ASSEMBLY AGENDA/MANAGER’S REPORT
THE CITY AND BOROUGH OF JUNEAU, ALASKA

Friday, November 4, 2005 Noon
Assembly Chambers – Municipal Building
Special Meeting No. 2005-32

Submitted by:  Rod Swope, City & Borough Manager

I. FLAG SALUTE

II. ROLL CALL

III. SPECIAL ORDER OF BUSINESS

IV. APPROVAL OF MINUTES

A. October 20, 2005 – Special Meeting 2005-29
B. October 24, 2005 – Regular Meeting 2005-30
C. October 31, 2005 – Special Meeting 2005-31

V. MANAGER’S REQUEST FOR AGENDA CHANGES

VI. PUBLIC PARTICIPATION ON NON-AGENDA ITEMS

VII. CONSENT AGENDA

A. Public Requests for Consent Agenda Changes, Other Than Ordinances for Introduction

B. Assembly Requests for Consent Agenda Changes

C. Assembly Action

1. Ordinances for Introduction

a. Ordinance 2005-38
An Ordinance Increasing The Business Personal Property Tax Exemption For Property Not Otherwise Exempt.

CBJ currently exempts the first $2,000 of business personal property (BPP) value for all filers. The Juneau Chamber of Commerce requested further exemption, and the Tax Policy Subcommittee determined that there was justification for increasing the BPP exemption to provide additional tax relief. Increasing the exemption to $20,000 in value per merchant per year would reduce CBJ property tax revenues by approximately $176,000 per year. The increased exemption would also fully exempt approximately 1,070 additional merchants from the BPP tax levy.

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

b. Ordinance 2005-39
An Ordinance Repealing The Community Purpose Property Tax Exemption.

State Statutes govern the manner in which CBJ assesses and levies property tax. State statute provides for both mandatory exemptions and optional exemptions. Under the statutes, a municipality may, by ordinance, classify and exempt from taxation the property of an organization "not organized for business or profit-making purposes and used exclusively for community purposes."

In implementing the Community Purpose exemption, the Assessor is charged with making the determination that the property meets the community purpose use, and benefits a significant portion of the public. Over time, the number of parcels granted this exemption has grown. After reviewing the exempted parcels, the Tax Policy Subcommittee has determined that a number of the parcels probably do not meet the State requirements of being used “exclusively for community purpose.” In addition, the Assessor has determined that approximately half of these parcels should be exempted under State mandatory exemptions, e.g., the charitable purposes exemption, not the Community Purpose optional exemption.

CBJ is currently providing $10.8 million in exemptions to 16 real parcels of property under the Community Purpose exemption. Optional exempted property is included in the State’s Full and True Value calculation while mandatory exemptions are excluded. This calculation requires the CBJ to contribute, and allows the State to withhold, 4 mills in educational support. Accordingly, it is more efficient to use the mandatory exemptions where applicable.

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

c. Ordinance 2005-40
An Ordinance Repealing the Non-Resident Sales Tax Exemption.

In 1985, CBJ adopted a sales tax exemption for nonresidents if the items purchased would be consumed outside of Juneau. To qualify, the nonresident must acquire, by mail, a $20 exemption card from the Sales Tax Office. The purpose for this exemption was to promote Juneau as a shopping destination. However, most communities in Alaska do not provide for nonresident exemption from sales tax. CBJ is currently selling about 1,100 to 1,200 non-resident exemption cards per year and exempting approximately $240,000 in sales tax each year.

The Tax Policy Subcommittee recognized that nonresidents have access to community services while visiting Juneau, and therefore, should have an obligation to pay tax to support these services. In addition, the Subcommittee noted that keeping track of nonresident sales places a workload burden on merchants and staff. After reviewing the issues, the Subcommittee determined that with the small number of individuals purchasing nonresident sales tax exemption cards, the CBJ merchants would not be materially impacted if this exemption were eliminated, and the great majority of nonresidents shopping in Juneau would continue to do so with or without this exemption.

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

d. Ordinance 2005-41
An Ordinance Repealing the Sales Tax Exemption for Direct Sales of Newspapers by Carriers.

This ordinance would repeal the sales tax exemption for direct sales of newspapers by carriers. It is a housekeeping measure. Merchants have not claimed this exemption for a number of years. Newspaper carriers no longer collect fees at the time of delivery; there is no need to retain this sales tax exemption.

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

e. Ordinance 2005-42
An Ordinance Related to Video Gaming Devices, Repealing the Sales Tax Exemption for Plays on Coin Operated Video Gaming Devices, and Repealing the City and Borough Licensing of Video Gaming Devices.

This ordinance would repeal the exemption for the sale of plays on video game devices, and repeal the related video gaming-licensing requirement.

