M E M O R A N D U M 05-24

TO: MAYOR HORNADAY AND HOMER CITY COUNCIL

FROM: COUNCILMAN DOUG STARK

DATE: COUNCIL MEETING OF 14 FEBRUARY 2005

SUBJECT: THOUGHTS ON THE PROPOSED SALES TAX INCREASE

You already know that I oppose a sales tax increase. I supported a 1/2 cent increase on

9 August prior to the Council approving an increase later that evening on large store size to 45,000 sf, which allowed Fred Meyer to build a grocery store. At that time, prior to Fred Meyer's approval, I knew that we were facing a horrendous budget problem in 2005.

Conditions have changed. We balanced the '05 budget and Fred Meyer is in the planning approval process, as is Safeway's interim expansion. Because of the competition with Safeway that will ensue early next year, grocery prices will drop 15%, the volume of sales will double because of customers coming here from a 30-mile radius, and the City's income from existing-rate sales tax and property tax will increase about $900,000 per year starting a year from now. There's no need to shoot the golden egg producer by raising the sales tax rate, and the voters know it (and they knew it last October).

There's another factor - timing. As you know, the Mandatory Borough Act of 1963 gave tax collection authority to the boroughs. The proposed election date of 22 March gives no time to start collecting taxes on 1 April. And I July is no good because of advance charter bookings. In addition, a number of businesses pay sales tax a year at a time for the calendar year. Borough tax collection officials always want new sales tax rates to be effective on 1 January.

So there's every reason to save the $7000 election cost and have the election on an increase on 4 October - assuming of course - that we want to bother the electorate by putting the dead horse issue to them at that time.

RECOMMENDATION: Postpone ordinance approval to 8 August.

Fiscal note not provided.