TO:

MEMORANDUM

KENAI PENINSULA BOROUGH

FINANCE DEPARTMENT

To: William Popp, Assembly President

Members, Kenai Borough Assembly

Thru: Dale Bagley, Mayor

From: Jeffrey Sinz, Finance Director

Date: October 10, 2000

Subject: Ordinance Amending KPB 5.12.080 and 5.12.190

One of the most common complaints we hear about the current property tax code is the rate of penalty and interest that accrues when a tax account becomes delinquent. Many taxpayers believe that an immediate penalty of 12% plus interest applied at a rate of 12% per year is excessive. The borough finance department recently contacted six other taxing municipalities to determine how our penalty and interest charges compare. We found that three of the six applied their penalties incrementally over a period of several months and that four of the six charged a lower rate of interest that the Kenai Peninsula Borough. Based on this informal survey, we believe an adjustment should be considered.

If approved, the attached ordinance would reduce both the rate of penalty and the rate of interest from 12% to 10%. In addition, the penalty would be applied in two monthly increments of 5% each rather than in one lump sum.

In addition, the ordinance changes the due dates for property taxes and provides taxpayers with an economically equivalent option of making two half payments or one full payment. Any taxpayer that pays one-half of their taxes by September 15^th would be given until November 15^th to make their second half payment. Any taxpayer failing to make the first half payment by September 15^th would not be subject to a penalty, but would instead be required to pay their taxes in full by October 15^th. This approach comes at some cost since it may delay the inflow of cash associated with annual tax payments, but may improve cash flows by reducing delinquency rates. In addition, the borough would switch to single cycle billing if the change is approved. The Kodiak Island Borough currently uses this schedule and believes it works very well. They point out that the October 15^th due date results in a high payment rate because it closely follows the distribution of the Permanent Fund Dividend checks.