Since taking office, Kenai Peninsula Borough Mike Navarre has made it been one of his goals to examine just how far the borough has come financially speaking over the last few years.
On Friday, Navarre said he plans to thoroughly compare borough revenue and expenditure levels to and from a variety of sources, considering those levels have all significantly increased over the last decade. It’s an action he talked about during the campaign season and one he’d like to complete before next year’s budget considerations begin.
“Some of that (increase) is undoubtedly justified, but on the other hand, you have to look at where the areas of growth were and examine what caused those increases, whether you are meeting the needs of the borough and the service areas in the most cost-effective manner you can.
“In order to evaluate where you are now, you have to look at what caused you to get there.”
According to the borough’s recently released annual financial report, the borough had expenditures totaling about $111 million, but took in only $101.8 million in revenues during fiscal year 2011.
The year’s result is consistent with the prior fiscal year’s result — that the borough had greater expenses than revenues, specifically $107.6 million in expenses and $105 in revenues in FY2010.
Over the last decade, however, the borough only had more revenues than expenditures during three years: 2007, 2008 and 2009, according to the same report.
Some years, Navarre said, the numbers might have been more affected by one-time capital projects that haven’t necessarily continued to cost the borough money since.
“Those are generally one-time expenditures, so even though your overall expenditures have shown that you have spent more than you have taken in revenues, if you did it for a one time appropriation, then it is not built into your expense base,” he said.
Since 2002, the borough has increased expenditures from $69.8 million to $111 million in 2011. Revenues also increased during the same time period, from $67 million to $101.8 million, respectively.
Sales tax collections increased by about $13.3 million since 2002 totaling about $27.7 million in 2011. However, the borough raised the sales tax from 2 percent to 3 percent in 2008.
Property tax collections have increased by about $11.79 million over the decade totaling $49.7 million in 2011 despite the mill rate being lowered from 7 mills in 2002 to 4.50 mills in 2011. However, the total assessed value of the borough more than doubled during that same time.
“It is not just the borough’s general fund, but it is all the service areas too,” borough finance director Craig Chapman said of the property tax increases. “If you go back since 2002, there has actually been a couple of new service areas that have come into existence.”
In 2011, the borough’s general fund balance was $21.7 million, a decrease of about $1.3 million from the prior year. The borough, however, budgeted that year for a decrease of about $4.9 million.
“Expenditures were basically $3 million less than budgeted and that included a number of items,” Chapman said. “There were a number of positions that were open, the funding for the school district was $600,000 less than budgeted and that because of the school district’s fund balance and solid waste ... was $600,000 less.”
During the last ten years, the general fund balance has swung from a high of about $26 million in 2002 to a low of $15 million in 2006. The balance recovered to $25 million in 2009 but has been drawn down consistently each year since.
In that same time, other areas of the borough have grown more than others.
Since 2002, solid waste funding has nearly doubled from $3.6 million to $5.7 million in FY2011. Public safety — for things like fire protection and emergency medical services — have taken a similar trend climbing from a 2002 level of $6.7 million to $13.3 million in FY2011.
Funding for education also rose from $31 million in 2002 to $46 million in 2011.
Navarre said the $46 million currently allocated to education is below the state-set cap level.
“Obviously education is one of our most important responsibilities, but it is also the single biggest item we spend money on,” he said. “We haven’t started the budget process yet, but one of the things I want to do is ... compare where we were 10 years ago to where we are now and determine what the cause for those increases were and then determine whether I’m comfortable with it or not.”
However, the largest percentage of increase in funding has come in service to roads and trails — a total of $2.1 million in 2002 to $10.5 million in 2011 and much of that increase occurred after 2010’s $6.8 million in total road funding.
“It’s more capital funds that have been appropriated from the state is what I think the biggest portion of that is,” Navarre said. “There are all these road needs and we have significant projects that we’re constantly doing.
“We have a lot of roads that were put on the road system years ago and over time we have been trying to upgrade some of them to borough road standards. A lot of them were grandfathered in and in the last couple of years we have gotten some state funds that have allowed us to do that.”
In 2011, property taxes made up 48 percent of the borough’s income with sales tax collections coming in at 27 percent. Grants not restricted (such as state revenue sharing) totaled 6 percent, the same percentage as capital grants (such as fire trucks in service areas) and operating grants (such as the Spruce Bark Beetle program.) Investment earnings totaled 2 percent and land entitlements were 1 percent. Charges for service remained “very low” compared to other boroughs at 3 percent of total borough revenue, Chapman said.
The total value of taxable sales went up 5.1 percent from 2010’s $878 million to 2011’s $923 million, Chapman said.
At the end of the fiscal year, the borough, including Central Peninsula Hospital, had a total outstanding debt of $104.8 million not including bond premium — an increase of $11.5 million from June 30 of 2010.
The borough incurred $16.9 million in new school debt during the year, of which 70 percent is eligible for reimbursement from the state, according to the report.
“We actually paid off quite a bit of our debt in the year too, so that’s the reason why there’s the difference between the prior year and the current year,” Chapman said.
In total the borough paid off about $13.9 million of its debt, Chapman said.
“I think the borough is in very good shape debt-wise,” Navarre said. “… I don’t have any concerns about that.”
Overall, Navarre said the borough is financially healthy. However, considering the borough’s trend of spending more than it makes and drawing down the fund balance, Navarre said he would either need to find ways to reduce the budget, or raise revenues.
“We have relatively low tax rates,” he said. “But the one concern that I have is that we have been spending money out of the fund balance meaning that while the budget has been balanced, it has been drawing down savings … and that’s not a sustainable situation.”
Brian Smith can be reached at firstname.lastname@example.org.