Kenai to examine fund balance

Kenai City Council members and administrators will discuss plans to set upper and lower limits for the city’s savings.

At its Feb. 15 meeting, the Kenai City Council planned a yet-to-be-scheduled work session to get a first look at draft fund balance policy proposals created by Kenai City Manager Paul Ostrander and Kenai Finance Director Terry Eubank.

Like many organizations, Kenai’s municipal government accumulates money in its fund balance in years that bring more money than the city has planned to spend in its yearly budget, and withdraws from these savings in years when revenue isn’t enough to cover its spending plan.

Ostrander, who became Kenai’s manager at the beginning of this year, said in an interview following a Feb. 1 presentation at the Kenai Chamber of Commerce and Visitors Center that Kenai’s fund balance was then $10.4 million. The exact amount is subject to change and may not all be available for spending.

Ostrander said “that our fund balance has grown to the point where it’s probably appropriate to use some of that fund balance to support the operations of the city.”

Kenai’s most recent annual budgets have contributed money to the city fund balance, rather than withdrawing from it. They show roughly $1.5 million surpluses in fiscal 2017 and 2016, a surplus of $700,199 in fiscal 2015, $949,317 in fiscal 2014, $886,110 in fiscal 2013, and $515, 882 in fiscal 2012.

“The role of government isn’t to tax and save,” Eubank said in a Feb. 1 interview. “I think it’s important for those who are living here now and utilizing the services and the city’s infrastructure to be the ones who help pay for that.”

Eubank said guidelines from the Government Finance Officer’s Association of America — which on its website recommends “that governments establish a formal policy on the level of unrestricted fund balance that should be maintained in the general fund” —influenced the draft policy he’ll be presenting to Kenai.

The possibility of spending from the fund balance comes at the start of a fiscal 2018 budget process in which Eubank said city revenue may be $400,000 less than expected due to a drop in sales tax revenue and state fund-sharing is also likely to decline.

Eubank said in Kenai’s recent first fiscal quarter — July through September 2016 — sales tax earnings had dropped 6 percent from the previous year, making the fourth straight quarter of year-to-year decreases. He also estimated that state revenues to the city could fall by as much as $100,000. Further strain could come from the consistently increasing cost of health care for city employees.

“All of it is going to have to take either new revenue sources, some use of fund balance or cuts to maintain our budget,” Eubank said on Feb. 1. “And that’s part of the process of going through a fund balance policy — determining what amount of fund balance may be available to weather these types of — what we think are going to be temporary — economic slowdowns…”

The Kenai City Council has taken some preemptive actions to absorb the expected deficit. At their Feb. 15 meeting, council members unanimously added $124,303 to the general fund by defunding projects such as a $35,000 design for an outdoor stage and $20,000 in improvements to the Kenai Recreation Center, and by recalling remaining funds designated for projects now completed or delayed.

“A good budget crunch is healthy for government,” Eubank said on Feb. 1. “It’s absolutely healthy for any organization, because you have to look at what you do — are you doing it the best? Is it the most efficient? Is it your highest priorities? They’re not fun — they’re a lot of work — but they’re healthy, too.”

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

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