Kenai finances on the rebound

Posted: Friday, June 04, 2004

The Kenai City Council on Wednesday approved a 2005 budget that restores a number of city services cut last year, including Sunday hours at the Kenai Community Library, expanded city dust control and funding for building maintenance.

The budget also includes funding for a new full-time Kenai police officer, the first increase to the size of the city's police force since 1989.

The FY 05 budget approved Wednesday by the council totals approximately $13.48 million, an increase of about a million dollars over last year, when the city was forced to slash spending due to the closing of Big Kmart. The majority of this year's increase is made up in the general fund, which is the source of revenue for the majority of city services, including public safety, public works, the library, parks and recreation and general city government.

A big part of the increase came because of a jump in the amount the city is forced to pay in insurance and retirement costs, a situation that has impacted just about every municipal government across the state.

In addition to passing the budget, the council also decreased the city's property tax rate by a half mill. One mill is equal to $100 in taxes on $100,000 in assessed property value.

The measure was a way to alleviate some of the property tax burden the council added last year, when the city's mill rate rose by 1.5 mills.

Council member Jim Bookey said reducing the mill rate would be a way to help out large businesses in town and show that Kenai is interested in holding down taxes.

"The people that it does affect is the downtown core business sector," Bookey said.

Other council members said that the 1.5 mill increase last year was a bit excessive in light of the city's current fiscal situation, which is much better than anticipated at this time last year.

"I really believe this council overreacted a little bit," council member Joe Moore said.

The city is in better financial shape this year largely because Home Depot moved into the building previously occupied by Kmart. According to figures provided by the city's finance department, sales tax revenues are expected to be slightly more than $4 million in 2005, a figure that if accurate would be the second-highest in the city's history.

Despite the strong numbers, the budget does include a draw from the city's general fund balance in the amount of $178,000.

Council members passed the budget Wednesday with little discussion. The only talk centered around adding a couple small items, including increasing council members' salaries and purchasing a city clock tower.

Council member Linda Swarner brought up the subject of council raises, saying that since the council was adding back things cut last year, it ought to restore salaries to their previous levels. She proposed adding back into the budget the $100 cut from council salaries last year.

"I would just see this as one of the things that would make it back even again," Swarner said.

If passed, council salaries would jump from $400 to the $500 per year council members were given before the cuts. However, she was alone in her desire to restore the salaries, as her measure was defeated by a 6-1 margin.

The clock tower idea, however, had more support. Council members said it would be a good idea to spend $5,000 on a clock, which would be placed in the center of town as a way to help define Kenai's city center.

"Everybody's looking for the center of town," council member Pat Porter said.

Council members did not decide exactly where the clock should be placed, although the Leif Hanson Memorial Park was mentioned as a possible location.

The measure passed 5-2, with council members Blaine Gilman and Rick Ross voting against the purchase.

The fact that the city has to draw on its savings account led council member Blaine Gilman to lead a debate later in the meeting on whether the city should look at raising its sales tax rate from 3 to 4 percent.

Gilman said the city needs to begin doing long-term financial planning, and as part of that, should be looking at sales taxes as a way to increase the amount of money flowing into city coffers.

"It's something we need to be thinking about," Gilman said, proposing that the tax rate be increased by 1 percent.

Gilman said he was proposing the increase as a way to spur dialogue on the appropriate tax structure within the city.

"What I'm suggesting is we need to have this discussion," he said. "What is the appropriate tax structure?"

Gilman said a sales tax, as opposed to property taxes, is more fair because it taxes those who consume more goods and services at a higher rate.

"Personally, I think a consumption tax is a fairer tax," he said. "... if you're more affluent, you consume more."

Public testimony on Gilman's proposal was mixed. Christine Schmidt of Kenai testified that she believes a sales tax is harder on low-income families because it taxes things like groceries and utilities.

"Sales tax is the most regressive tax," Schmidt said.

Schmidt and others opposed to the sales tax increase also pointed out that people might be driven to Soldotna which also has a 3 percent city sales tax if Kenai raises its rate. In addition to the 3 percent Kenai and Soldotna residents pay, the Kenai Peninsula Borough also collects 2 percent in sales tax.

"If you really want to put the nail in the coffin of the city, raise the sales tax relative to Soldotna," Schmidt said.

In support of the increase, Kenai's Bob Peters said he'd like to see the sales tax rate bumped up as a way to give the city room to spend money on future projects, and said he believes a 1 percent increase would help better pay for city services.

"This guy in the public doesn't think it's such a bad idea," he said.

Council members with the exception of Gilman however, were less enthusiastic about the tax increase.

Bookey said he spent more than five hours talking to business people in Kenai, none of whom said they would support a sales tax increase.

"All of them told me the same thing: 'Please don't do this,'" he said.

Porter said she believes the increase would have the affect of driving more business out of town because consumers would always be reminded that taxes were higher in Kenai.

"They would think about it on a daily basis if it was a constant reminder," she said. "...They would go elsewhere to shop."

Gilman said he wasn't surprised by the opposition to his proposal, but stood firm on the idea that a sales tax increase is needed for the long-range financial health of the city.

"You have to be honest with your constituents about what you're facing in the future," Gilman said, pointing out that Kenai's deficit could be as high as $300,000 next year.

"Are we supposed to hide our heads in the sand and say we'll worry about it next year?" he asked.

Gilman said he knows his idea could be unpopular with many Kenai residents, but that he would rather have the discussion than wait until Kenai is facing a more severe financial crunch.

"I'm not going to be afraid of the political consequences. I'm going to look out for the city's best interests," he said.

In the end, Gilman's arguments failed to persuade his fellow council members, who voted 4-3 against his motion to table the proposed ordinance until a future date. The ordinance nearly died at that point, but Gilman moved to remove it from consideration, saving it from a vote of the council, where it would have certainly failed.

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