Council may change Kodiak’s sales tax cap to balance budget

View of Kodiak from the Near Island Bridge. (Photo by Mitch Borden/KMXT)

Mitch Borden/KMXT

Right now in Kodiak, if you spend more than $750, you’ll only get taxed for the first 750 – which equates to about $50 in sales tax. But that might change after tonight.

The City Council is voting on an ordinance that would raise Kodiak’s sales tax cap to $3,000. So, every dollar up to that $3,000 limit will be taxed, which equates to about $200 in sales tax. But everything above the cap will still be exempt.

The city says the hike will help balance Kodiak’s $2.8 million budget deficit, but some residents worry that it will make the city more expensive and hurt the local economy. KMXT’s Mitch Borden reports.

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Walking around Kodiak, you hear lots of different opinions about the city raising its sales tax cap.

“There’s a make or break it point on community members and I think we’re reaching it.”

“Oh I like it, I think people should pay taxes. You know the towns pretty broke.”

“Well there are some ups and downs to it, I think it may discourage some local purchases, but I think the cap is just proportionally too low right now.”

“I think it would be good for the community we have a lot of projects going on we need to pay for so that would help.”

“Things are already tight for everyone. I think it will be harder and people will leave our wonderful place.”

The City of Kodiak needs money. It has a budget deficit of about $3 million and a growing list of infrastructure projects that need work. Mike Tvenge, the city manager, says increasing the cap will generate an additional $5 million dollars for the city.

“It would balance this year’s budget and gives us a couple million dollars for capital projects annually.”

The city isn’t required to have a sales tax cap. So even though it may raise it, Tvenge says it’s still giving people a tax exemption. He also says the increase isn’t about using money on frivolous projects.

“The idea to raise the tax cap is not to spend more money. It’s to do repairs that are needed.”

Kodiak’s mayor, Pat Branson says this change wouldn’t mean the council is going to stop revising its budget. But, she says, the city needs to figure out a way to make more money.

“We hear residents say ‘well you need to cut the fat.’ We have cut over 22 percent of the city’s budget in the last three years. That’s a lot.”

The city raises a majority of its revenue through its sales tax and the cap hasn’t gone up in over a decade. In the past the city could rely on funding from the state for things like building the Kodiak Public Library, replacing Kodiak’s Pier 3, and the Monashka Bay pumphouse. But as the state of Alaska deals with its own budget issues, money that was once available has gone away.

Branson believes raising the cap will help make Kodiak more financially stable. She knows the cost of living can be high in Kodiak, but she says that’s not unique  

“You know when you hear that Kodiak’s expensive, we’re an island. So it costs to bring goods in here. That’s where we are. We’re not on a road system. But, you look at other areas of the country, it’s not cheap to live in a lot of different areas when you take into the other taxes that we do not have here statewide, or citywide, or borough-wide.”

But ask Paddy O’Donnell, a local commercial fisherman, how he feels about the cap being raised, and he’ll tell you he’s not optimistic.

“I think it’s going to have a huge impact and I think it’s gonna potentially push business out of this town. And I can tell you right now that from where I’m sitting I’m going to change the way I do business.”

O’Donnell owns an 85-foot trawler and is the President of the Alaska Whitefish Trawlers Association. He’s also been a vocal opponent to this change. He says he’s not against increased taxes, but he thinks raising the cap from $750 to $3,000 is too big of a jump.

“There’s many ways of looking at things as being fair or unfair, but I took the risk, as did many others in starting a business and employing people. So to target me, I think it’s, to me, is unfair.”

As a commercial fisherman, he has a lot of expenses, like maintenance for his boat, that exceed the current cap. O’Donnell says he tries to keep his business in town, but if the increased cap is enacted he may go to places like Seattle where things are more affordable.

“Possibly take the boats south, where labor is half the cost and fuel typically is about a dollar a gallon cheaper.”

O’Donnell isn’t alone in considering going to other places to shop. Anitra Winkler commercial fishes on a halibut boat and has a set net site in the summer. She says she’s usually not organized enough to buy supplies where she can dodge Kodiak’s sales tax. But that might change.

“Especially if the cap was higher I would try to buy a bigger van and try to fill it up with stuff and drive it over here.”

For Winkler, the idea of paying $200 in taxes is no  small thing, especially when she’s buy fishing gear or food before she goes out  on the water

“$200 is a pretty big deal when you’re 24 and trying to make everything happen.”

The city officials KMXT spoke with said they don’t think increasing the sales tax cap will substantially affect the fishing industry.

The Kodiak city council will have the option to vote on the ordinance to raise the city sales tax cap from $750 to $3,000 at its regular meeting tonight at 7:30 pm in the borough assembly chambers in the Kodiak Island Borough building. It will also hold a public hearing to receive comments from the public on the issue.

 

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