M E M O R A N D U M 07-34

TO: MAYOR HORNADAY AND HOMER CITY COUNCIL

FROM: COUNCILMAN DOUG STARK

DATE: COUNCIL MEETING OF 26 FEBRUARY 2007

SUBJECT: TRIP REPORT - GOVERNOR'S INAUGURAL BALL, KENAI, 3 FEBRUARY

We attended the Sponsors and Special Guests Reception and general ball at the Governor's Kenai Peninsula Inaugural Ball at the Challenger Learning Center and Old Kenai Mall on the 3rd. We chatted with the Governor and spouse, the Lieutenant Governor and spouse, and many other friends.

In particular we talked to the KPB Mayor, his staff, and six assemblymen.

I broached the subject as to the Borough's intentions on raising the borough portion of the sales tax and was shocked to discover the intention to raise it 1%, along with a reduction of the borough's mill rate. I have since learned that an ordinance to do this was introduced on the 20th, with public hearings on March 13th and April 3rd. The proposed effective date is 1 July, although there may be an amendment to make it 1 January.

As you know, I'm very concerned about high sales tax rates because of their effect on Homer businesses. My personal view is that 6% is a reasonable maximum, but now that we are at 6 1/2% we can probably live with that. However, a proposal to raise it to 7 1/2% is, to me, unworkable, to put it mildly. A higher rate will not bring in a proportionally larger sum of revenue - customers will vote with their feet (and cars). Merchants will lose business (a large local business had lower sales in 2006 than in 2005). And there could be an initiative to exempt food sales. This would create logistical problems for merchants who sell both food and non-food. As you know our sales tax income from food is the biggest revenue source in our budget. I am personally opposed to sales tax on food because of its impact on low income residents, but for a lot of reasons we need to maintain it. The borough had an initiative to remove the food tax 3 years ago, but it failed - that time.

We need to join the discussion with the borough. My personal choice would be for the borough to limit its increase to 1/2% and for Homer to reduce its HART tax 1/4% and its general sales tax 1/4%. With the probable receipt of revenue shaaring and PERS funds from the State, we could handle that.

On another note we attended the statewide U.S. Coast Guard Auxiliary Conference the 15th to 19th. While there I chatted with Rear Admiral Gene Brooks about berthing for the Roanoke Island and Hickory, which is a critical issue for the economy of Homer. You'll recall that we met with his Chief of Staff, Admiral David Glenn, in Juneau on 25 January. And it was announced at the conference that next year's conference, the third weekend in February with about 250 attendees, will be in Homer, an issue that the Homer Flotilla had been promoting.