The first votes on changes to the local sales tax will happen today.
The Kodiak City Council will vote today on the first reading of three sales tax ordinances meant to increase revenue into city coffers.
One ordinance would increase the sales tax cap, the maximum taxable amount in a single transaction, from $750 to $3,000, while a second ordinance would leave the cap at $750 for residential and commercial property rentals.
The third ordinance would end a 2 percent discount currently given to businesses that file and pay their sales taxes on time.
The proposed ordinances were drafted for a budget special work session held earlier this month after over a year of council discussion on ways to increase falling revenue. In addition to declining state and federal contributions, the city is facing declining sales tax revenue. According to information provided to the Kodiak Daily Mirror by City Manager Mike Tvenge, sales tax revenue fell by nearly $1.43 million in fiscal year 2017 compared to the prior year.
The decreased revenue comes as expenses are increasing and the city faces mounting infrastructure needs, including replacement of St. Herman Harbor, a new fire station and upgrades to the wastewater treatment system.
The city’s fiscal year 2018 operating deficit currently stands at $2.8 million. “This deficit does not include those needed capital projects,” Tvenge wrote.
In September work sessions, some community members have given public comment about the impact an increase in the sales tax could have on the Kodiak businesses.
A bookkeeper for a cod fisherman on Tuesday addressed councilors on the impact it would have on her client specifically.
“On the old system, the tax (on bait) was $787.50 with the $750 tax cap. With your new system, my guy would be paying $2,671.25, and that’s just bait. We’re not even talking fuel” or maintenance, she said.
“I really firmly believe that if you pass this, you’re going to kill business. As a bookkeeper, it is my job not only to track and make timely payments but to save my clients money, and if I have to go off-island, I’m going to start doing it. I am going to start researching how we purchase things for the boat off-island so we do not have to pay this tax. I hate to say that, but that’s my job and I’m going to do that,” she added.
Another commenter suggested increased taxes will drive people out of the community and recommended that councilors begin looking at cutting services rather than revenue generation.
“Something’s got to go, and it’s going to be the people or services,” he said. “Somewhere in the middle there has to be an equilibrium struck.”
Tvenge and Mayor Pat Branson stressed in a Friday interview with the Kodiak Daily Mirror that they do not believe the increase will affect population levels because many Alaska communities are also looking at measures to increase revenue through raising or implementing new taxes.
Tvenge also cited statistics that show the city’s population has been stable over the past six years. From April 2010 to July 2016, there has been a net loss of six people in the city, he said.
Borough-wide population reached a high of just over 15,000 in 1994 and has remained in the 13,000s since 1997, according to annual population counts by the Alaska Department of Labor and Workforce Development.
At the Tuesday work session, Tvenge also disputed claims that the city has been consistently raising taxes.
“We’ve only had three tax changes since 1993,” he said.
In 1993, the sales tax rate was increased from 5 to 6 percent. It increased to 7 percent in 2012. The sales tax cap increased from $500 to $750 in 2004, he said.
In discussion on Tuesday, councilor Rich Walker said he would not support the steep increase from a $750 cap to $3,000.
“Our economy right now is kind of fragile. It’s in a fragile state, and I really agree that if we don’t take the right action right now, we’re going to be worse off,” he said.
He advocated instead for a smaller cap increase to $1,500, along with other revenue generation measures, and reassessment of city finances after five years.
“I understand incremental, but I don’t know that we have time for incremental,” responded councilor John Whiddon. He indicated he may support incremental increases to the sales tax cap beginning at $1,500 if it were combined with cuts.
“If you don’t add cuts to (the sales tax cap increase), then I think we’re going to deplete our fund balance to the extent that we’re going to put this community at risk, and I didn’t get elected to do that,” he said.
Councilor Randy Bishop also pointed out that councilors have not yet seen proposals for service cuts and said both cuts and revenue generators should be on the table.
Councilors expressed a desire to look into additional sales tax exemptions that could be eliminated. Some of these exemptions are mandated by state or federal law.
Branson said the three ordinances are just a start and the council will continue to examine budget remedies in upcoming work sessions.
Councilors will vote on the three sales tax ordinances at today’s regular meeting on the first reading of the ordinance. The meeting will be held at 7:30 p.m. in the Assembly Chambers.
If passed in the first reading, the ordinances will advance to second reading and public hearing at the next regular meeting on Oct. 12.
At tonight’s regular meeting, councilors will also vote on the second reading of ordinances that would designate Kodiak as the regulatory authority on marijuana and prohibit extraction of tetrahydrocannabinol, commonly known as THC, with “materials or methods deemed dangerous to public health and safety.”
Authorization of a contract with a new law firm, Boyd, Chandler and Falconer, LLP, for the city’s legal services is also on the agenda.
Snoderly can be reached at (907) 512-2624. Follow her on Twitter, @KDMjoann