The Oct. 3 borough-wide ballot proposition on the sales tax cap is not about growing government. It is about continuing to provide a quality education for Kenai Peninsula students and balancing annual revenues with annual spending decisions, while maintaining a responsible fund balance for the borough.
It does not mandate any new spending or increase the borough budget. It would, however, raise more money from sales taxes for education, lessening the reliance on property taxes and helping to reduce an unsustainable drain on the borough’s fund balance.
If approved by voters, the ballot measure would change borough code effective Jan. 1, 2018, to require collection of sales taxes on the first $1,000 of an individual purchase — an increase from the $500 cap that has been in effect, unchanged, since 1965.
Yes, this is essentially the same proposal voters rejected last October. But the issue is important enough that the assembly decided to ask voters again, rather than increase the property tax rate.
Borough code mandates that 100 percent of all sales tax revenues go toward our schools. What sales tax does not cover falls on property tax payers, and that gap has been growing as sales tax revenues have been essentially flat the past few years while education costs continue to rise.
The borough assembly this fiscal year appropriated $54.6 million for school district operations, capital improvement projects and debt service on school construction. Of that total, $49.7 million was for school district operations, about $1.5 million over last year. Sales taxes will cover an estimated $30 million of that total this year.
Education is by far the single-largest item in the borough’s $81.85 million general fund budget this year — and that’s a good thing. It’s a smart investment in children, families and our future workforce.
But with flat sales tax revenues and a reluctance by the borough assembly to increase property taxes, the borough this year will spent an estimated $4.1 million from its fund balance to fully cover the budget. And just as the state cannot spend from its savings forever, neither can the borough. Unless the borough raises sales tax or property tax revenues, or makes cuts to school funding and other services, the fund balance will go negative in just a few years — and that is simply irresponsible.
An increase in the sales tax cap would raise an estimated $3.6 million a year for the borough. Not enough to fully cover the $4.1 million budget gap, but certainly a substantial effort toward solving the problem. The cities of Homer, Kenai, Soldotna, Seward and Seldovia could also gain revenues if they go along with the change.
The change in the sales tax cut-off point would not raise the taxes anyone pays on purchases under $500. It would only affect transactions between $500 and $1,000. For example, the additional sales tax on an $800 set of tires would be $18 within the city of Soldotna (3 percent times $300 for the borough tax and 3 percent times $300 for the city tax).
There would be no sales tax on any amount over $1,000.
And the change would not raise taxes on residential rent. Tenants would continue to pay taxes on the first $500 of their monthly rent. The ballot proposition would leave that as is.
Even with an increase to a $1,000 sales tax cut-off, the Kenai Borough still would be far below the sales tax caps in Juneau, Bethel, Sitka, Cordova, the Haines Borough and several other Alaska municipalities. The cut-off point in Palmer is $1,000, and Wasilla is at $500.
I urge voters to consider the facts, consider that the sales tax cut-off has not changed in 52 years, consider the importance of school funding, and consider the borough’s need to maintain an adequate fund balance as a sound financial management tool. Then vote yes on Oct. 3 for Ballot Proposition No. 3.
And while you’re at it, please vote yes on Ballot Proposition No. 2 to replace the 46-year-old heating and ventilation system at the borough administration building.
Your votes Oct. 3 can update two half-century-old pieces of borough government.
Mike Navarre is Mayor of the Kenai Peninsula Borough.