Grocery Tax Takes Another Blow

Oct 20, 2015

Alaska Statute only allows general law cities to tax the same items taxed by their borough unless the borough makes an exception. Kenai Peninsula Borough voters repealed an ordinance this year that gave general law cities the power to tax non-prepared foods year round. The voter decision means the cities of Soldotna and Seldovia will see a decrease in tax revenue.

Everyone likes a deal, especially at the grocery store. Kenai Peninsula Borough residents held true to that assumption by voting against a year round grocery tax for the third time in a row. Borough voters first decided in 2008 to stop taxing non-prepared foods between September 1st and May 21st of each year. And the voters stuck by their decision in 2011. The vote did not affect the home rule cities, Kenai and Seward. It would have restricted the general law cities of Homer, Seldovia and Soldotna, but the borough assembly gave those cities an out. The assembly passed an ordinance giving them the power to ignore the voters’ decision.  This year Proposition 1 called on peninsula voters to strike down that ordinance. James Price is one of the proposition’s sponsors. Price fought the borough in the Kenai Superior Court and in the Alaska Supreme Court to prove his right to start a referendum petition. 

“August of 2014 we collected about 1800 signatures and that’s what put Proposition 1 on the ballot for 2015,” said Price.  

The repeal passed with 58% of the vote. The borough assembly enacted the decision during its October 13th meeting.  The vote doesn’t immediately affect Homer. Homer City Manager Katie Koester says it does mean one less revenue option the city could’ve used to rectify an estimated $1 million budget shortfall.

“That being said the council voted in 2009 to not collect [a] tax on non-prepared foods. So they decided to follow the wish of the voters,” said Koester.

The repeal also indirectly kills a city ordinance passed this year that expanded the definition of taxable prepared foods to include a variety of snacks.  Seldovia and Soldotna are the only cities directly affected. Seldovia charges a 4.5% tax on non-prepared foods during the summer and a 2% tax during the rest of the year.  There was confusion in Seldovia on the vote’s impact. Kenai Peninsula Borough Finance Director Craig Chapman says the vote affects Seldovia the same as Homer and Soldotna. Seldovia City Manager Tim Dillon says he was originally told the vote wouldn’t affect Seldovia. Dillon and borough officials re-examined the situation and he says the ultimate impact to Seldovia’s tax revenue will be minimal. Soldotna’s city council and administration were the most vocal opponents of Proposition 1. Newly elected Soldotna Mayor Pete Sprague says the city appropriated $7500 to fight the repeal. 

“[Of] course it wasn’t a very large amount of money but we felt we had to do something to try to influence the vote,” said Sprague.

Sprague estimates the city will lose about 10 percent of its budgeted revenue or between $1 and $1.2 million. He says the city is in good financial shape but they have to make up that money. He’s already canceled a planned renovation of the city council chambers and he says more cuts are needed. 

“Also I think we’ll be looking at user fees. We’ll be looking at a property tax increase. We’ll be looking at using our fund balance to help make up the difference,” said Sprague.

Sprague says the grocery tax helped Soldotna capture revenue from non-city residents who use the city’s services regularly.  James Price believes the city was wrong to tax food because it is an indispensable resource and he says Soldotna’s grocery tax unfairly targeted people living outside city limits.

“Soldotna has the lowest tax rate of any jurisdiction within the borough,” said Price. “I don’t think it’s unreasonable for them to carry a little more of the tax burden. I think they’re raising enough money and they won’t need to raise property taxes. I think they just need to tighten their belts a little bit.”

Price won’t stop with his latest victory. Next he plans to help Kenai residents end the year round tax on non-prepared foods in their city.