Borough sales tax raised to meet budget shortfall

Posted: Thursday, June 09, 2005

Goods and services in the Kenai Peninsula Borough will be a bit more expensive starting in October.

Tuesday night, the Kenai Peninsula Borough Assembly voted 6-3 to boost the borough sales tax from 2 percent to 3 percent, a move that is expected to generate about $5.4 million a year in new revenue.

The decision to raise the sales tax had drawn some criticism during public hearings, but the borough was facing a budget shortfall of roughly $5.8 million, brought about in part by the loss of state municipal revenue sharing, increasing obligations to the Public Employee Retirement System and rising insurance costs, as well as other expenses.

The sales tax provision was part of Ordinance 2005-09, which included two other revenue enhancement measures.

One altered the borough tax code so recreational sales would be treated on a per-person, per-day basis for purposes of computing the minimum sales tax. The code defines recreational sales as when a seller provides recreational services and rentals, except automobile rentals, to a buyer, either separately or in a combination at an aggregate price. It would cover such items as guiding, charters, sightseeing tours, outfitting or equipment rentals and temporary lodging.

The other is a somewhat complicated process that would allow some cash from the borough's land trust fund to be moved to the general fund to help pay for regular government operations. The provision goes into effect July 1. Specifically, it would permit the shift of up to 50 percent of any amount exceeding the highest previous trust fund balance. Except that the "50 percent" provision is to be ignored for fiscal year 2006, which begins July 1.

For that one year, any amount in the Land Trust Fund exceeding $2.5 million is to be made available to the general fund. According to Paul Ostrander, land management officer, the fund currently sits at about $3.8 million, making some $1.3 million available for general fund spending in the next fiscal year.

On March 1, 2006, the borough would review the land trust fund again and attempt to anticipate what that fund would be on July 1, 2006, the first day of fiscal year 2007. Suppose analysis predicted that by that time the land trust fund would be worth $4 million. That figure would then be compared to the highest previous fund balance, which in this case would have been the $3.8 million estimated this spring, making the new excess amount $200,000, of which half, or $100,000, could be transferred to the general fund.

Essentially, the language allows the fund to grow over time, but permit access to land trust money for general government spending, one of the original intents of the land grant program through which the borough acquired the majority of its land holdings.

The assembly would decide each year as they write the annual budget whether or not to appropriate the money to the general fund.

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