Story last updated at 7:16 PM on Wednesday, December 3, 2008

Council may dish up some food tax to balance budget

By Aaron Selbig
Staff Writer

Faced with a sharp decline in projected revenues, an estimated 68 percent increase in fuel costs and a looming deadline to finalize the Fiscal Year 2009 budget, the Homer City Council held a special meeting Monday to hash out various proposals to mitigate the city's financial challenges.

One idea, supported by council members Dennis Novak, Bryan Zak and Francie Roberts, is to continue at least some taxation of non-prepared foods between Sept. 1 and May 31.

In the Oct. 7 Kenai Peninsula Borough election, more than 65 percent of voters approved the seasonal exemption.

Novak said every other borough municipality intends to maintain some sort of taxation on non-prepared foods and Homer should do the same.

"I recognize the vote but I'm proposing to match the city tax to Kenai and Soldotna, which is three percent. It is legal for us to do that," said Novak, adding the $755,952 the tax brings in annually should be applied to a reduction in property taxes. "If you can reduce property taxes, that is in fact an economic stimulus."

Council member Beth Wythe disagreed.

"I think what they were saying with that vote is that it's more important for them to be able to keep that money in their pockets rather than turn it over to us to spend on services," said Wythe. "I can't collect a sales tax that people told us not to collect."

Council members Zak and Roberts agreed that tax money from non-prepared foods should be collected and applied to property tax relief.

"If we do that, we would be telling voters that the council understands their intentions," said Roberts.

Another tricky problem facing the council Monday was whether to raise water and sewer rates, an idea first proposed by city manager Walt Wrede in October. An alternative option, also proposed by Wrede, is to use money from the Homer Accelerated Water and Sewer Program fund -- a fund used for water and sewer system improvements that receives .75 percent of city sales tax revenue -- to pay for depreciation of the system.

Wythe supported raising rates.

"We can't not increase rates when rates are increasing for us. Maybe where we need to start looking is at the bottom end of the rate scale," said Wythe, noting that larger commercial users of the system would pay much more under Wrede's plan.

"In a perfect world, I agree with Beth but right now I find myself in a position of situational management," said council member Barbara Howard, who proposed taking money temporarily from the depreciation fund -- a fund used for unexpected expenses such as equipment failure -- instead.

In the end, the council voted to reject the proposed rate increases and, at the suggestion of Wythe, asked finance director Regina Harville to come up with a report on what a 7.5 percent rate increase would do to alleviate the deficit.

"It's very imprudent of us to say we're just not going to raise the rates and just bury our heads in the sand and hope the problem goes away, knowing we have a deficit of over $200,000," said Wythe.

Council members took turns explaining other ideas they had to balance the city budget.

Roberts proposed transferring $40,000 from the city's general fund to fully fund the Pratt Museum, the Public Arts Commission and the city's Climate Action Plan. Howard suggested cutting $22,500 from the Homer Foundation in order to fund the Pratt Museum.

Wythe proposed cutting all city funding -- or $52,500 -- to the Homer Foundation.

"If we can't meet our core commitments, we can't pay for extras," said Wythe.

By city ordinance, the council must finalize the FY 2009 budget at its Dec. 8 regular meeting.

Aaron Selbig can be reached at