Council to chew on two food tax proposals

  • By McKibben Jackinsky
  • Wednesday, November 21, 2012 11:00am
  • NewsLocal News

At the regular meeting of the Homer City Council on Monday, two council members — Bryan Zak and David Lewis — will present two separate ordinances dealing with sales tax on food.

Ordinance 12-53, sponsored by Zak, seeks to reinstate the tax year-round. Ordinance 12-54, sponsored by Lewis, seeks to make certain categories of nonprepared foods subject to the tax year-round. 

Each ordinance has a Jan. 1 effective date.

In addition to his proposal to once again tax all food all year,  Zak has drafted amendments to the budget equaling the additional revenues that would result from putting the food tax in place.

His proposals come as the council is fine-tuning the city’s budget prepared by City Manager Walt Wrede for the coming year.

 “My proposal to reinstate the tax is for the benefit of the whole community. It makes the city stronger overall,” said Zak. “

According to Regina Mauras, the city’s finance director, the additional nine months of sales tax on nonprepared food would add “a little more than $1 million” to city revenues. 

As drafted by Mauras for Zak, that additional money would be distributed as follows:

• To the general fund: $697,004;

• To the Homer Accelerated Water and Sewer Program: $174,225

• To the Homer Accelerated Roads and Trails Program for Roads: $156,802;

• To the Homer Accelerated Roads and Trials Program for Trails: $17,422.

With that revenue in mind, Zak’s proposed budget amendments include contributions to the city’s depreciation reserves, something not done since the tax was reduced in 2009. He also proposes filling two vacant positions — a police dispatcher and a library technician; giving city employees a 2 percent cost of living increase; raising city council wages from $50 to $100 a month and the mayor’s wages from $75 to $150 a month; giving $50,000 to the Homer Chamber of Commerce and Visitor Center for economic development; and  providing $50,000 to the Homer Senior Citizens Inc. 

The revenue generated by the reinstated tax and the amendments Zak plans on making to the budget “all balances out,” said Mauras.

Zak said he has been asked if he would consider bringing up the reinstatement of the sales tax at another time so the public would have more opportunity to comment.

“I wouldn’t because the only justification for me to do it now is so we can do it with the budget and I know for sure that the funds will go where they should go and get the council’s input indicating the best use of those funds,” said Zak. “It’s a hard decision for me to make, but I know when I look at the budget I feel like it has to get done.”

Lewis said his proposal “basically cleans up” what’s on the books.

“It’s not the proper title because you have a lot of prepared foods you can buy and not pay a tax on,” said Lewis, listing cookies, soda and TV dinners as examples.

According to his ordinance, the loss of sales tax revenues on nonprepared foods “has had a substantial negative impact on funding for essential city services including, but not limited to water, sewer, and road project matching funds and required the almost complete elimination of all nonessential city services.”

If his proposal passes, sales tax for the following items would be reinstated on a year-round basis:

• Beverages containing less than 50 percent fruit or vegetable juice, including soft drinks, energy drinks and sports drinks, but excluding dairy and dairy substitute beverages;

• Candy;

• Potato and corn chips, pretzels, crackers and other ready-to-eat snack foods;

• Ice cream, sherbet and other frozen desserts;

• Frozen foods that are ready to eat upon heating in a conventional or microwave oven, including entrees, dinners, pizza and burritos, but excluding frozen fruits and vegetables;

• Prepackaged or made-to-order sandwiches, wraps and salads.

“As we go through the whole process of amending it, maybe more will come out,” said Lewis. 

Neither Lewis nor Mauras knew what the financial impact to city revenues would be, nor how resulting additional revenue would be used.

“I’m going to take a wild guess and say between $ 200,000-$300,000 a year, but I could be wrong,” said Lewis. “We probably won’t know until we see if it passes and wait until we have the first quarter results in and then maybe retroactively use the money.”

In 2008, Kenai Peninsula Borough voters agreed to remove a 3 percent sales tax on nonprepared food from Sept. 1 to May 31. Under Alaska law, cities can only collect sales tax on what is collected by the borough where they are located. Home rule municipalities — such as Kenai and Seward — have the power to determine whether to apply or eject such an exemption. General law municipalities — Homer, Seldovia and Soldotna — can do so with an exemption from the borough. The borough gave the exemption prior to the election in which the ballot measure was approved.

The Homer City Council chose to put the tax exemption before city voters, and in 2009 residents approved the nine-month tax holiday. 

The agenda for Monday’s meeting calls for introduction of the ordinances, with public hearings and second readings to take place at the council’s Dec. 10 meeting.’

McKibben Jackinsky can be reached at mckibben.jackinsky@homernews.com.

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