The Kenai Peninsula Borough is facing the same budget conundrum as the state, just on a smaller scale: residents want to maintain services but raising taxes is unpopular.

The assembly is working on its fiscal year 2018 budget, trying to work around declining contributions from the state, particularly for education. Since the downturn in oil revenues, the Legislature has been heavily drawing back state spending and is still grappling with an approximately $3 billion deficit, both making deep cuts and debating whether to implement a broad-based tax. The borough is facing a similar struggle. If the assembly increases education funding but does not approve a mill rate increase, the borough will use up its fund balance in a few years, said Borough Mayor Mike Navarre.

During the finance committee meeting before the regular Kenai Peninsula Borough Assembly meeting Tuesday, Navarre outlined the options for increasing revenue — such as an excise tax or raising the sales tax cap, which failed by public vote last fall — but emphasized that cutting isn’t a sustainable way to fund borough operations.

“The only alternative you have (to raising taxes) is to reduce the budget … and 66, 67 percent of that is education,” he said. “I think when you make spending decisions, you have to make corresponding revenue decisions.”

The assembly also voted to introduce an ordinance that would shorten the sales tax exemption on nonprepared food items from the current nine months to six months, lasting only from October 1 through March 31. Assembly member Dale Bagley, the ordinance’s sponsor, wrote in his memo to the assembly that the change would raise an additional $1.3 million for the borough. The increase would help to offset some of the decreases in the state budget, he wrote.

“I realize the voters have considered this seasonal sales tax exemption for groceries several times in the last 10 years,” he wrote. “However, the current fiscal climate is substantially different from those years, and these funds are needed to continue with local government services by both the cities and the borough.”

The assembly also took several hours of public comment on the budget, the majority of which pertained to education funding, during the regular meeting Tuesday night before postponing it for another public hearing June 6.

Navarre had proposed increasing funding for the school district by $1.5 million in his fiscal year 2018 budget, but at the May 6 meeting, the assembly approved an amendment increasing the minimum funding by a small amount, only about $100,000 over last year, in part balking at Navarre’s proposed mill rate increase of .5 mills to account for the increase.

The assembly chambers were packed out with teachers and public education supporters to pressure the assembly to increase funding to the Kenai Peninsula Borough School District, which accounts for about two-thirds of the borough budget.

In the past three years, as the cuts from the state have descended to the local level, the school district’s Board of Education has cut millions out of its budget to try to accommodate. The Board of Education passed a preliminary budget in April requesting an increase in the borough’s contribution, keeping pace with increasing costs.

Despite the amendment dropping Navarre’s initial proposal amount, because the assembly hasn’t yet passed its own budget, it could still increase the total amount of funding to the school district in the final budget.

Paul Marks of Soldotna said in his testimony that his position was cut due to budget reductions. Because the borough did not increase funding, the school district administrators haven’t moved on hiring teachers to replace 30 vacated positions, either, he said.

“You can only tread water so long before you drown,” he said. “Continuing funding at the same level rather than increasing with the rising costs of health insurance or other elements of inflation is not a sustainable metric for yourselves.”

Assembly member Jill Schaefer, who proposed the amendment to reduce Navarre’s school funding request, said health insurance for teachers is the primary cost driver in the district during public comment.

“Saying that I’m coming after relationships with children is inaccurate,” she said.

Kenai Peninsula Education Association President David Brighton said in his public testimony health care is out of control nationally, not just in the school district.

“While health care is the driving cost, I believe that is true in every industry,” he said. “Our country has a problem with increasing health care costs. It’s much worse in the state of Alaska.”

Parents and teachers urged the assembly to push as much money to education as possible, both for the school district and for Kenai Peninsula College, which the borough contributes hundreds of thousands of dollars to each year.

The college has requested more than $823,000 this year, much of which goes to fund the Jump Start program for high school juniors and seniors, the Adult Basic Education and GED courses and additional staff support positions.

Cheryl Siemers, Kenai Peninsula College’s assistant director for academic affairs, thanked the assembly for past support and said the borough’s contribution goes directly to benefit many students getting their GEDs and others continuing their education with Adult Basic Education courses as well as earning associates, bachelor’s and master’s degrees.

“Those (students earning degrees) are all in part because of your contribution,” she said.

As part of the University of Alaska system, the college receives most of its funding from the state, but supplements with the borough’s contribution, tuition and rent from its dormitories, among other smaller revenue streams. The school district also receives the majority of funding from its state, but leans more heavily on the borough each year.

The assembly took no action on the budget Tuesday and will make amendments, debate taxes and may pass the budget at the June 6 meeting.

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.