Story last updated at 2:33 p.m. Thursday, September 26, 2002

Proposition 4: Should groceries be taxed?
James Price and Ron Drathman
point of view

Ron Drathman

Loss of tax revenue would result in major fiscal challenge for city

Next Tuesday, voters in Homer and throughout the Kenai Peninsula Borough will decide whether to eliminate sales taxes on all "non-prepared food items" as stated in Ballot Proposition No. 4. These are items approved by the food-stamp program. Food-stamp users will not benefit from this initiative, as food-stamp purchases are already sales-tax exempt.

While the goals of the initiative may be laudable, the consequences are real.

The initiative language refers to exemption of these food items from the 2 percent borough sales tax. However, passage of the ballot measure would exempt taxation of these items in Homer, Seldovia and Soldotna. Kenai and Seward are "home rule" cities and can choose to tax or not tax.

Should the initiative pass, the reduction of tax revenues to the City of Homer will be between $400,000 and $500,000; an exact figure is difficult to determine. The City of Homer takes no position on whether you should vote for the proposition. The city, however, does encourage you to consider the economic impact passage would bring.

A $400,000-$500,000 decrease in revenues to the city can result in only two things -- either revenues are found from other sources or services are cut.

Raising revenues

Revenues can be raised either by increasing the sales tax, or by increasing property taxes.

The present City of Homer sales tax rate is 3.5 percent on the first $500 of each purchase. To generate $400,000 in revenue to make up for the loss by exempting food products, sales tax on the remaining items must be raised by .43 percent. This will result in a Homer sales tax of 3.93 percent, or 4 percent. This coupled with the present borough sales tax of 2 percent would result in a total sales tax of 6 percent for sales within Homer.

However, the borough will be facing the same issue. If the borough chooses to make up the revenues through an adjustment to its sales tax rate, the new borough sales tax rate will be 2.32 percent. This results in a total sales tax in Homer of about 6.25 percent.

Seasonal sales should be considered because of the impact of tourists. According to the KPB publication "Situations & Prospects" the taxable retail sales in the borough and City of Homer for the last four quarters look like this:

There are no tourists in Homer that do not eat, whether in RVs, B&Bs, hotels, restaurants or around a campfire.

The second source of tax revenues is property taxes. The City of Homer mill rate was recently reduced 10 percent to 5 mills to offer tax relief to property owners. The borough estimates that the city mill rate will have to be increased by 1.66 mils to replace the lost city revenues. This amounts to an additional tax of $166 per $100,000 worth of property. If the borough does the same, it will raise its mill rate by .5 mills to 6.5 mills.

This results in the City of Homer property owner paying an additional $210 per $100,000 worth of property.

Additionally, this approach is self-defeating in that Homer City Code 9.16.020 provides that sales taxes cannot be collected if the mill rate rises above 6 mills.

Reduced Services-Budget Cuts

If revenues are reduced, and the budget is cut by the same amount, there will be the following savings/reduction in services:


* City administration (includes mayor and city council, clerk's office, manager's office, personnel, economic development, information services, finance, planning and city hall) -- $122,908 must be cut, which will result in a reduction of services in that amount.


* Library -- $23,335 must be cut, which will result in a reduction of services in that amount.


* Fire Department -- $51,376 must be cut, which will result in a reduction of services in that amount.


* Police Department -- $124,623 must be cut, which will result in a reduction of services in that amount.


* Public Works -- $95,915 must be cut, which will result in a reduction of services in that amount.

The direct impact to water and sewer services will not be felt because they are "enterprise funds" (self funding), but there is an indirect effect -- the dedicated sales tax of .75 percent for the Homer Water and Sewer Fund will not be collected on exempted grocery items.


* Community Services Grants -- $8,988 must be cut, which will result in a reduction of services in that amount.

Tax Jurisdiction

KPBCity of Homer
Jan<>Mar 2002$75,014,344 8,997,674
Apr<>June2002 $107,294,963 16,802,056
July<>Sep 2000 $199,079,27116,884,899
Oct<>Dec 2001 $96,772,806 11,298,228

In summary, the choices are but two. If the initiative passes, services must be reduced or other revenues must be raised.

