In a surprising turn of events, the Kenai City Council came within one vote of passing a 1 mill increase in the fiscal year 2002-03 budget, then turned around and voted overwhelmingly not to increase the 3.5 mill rate at all.
A nearly $8.5 million budget was passed in the council's Wednesday night meeting, with more than $160,000 in cuts made by the administration, which leaves an estimated deficit of $170,000, since the mill rate increase was not passed, Mayor John Williams said.
About 35 people attended the meeting and 11 addressed the council in the public comment session before the mill rate was set. The high turnout is unusual for Kenai council meetings.
"I thought the public comment section was great," said council member Pat Porter. "It was about the first time we've had anybody come to an actual passing of the budget and mill rate."
Kenai residents voiced their opinions both for and against an increase. Those favoring one listed the Kenai Peninsula Borough's recent .5 mill tax reduction and other reasons to raise the rate.
"Kenai is definitely taxed very low, and we get a lot for what we pay for," said James Baisden, Kenai fire marshal and property owner. "With the rate down in the borough, it's hard to complain about our rate going up."
The majority of the speakers who opposed the mill rate increase were business owners. They cited the recent borough reassessment of property values that raised tax bills and other reasons not to increase Kenai's rate.
"The city is earning less because of the national economy," said Kenai property owner Pete Hansen. "That also affects the people. I think the city should tighten its purse strings too, use its savings until the economy rebounds."
Williams responded to some comments by going over information he gave in a budget presentation to the Kenai Chamber of Commerce at its Wednesday luncheon.
Kenai's property tax accounts for 15 percent of its general fund revenues, while sales tax, the largest revenue generator, accounts for 48 percent.
Since the current mill rate was set in 1993, the city of Kenai has lost about $1 million in revenue from decreased interest rates and a drop in state revenue sharing money. A one mill increase would roughly cover that loss, Williams said.
He said later that he hopes business owners will use the money they will save in taxes next year to promote economic development in the city.
All the council members stated their positions on a mill rate increase, with Duane Bannock, Jim Bookey and Amy Jackman opposing the increase, and Linda Swarner, Joe Moore and Porter supporting it.
After the council's discussion, Moore proposed an amendment to the budget for a 1 mill increase. Bookey, Bannock and Jackman voted no, while Swarner, Porter and Moore voted yes. Williams' was the last vote called, since the mayor always votes last. After conferring briefly with the city attorney, he voted no, saying he would rather have a .5 mill increase.
"... I'm going to trust my good judgment and vote against a full mill and hope for a (.5 mill) amendment, so I vote no," he said.
Silence ensued, with Williams offering prompts like, "the chair will entertain a motion."
Porter made a motion for the .5 mill increase amendment and silence fell again while Williams waited to hear a second for the motion. The second wasn't given so the motion died without coming to a vote.
Bannock then made a motion to set the rate at the current level of 3.5 mills. The motion was seconded and a vote was taken, with all but Williams voting for the 3.5 mill rate.
When asked why they supported the 1 mill vote but not the .5 mill motion, Swarner and Moore both said they felt a .5 mill increase wasn't enough to do the job.
"I felt that if we were going to raise the mill rate that we should do it a full mill in order to balance the budget and have a little bit of a cushion," Swarner said. "I thought a half mill would just delay raising it again later."
"I just didn't want to play with it," Moore said. "If we were going to raise the taxes, let's get it done. I thought 1 mill was what we needed."
Williams said his failed gamble for the .5 mill increase was an effort at compromise in the council.
"I tried to reach a compromise for a couple of reasons," he said. "The council all has to work together next year, and I didn't want a lot of hard feelings. I was willing to compromise with the (administration's) cuts if (the council) had been willing to compromise with the half mill increase. That did not happen."
When it came to a vote to adopt the amended budget including the administration's cuts, all but Moore and Williams voted to adopt it. Williams said he voted against it because there would be no mill rate increase.
"I finally fell back to the same position," he said. "Not only did we not get a balanced budget, we did not get a compromise on the mill rate increase and we're still operating in deficit spending mode, which is the thing I was against in first place."
Moore had a problem with some of the ways the administration reduced the deficit.
"I'm not comfortable with the way that we amended the budget," he said. "I felt like the amendment was simply a shifting of expenditures between budget periods. It wasn't an actual, real cut. It does affect the bottom line, certainly, but it postpones expenditures from the future to the future future. I don't think we solved anything."
The administration moved some purchases from next year's budget to this year's, including a copier and a new SUV for the police department. Doing so reduces the cost to next year's budget, but also reduces the surplus in the current budget that will lapse into next year's budget. Other purchases were simply put off until coming years.
Cuts were made to some programs, like the new snow removal program. The harbor will use funds from its own reserve account to operate this year, rather than taking money from the city's general fund.
Money also was cut from the city's contingency fund, which pays for unexpected expenditures that pop up during the year, like broken generators and leaky roof repairs. Those projects can still be done, it will just take longer because the money will come from the general fund and has to be approved by the council first.
"It's nothing but smoke and mirrors," Williams said. "We didn't cut anything, we merely robbed Peter to pay Paul. Some of council's view of creative accounting practices sometimes leaves a lot to be desired."
Whether all the council members liked the way the administration reduced the budget or not, they gave the administration the authority to do what it deemed necessary to cut the budget deficit in half, Porter said.
"In all fairness, I can't say I was happy or not happy (with the cuts)," she said. "We gave the administration carte blanche. They didn't address some of the budget areas I thought needed to be addressed, but we didn't give them a directive to do that. If they feel they can work with what they've done, than we'll see what happens."
Despite his disappointment over running a budget in the red next year, Williams said the city is not in dire straights, but he forecasted an almost inevitable chance of raising the mill rate next year.
"The city is not in a crash and burn position by any means," he said. "I'm merely looking to the future."
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