembly that the combined effects of the loss of municipal revenue sharing, rapidly rising insurance and retirement program premiums, and the impact of Proposition 5, which rolled back the sales tax increase, were threatening to send the borough into a deep well of red ink. Avoiding that outcome would take “draconian measures,” that could include property tax increases, closing schools and user fees, among other things, he said.

The borough government is precluded by law from running an ad campaign for any side of any ballot issue. But Tim Navarre, Williams’ chief of staff, said Tuesday that he has heard from members of the public and the business community who are saying they would work to reverse public opinion about a sales tax increase and promote the position that an increase is a wise option given the current fiscal crisis.

McBride suggested there is enough opposition to the recreational sales tax collection method and the Land Trust Fund spending plan to ensure re-defeat of a general sales tax increase.

“The voters have spoken once, and they will speak again,” McBride said, adding he doesn’t believe voters would elect to re-establish the 3-percent tax. “They will know what to do.”

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