The city of Soldotna on Wednesday officially joined the chorus of municipalities in opposition to a proposed statewide sales tax.
With little discussion, the city council unanimously approved a resolution opposing such a tax, which currently is being discussed in the Alaska Legislature. The resolution mirrors one passed by the same council at about this time last year, when the Legislature was proposing a similar tax to help fund state services.
City Manager Tom Boedeker briefed the council on the ramifications of this year's proposal. He told the council that if enacted, the tax could have a severe impact on Soldotna's bottom line, considering the city collects roughly 92 percent of its revenues from sales tax receipts.
Under last year's proposal, Boedeker said the city stood to lose approximately $1 million in revenue if the tax were adopted. Although this year's proposal differs from last year's in some ways, Boedeker said he's still wary of what a statewide tax would mean for Soldotna and other municipalities which already have a sales tax in place.
"This (proposal) is altering how we do business in 98 communities in this state and I don't think that's been taken into account in Juneau," he said.
The proposed tax would impose a 4 percent statewide tax, which would nearly double the 5 percent tax consumers currently pay in the city. It also would reduce to $60 the cap on goods and services, and return 1 percent to municipalities with an existing tax greater than 3 percent.
The fear among many municipalities is that such a proposal would drive business out of town to places -- such as Anchorage --that currently do not have a tax in place.
Soldotna is not the first municipality in Alaska to speak out against the tax.
The Alaska Municipal League has come out against the proposal, and Kenai's finance director was recently involved in a heated public exchange with Sen. Ben Stevens, R-Anchorage, over the proposal.
Boedeker said that if enacted, the tax would bring about a fundamental change in how cities in Alaska do business.
"We're in a situation where we've chosen a system of local control. ... A change now disrupts that," he said
In order to make up the lost revenue, Boedeker estimated the city might have to raise property taxes by as much as five mills. One mill is equal to $100 for every $100,000 in assessed property value.
Since that would likely be unpopular with local residents, the city could find itself having to draw from its $13 million in savings. However, Boedeker cautioned that much of that savings is earmarked for capital expenditures, not operations.
"What we have available to spend for operations is not $13 million," he said.
Although Stevens' proposal calls for municipalities to get some of the money collected by the state returned to them, Boedeker said the proposal leaves too many questions left unanswered. For example, he said, there is no provision in the plan to provide for how the state would staff its collections department.
"We would not know how the bill would be implemented until we stop collecting revenue at a local level," he said.
At the heart of the tax discussion appears to be a divide between the state's largest city and the rest of the state.
Since Anchorage does not currently have a sales tax, such a proposal could be attractive to lawmakers from the city who oppose other funding options, such as an income tax or use of the permanent fund.
Boedeker said that because the peninsula represents a small portion of the state's population, it's unlikely that opposition to a sales tax by Soldotna will mean much in the overall discussion.
"I seriously doubt that with the Kenai Peninsula Borough having eight percent of the state's population, we're going to have a significant impact," he said.
However, he said it would be nice if state legislators would at least consult smaller municipalities before enacting a potentially damaging tax, and criticized the Legislature for trying to go forward with the plan without first considering what it might mean for cities like Soldotna.
"That's wrong," he said. "I think you have to talk to the people."
Following Boedeker's remarks, council members unanimously approved the resolution and authorized sending copies to several state legislators.
In other action Wednesday, the council:
Recognized the KPHA Ice Hawks U-16 Tier II Midget hockey team for winning the Alaska State Championship last month.
Held a swearing-in ceremony for Soldotna's newest police officer, David Bower. The ceremony was attended by several members of the police force, and Chief John Lucking made things official by presenting Bower with his new badge.
Adopted temporary re-quirements for the city's new high school scholarship program. Although the council has yet to make its final decision on exactly what requirements will be needed in the future, the council thought it was necessary to adopt the temporary guidelines in order to award two $1,500 scholarships this year.
Authorized the award of a multi-year engineering and consulting contract at the airport to the firm of Wince-Corthell-Bryson.
Authorized the city manager to enter into an agreement with Rosemont Corporation for the development of Mountain Rose estates, a planned unit development project.
Authorized the city manager to negotiate a contract with Rozak Engineering for continuing groundwater monitoring work at Soldotna Creek Park. The estimated cost of the contract is expected to be roughly $5,000.
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