A proposal to reduce the unlimited property tax exemption on primary residences enjoyed by the borough's senior citizens and disabled veterans is dead.
Meeting in Seward on Tuesday, the Kenai Peninsula Borough Assembly voted to 5-4 to strip the provision from Ordinance 2005-09, a measure sponsored by Mayor Dale Bagley that also includes provisions that would boost the borough sales tax and make other changes to the borough code in an effort to enhance revenues.
Bagley had proposed ending the unlimited property tax exemption in place since the mid-1980s and replacing it with an exemption that covered only the first $200,000 of assessed value. A state mandate requires exempting the first $150,000, and until the late 1990s, the state reimbursed municipalities for the lost revenue. The borough has lost millions since the Legislature stopped sending the reimbursement checks.
The assembly was divided over cutting the exemption reduction provision. Members Pete Sprague of Soldotna, Chris Moss of Homer, Dan Chay of Kenai and Milli Martin of Diamond Ridge opposed stripping the provision. Assembly President Gary Superman of Nikiski was joined by Ron Long of Seward, Paul Fischer of Kasilof, Grace Merkes of Sterling and Betty Glick of Kenai in cutting any reference to a tax exemption reduction.
Moss said Wednesday he believed that had the vote gone the other way, leaving the tax exemption reduction proposal in the ordinance, the assembly would have taken a further step to make its application dependent on a vote of the public this fall. Cutting it made that move unnecessary, however.
"I was disappointed it didn't have legs," Moss said. "I knew it would be a close vote. Everyone had concerns about doing it (reducing the exemption)."
Fischer said he believed the exemption should stay the way it is.
"The people voted for it that way (back in the 1980s)," he said.
Fischer went on to say that had the assembly vote gone the other way, he might have considered making the tax exemption issue a ballot proposition. On the other hand, if that issue could go to the ballot, Fischer said, why not place the fate of other costly borough programs before the voters as well?
Another amendment to the tax ordinance passed Tuesday affects the current 2-percent borough sales tax. Bagley had proposed increasing the sales tax to 2.5 percent, but Merkes moved to raise tax to a full 3 percent. According to borough clerk Sherry Biggs, revenue projections in the proposed fiscal year 2006 budget are based on a 3-percent sales tax. Merkes' amendment passed 7-2. Only Fischer and Glick opposed it.
Fischer said he did so because he thinks the assembly should be dealing with budget cutting efforts first, before looking to raise taxes.
"We're going the opposite way," he said.
Moss said cuts would still be considered before final passage of the fiscal year 2006 budget, but without in increase in the sales tax, the assembly could be looking at a mill rate increase instead.
"I've gotten the impression from assembly members that a mill rate increase was unacceptable," Moss said.
According to borough figures, the property tax reduction had been expected to produce about $381,000 a year in tax revenues, while the mayor's .5-percent sales tax increase was predicted to raise an additional $3.55 million.
By raising the sales tax to 3 percent instead, the borough would realize an additional $5.4 million, more than compensating for the lost property tax revenue that would have been acquired had the tax exemption been reduced as proposed.
The ordinance gets another public hearing May 17. Moss said there might be further attempts to modify it before a final vote occurs.
An ordinance that would create a 4-percent bed tax (called a transient occupancy tax) on hotel, motel and bed and breakfast operations was amended to limit the effect of a bed tax on businesses operating within borough cities also imposing a city bed tax.
Proposed by Moss, the amendment would exempt such businesses from up to half the borough bed tax. For example, Moss said, if the borough imposes a 4-percent tax, and a city imposes a 3 percent bed tax, the business would be exempted from half the borough tax, or 2 percent.
The controversial bed tax proposal Ordinance 2005-05 was postponed for another hearing and final action May 17.
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