Borough responds to ACT motions

The Kenai Peninsula Borough attorney's office filed papers Thursday seeking a summary judgment from the Kenai Superior Court that the borough assembly acted within the law earlier this year when it voted to increase the sales tax rate to 3 percent effective Jan. 1.

The borough's action came in response to motions filed Dec. 4 by the grassroots group Alliance of Concerned Taxpayers (ACT) seeking a court order enjoining the borough from imposing the 1-percent tax increase, at least until a court adjudicates a pending ACT suit challenging the borough's claim that it has the power to increase the sales tax to 3 percent without a public vote. ACT also seeks a summary judgment declaring the increase illegal.

A trial date for the sales tax lawsuit has been set for the week of March 17.

In a 23-page motion, Borough Attorney Colette Thompson argued that the borough's claim ultimately rests on authority granted by voters in 1964 the year the borough incorporated that allowed the assembly to levy a sales tax as high as 3 percent. The assembly did just that in 1965.

A decade later, however, the body cut the sales tax rate to 2 percent. No voter approval was sought. Though the assembly entertained proposals to increase the tax again during the interim, it did not do so until 30 years later when it passed Ordinance 2005-09 in June 2005. That ordinance actually contained three revenue-boosting measures, including the increase in the sales tax due to take effect that October.

Immediately after Ordinance 2005-09 was passed, ACT filed a pair of initiative petitions, each seeking to set the sales tax rate at 2 percent, except that one added a provision requiring a 60-percent supermajority of voters to approve future increases. That initiative eventually made it to the ballot in October 2005, where it won the approval of 54.17 percent of voters.

Borough Clerk Sherry Biggs also approved an ACT referendum petition seeking repeal of Ordinance 2005-09 in its entirety, but that petition was not filed in time to make the October ballot. Meanwhile, to avoid some practical problems, the assembly moved in August to shift the effective date of the sales tax increase to Jan. 1, 2006.

The October election saw John Williams win the mayor's job.

In November, ACT finally submitted its repeal referendum petition against all parts of Ordinance 2005-09, winning a place on the October 2006 municipal ballot. Since the tax increase had not yet taken effect, its imposition was suspended until voters could decide the issues the following fall.

If things weren't complicated enough, they were about to get somewhat more convoluted.

In late 2005, the assembly considered a new measure, Ordinance 2005-51, which would have repealed the 3-percent sales tax rate along with another section of 2005-09, sending the rest to the October 2006 ballot. ACT opposed that move, arguing that state statute required the entire ordinance to go before the voters. The assembly agreed, turning thumbs down on 2005-51.

Ballot information supplied to voters that fall made it clear that should they defeat the repeal referendum, the sales tax increase would take effect.

By election day, economics and politics had changed many voters' minds. Roughly 57 percent voted against the repeal referendum, indicating they were not ready to take the power to increase or lower taxes away from the elected assembly. According to the borough, that left the pending tax increase in place.

For two reasons, however, it was not imposed. First, there were practical problems, including updating software, which made raising the tax immediately somewhat problematic. Also, the assembly determined that the increase was not needed at that time. In the borough's view, however, the election had affirmed the assembly's power to increase the tax to as high as 3 percent without a public vote.

ACT disagreed, and filed suit on Dec. 28, 2006, but did not follow up with any specific motions or supporting exhibits.

In April 2007, the assembly voted to increase the sales tax to 3 percent effective Jan. 1, 2008. Two months later, the body adopted the FY 2008 budget, which included a decrease of a full mill in the property tax rate considered affordable because of the estimated $3.85 million in sales tax revenue the borough anticipated collecting during the first six months of 2008.

Though they had had eight months since the assembly voted to increase the tax in which to file for an injunction and summary judgment, ACT waited until Dec. 4, less than a month before the tax increase would be imposed. By that time, efforts to notify the public of the coming increase and to alter internal software to accommodate the change had cost the borough "significant time and expense," Thompson said.

ACT Spokesman Mike McBride, of Nikiski, said an injunction simply hadn't been necessary sooner. Now, however, ACT wanted the matter "tidied up before it takes effect," he said.

Mayor Williams called ACT's late action "another harassment plan ... to create as much chaos and confusion in government as they possibly can."

In her motion, Thompson argued that ACT was not entitled to a preliminary injunction because the borough could not be adequately protected and because ACT had "failed to show a clear probability of success on the merits of this case."

In 2006, borough voters had "clearly ratified" the 3-percent rate when they defeated the repeal referendum, effectively reaffirming what voters had also done in 1964.

Thompson went on to assert that the 2005 initiative setting the limit at 2 percent and requiring a supermajority to enact tax increases was invalid because "it contained illegal limitations not authorized by statute." Thus, the original increase in Ordinance 2005-09 had not been invalidated by the 2005 initiative, she claimed.

Spelling out some of those "illegal limitations," Thompson cited Alaska Supreme Court rulings and case law. She said requiring a 60-percent supermajority for future tax increases would impose a tighter restriction on the municipality than state law does in defining the powers of second-class boroughs. In addition, limiting the ability to obtain voter approval only to regular municipal elections "imposes a significant limitation on the taxing authority of the municipality that is neither expressly nor impliedly authorized by statute," she said.

According to Thompson, while the right of the people to enact legislation by initiative at the municipal level should be liberally construed, the power of the initiative process "is not greater" than that of the assembly. The initiative may not be used to enact a law that contradicts state statutes, something the ACT initiative did, Thompson contended.

Beyond that, the fact that the borough clerk had certified ACT's initiative petitions for the ballot, using the limited pre-election review process purposefully biased to make ballot access easy, "has no bearing on the issue of whether the law enacted by the people is valid," Thompson said.

The borough has asked the court to deny ACT's motion for a preliminary injunction, citing, among other things, the harm it would cause to the borough's finances if the $3.85 million expected from the sales tax increase had to be withdrawn from the fund balance. Recovering that loss through property taxes would impose a hardship on property owners, Thompson said.

In addition, the borough has asked the court for a summary judgment that the borough is entitled to set the sales tax rate at 3 percent come Jan. 1.

ACT's attorney, Ken Jacobus, has until Dec. 17 to respond to the borough's filings.

Hal Spence can be reached at hspence@ptialaska.net.