Prop 2 about more than the tax rate


Posted: Friday, October 20, 2006

The municipal election is over and the dust has settled on what turned out to be the most contentious issue on the ballot — the sales tax.

Voters were asked in Proposition 2 whether to repeal Ordinance 2005-09, a measure the borough assembly passed last summer that raised the sales tax rate from 2 to 3 percent, as well as addressed using money from the Land Trust Fund and taxing the sale of recreation packages.

The Alliance of Concerned Taxpayers went after the sales tax portion of Ordinance 2005-09 in last year’s municipal election with an initiative seeking to reverse the assembly’s new sales tax rate and force the assembly to leave it there without the approval of 60 percent of the voters. They succeeded.

In this year’s election, ACT sought the repeal of the remaining elements of Ordinance 2005-09 with Prop 2. But since the whole of Ordinance 2005-09 was up for referendum, the sales tax came to dominate discussion on Prop 2.

Not a surprise. “Tax” is one of those words that grabs attention — kind of like “fire,” “free” and “dividends.”

This time voters chose to give the assembly the tools they need to do their job — the ability to set a sales tax rate up to 3 percent without being fettered by the stipulation that a supermajority of voters agree with them.

Somewhere in the debate leading up to the election, Prop 2 got boiled down to a simplistic argument — you were voting for a tax increase or against one.

That wasn’t the case. Prop 2 was about much more than that.

On one level it was about trust in elected officials and the system by which voters exert control over them. Voting down Prop 2 said: “We expect the people we put on the assembly to study the financial affairs of the borough and all the factors affecting it, and make the best decisions possible to manage those affairs on our behalf.

“And if we don’t approve of your decisions, we will vote you out of office.”

That’s how it should be. If you don’t like how elected officials are exercising the authority inherent in the job — barring illegal abuses — you vote them out. You don’t vote to change the job to get the results you want, thereby tying the hands of current and future elected officials.

On another level, Prop 2 was indeed about the sales tax rate, but it wasn’t as black-and-white as 2 or 3 percent. It was about a host of issues — whether voters want the borough to fund schools to the cap; if they value the services they’ve asked the borough to provide enough to pay for them; and if they’d rather support their government more through property taxes, or an equitable mix of sales and property taxes.

That’s the thing about taxes — sales or otherwise — they’re complicated.

That is certainly the case in the Kenai Peninsula Borough. After Prop 2 was defeated in the polls, the assembly decided to keep the sales tax rate at 2 percent through the end of this fiscal year in June. Between now and then, Mayor John Williams has vowed to take a close look at borough finances with an eye toward next year’s tax rates. There’s much to consider:

· PERS-TRS funding. The skyrocketing public employee pension funding liability is again going to pay a major roll in the borough’s budget. According to Williams, this year’s Public Employee Retirement System payment is in excess of $5 million. Had it not been for millions in assistance from the state, Williams said, “We would be in trouble.” A safe translation of “trouble” here would be “taxes.”

But there’s no saying at this point what assistance the state will give local municipalities next year, especially with a new governor at the helm. This issue more than any other could influence whether —and by how much — taxes increase next year.

· Additionally the borough must contend with increasing insurance payments. Fuel and maintenance bills also are on the rise. According to Williams, there’s 153 buildings in the borough that the municipality heats and maintains, and this is not an area that should be scrimped on. Shivering does not make for a conducive learning environment.

· Property taxes. One of the things the assembly hoped to accomplish with Ordinance 2005-09 was to even out the tax burden. Currently the tax burden is split about 68 to 65 percent property taxes and 35 to 32 percent sales taxes, Williams said. With this dichotomy, businesses and middle-age, middle-class to upper-class homeowners are shouldering the majority of the tax burden, since low-income residents don’t generally contribute much in property taxes and seniors are exempt from them.

A sales tax increase would more evenly distribute the tax burden among all residents as well as among visitors — especially if it were a seasonal sales tax increase, which is one option Williams’ administration is considering.

· There’s also the general cost of doing business. This includes the general administrative budget of the borough — which Williams said is less than $14 million — and the money it takes to run the 13 service areas (hospitals, fire, flood, etc.) residents voted into existence — which costs $37 million. That’s one thing Williams wants people to keep in mind — that the budget hasn’t ballooned due to government mishandling.

“Government is of the people and by the people,” he said. “They’ve created the majority of it themselves. So what we create, we must care for.”

One thing we want Williams, his administration and the assembly to keep in mind as they begin their budget process is that they aren’t doing it in a vacuum. Voters are watching.

As Prop 2 showed, residents are willing to support their government and the decisions their elected officials make regarding it, but they aren’t handing out a blank check of authority.

If the assembly decides in July that a change in the tax structure is needed, they’d better have sound, documented reasons why and do a good job of explaining them to voters.

If they don’t, they could — and should — find themselves out of a job.

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