Shelling out enough to teach little Johnny and Jill their ABCs, covering the sizeable IOU to the employee retirement program, and meeting economic challenges posed by the closure of Agrium are among the major issues facing the borough as it begins writing the fiscal year 2009 budget.
Because the legislative session has been cut to 90 days, borough officials should know much earlier than usual how much help they can expect from the state next year, offering the opportunity, at least, for finishing work on the FY 2009 borough budget several weeks earlier than in years past.
According to Finance Director Craig Chapman, introduction of the new budget is scheduled for the April 15 assembly meeting, with public hearings set for May 6 in Seward and May 20 in Soldotna. The budget could be adopted that night. Typically, borough budgets have not been adopted until middle or late June.
In a memo to the Kenai Peninsula Borough Assembly, Chapman said the administration was working on procedural changes that should make writing the budget less arduous and the document itself easier to read.
He also listed several key budget principles that would guide the process, including maintaining basic services at current levels, developing program costs that would reflect "a true picture" of operational costs, estimating revenues at "realistic to guarded optimistic levels," and complying with Alaska and borough law.
Goals and objectives included funding education at the highest level reasonably affordable, high-quality capital and maintenance programs, support for service areas, sufficient funding to borough departments, and a further reduction of the borough's 5.5-mill general fund tax levy.
Regarding the major budget issues, Chapman noted that the intention is to fund education to the "cap," the maximum allowed by state law, just as the borough has always done.
In the current FY 2008 budget, the "cap" was met at just over $37.7 million, which went to operating schools. The borough also contributed $2.38 million toward school debt and $1.45 million toward capital projects for a total of just over $41.5 million, which represented some 66 percent of the borough's general fund budget.
"The borough continues to be one of the few communities within the state that funds at the maximum allowed by state law," Chapman said. "The total amount of funding provided for school purposes is equivalent to 7.75 mills (of property tax)."
Borough sales taxes are expected to cover nearly $21.8 million of the total, with debt reimbursement funds from the state covering another $1.65 million. The rest, around $17.8 million, comes from property taxes, federal revenue, and interest earnings, Chapman said.
An expected decrease in the number of students in the Kenai Peninsula Borough School District next fall will reduce state aid. However, it is also expected that the decrease will be countered by an increase in per-student state funding.
State increases would allow a larger local contribution. Thus, a base-unit increase proposed by Gov. Sarah Palin could result in an increase in the borough's contribution to school funding in the range of $1.75 million to $3 million, Chapman said.
Poor returns from investments and inaccurate actuarial assumptions made several years ago by the state and its financial contractor led directly to the problems facing municipal retirement programs today.
The Kenai Peninsula Borough has seen its contribution rate to the Public Employees Retirement System jump from 7.81 percent in FY 2004 to an expected 38 percent in FY 2009, Chapman told the assembly.
"This increase was necessary to address an unfunded liability amount currently estimated at $41 million," he said. "The state of Alaska provided funding in FY 2007 and FY 2008 to reduce the rate to approximately 22 percent, and similar funding has been proposed for FY 2009. Until a long-term plan is put in place to address this issue, without continued state funding, the borough could see rates approaching 40 percent in future years."
At this point it is too early to tell precisely what impact the closure of Agrium will have on the economy, but the administration is watching the situation closely.
They also are keeping tabs on efforts by ConocoPhillips and Marathon Oil to secure an extension to their export license. The companies have told Gov. Palin they would supply Alaska utilities and explore for more gas in Cook Inlet in exchange for state support of their federal application.
Other issues facing the borough as it develops the new budget, Chapman said, include increasing requests for services from emergency medical and fire service areas and road maintenance; and whether or not the state budget will include further energy assistance funding as was the case under the FY 2008 state budget that gave the borough some $1.75 million in energy aid.
Hal Spence can be reached at firstname.lastname@example.org
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