Borough may curtail service areas’ free accounting ride

Posted: Sunday, April 16, 2006

Service areas within the Kenai Peninsula Borough would begin paying for administrative and accounting services provided by the central government under a plan proposed by Mayor John Williams.

The plan will be considered by the Kenai Peninsula Borough Assembly on Tuesday.

The central government provides administrative assistance to the 12 service areas, including payroll processing, purchasing and other accounting work, real and personal property valuation, tax billing and collection, other miscellaneous billing and collection, legal services and computer support services.

The central government charges no specific fees for those services, but since 1998 has retained the interest earned on service area funds for use in the borough’s general fund.

Williams proposes charging administrative fees against grants and capital project funds where possible. A flat fee for administrative services provided the Kenai Peninsula Borough School District also is proposed.

The transition team Williams assembled when he assumed the mayor’s office last fall recommended charging service areas for services provided out of the general fund. According to Craig Chapman, borough finance director, that step was already in the works.

The Finance Department soon began assessing the validity of retaining interest income as compensation for the services.

In a memo to the assembly, Chapman said the estimated value of the services was compared to the projected interest earnings for each service area, assuming full allocation of interest.

“In total and on average, the value of the intergovernmental services provided by the general fund approximates or exceeds the potential interest earned by the funds and services,” Chapman said.

Another issue concerned an inequity inherent in the interest-retention process. Interest earned by the larger equity accounts of high-budget service areas often was more than the cost of the services, while the opposite was true of small service areas.

But even among larger service areas inequities exist, Chapman said.

Nikiski Fire Service Area pays more via the retained interest process than does Central Emergency Services, he said.

To make the plan more equitable, the new plan would allocate costs more closely related to the expense of services, while allowing the service areas to retain the interest earned by their equity in the central investment pool, Chapman said. The rate to be charged service areas would be set each year in annual budgets.

The finance department also conducted an analysis estimating the cost of providing services to the Kenai Peninsula Borough School District. Here, Chapman said, the department determined the best approach to be a flat charge of $240,000 a year. A separate fee rate would be charged to grants and project funds.

Chapman estimated that the overall impact on the general fund would be $430,000 annually.

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