The video gaming license fee in CBJ 20.20 was adopted in lieu of sales taxes on video game plays. The sales tax exemption was adopted when the sales tax rate was increased from 4% to 5%. The video gaming merchants indicated that they could not add the additional 1% to their (at the time) 25-cent selling price without increasing the play cost to 50-cents. The licensing ordinance includes a $12 per year fee in lieu of the sales tax levy. The Clerk’s Office currently issues about 50 gaming licenses a year. The merchants are reporting to the Sales Tax Office approximately $270,000 in exempt sales ($13,500 in sales tax) per year. This works out to approximately $470 in sales tax exempted for each $12 video gaming permit issued.

The licensing fee charged is no longer equivalent to the actual sales tax exempted. In addition, this exemption does not apply to non-video coin-operated gaming devices (pool tables, machines that sell merchandise, washer/dryers, and public telephones).

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

f. Ordinance 2005-43
An Ordinance Relating to Sales Taxes on Commissions.

This ordinance would clarify the present Sales Tax Code regarding collection of Sales Tax on commissions; for example, it would clearly provide that the full selling price of the sales are taxable, as has been the longstanding practice.

Merchant sales where commissions are paid contain two different legal transactions: the sale by the owner or service provider (through the merchant agent) to the customer, and the commission paid to the agent (the merchant) by the owner or service provider. Exemption #24 exempts the commissions charged on travel related services, and Exemption #40 exempts the commissions charged for negotiating the sale or lease of tangible personal property. These commission exemptions eliminate the perception of double taxation on these transactions.

In practice, agents sometimes withhold the commissions from the amounts remitted to the sellers (owners or service providers). In some instances, the sellers are reporting and remitting only the sales tax on the net amount that they receive. After reviewing these code sections, the Tax Policy Subcommittee has recommended that these two code sections be modified to clearly state that the full selling price of these transactions are taxable, and that the exemption only applies to the second part of the transaction, the commissions paid by the provider of the service.

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

g. Ordinance 2005-44
An Ordinance Providing an Exemption from Sales Taxes for Rural Education Attendance Areas.

This ordinance would expand the sales tax exemption for sales to or by the State of Alaska, and municipalities, to include unincorporated school district operations (Rural Education Attendance Areas, or REAAs).

The Sales Tax Code currently exempts retail sales, services, and rentals of real or tangible personal property to or by the State or a municipality. This ordinance would add REAAs, which are school districts in unincorporated areas. The CBJ currently has two REAAs operating correspondence programs within the borough. It recently came to the Sales Tax Office’s attention that these organizations are not exempt from the sales tax under the current sales tax code. The exemption in the Sales Tax Code is narrowly written and the exemption for government entities, CBJ 69.05.040(13), does not include school districts. After reviewing the purposes of this exemption, the Tax Policy Subcommittee recommended that the sales tax exemption be expanded to include REAAs.

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

h. Ordinance 2005-45     Exhibit A
An Ordinance Authorizing the Port Director to Negotiate and Execute a Lease of Approximately 2,989.03 Square Feet of Tidelands Located Within Lot 9B, Block 83 of the Tidelands Addition to the City of Juneau, for Development of a Retail Commercial Building.

This ordinance authorizes the Port Director to negotiate and execute a lease with Boudewijn Roeland and Hendrika Flamee for approximately 2,989 square feet of CBJ tidelands within the Tidelands Addition of the City of Juneau. The lease area is shown on Exhibit “A” to the ordinance. Mr. Roeland and Ms. Flamee are the owners of Lot 10, Block 83 of the Tidelands Addition, which is located immediately adjacent to the property to be leased. They intend to use Lot 10 and the leased property for the development of a retail commercial building, commonly known as Miner’s Hall.

The lease proposal was reviewed by the Docks and Harbor Board at its meeting on October 27, and the board recommended approval by the Assembly. The main issue discussed by the board was the lease rent. The board considered an appraisal prepared by Kim Wold of Alaska Appraisal Associates and determined that an appropriate lease rental rate for the first five years would be $15,000 per year, or about $5.00 per square foot. This lease amount is 4 percent of the market value of the property, applied annually, and that percentage is based on the rate of return for 5-year U.S. Treasury bonds. The appraisal suggested 8 percent based on other government lease rates in Alaska, but the board determined that percentage was too high. Ms. Flamee, on the other hand, believes that $2.00 per square foot is a fair market price for the lease rent.

Port Director John Stone will be available to address the lease rental issue in more depth at the public hearing.

Also note that a portion of the seawalk will be located immediately seaward of the leased property. The lessees are required to grant the CBJ any required easements within the leased property for construction of the seawalk, provided that construction shall not interfere with their ability to immediately pursue an approved development plan.

I recommend that this ordinance be introduced and set for public hearing at a Special Assembly meeting on Monday, November 14, 2005.

i. Ordinance 2005-46
An Ordinance Providing For Variable Interest Rates On Sales Tax Delinquencies.

