Borough's general fund shrinks

After years of spending down surplus, officials now consider enhancing revenue

Posted: Sunday, February 27, 2005

For several years, the Kenai Peninsula Borough has balanced its annual budgets by tapping unspent dollars held in a sizable general fund account.

That's been by design. Auditors and financial advisers to the borough have recommended reducing the amount held in the fund-balance savings account. Just a few years ago, it was in excess of $28 million — far more than necessary.

Property taxes were lowered and expenditures were allowed to continue in excess of revenues. Spending was supported, in part, by withdrawals from the fund balance, as the borough sought to bring the size of the account to within more reasonable bounds — somewhere between $12 million and $22 million was the general target.

Today, however, the fund balance has fallen to around $14.7 million. While still above the lower threshold, other economic factors, some of them beyond the borough's control, have combined to give borough officials pause about letting it go much lower, a trio of borough assembly members told a Homer Chamber of Commerce audience Tuesday.

Assembly member Dan Chay of Kenai listed several of those mostly uncontrollable factors that have impacted the borough's revenue stream.

State decisions eliminating funding for the Safe Communities Program and Municipal Revenue Sharing cost the borough almost $1.6 million.

In addition, federal PLT payments (payments in lieu of taxes provided by the federal government in recognition of the costs associated with untaxable federal properties within the borough) have been reduced by 20 percent, another $350,000 in lost revenue.

"Oil and gas property values are down and we did this extra $10,000 property tax exemption," he said. "Also interest and revenue gained on the fund balance are lower."

Those items reduced revenues by $436,000 and $670,000, respectively, according to a budget analysis handed out by Chay.

"Property assessed values, on the other hand, have been going up," Chay said. According to borough figures, higher assessments have led to a $1.5 million offset against some of the decreasing revenues, he said.

While some revenue streams are shrinking, other costs are rising.

Chay noted a $340,000 increase in Public Employee Retirement System (PERS) payments.

Meanwhile, high oil prices led the state last year to boost funding for schools, and it is likely there will be further increases this year. The borough has maintained a policy of providing the maximum local match allowed by law to school funding. If that policy is repeated this year, it could mean $1.3 million more from the borough coffers.

Other increases affecting the fiscal year 2006 budget would include higher utility expenses, health insurance costs, debt service expenses, solid waste handling costs and solid waste debt service.

Adding up the effects of revenue decreases and nondiscretionary budget increases amounts roughly to a $5.8 million shortfall in the coming year, Chay said.

He also said the borough eventually would need new financial software packages that could cost between $1.7 million and $2 million.

One reason such a system would be needed had to do with why so many showed up Tuesday for the chamber luncheon.

To enhance revenues, the borough assembly is considering an ordinance introduced by assembly member Betty Glick of Kenai that would impose an 8-percent bed tax on hotel, motel and bed-and-breakfast operations. It could raise an estimated $200,000 a year.

The existing software is not designed to handle such a tax, Chay said.

The software package under discussion actually involved two parts, a $700,000 to $1 million part for handling taxes, and another $1 million or so needed for school district purposes.

Several members of the audience rose in opposition to a bed tax.

Homer resident Mike Warburton, who owns Ocean Shores Hotel in Homer, suggested the borough investigate the feasibility of using a system employed in South Dakota, which imposes a 1-percent tax on tourism-related activities, including but not exclusive to the accommodations industry. Tax revenue there is used to promote tourism.

Chay said the borough would look at the idea. Sales taxes in the borough support schools.

Sandy Crane, owner of Captain's Cabins Bed & Breakfast in Homer, said she was worried imposition of an 8-percent bed tax might discourage tourists from coming to Homer, a city in direct competition with Seward for tourist dollars.

Leah Handley, president of the Homer Bed and Breakfast Association, said the cost of B&B accommodations in Seward are "significantly cheaper" than in Homer, where prices can sometimes be 40 or 50 percent higher.

"There are people in Seward now who discourage people from coming to Homer," she said.

Handley added that she was encouraged the borough was looking at boosting other revenue streams but doesn't want the accommodations industry to be the one to bear the brunt of any tax increase.

Other audience members wanted to know where bed tax revenue would be used, especially whether it would be funneled into tourism promotion. Currently, that issue is on the table and open for discussion. Glick has said she wanted to hear public testimony and assembly discussion on that idea. She also said the ordinance might be designed to return some of the bed-tax dollars to the cities in which it is collected. No decision has been made yet that would do anything but send such revenues to the general fund.

Land's End Resort owner Jon Faulkner argued that existing general fund revenue streams, as well as some that have been eliminated in recent years, should be looked to for increasing revenues before imposing a brand new tax. For instance, he said property tax levies that have been cut should be raised, and a personal property tax that was once imposed should be reintroduced.

Homer senior citizen Roy Hoyt said he's enjoyed a property tax exemption because of his age. But he, and many other seniors who currently pay little or nothing, are fully able financially to handle an appropriate property tax, he said.

Assembly member Chris Moss of Homer, who attended the luncheon with Chay and assembly member Milli Martin of Diamond Ridge said he would propose holding a public hearing in Homer on the bed-tax ordinance in the near future. That ordinance already is set for public hearings Tuesday, on March 15 and April 5.

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