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Home My WebLink AboutRes2005-012 I I I Sponsored by: Shealy CITY OF SEWARD, ALASKA RESOLUTION 2005-12 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, SUPPORTING KENAI PENINSULA BOROUGH ORDINANCE 2004-36, RAISING THE SALES TAX CAP FROM $500 TO $1,000 WHEREAS, in October, 2004, the Kenai Peninsula Borough Assembly introduced KPB Ordinance 2004-36 amending KPB 5.18.430 Sales Tax Computation - Maximum Tax, proposing to increase the sales tax cap from $500 to $1,000; and WHEREAS, the equivalent value in today's dollars ofthe $500 sales tax cap implemented in 1965, is estimated at approximately $1,801.70, providing sufficient justification for increasing the sales tax cap to $1,000; and WHEREAS, as a Home Rule City, the City of Seward may increase the sales tax cap whether or not the Kenai Peninsula Borough does, but having divergent tax rates is considered problematic for businesses and the Borough finance department, and the City of Seward prefers to await the outcome of the Borough Assembly's action on KPB Ordinance 2004-36 before making a final decision on whether to increase the City's tax cap; and WHEREAS, during the 2005 budget process the Seward City Council introduced Ordinance 2004-04, proposing to raise the sales tax cap from $500 to $1,000; and WHEREAS, local governments are facing significant cost increases associated with unfunded liabilities ofthe Public Employees Retirement System and other fixed costs, as well as the complete elimination of State funding for the revenue sharing and safe communities programs, which previously contributed the equivalent of 3.5 mills of property tax revenue to the City's coffers, helping to subsidize local taxpayers; and WHEREAS, the City of Seward has previously taken action to address reductions in State aid and cost increases by increasing the sales tax rate from 3% to 4% and imposing a 4% bed tax. NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, that: Section 1. The City Council of the City of Seward, Alaska, supports Kenai Peninsula Ordinance 2004-36, increasing the sales tax cap from $500 to $1,000, and strongly urges Assembly approval of Ordinance 2004-36. Section 2. This resolution shall take effect immediately upon adoption. CITY OF SEWARD, ALASKA RESOLUTION 2005-12 PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 14th day of February, 2005. AYES: NOES: ABSENT: ABSTAIN: ATTEST: THE CITY OF SEWARD, ALASKA ;I~/ ,~ Vanta Shafer, Ma or Lorenz, Clark, Branson, Shafer Va1datta, Amberg Dunham None J~ft:;fje-Fi'CP\ Je Lewis '- ) City Clerk (City Seal) ""1111",,, ~~~'\~~..~~~.~~/;:''''~, ~ u",C;' O?,PVk:"i'1."I ~ '\f .'~ ."Y,""" '.A ~ ",.... ;--,,''oJ "" '. ."' ,.....:.~, ~: -..... c~ ~ 11 0: s~ A ..,. : 14 1 : J..,'~Ij.: ~'~ ,\ .,'L.y. 0 ~. ~ .. ~ .: .. ~",. \1,"\ ...~~ Co' ~J.~" ~ tJ'" . /1,.... .. '2, ~. , ; ~;, ..1,,1''''''....~ 1 ,\r.r\..f \'.,. '-# \. ';~ ...".:..... ...,...L~ ..,~ ...-.) , ''''0 l'.1.:. .~ 'i;'. ,;. r.: h\."'" .\ """I · n r,,'( ,) t'.t:::Ja:'I."'" COUNCIL AGENDA STATEMENT Meeting Date: February 14, 2005 Through: Phil Shealy, City Manager From: Kristin M. Erchinger, Finance Director Agenda Item: Support for Kenai Peninsula Borough Ordinance 2004-36 Proposing to Increase the Sales Tax Cap from $500 to $1,000 BACKGROUND & JUSTIFICATION: In October, 2004, the Kenai Peninsula Borough Assembly introduced Ordinance 2004-36 amending KPB 5.18.430 Sales Tax Computation - Maximum Tax, proposing to increase the sales tax cap from $500 to $1,000. This Ordinance was postponed until March 1, 2005, at which time it will be taken up again by the Assembly. As a Home Rule city, the City of Seward may increase the sales tax cap even if the Kenai Peninsula Borough does not. In the past, the City has made every effort to adopt tax policies consistent with those of the Borough, for two reasons. First, diverging tax policies are costly for business; such policy makes it difficult for businesses to properly understand and file their tax returns, and in many cases, it is likely that businesses lack flexibility in their point-of-sale cash register systems, making it difficult to calculate varying levels of taxation and/or tax caps. Second, diverging tax policies are inefficient and costly for the Borough administration, making it necessary to modify and purchase new tax forms and computer programs, conduct audits to enforce varying tax policies, educate businesses as to variations in tax policy, etc. During the 2005 budget process, the Seward City Council introduced Ordinance 2004-04, proposing to raise the sales tax cap from $500 to $1,000. The Council considered increasing the local sales tax cap regardless of whether the Borough Assembly raised the Borough sales tax cap. Having two separate tax caps at the municipal and borough level would be problematic for business owners and the Borough finance department. For that reason, the City went so far as to consider offsetting the added costs to the businesses and the Borough, to send a strong message of support for the sales tax cap increase to the Borough Assembly. Ultimately, the City Council decided to postpone action on this Ordinance, pending final Assembly action on KPB Ordinance 2004-36. Faced with the loss of funding from the State revenue sharing and safe communities’ programs, substantial increases in costs associated with insurance, health insurance, and the Public Employees Retirement System, as well as approximately $2 million PERS liability associated with closure of the hospital in 1996, the City of Seward has struggled to balance its budget while maintaining valued public services. The City increased its sales tax rate from 3% to 4% to address cost increases and lost revenues, and unlike other communities in the Borough, implemented a 4% bed tax. The City finds it difficult to increase property tax rates due to the relatively low percentage of taxable properties within our boundaries, low cumulative taxable property values, and the fact that fewer than 600 property owners would bear the cost of services provided to thousands of individuals located directly outside of our local boundaries. Based on the fact that increases in inflation alone justify increasing the sales tax cap from $500 to over $1,800, combined with the need to raise revenues or face significant cuts to valued public services, the City of Seward supports an increase in the tax cap from $500 to $1,000, and strongly encourages the Kenai Peninsula Borough Assembly to adopt KPB Ordinance 2004-36. FISCAL NOTE: Analysis by the Kenai Peninsula Borough estimates that annual sales tax revenues for the City of Seward will increase by approximately $180,000 based on an increase in the sales tax cap from $500 to $1,000. In Seward, the increase in the tax cap is expected to have the largest impact on rents and the sale of fuel, utilities, and bulk grocery. RECOMMENDATION: Approve Resolution 2005-12, encouraging the Kenai Peninsula Borough Assembly to adopt KPB Ordinance 2004-36, increasing the sales tax cap from $500 to $1,000.