This ordinance would set the interest rate on delinquent sales tax to an index to allow it to adjust up and down with the financial market.

The sales tax code imposes a 5% per month penalty, up to a maximum of 25%, and an interest rate of 15% per year on delinquent sales tax remittances, as allowed by state statute. The penalties are intended as a punitive measure to encourage delinquent merchants to comply with the law. The interest, on the other hand, is intended to keep the CBJ whole for interest losses; it is set somewhat high to avoid merchants using the CBJ for financing. The sales tax code does provide staff with the authority to compromise and abate penalties and interest. It is reasonably common, for just cause, for staff to waive the 5% penalties. However, for consistency, the interest charges are seldom waived. The 15% rate was placed into the code many years ago. At the time, commercial lending rates were much higher than now and the 15% rate was reasonable. For the past few years, interest rates have dropped significantly. The 15% rate appears higher than necessary to accomplish the intended enforcement objectives.

After reviewing this issue, the Tax Policy Subcommittee determined that, under the current market rates, the sales tax interest rate is higher than necessary. As such, the sales tax interest rate is also acting as a punitive measure. The Subcommittee determined that this is inappropriate. The Subcommittee recommended that the sales tax interest rate be modified to allow it to float within a specified range. The recommendation is to modify the sales tax code to set the interest on January 2 of each year to a rate of 5% higher than the prime rate with a floor of 10% and a ceiling to the maximum amount allowed under State statute.

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

j. Ordinance 2005-47
An Ordinance Combining Sales Tax Exemptions For Construction Services And Materials, And Repealing The Exemption For Design Professional Services.

This ordinance would combine the construction services exemption (#4) with the construction materials exemption (#5), and eliminate the exemption for professional design services.

The purpose for these sales tax exemptions is to exempt improvements to real property that increase assessed property values, and accordingly, increase CBJ property tax revenues. In addition, the exemption provides a financial incentive for builders to obtain a building permit. The Tax Policy Subcommittee found that combining and retaining these exemptions would be appropriate, with one exception. The one exception is to eliminate the exemption for professional design services. The elimination of professional services recognizes that many construction designs are never completed and do not add to the real property assessment base.

Combining the two exemptions, materials and services, should assist contractors in understanding and complying with the exemption requirements, and reduce confusion for merchants' reporting.

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

k. Ordinance 2005-48
An Ordinance Providing A Temporary Sales Tax Exemption For The Sale Of Fuel Oil.

This ordinance would enact a temporary sales tax exemption for residential and commercial heating fuel oil. It would be effective January 1, 2006, and repealed March 31, 2006. The purpose is to provide some financial relief for the winter months in light of high oil prices. The fiscal impact of the temporary exemption is estimated at $440,000 for the quarter.

The Assembly Finance Committee considered this ordinance at its meeting of October 26, 2005, and recommended adoption.

I recommend that this ordinance be introduced and set for public hearing at the next regular Assembly meeting.

VIII. NEW BUSINESS

A. Ratify MEBA Contract

B. Resolution 2336
A Resolution Amending The Personnel Rules To Modify The Health Benefits And Employee Wellness, And Pay Schedules, Personnel Rules.

The City and the Marine Engineers' Beneficial Association (MEBA) have reached tentative agreement in contract negotiations. As part of the union contract, the parties have negotiated employee pay increases and the City's contribution rate towards the tiered health benefit program for the next three years. The Assembly has, in the past, provided unrepresented employees the same pay increases and benefits package as has been negotiated for MEBA-represented employees. The CBJ health insurance program has an annual enrollment period, which will begin in a few weeks. In order to afford Risk Management the time it needs to gather, print and distribute all information to all employees in order to afford them an opportunity to make informed decisions about tier choices, we would like to get the provisions on health benefits and pay approved at this time. We will approach the Assembly with a resolution amending other Personnel Rules impacted by the negotiations at a future session.

I recommend this resolution be adopted.

IX. STAFF REPORTS

X. ASSEMBLY REPORTS

A. Mayor’s Report
B. Committee Reports
C. Liaison Reports
D. Presiding Officer Reports

XI. ASSEMBLY COMMENTS AND QUESTIONS

XII. CONTINUATION OF PUBLIC PARTICIPATION ON NON-AGENDA ITEMS

XIII. ADJOURNMENT

Note: Agenda packets are available for review at the Juneau Municipal Libraries and online at www.juneau.org.

ADA Accommodations Available Upon Request: Please contact the Clerk’s office 72 hours prior to any meeting so arrangements can be made to have a sign language interpreter present or an audiotape containing the Assembly’s agenda made available. The Clerk’s office telephone number is 586-5278, TDD 586-5351, e-mail: city_clerk@ci.juneau.ak.us.

 


 

Office of the City Clerk, 155 South Seward Street, Juneau, Alaska 99801
 
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