Borough may lower property tax rate

Municipal finances holding steady; mayor hints other revenue enhancement would make up for smaller mill rate

Posted: Sunday, February 18, 2007

An annual review of its books shows the Kenai Peninsula Borough’s finances are in good shape, a representative of the independent auditing firm told the borough assembly Feb. 6.

The borough, said Bill Coghill, a certified public accountant with Mikunda, Cottrell and Co., “seems to be staying pretty close to the budgeted targets the assembly adopts, generally spending a little less than authorized, and generally having a little higher revenues than budgeted.”

The borough also is adhering well to the requirements of its government grants and contractual arrangements, Coghill said.

“That’s very important and commendable,” he said.

Coghill went on to cover a few highlights in the details of the borough’s annual financial report for fiscal year 2006, which ended June 30, 2006.

For instance, the borough’s net assets (its land, buildings, machinery, etc., less related debt) increased by $5.4 million during fiscal year 2006, climbing to $354.1 million.

At the end of fiscal year 2006, the unreserved general fund balance was $15.3 million, a decrease of $1.9 million. Of that, $15 million was undesignated — that is, available for spending. Several years ago it became borough policy to lower an excessively high fund balance to within a target range roughly between about $12 million and $21 million. To do that, borough mill rates were reduced. Thus, the $15.3 million fund balance is in the target range.

Mayor John Williams said the borough is “comfortably within the target zone” through the diligence of the administration, and very much because of recent state government funding assistance.

“Should the availability of those funds not continue,” he warned, “we may find ourselves in the very position we were a year ago, having to make drastic cuts in government services and operations.”

The general fund unreserved balance represented 26.3 percent of general fund expenditures, which compares to 20.6 percent at the end of the previous fiscal year on June 30, 2005.

All government funds were a combined $56 million, a decrease of $5.4 million from the prior year. The borough also acquired new debt — including $2.5 million for construction of a new fire station in Kasilof and $2 million for purchase of a new CT Scanner and picture archiving system for South Peninsula Hospital. However, total outstanding debt actually decreased by $1.3 million to $81 million, according to the borough data.

Coghill said borough hospitals provided $8.4 million of the increase to net assets, with the bulk of that, $7.3 million, coming from Central Peninsula Hospital, and $1.1 million from South Peninsula Hospital.

There are bright spots to be found in the financial data, Coghill said.

“Property tax revenues were up by $1.2 million even though the mill rate didn’t’ go up,” he commented. “Sales tax is up by $1.1 million, even though the sales tax rates didn’t go up.”

That additional income was offset by spending increases, including an additional $1.2 million in funding to schools and more money going to pay obligations to the Public Employee Retirement System, or PERS.

PERS payments are based on a percentage of the annual covered payroll and are meant to be sufficient to accumulate assets to pay both pension and post-employment healthcare benefits. The borough’s PERS rate for fiscal year 2006 was 17.43 percent, which grew to 22.81 percent in the current fiscal year. That is expected to climb to 37.39 percent in fiscal year 2008.

“We know those increases are there and they are real, and whether the state Legislature helps us with those or not is important in the borough finances and the borough budget,” Coghill said.

Coghill also told the assembly that new auditing standards being put into place this year and next would focus more closely on the borough’s internal controls. Williams said the new rules for government reporting would be a good thing.

“It is the belief of our people that the new rules will bring more transparency to government, greater understanding of the budgeting system, and even though it will cost more, it will result in better understanding of borough finances by the general public,” he said.

Williams also said the administration was putting the final touches on a new tax package to be introduced in March. He said he would likely be asking for a reduction in property taxes of perhaps a full mill, but doing that would “necessitate adjustments” of revenue streams in other areas. He declined to say if that would mean a proposed hike in sales taxes.

He also said he is looking with hope to the state Legislature as it considers the future of municipal assistance and revenue sharing proposals. He said he believes state lawmakers are well aware of the needs of local governments.

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