Mayor addresses state, borough outlook

Though the Kenai Peninsula Borough and the state are separate entities in charge of their own finances, the two are so intertwined that the future of the borough depends on the Legislature setting the state’s finances straight, according to Borough Mayor Mike Navarre.

In a joint address to the Kenai and Soldotna Chambers of Commerce, he urged the attendees to contact their legislators and tell them to pass a fiscal plan for the state this year. The Legislature began its session Tuesday.

The borough is just beginning its budget process and the administration plans to look at ways to find efficiencies, such as combining departments the way it did with the capital projects and purchasing departments in the fiscal year 2017 budget.

A number of projects are forthcoming for the borough, too. Voters approved revenue bonds to finance construction of a new cell at the Central Peninsula Landfill and voters in the South Kenai Peninsula Hospital Service Area approved bonds for renovations at South Peninsula Hospital and the hospital-owned Homer Medical Clinic. The Kenai Peninsula Borough School District is also continuing work on the Kenai Middle School and Ninilchik School roofs, which are multi-year projects and funded by bonds approved several years ago.

One big project that will need to be addressed in the near future is renovations to the borough administration building in Soldotna. Navarre said the building, which is about 45 years old, has needed repairs for a number of years because of wear on the heating, ventilation and air conditioning systems and boilers. The project has been among the borough’s top capital project priorities in both 2016 and 2017. Previous estimates have priced the project at approximately $7.4 million, according to the borough’s capital project priority list.

Navarre said he knew asking the public to finance repairs to a public building would be unpopular and would work with the Kenai Peninsula Borough Assembly to develop a phase-in plan. The repairs have been necessary since his first term as mayor in the 1990s, and now employees are having to purchase space heaters to make up for the lack of an efficient heating system in the building, he said.

“It just simply can’t be pushed off any longer,” he said.

The Kenai Peninsula Borough School District is also working on its budget, though independently from the borough. The borough contributes a large portion of its budget — approximately 60 percent — to the school district every year, which Navarre said he sees as one of the most important responsibilities of the borough. However, the borough hasn’t funded the school district to the maximum amount it is allowed to, called funding to the cap, for the last several years. If the school district requests the borough to fund to the cap, approximately $3 million more than it provided in FY 2017, Navarre said he isn’t sure what the outcome might be.

“We haven’t decided yet what we’ll do,” he said. “… the implications are if we fund to the cap this year … almost certainly, it will result in a request for an increase in the mill rate.”

The school district is among a number of items in the borough that will be greatly affected by the Legislature’s fiscal decisions. The state will kick in approximately $79.2 million in FY 2018 to fund the peninsula’s public education system, according to the school district’s preliminary budget documents. The state also pays a portion of the public employee and teacher pension programs and the borough’s debt service, Navarre said.

It’s important for the Legislature to figure out a plan to set the state’s budget on steady ground this year, he said. Gov. Bill Walker has advanced a budget with two proposed new revenue streams to help bridge the approximately $3 billion budget gap: a motor fuel tax and using the earnings of the Permanent Fund.

Navarre said he supports Walker’s plan to use the earnings of the Permanent Fund. While there’s a case to be made for a Permanent Fund Dividend, there’s no sustainable plan for a state budget without using some of the earnings, he said.

“Alaska is different than every other state in the union in that the subsurface rights are owned in common property by everybody in the state,” he said. “… that’s why it probably, in my opinion, makes sense to still have some dividend. But it can’t all go to dividends.”

Depending on oil prices for a recovery isn’t going to work either, he said. Oil and gas production in the Lower 48 has ramped up in recent years with more discovery and lower production costs, making Alaska’s oil and gas less competitive, Navarre said. Production in Alaska has also steadily declined, so even if oil prices rebounded, it wouldn’t be the same as in the 1980s, when the North Slope produced millions of barrels per day, he said.

Navarre also zeroed in on health care, an industry he has called unsustainable because of its rapid cost inflation in recent years. Premiums have increased dramatically for Alaskans, though more slowly since the passage of the Patient Protection and Affordable Care Act, he said. Alaska is the most expensive state in the country, thus in the world, for health care. The hospitals here cannot compete with those in the Lower 48 and are losing business as insurers pay to fly their customers out of state for medical procedures, he said. The peninsula’s hospitals are less expensive than the rest of the state but still do not compete, an issue that needs to be addressed, Navarre said.

“The ability to pay for health care has a direct relationship to the economy,” he said. “That’s not something that’s sustainable without having and preserving and making sure that we prepare for the economic downturn and making sure we have a good plan in place.”

Navarre also supported Walker’s budget vetoes last year, many of which directly affected the Kenai Peninsula. Though the vetoes were unpopular, they were the right decision, Navarre said.

“It was the responsible thing to do,” he said. “It was an act of political courage, and he should be congratulated for that. With respect to the other vetoes he made … the reality is is that everybody is going to see some impacts.”

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