Low interest rates have caused the city of Kenai's budget to dip into the red this year, to the tune of $335,000, forcing the city to make some tough choices between cutting the budget and raising taxes.
The Kenai City Council will hold a work session at 7 p.m. Tuesday in council chambers to decide how to solve this deficit. The council will look at policy matters, meaning the way the city is run, in determining how to balance the budget, said Kenai Mayor John Williams.
"What we have to examine is how the city is doing business, whether we're doing business fairly on behalf of our constituents," Williams said. "If so, do we continue the same sort of operation, or do we cut back?"
Whether the council decides the city is doing business fairly, some measures will have to be taken to balance the budget. According to Williams, those measures could be putting off the purchase of a piece of equipment, like a police squad car, restricting capital projects, making cuts to the budget or even laying people off.
Payroll is the largest item of cost on a per capita basis to the city, Williams said, but layoffs are not high on his list of solutions. At least five people would have to be let go to balance the budget and there are no positions that could be eliminated without negatively affecting the services the city provides, he said.
"I am not in favor of cutting services to the city," Williams said, reasoning that Kenai residents like the services the city provides. "Until (constituents) come to me and say they don't want something, my philosophy is to look for how to pay for it."
The city's $12 million budget has been trimmed by $6,000 this year, Williams said, but those cuts may be reinstated.
"You do more to harm the morale of the community when you cut those little things than you gain in savings," he said.
If previous cuts are reinstated and no more cuts are made, then taxes will have to be raised to produce funds to cover the deficit.
"To continue with the cost of government as is will require some kind of modification to the revenue stream," Williams said.
The modification he proposes is to raise the mill rate by one. A one-mill increase would produce enough revenue to cover the deficit, Williams said. The current mill rate is 3.5. But Williams said taxpayers won't actually see the increase, because borough tax rates have dropped in the last two years and look to do so again this year.
"So the actual cost to a homeowner will not be an increase," Williams said. "My contention is that the average taxpayer in the city of Kenai gets a tremendous deal for their money at 3.5 mills."
Whatever steps are taken to balance the budget this year are likely to be in effect for several years to come. Kenai lost a half million dollars in interest on its earnings this year due to low interest rates, Williams said. Those rates are not likely to rebound in a one- or two-year period.
Anyone wishing to share their preference on how the deficit should be solved is welcome to come to the work session and do so, Williams said, although he would prefer specific suggestions.
"Don't just say to me 'cut government,'" he said. "That doesn't mean a thing to me. Tell me specifically -- eliminate a squad car or eliminate the purchase of heavy equipment."
Any measures the council comes up with in its session Tuesday will have to be passed in a council meeting before taking effect.
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