The board of directors of the Homer Chamber of Commerce and Visitor Center has unanimously voted to oppose a proposed borough-wide bed tax.

The chamber board’s decision follows last week’s forum, sponsored by the chamber to educate its members and the public on the tax. The decision came in time to be considered by the Kenai Peninsula Borough Assembly on Tuesday at the first of two public hearings held on the bed-tax ordinance.

“The Homer Chamber of Commerce board of directors, on behalf of more than 500 members, would like to express its opposition to Ordinance 2014-25, which would establish an area-wide transient accommodations tax (bed tax),” said the letter to assembly members and signed by Mike Barth, the chamber board president.

The 11-member board’s decision was unanimous, based mainly on a belief that the tax targeted the lodging industry, said Barth in an interview Tuesday.

“That was the biggest thing we all agreed on,” said Barth. “The other thing is that the lodging industry isn’t subject to the ($500) sales tax cap like other businesses are. If you go to Save U More and spend $1,000, you don’t pay over and above the limit. The lodging industry doesn’t have that.”

Also of concern to the chamber board is that bed-tax dollars collected could be reallocated at any time.

“It’s a variable that can be changed. It would just take an assembly vote,” said Barth. “From what I was hearing from the members, there’s a lot of them are really uncomfortable with that.” 

Barth emailed the letter Tuesday afternoon to each member of the assembly to have prior to the first of two public hearings on Ordinance 2014-25. 

Bill Smith, who represents Homer on the assembly, sponsored the ordinance. It was introduced at the assembly’s June 17 meeting. Tuesday’s public hearing will be followed by a second hearing July 22. 

If approved by the assembly, the bed tax will go before peninsula voters in the Oct. 7 municipal election.

The tax would apply to those overnighting in peninsula accommodations and would generate $2.4 million, according to Shanon Hamrick of the Kenai Peninsula Tourism Marketing Council. If the tax passes and the borough continues to use the agency to market the borough, KPTMC would no longer request yearly funding for marketing from the borough. According to the ordinance, the bed tax raised in the cities would go back to the cities.

During Tuesday’s public hearing on the ordinance, Jon Faulkner, owner of Land’s End Resort in Homer, spoke against the tax. Faulkner also presented a petition signed by 21 businesses opposing the tax.

“This is a very divisive and polarizing issue,” Faulkner said. “This initiative is not about the enhancing of marketing. It’s about taking more tax dollars from the visitors that we have.”

The assembly passed one change to the ordinance and failed two amendments to the bed tax percentage. Smith originally called for 75 percent of tax collected outside of cities to be used for tourism marketing and 25 percent to be put toward borough school purposes. 

Smith, along with assembly member Dale Bagley of Soldotna, sponsored an amendment to use the bed tax collected outside of cities for only tourism promotion. The amendment unanimously passed.

Assembly member Kelly Wolf of Kenai proposed changing the bed tax from 4 percent to 1 percent. Only one other assembly member, Wayne Ogle of Kenai, voted in favor of the change with Wolf.

The assembly also considered amending the ordinance to a 3 percent bed tax proposed by Bagley. With assembly member Charlie Pierce excused from the meeting, the proposed amendment evenly divided the body. Bagley, Smith, Brent Johnson of Kasilof and Sue McClure of Seward voted in favor of the 3 percent bed tax. Voting against it were Wolf, Ogle, Mako Haggerty, who represents the southern Kenai Peninsula, and Hal Smalley of Kenai. When the assembly ties on a vote, the vote fails.

At the June 26 chamber forum in Homer, Haggerty explained the reasoning behind the proposed tax and offered his argument against it.

“The reason this is before us is because every year during budget time, we (the assembly) struggle to get some of the non-departmentals funded,” said Haggerty.

Within the borough budget, non-departmentals are areas benefiting the borough as a whole, but not attributable to specific departments, according to Craig Chapman, the borough’s finance director. Kenai Peninsula Tourism Marketing Council is among the 12 non-departmental services included in the borough’s 2015 budget. The $300,000 the borough gives to KPTMC is to be used “for marketing of the Kenai Peninsula Borough as a prime destination for tourists on a non-area wide basis,” according to the budget.

