Kenai Peninsula Borough continues steady growth

Annexation's impact felt in Homer economy

Posted: Wednesday, June 25, 2003

When Homer annexed 4.58 square miles in April of last year expanding its area by 28 percent, city officials there expected the added sales and property tax base would boost municipal revenues.

Figures just released in the Kenai Peninsula Borough's Quar-terly Report of Key Economic Indicators, published by the borough Community and Economic Development Division, appear to justify those expectations.

The report, covering the first quarter of 2003, showed Homer registering a 19.2-percent jump in taxable sales over figures from the first quarter of 2002, and 13.5-percent increase in gross sales (taxable and nontaxable sales).

The annexation expanded Homer's city boundaries to include a fairly densely populated and business-rich area of the unincorporated borough.

While Homer's figures rose dramatically in both categories, the Kenai Peninsula Borough recorded a mixed bag of sales results. Taxable sales rose by 2 percent, reaching $135.2 million, but gross sales fell by 10.4 percent in first-quarter 2003 compared with first-quarter 2002 numbers.

It was the taxable sales increases in Homer and other cities that helped push boroughwide taxable sales into positive territory. Soldotna's taxable sales jumped 1.5 percent with sales of $34.2 million. Seward's rose 2 percent, reaching $9.2 million, and Kenai saw an increase of 7.6 percent with taxable sales totaling $31 million. Even Seldovia's struggling economy saw a taxable sales increase of 4.4 percent with sales of almost $600,000.

Meanwhile, gross sales increased in Soldotna by 2.1 percent and in Kenai by 1.5 percent, but fell in Seldovia and Seward by 1.4 percent and 10.3 percent, respectively.

However, it was the loss of unincorporated borough territory to Homer that led to the overall decline in taxable sales of 9.2 percent, and a gross-sales decline of 24.2 percent in regions outside the cities.

Jeanne Camp, an economic analyst with the CEDD, said the unincorporated area's loss of roughly $3.8 million in taxable sales almost exactly matches Homer's gain of $3.6 million. Since both areas collect the borough's 2-percent sales tax, the unincorporated area's loss is not important, she said.

Two weeks ago, Homer Director of Finance Dean Baugh said the city did not have a clear indication of the impact of increased sales taxes from the newly annexed area and was awaiting the borough figures.

Received last week, those figures have provided a useful snapshot. In 2002, first-quarter taxable sales in Homer hit $18.6 million, which jumped to $22.2 million in 2003. Homer has a 3.5-percent sales tax, meaning that the $3.6 million difference generated roughly $126,000 in added tax revenue.

"We can attribute part of that to annexation," Baugh said Monday.

"I'm waiting to see how the last three quarters (of this year) hold up" compared to the last three quarters of 2002, he added.

Manufacturing led four economic sectors to positive gains in taxable sales boroughwide, registering an increase of 11.5 percent. Sale of wholesale goods, retail sales and TCPU (Travel, Communications and Public Utilities) were the other three sectors showing increases.

Decliners included the Mining sector, which dropped 19 percent, and the FIRE (Finance, Insurance and Real Estate), AFF (Agriculture, Forestry and Fisheries) and Service sectors.

Looked at broadly, trend lines show the borough's economy steadily improving over the past decade.

"The numbers show slight increases overall," said Jack Brown, business manager of the CEDD. "They show the economy is stable and doing well."

In addition, the population is growing and the peninsula's diverse economy is the envy of other parts of the Alaska, he said.

While the report graphs and records gross sales figures, the critical numbers are the taxable sales figures because they are accurate and trackable, Brown said. Businesses are not required to report gross sales numbers, so total figures are far less accurate and not used as the basis of conclusions about the economy, he said. Why reporting them is not a requirement is a political question, he said.

Camp said they would help paint a more accurate picture of the economy were the borough assembly ever to require them.

Brown said as long as an individual business's gross sales figures remained proprietary, as are reported taxable sales figures, reporting them should pose no serious burden on business owners.

There are other measures of the borough's economic health included in the quarterly report.

Employment figures from the Alaska Department of Labor and Workforce Develop-ment show the size of labor force on the Kenai Peninsula has increased, as have the number of available jobs, resulting in a lower unemployment rate in the first quarter of 2003 over the first quarter of 2002.

Construction of the Kenai-Kachemak gas pipeline apparently is ahead of schedule. Due for completion in October, it may be done by August. The pipeline will bring gas from the Ninilchik Unit to Nikiski with some being ex-ported to Anchorage and the Matanuska and Susitna valley areas. Initial transmission is expected to average 35 million cubic feet per day, the report said.

Exploration activities, while modest, are continuing. The oil and gas industry is evaluating legislation passed recently that will affect the economics of Cook Inlet Basin fields and projects.

Kenai Wild, the branding program that aims at marketing a higher quality salmon, enters its second phase, which will expand the program to include Homer-area participants.

Work has begun on preparations for hosting the 2006 Arctic Winter Games.

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