Services vs. Revenue

At a Town Hall meeting last week to discuss city of Homer budget options, about 50 people heard City Manager Katie Koester propose ways to bridge a $1 million fiscal gap in the 2016 budget. Citizens and the Homer City Council have three choices in balancing next year’s budget:

• Cut city services drastically;

• Raise revenues; or

• A combination of cuts and new revenues.

“I want to make sure this conversation isn’t about the council or the city trying to impose a new tax on the citizens,” Koester said. “It’s about services vs. revenues.”

At Monday’s council meeting, on a 4-1 vote, the council started the discussion on one revenue option. Mayor Beth Wythe sponsored and the council introduced on first reading Ordinance 15-36. If voters approve, that would suspend for three years 0.75 percent of sales tax revenues paid to the Homer Accelerated Roads and Trails fund. It would add about $1 million in sales-tax revenues to the general fund, but would not raise the current 4.5-percent total sales tax. 

With council member David Lewis absent and council member

Beau Burgess voting no, the council approved introducing the ordinance 4-1. That put it on a fast track for a special election that could be held Nov. 3 in the event a runoff election is needed for two seats on the city council.

On Oct. 12, Koester submits to the council two budgets, Budget A, which keeps services at less than the current level, or Budget B, what she calls “the bare bones budget,” an even leaner budget, with cuts to every department, including roads, police and fire protection. At current projections, the city expects $1 million less in revenues in 2016 compared to 2015, including cuts in state spending for things like a jail services contract. Budget A assumes some revenue to raise the $1 million deficit.

Even then, there will be some cuts, such as five positions currently not filled because of attrition. That includes a vacant Homer Police Department patrol officer position. Koester said Budget A won’t raise enough revenues to fund those vacant positions.

In a straw poll at the Town Hall meeting, people selected options ranging from “in favor,” “mostly in favor,” “somewhat in favor” to “somewhat opposed,” “mostly opposed” and “opposed.” Adding up all the in-favor choices, Koester said 90 percent favored a 1-percent seasonal sales tax, 88 percent favored a suspension of the HART fund and 75 percent favored a 0.5-percent increase in the sales tax. Adding up all the not-in-favor choices, 72 percent opposed making up the deficit only with cuts and 61 percent opposed a property tax increase.

Other revenue options proposed included reinstating the seasonal sales tax on prepared food, eliminating a $20,000 residential exemption for property tax assessments, raising the property tax 1 mill or $100 on $100,000 of assessment, raising the sales tax 0.5 percent, raising the sales-tax cap from $500 to $1,000 of sales and a bed tax on hotels, inns and bed-and-breakfast stays. Some like the bed tax would require approval by the Kenai Peninsula Borough.

At the Town Hall meeting, Shelly Erickson said she liked the idea of a seasonal sales tax in the summer, what one man called “fleece and release.”

“During the winter we’re still back at a lower sales-tax level,” she said. “If you’re a fisherman, you’re gone away. Who cares?”

John Velsko, who served on the Transportation Committee when the original road-tax idea was suggested, said he liked the idea of a HART tax suspension. There’s $7 million in the fund that’s not being used, he said.

“To me this is a no-brainer,” he said.

At the Town Hall meeting, Wythe noted the original road tax was to bring old roads up to city standards. It was changed to allow new road construction. The $7 million sounds like a lot, but it’s not, she said

“You build one road through Town Center, you’ve depleted it,” Wythe said.

Koester said the council and voters could consider several revenue options.

“While it could be a combination of any of these, I don’t see the council grabbing any pot they can,” Koester said at the Town Hall Meeting. “We’re just trying to get feedback.”

Burgess said he did favor a cafeteria choice for the voters, his reason for voting against the HART tax suspension.

“I like the idea of a buffet of options,” he said at the Committee of the Whole meeting on Monday. 

Koester said she was concerned that with multiple options the votes would be split and none would pass.

The ordinance suspending the HART tax will go up for second reading and a public hearing at the next council meeting on Oct. 12. A corresponding resolution also on the agenda on Monday was postponed until Oct. 12 so it could travel with the ordinance.

If the ordinance passes for consideration by voters, it might be the only item on a special election ballot. In a memorandum from City Attorney Thomas Klinkner, he clarified the rules for a runoff. In a one-seat election, to win a candidate needs 40 percent of the votes cast. In a multiple-seat race, the threshold is the number of votes cast divided by the number of seats. For a two-seat race, that threshold is thus half the number of votes cast. With the calculation simplified, that means to avoid a run-off, a candidate must receive more than 20 percent of the total votes cast. In the 2014 election, about 1,000 citizens voted for two seats among four candidates. The top vote-getter, Catriona Reynolds, took about 600 votes.

Michael Armstrong can be reached at