New features in the $15 million budget proposal that Kenai City Council members will be debating and voting on in the near future include a dedicated fund for employee health care, fund balance caps for city departments, and an increase in the pension contribution the city makes to public employee retirement funding.

The budget, created by administrators under Kenai City Manager Paul Ostrander and presented to council members in a work session on April 29, will govern Kenai’s spending in fiscal year 2018 — from July 1, 2017 to June 2018. The work session included a video presentation of the budget plan from Kenai Finance Director Terry Eubank.

46.82 percent of Kenai’s fiscal 2018 projected revenue comes from sales tax, a category that has shrunk since Kenai administrators made initial revenue projections for the upcoming budget. Reflecting the general decline in the local economy, Kenai’s sales tax revenue was six percent less than the previous year between July and September 2016, making it the fourth consecutive quarterly sales tax earnings decrease, Ostrander told a Kenai Chamber of Commerce audience in February. Kenai Finance Director Terry Eubank now expects sales taxes to bring $6.93 million into the upcoming budget — an amount $393,000 less than the original revenue estimate.

The fiscal 2018 budget proposal includes $488,000 in one-time capital spending, including $35,000 for re-coating the walls and floor at the city animal shelter, $48,000 to replace the boilers in the Kenai Public Safety Building (supplementing a $110,000 grant from the Alaska Department of Commerce, Community, and Economic Development due to expire in June), and $250,000 to expand the Kenai cemetery, which Eubank said has about three years’ worth of available burial sites in its existing ground. He said the planned expansion to the other side of Floatplane Road will require the installation of utilities and fencing.

Health care

In recent years, Kenai has spent about eight percent of its general fund budget on employee health care plans, Eubank said at the budget work session. Kenai has dealt with unpredictable premium increases — which Eubank in past interviews said have been driven by both general health care inflation and large claims made on the city’s plan. In the past decade Kenai has used three different insurance providers in an attempt to control the highly variable cost, which in some years dropped by much as 15 percent and in others rose by as much as 20 percent — but which nonetheless had a net 6 percent increase during the last ten years.

With only three health insurance providers presently doing business in Alaska — Aetna, Premera, and United Healthcare, all of whom Kenai has used in the past ten years — Eubank said the tactic of changing providers is unlikely to help control health care costs in the future. Based on preliminary information from Premera, Kenai’s present provider, Eubank said he expected a 12 percent increase this year, mainly as a result of large claims, and recommended assuming a 10 percent increase in future budgets.

This year’s Kenai budget builds on an idea introduced during last year’s budget cycle, when then-City Manager Rick Koch proposed seperating health care expenses from the general fund by creating a new fund dedicated to health care. Then-council member (now Kenai Mayor) Brian Gabriel successfully moved to contribute $100,000 in general fund money to a dedicated health care fund, which Koch recommended increasing by 10 percent annually to reach a balance of $400,000.

This year’s budget roughly follows Koch’s recommendation by raising the new fund — known as the employee health care internal service fund — to a $117,637 balance with proportional contributions from several of Kenai’s other operating funds.

Fund balance cap

Ostrander worked as chief of staff to Kenai Peninsula Borough Mayor Mike Navarre before becoming Kenai city manager in January, and has imported one of the borough’s budgeting practices to Kenai: caps intended to prevent unused money from accumulating in municipal coffers by creating a minimum and maximum balance for each city fund. The Kenai City Council passed the policy at its April 5 meeting, and the fiscal 2018 budget will be the first to implement it with a minimum general fund balance of $8.21 million and maximum of $9.86 million.

After making the expenditures proposed in the fiscal 2018 budget, the general fund balance would be $10.89 million — $221,783 above the maximum, Eubank said. Under the policy, Kenai code requires a spending plan to reduce the fund balance within the next three years. Eubank said city administrators have created such a plan, bringing the balance beneath the maximum by fiscal 2020.

Cost of Living

The budget proposal also includes an .08 percent increase to the salaries of Kenai employees, based on growth of the Anchorage Consumer Price Index, the cost-of-living measurement that’s geographically closest to Kenai. With the increase, the city would spend an additional $88,949 in fiscal 2018.

Reach Ben Boettger at benjamin.boettger@peninsulaclarion.com.