Decision could change borough services

Posted: Tuesday, October 31, 2000

If it passes, effects of the proposed tax cap on the Kenai Peninsula Borough would be less severe than places such as Anchorage, Fairbanks or the North Slope. But it would make a big difference for many residents.

Jeff Sinz, the borough's finance director, has looked into what the tax cap would do here.

"I think the impacts are significant but manageable, at least in the short term," he said. "In the long term, I believe it would hamper our ability to function."

Here are some of his predictions about what the cap would do:

n Nine of the 19 tax areas in the borough would see property tax cuts adding up to about $4.3 million, mostly from the North Kenai and Nikiski area.

n Those cuts would directly effect budgets for the voter-approved Nikiski service areas currently providing senior, recreational and emergency services, because the mill rates that fund them add up to more than the cap allows.

n Of the property taxes cut, about $1.1 million would be taxes on oil and gas industry property. The businesses would still pay the taxes, under state law, but the money would go to the state of Alaska rather than to the borough.

n Reduction of general borough property tax revenues could cause cuts in school funding. The school district receives about 90 percent of borough property tax revenues.

n Many areas of the borough would be at or near the tax cap, so residents would be unable to start new service areas, even if they voted in favor of them.

n In the long term, the borough would have more difficulty using bonds to pay for projects such as new schools and less flexibility in replacing revenue when oil and gas reserves decline.

Sinz sketched out some options for adapting to the cap:

n Reducing education funding or cutting back voter-requested services such as fire, emergency medical or road maintenance.

n Increasing the borough sales tax from 2 percent to 3 percent. The sales tax would generate enough revenue to reduce the boroughwide property tax by 1.9 mills, bringing all areas under the cap except North Kenai, Nikiski and the west side of Cook Inlet including Tyonek.

n Enacting laws to return all or part of the $1.1 million oil and gas tax to the borough.

"We are waiting to see what happens before we do an in-depth analysis," Sinz said.

He cautioned that any projections at this time are based on a series of "what if" scenarios depending on the will of the voters and their elected representatives.

"All of these tax adjustments are subject to the approval of the assembly," he said.

The cap would not effect the cities of Kenai or Soldotna directly because their mill rates are 3.5 and 1.65, respectively. But indirect results could be significant, city managers report.

Kenai City Manager Rick Ross said the repercussions of cutbacks in other parts of the borough and state would work unpredictable effects on his city.

Soldotna City Manager Tom Boedeker noted his city's residents pay borough taxes above 10 mills because of overlapping service areas such as Central Peninsula General Hospital and Central Emergency Services.

He predicted passage of the tax cap would lead to cuts for emergency services in the Soldotna area.

Municipal revenue sharing statewide would go "down the tubes," he also predicted, with the Legislature under huge political pressure to aid Anchorage, Fairbanks and the Matanuska Valley at the expense of other areas such as the Kenai Peninsula.

"There are a lot of spinoffs that could happen indirectly," he said. "I think it's a bad move."

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