The Kenai Peninsula Borough Assembly voted Tuesday night to grant Homer, Seldovia and Soldotna the authority to impose a sales tax on non-prepared foods if a boroughwide ballot initiative to eliminate that tax on a seasonal basis passes Oct. 7.
But shortly after the 6-1 vote, assembly member Paul Fischer of Kasilof, who cast the only no vote, called for reconsideration of Ordinance 2008-28, using the parliamentary procedure to effectively delay the action until after the Tax-Free Food ballot proposition goes before the voters.
The majority of the assembly members present at the meeting held in Homer (two had excused absences) had earlier rejected appeals from the initiative's prime sponsor, James Price of Nikiski, that authority be withheld until after the municipal election to allow the public to voice its collective opinion on the controversial issue. Price, chairman of Alaskans for Grocery Tax Relief Now, said the ordinance was Mayor John Williams' effort to "circumvent the boroughwide vote."
The majority of the assembly, however, said voters should know exactly what was at stake in eliminating the sales tax on groceries between Sept. 1 and May 31, especially for the borough's three general-law cities. As assembly member Bill Smith of Homer put it, "We need to lay all the cards on the table."
General-law cities are limited by law to imposing sales taxes only on items also taxed by the borough. Thus, if Proposition 1 passes and eliminates the sales tax on groceries for nine months of the year, those cities would also be forced to curtail their city sales taxes on food.
There is an out for cities, however.
State law also gives the borough the right to grant general-law cities the authority to tax items not taxed by the borough; thus Ordinance 2008-28, which grew out of a request by the city of Soldotna, which would lose about 10 percent of its annual sales tax revenue if forced to curtail its tax on food. Seldovia and Homer have also asked for the authority to control their own tax regimes.
Price called it "bad public policy" to take such steps before the election was held. "I question whether it is actually legal to interfere with the initiative process by attempting to circumvent the vote of the people in the manner that you are doing," he said.
Soldotna city officials told the assembly that loss of the sales tax could cost the city about $700,000 annually. Non-city residents enjoy many of the city's facilities that sales tax revenues make possible.
For instance, said Soldotna City Council member Peter Micciche, the only "user fee" nonresidents pay to use the Soldotna Library is the city sales tax. He urged support for the ordinance that would put the general-law cities "in control of their sales tax revenue destinies."
Micciche said to his knowledge, no one Alaskans for Grocery Tax Relief Now ever approached city officials to determine the impact of a tax holiday on the city's budget.
The city of Homer is considering eliminating the tax on food during the nine-month period. Whether they can legally do that should Prop 1 fail is still an open question. But regardless of which way a municipality might choose to go on food sales taxes, when revenue streams are cut, they require reaction, said Homer City Council member Dennis Novak.
"If you are going to push your finger into the balloon somewhere, it's going to pop out somewhere else," he said. "It's up to the voters, but they should understand there is no free lunch and if you don't pay here, you're probably going to pay there."
Sprague noted that the ordinance would give the three cities the right to opt out of the tax holiday should the ballot measure pass. To do that, those cities would have to consider their own ordinances, complete with their own public hearings.
He said there was "a real inequity" in forcing general-law cities to forego vital tax revenues when the home-rule cities of Kenai and Seward were, by virtue of their charters, already authorized to tax items not taxed by the borough.
Assembly member Bill Smith of Homer said he agreed with Price in that it was appropriate for boroughwide voters to decide borough tax policy.
"But I don't think it's appropriate for the voters of North Kenai to decide the tax policy for the citizens of the city of Homer," he said.
Adopting the authority ordinance, he said, would give the cities the opportunity to alert voters how they intended to react should Prop 1 pass. Voters, he said, would know the cities' positions and what the general effects of the proposition would be.
The city of Homer, which has a population of around 5,500, would take a significant hit, not only losing the tax revenue of city dwellers, but as much as $486,000 derived from consumers who live outside the city but shop its stores. Each of those noncity residents -- roughly 8,500 are considered to be in the city's trading area -- pay an average of $6.34 per month in city sales taxes.
"The inside-the-city taxpayers (of) property taxes are going to have to pick up that burden," Smith said. "It's a question for the residents of the city who will be voting and own property here whether or not they want to pick up that burden so that they can save outside-the-city residents $6.34 a month in city sales taxes."
The same issue faces city residents of Seldovia and Soldotna vis-a-vis the non-city populations of their trading areas.
Assembly member Ron Long of Seward said it was a safe bet that the home-rule cities of Kenai and Seward would opt out of the restrictions imposed by the proposition, and would continue to tax food year-round. He then took issue with Price's main argument.
"You may as well get used to the idea that we will are going to be accused of subverting the will of the people if we do anything or nothing," he told his colleagues. "The fact is the voters should know what they are voting on. They should know the effects."
He went on to say that not providing all the information to voters would be a disservice, and waiting until after the Oct. 7 election to consider whether or not to offer the cities the choice would be even more of a disservice. He said the general-law cities "need to be in the driver's seat" to decide how to mitigate the challenges they'll face from the loss of revenue.
During the debate, Fischer argued that passing the ordinance wasn't necessary until after the election.
"Everyone is assuming Prop 1 is going to pass, and everybody's panicking," he said. "I can't see any reason why we can't hold off to the first meeting in October (Oct. 14) and then people can go out and do their thing."
He moved to postpone the measure until Oct. 14, but that motion failed 6-1.
After the final bit of business of the night, Fischer issued a notice of reconsideration on the authorization ordinance at the Oct. 16 meeting in Soldotna.
"That way it will be after the election when we take it up again," he said, adding a little later that he would probably support the measure after the election if Prop 1 passed.
During assembly comments, Long gave Fischer a backhanded comment, congratulating him for using "legislative artifice" to "accomplish what you can't do legislatively."
Showing his distaste for Fischer's move, Sprague said, "I was afraid there might be some procedural moves on one of the issues we dealt with," clearly referring to Ordinance 2008-28. "I hope I can reciprocate sometime."
Hal Spence is a reporter for the Peninsula Clarion.
