Borough in good shape

Financial report: General fund increases by 5 million

Posted: Monday, January 21, 2008

Helped significantly by $3.6 million in energy assistance from the state as well as by increased sales and property tax revenues, the Kenai Peninsula Borough's general fund rebounded in fiscal year 2007, ending the year June 30 with a $20 million balance, according to the latest analysis of the borough's finances.

Two years ago at the end of FY 2005, the fund balance was $17.2 million, but slipped the following year to $15.2 million. At the beginning of FY 2007, it appeared the reserve account easily accessible money needed to cover general government operations and contingencies was forecast to be $12.5 million, a figure considered dangerously low by financial advisers.

By last spring, however, as FY 2007 was winding down and the current budget was being prepared, that low figure had climbed and was predicted to be $17.5 million when the year came to a close June 30. It turns out to have been even higher, hitting the $20 million mark, according to John Bost, of Mikunda, Cottrell & Co., who presented the Comprehensive Annual Financial Report at the Jan. 8 meeting of the Kenai Peninsula Borough Assembly.

"The borough had a good year financially. I guess you all know that, especially the general fund," he told the assembly. "It increased by almost $5 million (over FY 2006), and that's about $8 million better than it was projected to be."

Contributing to the increase was $3.6 million appropriated by the state to the municipality in assistance to meet the rising costs of energy.

Other factors in the increase were: interest earnings exceeded expectations by $1.1 million because of higher-than-expected interest rates, increases in the cost of fuel and utilities pushed revenues from sales taxes up about $1.5 million over expected returns, property tax revenues grew by about $4 million as assessed values rose, and there was an increase in funding to the Kenai Peninsula Borough School District of about $3 million.

Expenses also grew, of course, cutting into the revenue increases, but the factors listed above had all contributed to the growth in the general fund balance by the end of FY 2007, Bost noted.

Borough Mayor John Williams laid much of the credit at feet of Gov. Sarah Palin's administration for promoting a type of municipal assistance and revenue sharing that helped out during FY 2007.

"Financially, we're in pretty good shape now," he said in an interview Wednesday, adding that he was satisfied with the improving situation.

He noted that balance reserves were now about where the assembly wants them, though he added that $20 million might be below the average fund balance for a municipality the borough's size. The overall budget today is running around $106 million, he said.

Other highlights of the financial analysis showed that appropriations during FY 2007 increased by $2.61 million over the original budget, mostly due to carry over from projects not completed the prior year, supplemental appropriations after receipt of unanticipated grant revenues, and increased spending due to unexpected needs, such as the $450,000 targeting flood responses in October 2006 and February 2007.

Capital assets land, buildings, machinery and equipment, roads and other infrastructure also grew in FY 2007 by $22.7 million to $328.4 million total after depreciation.

Additions to capital assets included major repairs and additions to school facilities, capital improvements to the borough's two hospitals, and major repairs and additions to landfills, roads, bridges and public safety facilities.

The borough's long-term debt was $91.3 million, a decrease of $2.1 million from June 30, 2006. Most of what's owed, $77.6 million, is bond debt; the rest is attached to such things as equipment, pension obligations, and landfill closure costs.

Total assets, which included capital and assorted other assets, hit $483.5 million in FY 2007, while total liabilities (long-term debt and other debts) reached $118.4 million, for an "in-the-black" net figure of $365.1 million, an increase of $11 million over the previous year. The bond-funded expansion projects at South Peninsula Hospital and Central Peninsula Hospital, CPH's acquisition of the 60-bed long-term care facility Heritage Place and increased operating revenues at CPH helped drive that increase.

The government's annual revenue stream in FY 2007 depended most heavily on property taxes (54 percent) and sales taxes (20 percent). Other parts of the pie include unrestricted grants (7 percent), investment earnings (5 percent), charges for services (3 percent), operating grants and contributions (4 percent), capital grants and contributions (5 percent) and miscellaneous income (2 percent).

Bost also noted other factors influencing the FY 2007 budget, including the growth in the number of grants.

"The borough is continuing to get more and more federal and state grants," he said, adding that the borough had received 45 state grants 17 of them consider major and 47 federal grants. Bost said no problems were found during "grant testing" during the audit, a procedure that ensures the borough is meeting grant requirements.

"The good news is that I think you had a good year," Bost said concluding his remarks. "We didn't find any surprises, nothing to report to you."

Williams commented that he was especially pleased with the effort at rebalancing the tax burden begun last year, referring to the lowering of property tax levy and the increase in the sales tax rate.

He said that effort would continue in the FY 2009 budget, where he hopes to be able to bring down the property tax mill rate, now at 5.5 mills, at least another half mill. Meanwhile, as of Jan. 1, the sales tax rate is 3 percent, the first increase since the mid-1970s. It had been 2 percent.

Williams also said he has asked borough department heads to try to keep their departmental budget increases to 2.5 percent or lower as they prepare the new budget.

Hal Spence can be reached at hspence@ptialaska.net.



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