In February, three assembly members — Wolf, Ogle and Pierce — sponsored Resolution 2014-017, seeking voters’ advice regarding the borough’s continued funding of non-departmental programs with borough tax dollars. 

“For many years the Kenai Peninsula Borough has budgeted citizen tax dollars for non-department programs. To some, this has raised concerns as to whether it is appropriate to use citizen tax dollars to fund nonprofit programs and post-secondary education,” wrote Wolf, Ogle and Pierce in a memo to Assembly President Hal Smalley that accompanied the resolution. “These programs already have the ability to raise tax deductible contributions, receive revenue funds from the state through the legislative process, receive funds from student tuition and corporate contributions as well as the ‘click, pick and give’ PFD process.” 

If passed, the resolution would have placed before voters a proposition asking if the borough should continue to fund non-departmentals through the budget process. The resolution drew strong opposition from the public and failed the assembly on a 2-7 vote, with only Pierce and Wolf voting for it. Smith and Haggerty were among those voting against it. 

At the chamber’s forum last week, Haggerty said he is proud of Homer’s diverse tourism industry and “in favor of raising revenue directed toward … making people aware of what we have to offer here on the Kenai Peninsula.” 

However, he does not believe a bed tax is the appropriate vehicle.

Haggerty said he wants to stop the ordinance at the assembly level, before it goes to borough voters “because my feeling is that what we’ll have is every voter on the Kenai Peninsula voting to burden a small sector of the peninsula. … That’s where I have real difficulty with this ordinance and that’s why I’m going to oppose it.”

Mike Warburton of Ocean Shores Motel said a bed tax would adversely affect large groups and conventions looking for a venue. He said it makes sense to have such a tax in areas of the state that have limited attractions, such as Anchorage.

“They have hotels and a water slide and that’s it and they can’t get people to vote on a sales tax so it makes sense up there,” said Warburton, who took exception to increasing tourism dollars on the backs of lodging. “In our case, here on the peninsula, there’s many businesses in the tourism industry. To single us out to pay for marketing for all tourism businesses on the peninsula really seems to be blatantly unfair.”

In 2005, borough voters turned down a 4 percent bed tax. When Smith was elected to the assembly in 2007, he said he “wasn’t very aware” of the borough’s role in funding economic development, including tourism. Since then, he has considered other funding alternatives that have failed to find voter support. When KPTMC began addressing a bed tax several months ago, Smith said he
became involved.

“One of the options I considered was to have a simple, across the board, $5 a night, like an excise tax, that would not have required a vote, but I felt it was much more appropriate to go to the voters,” said Smith. “So, that’s what this ordinance is. … I feel strongly that the borough has a role in economic development and this could be a very positive step for us.”

Hamrick also spoke at the forum in favor of the bed tax ordinance, explaining that 79 percent of destination marketing associations such as KPTMC benefit from an accommodation tax. 

Acknowledging the tourism industry’s contributions to the borough, Hamrick said without that revenue, it would require an additional $1,000 in taxes per household to make up the difference.

It was at a business summit in Homer last November, during a discussion on sustainable funding, that KPTMC asked for help in developing a funding solution.

“That’s where the idea of a bed tax started to arise again,” said Hamrick. “I was like, ‘no, I don’t even want to go there,’ but everyone said ‘it’s a new day, let’s start looking at this.’ So, we went back to the drawing board, doing research and formulating a plan.”

Hamrick said her research has failed to show businesses are harmed by a bed tax.

“I haven’t been able to find it and I’ve honestly looked,” she said.

None of those speaking at the chamber’s forum favored the tax. Among them was Dorothy Fry of Bear Creek Winery and Lodging. Fry also submitted her comments in writing to Hamrick and the chamber.

“We here at Bear Creek Winery are completely against a bed tax,” said Fry. “When it was proposed about 10 years ago we thought it was a bad idea and still do. I think adding another tax to our visitors is a terrible idea.”

Fry suggested raising sales tax as a more equitable solution. 

“If the borough can’t support itself, then something should be changed in the spending budgets. Gouging the tourists isn’t the right answer,” said Fry.

  McKibben Jackinsky can be reached at mckibben.jackinsky@homernews.com. Kaylee Osowski of the Peninsula Clarion contributed to this story.