Ron Drathman has been Homer's city manager since 1998.

Tax most burdensome to those residents who can least afford it

James Price

There have been many comments made, including misinformation and half-truths, regarding the effect of our initiative to end the taxation of nonprepared food items. I hope to clarify our position by stating the facts and by giving the best estimate of the effect that this tax repeal will have on our citizens, the municipalities and the borough. I also hope that you will take the time to learn the facts and make an informed decision at the polls in the borough election on Oct. 1.

Due to all the hard work of numerous cosponsors, volunteers and contributors, the citizens of the Kenai Peninsula Borough have been granted the right to vote on this important issue. Don't fall for the rhetoric from the politicians and bureaucrats who predict a terrible outcome resulting from our hard work on this initiative. This initiative is simply the right thing to do.

Nonprepared food items are not taxed in most Lower 48 states or within most boroughs in Alaska. Taxation of basic food items creates a burden for many people and families fighting to hang on. There are better, more appropriate ways to fuel our government than taxing the food we place on our tables.

Bureaucrats not wishing to see any revenue source dry up use exaggerations and make misleading statements, which suggest that our worst fears will be realized by passing such an initiative. You may have been told that we'd see doubled property taxes or that education would suffer. These statements are simply not true.

I've come to conclusions below based on the facts presented in the Kenai Peninsula Borough's "Food Sales Tax Exemption Summary," published by the borough on Aug. 20 and distributed to the borough assembly members. The borough's summary does not take into consideration the potential revenue benefits from increased shopping on the peninsula, rather than in Anchorage, where there is no sales tax.

The borough's portion of the sales tax revenue is dedicated to education. If the borough chose to replace all the projected revenue loss through property tax increases, that increase would be less than half a million dollars. That equates to less than a $50 yearly tax increase on a $100,000 home. The borough could simply raise the sales tax cap from $500 to $1,000 and collect more revenue than would be lost by our initiative without raising any property taxes. The borough can easily replace this lost revenue by a variety of methods.

Education is a borough priority and will be funded to the state-mandated cap. Our initiative is not a threat to the financial well-being of our borough or to the borough funding of our educational system.

The projected tax loss to the city of Homer is $409,000. This loss could be made up completely by a sales tax increase of less than one-half percent on the remaining taxable items. For the tax losses to be recovered through a mill rate increase, the property taxes would be raised 1.66 mills. There's also the option to find efficiencies in government operations, which would then require no tax increase.

These borough-projected adjustments are a small price to pay for the benefit of having a society that is supportive of the elderly, of families and of lower income individuals. We estimate that the tax relief gained through this initiative will be about $400 yearly, for the average peninsula family of four.

Many individuals in this initiative group are members from our previous group, Peninsula Citizens Against Private Prisons. Last year, we prevailed in our effort to gain ballot access and defeated the promoters of a borough-funded private prison, due to the largest-ever turnout in the polls for a borough election.

We have now won the battle to gain ballot access for our latest initiative drive. It's up to you, the peninsula voters, to deliver the final victory to the people.

The position of our group, Peninsula Citizens Against the Grocery Tax, is summed up by the following points:


* Taxation of basic food items creates hardship for some citizens residing within the Kenai Peninsula Borough;


* Such taxation can be particularly difficult for families, the elderly, low-income individuals and unemployed people;


* Burdening individuals and families who are least able to pay with taxation of products necessary for their survival is not in the best interest of our society;


* Most state governments exempt sales tax on unprepared food items, and of the minority that do tax unprepared food, some do so at a reduced rate.


* The collection of revenue required for borough and municipal operation can be more fairly accomplished without burdening those who are least able to support such taxation.

These statements are the basis of our citizens' ballot initiative.

All the citizens who have worked on this initiative live on the Kenai Peninsula. We hope to make our community an even better place to live, particularly for those who have retired and have given us so much already, for those who are raising families and who represent the future, and for those who are less fortunate.

Please take the time to find out the facts, to disregard misleading statements and to vote. Tell your neighbors about our initiative. Together we can make a difference.

Nikiski resident James Price is the chairman of Peninsula Citizens Against the Grocery Tax and is a Republican Moderate Party candidate for the House District 33 seat.

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