Homer Alaska - Business

Kenai Peninsula Borough sales tax revenue fell short of budgeted expectations in fiscal year 2010, meaning the mayor will commit to tightening the purse strings in this year's budget.

The borough finance department projects actual FY2010 sales tax revenue at $26.5 million. That figure comes about $1.7 million, or 6 percent, short of what had been predicted.

"We've been looking at the budget throughout the year, and we had an expectation that things were going to slow down," Kenai Peninsula Borough Mayor Dave Carey said.

Borough Finance Director Craig Chapman attributed the shortfall to a weaker-than-anticipated economy and said taxable sales decreased "across the board."

"Almost every line of activity saw a decrease," Chapman said.

Carey said the sales tax shortfall will force him to carefully reexamine priorities in this year's budget to make necessary cuts. Carey said he is looking to consolidate jobs when possible, as well as cut down on borough employees' training and travel expenses.

"Something can be a need for a while, but with different circumstances it can become more of a want," Carey said.

In a February interview with the Clarion, Carey said his FY2011 budget will propose cutting employees within his office, including a financial analyst.

"Within my office, I am going to eliminate one-fifth of the positions," Carey said. "Finance is going to put on the responsibility of collecting and putting together the critical information that's needed."

Carey said he would look into consolidating his chief of staff and special assistant positions.

Chapman said last year's sales tax revenue shortfall should be considered during FY2011 budget discussions.

"There's no doubt it will have an impact," Chapman said. "We'll have to take a look to see what is the outcome going to be for the coming years."

While Chapman said it is misleading to scrutinize sales tax data line by line, he said industries like tourism and retail account for the less-than-anticipated taxable sales.

A borough financial report focusing on July, August and September of 2009 shows tourism's struggles. While nearly all 12 categories of taxable sales declined in summer 2009 as compared to summer 2008, tourism was hit the hardest, falling by 38.1 percent.

Overall, taxable sales in summer 2009 fell by 12.8 percent, from $357 million in 2008 to $311 million in 2009. It was the worst year-to-year third quarter decrease in more than a decade.

The summer months are a good indication of the Kenai Peninsula's general economy because the region is so propelled by tourism, according to a state department of labor economist.

"We get a lot of tourists from the Lower 48," said economist Alyssa Shanks. "No matter where you are coming from, summer 2009 wasn't a year that you really wanted to spend a lot of money."

Not surprisingly, final FY2010 sales tax revenue projections were lower in some regions compared to others.

"Communities like Seward and Homer, areas dependent on tourism, were hit harder than the areas on the central peninsula," Chapman said.

This impact was also apparent in the borough's July, August and September 2009 report.

Of six regions, Seldovia saw the largest percentage decrease, 26 percent, in taxable sales in the summer of 2009 compared to the summer of 2008. Seward's taxable sales fell by nearly 17 percent. Kenai's summer 2009 taxable sales saw the smallest percentage decrease from summer 2008 - 3.2 percent.

Chapman also pointed to the non-prepared food tax exemption as a source of unpredictability during last year's sales tax predictions. Of the approximately $883 million worth of taxable sales collected in the borough, about $94.5 million came from non-prepared food sales in FY2010.

Given the borough's 3-percent sales tax, the non-prepared food tax exemption cost the borough approximately $2.8 million in sales tax revenue.

The voters approved the Sept. 1 till May 31 tax exemption in 2008. Given the shortfall, Carey said the tax suspension was not a mistake but a consequence of the public's decision.

"Where it would be a mistake would be if someone wanted to pay less but (wanted to) receive more services," he said.

Andrew Waite is a reporter for the Peninsula Clarion.