Council considers new vote on HART fund tax
February 17th, 2017 | Carey Restino
Homer voters may get a chance to weigh in on a permanent re-appropriation of a portion of the current 1 percent sales tax levied for a roads and trails program this fall as Homer City Council members consider options for future funding of city services in lean budget times.
A year after state funding reductions and rising costs left Homer $1 million in the red, the city has two years left of balancing its budget using tax revenue from the Homer Accelerated Roads and Trails fund tax. In December of 2015, voters approved temporary three-year use of the tax for general operations of the city.
City Manager Katie Koester suggested Monday, however, that the 1 percent sales tax, which started in 1987 to help fund road and trail capital projects, currently generates more money than is needed, resulting in a fund balance of more than $5.7 million. She and some on the council proposed a vote to re-appropriate half or more of the tax revenue to the city's general fund to help fund the city's stretched budget.
"I think we have gone through a process of looking for every way to cut and we kept coming up against borough dead ends," said Councilmember Catriona Reynolds, referring to Kenai Peninsula Borough limits, such as the senior tax exemption. "The three years was to come up with the best fiscal plan and perhaps this is the best possible plan."
While some on the council voiced support for the vote, others voiced concern that voters might feel like the council originally sold them on the idea of using the fund for only three years, only to change its mind and ask for a permanent re-appropriation.
"My major concern is how this is going to reflect on our responsibility to voters," said Councilmember Tom Stroozas.
During the public comment period of the council's worksession on the topic, Homer resident Scott Adams spoke against using the tax to fund the general operations of the city. He said the city needed to adjust its spending rather than go to the taxpayers for more money.
"This account was set up for the reason of building roads and trails," he said. "It was not set up as a safety net."
Others said the council had a responsibility to explore other revenue-generating means. Councilmember David Lewis said the city needed to reconsider discussion with the borough regarding a bed tax, which he has long pushed as a means of putting some of the tax burden on visitors rather than residents. But others oppose the bed tax since it would only apply to city hotels and would give establishments outside of the city limits an unfair advantage in pricing.
Stroozas suggested Lewis expand on the idea of a bed tax and consider a tourism tax, which would apply to all businesses related to tourism and travel.
Councilmember Shelly Erickson suggested the council needed to explore a recreation service area to help spread the funding of things like the library, city parks and facilities and other services, among those who use them, some of whom live outside of city limits and therefor do not pay property taxes to the city.
"I think it's important to look at all those options," Erickson said. "We certainly don't want to break people's trust because of our lack of funds."
Councilmember Heath Smith said that the last time a recreation service area was suggested, it would have meant a borough vote and involved setting up a board to oversee the service area, much like the South Peninsula Hospital Service Area. While those options are a consideration, some on the council noted that the process of putting such programs in place would take longer than the one-year window the city had to come up with an alternative to the HART fund taxes currently used to balance the budget.
Smith said he doesn't see putting the issue of redirecting a portion of the HART sales tax to the city's general fund as a problem because city residents will get a chance to vote on the decision.
"If it passes, it would be by their vote," he said. "It would not be in violation of their trust in any way."
Reynolds noted that city residents have voiced concerns about services being paired down, such as roads not being sanded as often, an indication that the cuts that were made during the last budget process were significant enough to impact residents.
City planners said that the Homer Accelerated Roads and Trails program is projected to use around $500,000 a year on average for the next few years, though that number is larger if you take into consideration the money the city pays for capital projects that is then repaid to the city from residents in the area where the improvements are made through the limited improvement district process. Many projects that fit the parameters of the program, which is not designed to help with maintenance on existing roads and trails, do not move forward because residents reject the limited improvement district costs. Given that the fund has consistently carried a balance indicates that some of the tax revenue could be re-appropriated without shortchanging the program, they said. Hopefully, in a few years, the state's fiscal situation will improve and with it, the city's budget woes.
"I feel comfortable as your manager with that 0.5 percent hoping that our fiscal situation as a state will improve," said Koester. "I call this the 'hanging on period.' Let's just get through the next three to five years."