Study indicates boroughs are more dependent on state dollars

Since the turn of the century, Alaska’s boroughs have become much more dependent on state dollars to operate.

That’s a problem their assemblies and administrations are facing now that state support is disappearing amid an ongoing budget crisis. The Legislature passed a fiscal year 2018 budget in late June, averting a looming government shutdown, but did not arrive at a fiscal plan for the future, kicking the can down the road to the next Legislature to patch the approximately $2.7 billion budget gap.

The Kenai Peninsula Borough is far from being the borough most dependent on state money, though, according to a new report from the University of Alaska Anchorage’s Institute of Social and Economic Research. The report, which examines how much of each of Alaska’s 19 boroughs’ budgets comes from the state, found the Kenai Peninsula Borough got about 14 percent of its annual revenue from the state between 2000 and 2015.

That’s less than half of the most state-dependent boroughs — the Northwest Arctic Borough and the City and Borough of Haines — both of which got about 38 percent of their revenues from the state in that time period. However, it’s significantly more than the largest borough in Alaska, the Municipality of Anchorage, which only got about 4 percent of its revenue from the state in that time period, according to the study.

The study’s authors noted that the figures are estimates, as state contributions aren’t always easy to identify. They also noted that not all state aid is going to disappear. However, the findings indicate that local government reliance on state funds has been on the upswing, they wrote.

“Since 2005, local governments have become more reliant on state dollars,” the study states. “But this boom period is coming to an end … Going forward, it will be crucial for the vulnerable economies to balance the needs of providing services and imposing taxes that fall on their residents.”

Disappearing state grants and revenue sharing funds were a key item in the Kenai Peninsula Borough’s fiscal year 2018 budget discussions, which reached a conclusion in June. The assembly chose to increase funding for the Kenai Peninsula Borough School District by about $1.5 million but did not increase any taxes, leaving the borough administration to draw from the fund balance to cover the difference.

As the state has drawn back its support programs, the borough government has been finding ways to trim spending — in the fiscal year 2017 budget, the administration combined the capital projects and purchasing departments and closed Central Peninsula Landfill one day per week for six months out of the year. The impact of reduced state spending on local government is something the borough administration has been expecting for a while and trying to head off with measures like reevaluating open positions to see if they need to be filled, said Borough Mayor Mike Navarre.

“I know the direct relationship between state spending and the local governments,” he said. “We’ve been trying to anticipate where those impacts might fall, and try to address them locally.”

Though the ISER study identifies some interesting trends, it misses a few major points, Navarre said. For one, the state has suspended its debt reimbursement program for capital and school projects — if a borough wants to replace a roof on a school, it’s on its own now, at least until 2020.

One major burr for the boroughs has been the state pushing more of the cost of public employee and teacher pensions to local governments, Navarre said. As a result of a miscalculation and a resulting lawsuit settlement in 2010, the state and local governments are on the hook for annual contributions to cover costs for retirees’ pensions. However, as the state’s budget has tightened, the Legislature has shifted more of the liability to local governments, stretching out the payment table and proposing to shift a larger percentage of the cost to local governments. The second proposal ultimately failed.

Navarre said the Alaska Municipal League’s Conference of Mayors fought hard to defeat the proposal, saying it’s unfair.

“We didn’t create this problem, the Legislature did,” he said. “… Really, the message that we gave them last time (was), no more shifts or we’re going to litigate this.”

During the budget negotiations, Navarre advocated strongly for the assembly to either raise the mill rate or find another way to raise revenue. With a FY18 budget in place that includes no new taxes, the administration is looking at ways to increase revenue to avoid the borough exhausting its fund balance. Right now, Navarre’s administration is considering introducing a borough-wide bed tax to the assembly and plans to hold a worksession on taxes before the next assembly meeting on July 18, he said.

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

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