Food tax exemption still on table

How do citizens want to pay for city government and how much should that government cost? At Monday night’s Homer City Council meeting, council members and taxpayers debated — and acted upon — those issues which are at the heart of modern government.

On the big ordinance of the night, the budget, the council showed solid agreement, unanimously approving a 2013 budget of nearly $25.4 million.

The council, however, was divided on two controversial ordinances that would have changed how grocery shoppers pay sales taxes on nonprepared foods. 

Ordinance 12-53(s) would have repealed a Sept. 1-April 30 sales tax exemption on nonprepared foods. The other ordinance, 12-54(s),  would change the definition of nonprepared foods. While a majority of council members voted 3 to 2 for the ordinances, neither got the four votes needed to approve a motion. The ordinances failed.

Voting for repealing the sales tax exemption were council members Francie Roberts, Beau Burgess and Bryan Zak. Voting no were council members James Dolma  and David Lewis. Barbara Howard was absent, but had said earlier she would have voted against it.

However, Dolma called for reconsideration of the ordinance at the Jan. 14 meeting, saying he might change his no vote. 

At the Nov. 26 meeting, the council approved budget amendments Zak introduced that were contingent on his sales tax exemption being lifted. 

Those changes died with the defeat of the ordinance.

Lewis’s Ordinance 12-54(s) would have changed how nonprepared foods are defined,
classifying frozen dinners and foods, ice cream, chips and ice cream, for example, as prepared and taxable food items. Burgess, Lewis and Dolma voted yes, and Zak and Roberts voted no on the ordinance.

The 2013 budget stands, but if on reconsideration the council approves repeal of the sales tax seasonal exemption, it could amend the budget that goes into effect Jan. 1.

At a public hearing Monday on the sales tax, public comments generally ran against the idea. Some had spoken in support of the ordinance at the Nov. 26 meeting. 

A Kenai Peninsula Borough vote on a citizen initiative created the holiday for borough sales taxes on nonprepared foods, and in 2009 Homer citizens voted to keep the exemption for city sales taxes.

“I’m curious what part of ‘no’ does Mr. Zak not understand?” asked John Chapple III, referring to those votes.

Nova Stubbs, who described herself as a working mother in a family of four, including a voracious teenage son, called Zak’s ordinance “anti family.”

“This tax affects working and middle-class families more than anyone else,” she said.

Ray Kranich, a lifelong Homer resident, noted that Zak’s ordinance isn’t needed to balance the budget City Manager Walt Wrede gave the council and it accepted as a draft.

The council can and should consider new ways to bring in revenues, Ken Castner testified — but not by repealing the food sales tax holiday.

“Using all the tools in your toolbox is why we elect you to be in the city council,” Castner said. “I don’t think the case has been made why you need to use this tool at this time.”

In arguing for repeal of the food sales tax holiday, council member Beau Burgess said not raising taxes “kicks the can down the road” on things like depreciation. Zak proposed to spend part of the sales tax revenues on depreciation accounts in the general fund.

Depreciation is like putting money aside for repairs when buying a new car, said city finance director Regina Mauras. For the city, that means putting money aside to buy new police cars or fire trucks when they break down.

“If you don’t have an account like that, when something breaks, you have to ask for an emergency appropriation,” Wrede said.

The 2013 budget does appropriate money for the Port and Harbor and Sewer and Water depreciation accounts, but not for the general fund.

“There are a lot of expenses that if we don’t find a way to do it we have to provide other ways to do it,” Zak said.

Burgess noted a paradox raised in testimony by Keren Kelley, executive director of Homer Senior Citizens Inc. Kelley said she appreciated a $20,000 appropriation to her organization if Zak’s ordinance and amendments passed, but also said the sales tax increase would impose a hardship on seniors with limited incomes. Kelley suggested a waiver for seniors.

“If you want the services, you have to pay for the services,” Burgess said.

Mayor Beth Wythe echoed that theme.

“Running the government is not free, and the only way we have income is out of your tax dollars,” Wythe said. 

Wythe said she favors core services like police and fire protection, water and sewer, and roads.

“I’m OK with that, but you have to be OK with the council not providing for services,” she said, like supporting the Boys and Girls Club or the senior center.

Wythe also said she did not favor reinstating the sales tax. The people voted for the sales tax seasonal exemption and the council should honor that vote, she said.

On the general budget, the council voted unanimously to approve it. It also passed without objection two amendments suggested by Wrede. One, an additional appropriation of $36,000, makes a part-time information technology position full time. Another adds a project manager position to bird-dog city construction projects. All but $18,000 would be paid for as line-item costs to construction grants, but for accounting purposes is charged as a $90,000 cost.

The council also voted to increase an appropriation to the Homer Chamber of Commerce and Visitor Center, bringing it up to $40,000 total, and clarified that this was to support marketing and advertising for Homer.

The 2013 budget is a status quo budget, with no cost-of-living salary increases for city workers. One citizen, Barbara Brodowski, had noted in testimony a 7.5 percent increase in personnel costs. Mauras said that increase was because of higher health care costs for city employees, now $1,500 a month per worker from $1,300 a month in 2012. The city also has to account for state retirement payments.

In all, the 2013 budget expenditures are:

• $11.4 million, general fund

• $3.6 million, water-sewer fund

• $5.8 million, port-harbor fund

• $2.4 million, capital projects

• $2.2 million, internal service funds

• $25.4 million, total expenditures.

Dolma explained his motion for reconsideration by saying he wanted to put other alternatives for funding additional city government on the table, including a motel-hotel bed tax, an increase in property taxes or a reduction in exemptions, changing the maximum amount on which sales taxes are charged, and eliminating grants that aren’t fiscally maintainable. He said he would change his vote against the repeal of the seasonal sales tax exemption on food unless he heard support for other revenue ideas.

To reconsider the sales tax exemption repeal requires four votes, and then four votes to pass. If Wythe vetoed the ordinance it would require five votes to override her veto.

The next meeting of the council is 6 p.m. Jan. 14.

Michael Armstrong can be reached at