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Assembly takes up severance tax hike
by Wes Hanna
May 05, 2011 | 1035 views | 0 0 comments | 6 6 recommendations | email to a friend | print
The Kodiak Island Borough will introduce an increase to the severance tax at its regular meeting tonight, along with other adjustments in how the tax is managed.

The severance tax in the borough is levied on harvested natural resources, including commercial fishing, timber sales, sand or gravel extraction, and mining activities. Of these, commercial fishing makes up the largest revenue source accumulated by the severance tax.

Some have questioned if commercial fishing resources should truly be a part of the severance tax. Attorney Mel Stephens was at the borough work session last week to tell the assembly that the issue is far from being settled by the Alaska Supreme Court.

“If you want to go there and have that issue decided, then I think doing what you’re doing, substantially increasing your severance tax, is likely to get you there,” Stephens said, implying that a lawsuit may follow.

The proposed tax increase is from the current rate of 10.5 mills to a rate equivalent to 15 mills, or 1.5 percent the price paid for the resources when they are first sold.

The change has been noted by some associated with the fishing industry to be a tax increase of 43 percent.

In all, severance taxes took in $1,340,000 the past fiscal year, borough finance director Karl Short said. An increase from 1.05 percent to 1.5 percent would then raise an estimated $670,000 for the borough if fishing and natural resource harvests remain consistent.

“Putting together a budget and looking at what other municipalities do across the state, we felt that this was one we probably could increase,” borough manager Rick Gifford said in a borough work session last week. “I know nobody likes an increase, so there’s nothing good about it, I guess, from that standpoint.”

A survey of severance taxes compiled by the borough found that most other cities and boroughs in Alaska levy a severance tax set at 2 percent or higher.

Kodiak Island Borough has also begun preliminary budget reviews which indicate that some tax increases or service cuts, or both, will be necessary for a variety of additional expenses coming down the pike.

These include debt service for recent bond measures for the new community swimming pool and Kodiak High School, increasing requests from the Kodiak Island Borough School District, increasing costs of health insurance which may rise 50 percent for the borough this year, and reduced revenue from interest-bearing accounts like the borough facilities fund.

Currently the severance tax makes up the third highest revenue source for the borough at 8 percent of the yearly revenue pie. It runs behind intergovernmental funding at 23 percent and property taxes, which account for 67 percent.

Historically, the severance tax in the Kodiak Island Borough has matched the mill levy set for property taxes. However, another change being introduced by the ordinance is to set the severance tax separately.

“To my knowledge, the Kodiak Island Borough is the only entity that levies their severance tax with their area-wide mill rate,” Short said, presenting a revenue study early in April.

One advantage of having a separate severance tax rate would be to provide greater stability for processors and canneries about what rate to expect, instead of changing the rate July 1, in the midst of the salmon season, when mill rate increases take effect.

Another ordinance change would allocate the severance tax to the general fund instead of area-wide funds.

The measure’s introduction tonight will be followed by a public hearing on the tax increase at the borough assembly regular meeting of May 19.

Mirror writer Wes Hanna can be reached via email at whanna@kodiakdailymirror.com.
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