The city of Soldotna stands to lose more than $1 million if Kenai Peninsula Borough voters pass a boroughwide sales tax exemption on non-prepared food items.
That was the message delivered by City Manager Tom Boedeker at Wednesday's meeting of the city council. Boedeker's remarks came as the council heard a first reading of Ordinance 769, which would authorize the city to spend $10,000 to "disseminate information about the impacts" the inititave would have on the city.
"It's significant what we're talking about here," Boedeker said. "One out of every six to seven dollars of our current operating budget would be eliminated. That is significant."
Non-prepared food items are described in the inititave as "... those which have been previously granted exemption in KPB 5.18.200(14) for food purchased with coupons issued under the federal food stamp program."
Not all peninsula residents buy the Soldotna city manager's gloomy assessment of the tax exemption. Nikiski resident James Price has been actively campaigning for the exemption. He said city officials paint an untrue picture of the inititave.
"I really think they've overstated the effect of this tax repeal," Price said Friday afternoon. "I would say the numbers are generally guess-timated."
However, Price admitted he didn't know exactly what individual cities would lose if the tax exemption passes.
"I'd have to look at the exact numbers," he said.
Boedeker said he's seen the numbers, and they don't look good. He explained to the council that if the inititave passes, the city will have several options to account for the budget shortfall.
"You either have to raise revenue, or you cut," he said.
Raising revenue would likely come in the form of higher property taxes or higher fees for city services. Boedeker said that if the city were forced to raise property taxes to account for the gap, the mill rate could more than triple.
Currently, the city's mill rate is 1.65 mills. That means for every $100,000 of assessed property value, the owner pays $165 in taxes. If the city had to raise property taxes to cover the loss in sales tax revenue, Boedeker said the mill rate would have to go to as much as 5.4 mills, meaning that for each $100,000 in property value, the property owner would pay $540 a year in taxes.
Boedeker said he didn't think such a move would sit well with city residents. "You can't do that in one move," Boedeker said. "It would kill this town."
Price said such talk is premature.
"If the city wants to make up the gap, they could increase sales tax on other goods they sell," he said. "I don't think the tax rate increase would be very high."
Mayor Dave Carey said he worries the tax exemption could cause a "civil war" between city residents and borough residents from outside Soldotna if the initiative passes.
That's because, as Boedeker pointed out, the city would have to figure out how to collect money for city services from people who live outside city limits, yet still use public services such as roads, the public library and city parks.
Boedeker noted that although the city of Soldotna has a population of less than 4,000 residents, many times that use city services. He pointed out that the library alone boasts more than 12,000 cardholders, many of which don't live in Soldotna.
And Soldotna's parks are frequented by peninsula residents and tourists alike.
"You can't support ten parks on the backs of the city," he said.
He said those people who live outside the city will have to bear some of the estimated burden the inititave would place on the city.
"We need to educate the public that there is no free lunch," Boedeker told the council.
However, tax exemption proponent Price said he's not asking for a free lunch, just a break on the price of groceries.
"I think it's an unfair tax," he said. "It's harsh on the elderly, people with low incomes and large families."
The council will consider adopting the ordinance at its Sept. 11 meeting. If passed, the ordinance authorizes the city to spend up to $10,000 to dispense information about the borough initiative, namely, the effect the exemption will have on the city's pocketbook.
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