Bed-tax change proposed

Residents voice opposition; proposal to drop from 8 to 4 percent

Posted: Thursday, April 07, 2005

Following a lengthy and often impassioned public hearing Tuesday, the Kenai Peninsula Borough Assembly voted to reduce the tax levy in the proposed bed tax from 8 percent to 4 percent, and then scheduled at least two more public hearings for the controversial measure before final action would be considered.

The assembly moved a substitute for Ordinance 2005-04 that includes several detailed provisions written by borough Finance Department staff members. Those brought the ordinance's transient accommodations tax language in line with existing sales tax code that would be required to enforce the tax law if the measure actually makes it to the fall municipal ballot and wins approval there.

Also inserted in the substitute were clauses to explain the measure's intent, as well as a provision specifically authorizing the borough to enter into cooperative agreements with borough cities to promote tourism using funds generated by the bed tax. Any such agreements would have to be approved by the assembly.

As has been the case during the previous three public hearings, testimony — mostly from small business bed-and-breakfast operators — was largely opposed to imposition of the tax. Most argued that increasing the cost by adding the bed tax to existing sales taxes would only serve to reduce the number of visitors coming to the peninsula and shorten the stays of those who come.

Also raising concerns among opponents was an issue of fairness. While hotels, motels and bed-and-breakfast operations would have to charge the tax on a per-person, per-night basis — on top of a sales tax already imposed that way — the owners of other tourist-related enterprises, such as fishing trip charter boat operators, would not, even where the bottom-line price tag might be equivalent.

Carol and Merlin Cordes of Homer testified against the proposed tax. Carol Cordes said the tax would target Alaskans, because for seven or more months a year, tourists don't visit area communities, Alaskans do.

"From October through April, 85 to 90 percent of the people staying at hotels, motels and bed-and-breakfasts are Alaskans," she said.

In Homer, this often includes Seldovians who cannot get home by air or boat because of weather, as well as the parents of school athletes visiting for games.

She also noted that businesses open just for the tourist season, like fishing and sightseeing charters, river charters, RV parks, hiking and kayak adventures, would not pay a bed tax nor provide any additional tax revenue equivalent to a bed tax. The tax would be fundamentally unfair, she said.

A family staying several days at a bed-taxed accommodation in Homer would pay the local sales tax and the initially proposed 8-percent bed tax that would be applied on a per-night basis. A $2,000 hotel bill would require an additional total of $290 in local sales and bed taxes.

"A fishing charter (billing in one lump sum) would collect only $32.50 for the same $2,000," she said. "Is that equitable? Hardly."

"We do not need a bed tax. We need a head tax," said Merlin Cordes, who proposed that charters and other tourist-related businesses collect a per-person head tax specifically rated for the kind of service being offered, such as fishing charters $15 per head, rafting $10 per head, or RV parks $4 per night. Even gift shops open only for the tourist season could start collecting an extra 6 percent, he said.

Soldotna resident Don Johnson, who said he has been in the recreational industry for more than 20 years, opposes the tax.

"I know a little bit about what it takes to get a tourist here and keep him here. The kind of thing you're up to is a huge negative. You're basically saying to tourists, 'Stay away from the Kenai Peninsula.' Whether you believe that or not is irrelevant to me, I know it is a fact of life," he said.

Gerry Scholand of Homer, and the president of the Bed and Breakfast Association of Alaska, said his loyalties were with the small business owners struggling to make it in a competitive industry.

"I'm upset," he said, adding that bed and breakfast business are typically run by single women or elderly retired couples who depend on the income. "If you choose to harm these businesses, you have no idea what a hornets' nest you are going to stir up."

He said there are more than 250 bed and breakfasts on the peninsula alone.

Others testifying urged the assembly and administration to cut the cost of running the borough before considering new taxes.

Mya Renken, director of the Kenai Convention and Visitors Bureau, expressed the views of the bureau's board of directors. Though generally favoring the ideas behind the ordinance, she said, the directors had concerns it has been written as a revenue enhancement tool for the general fund.

"A tax on any industry should be used to assist in enhancing and growing that industry, not general government," she said. "Funds generated should be used as a mechanism for providing sustainable funding for economic development of the Kenai Peninsula Borough tourism industry."

Renken asked that the measure be amended to provide for sustainable funding for tourism marketing, that 80 percent of the tax revenue collected within cities be returned to those cities for city-based tourism marketing and infrastructure, the rest to be used to provide other benefits for residents and visitors.

Assembly member Betty Glick of Kenai, prime sponsor of the ordinance, said she did so "to generate awareness of all the possibilities" of having increased taxes as the borough works to meet a projected $5 million to $7 million budget deficit.

Glick said she welcomed the dialogue, even the criticism, but also chastened listeners who have urged the borough to cut expenses before raising taxes to follow up with specific recommendations on how to do that. She said those voices don't seem to show up in support of assembly members who have attempted to cut the budget.

"Where were you last year when some of us were trying hard to decrease the budget?" she asked rhetorically.

She also noted attempts in recent months to raise the sales tax cap, increasing the sales tax and mill levy.

"To my way of thinking, that affects the people who live here on a year-round basis, and that there should be another alternative," she said.

Glick said that while some had accused her of specifically targeting the accommodations industry, that had not been her intent. She said the proposed ordinance was "still a work in progress."

Assembly member Ron Long of Seward moved to lower the proposed tax rate from 8 percent to 4 percent, arguing the total taxes applied to accommodations sales — sales tax and bed tax — should try to remain below "a pain threshold" of around 10 percent. The assembly approved that move.

Assembly member Chris Moss of Homer said he would be introducing an amendment at the next meeting. Further public hearings are scheduled for the May 3 assembly meeting in Seward and the May 17 meeting in Soldotna.

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