Gov. Frank Murkowski's budget cuts may ultimately force the city of Homer to consider raising local taxes, the city's director of finance said Friday.
Already prepared for the $45,781 reduction in state funding from the Revenue Sharing and Safe Communities programs state lawmakers wrote into the 2004 state budget last month, Homer city officials learned Thursday the governor's axe had chopped much deeper. All $122,712 they still expected would arrive was gone as well.
Atop that, Murkowski also vetoed the city's matching grant, $101,242 aimed at a new municipal library project. The city was to add $30,000 of its own.
All in all, it wasn't the best of days for the struggling Homer city budget, said Finance Director Dean Baugh. The governor's cuts alone added up to $223,954, but including in the cuts in municipal aid already expected, the total comes to nearly $270,000.
However, the governor's intention to forward money to municipalities from the federal State Fiscal Relief Program will help salve the wounds. Homer is in line for a one-time payment of $73,234. Baugh said that certainly would help.
Nevertheless, the city council might have some big decisions on its plate in the coming months, including whether to increase the property tax mill rate, Baugh said. Ignoring for a moment the lost library grant, the cut in revenue sharing and safe communities money alone amounts to $168,493 a bit more than would be generated by a half-mill increase in Homer's current 5-mill property taxes.
"We have a cap of 6 mills," Baugh said. "The council had lowered it to 5 from 5 1/2 a few years ago. We've never been to the cap."
Homer recently annexed more than four square miles of outlying area and the financial effects of the larger property and sales tax base are still being determined, Baugh said.
"We only started collecting it about six months ago," he said. "We have no firm grip on the sales tax revenue yet."
Baugh said revenue estimates used in developing the city's current budget, which operates from January through December, were intentionally conservative, and it may be that tax revenues will prove larger than estimated. He said he hopes so, anyway.
But other costs continue to rise, he said, including an increase in the cost of insurance, which is expected to jump 30 to 40 percent.
Homer Mayor Jack Cushing said he doesn't anticipate a move to increase the city's 3.5-percent sales tax in the next year, though he acknowledged it was part of Baugh's job to present the council with all the alternatives.
Cushing said a great unknown at this point is whether the Legislature will opt for a statewide sales tax next year. Lawmakers briefly considered a 3-percent tax during the session but failed to pass a bill to do that. If such a measure is passed next year, the city will have a serious problem on its hands, Cushing said.
"The governor's cuts could pale in comparison," he said. "I don't think we could allow ourselves to go to an 8.5-percent sales tax. (The city's tax plus the state tax). "We would probably have to consider cutting our own, which would mean looking at other (revenue) options at that time. One would be a mill rate increase."
Of the governor's decision to eliminate municipal aid, Cushing said state lawmakers have been preparing cities for this eventuality for some time.
As for the loss of the library grant, Baugh said while library personnel aren't happy, they know it's not the end of the world for their project. That's because a site recently was selected for the new library just off the Homer Bypass behind the Safeway store and because the city has just issued requests for proposals for architectural services, two major hurdles that once cleared, open many doors to foundation funding that could provide major construction money.
"Certainly we are disappointed," said library director Helen Hill. "Not only did we lose the $101,000 for this year, but the entire program has been cut for future years. That's kind of a blow, as well."
Because the city's budget cycle is a calendar year, versus the state's July-June fiscal year, the matching grant cut actually affects the current city budget.
Hill promised the library and its advisory board would inform other granting agencies of the loss of the state money.
"We'll highlight that as one less option open to us in the hope the other funders will rally around us and dig deeper," she said.
One of those funding sources is likely to be the Rasmuson Foun-dation. However, that foundation generally requires a project site to have been chosen and architectural drawings be in hand before handing out grants, Hill said.
Currently, the city has only a rough estimate of around $3.4 million for the library project, a figure based on a recent space-needs study that proposed a 17,000 square-foot building at a tentative cost of $200 per square foot. Once the design is finished, the city will have a much better handle on the ultimate cost of construction, Hill said.
Sue Mauger, co-chair of the Library Advisory Board's Capital Campaign Committee, which has been working to raise funds for a new library, said it would be built, with or without state capital matching grants.
"We are at a point with site selection that we really are moving full speed ahead," she said, adding that on the road to the ultimate goal, it was only "a stutter step."
What was more disappointing, she said, was that the current administration does not believe helping Homer build a library is a role the state needs to fill.
"It's up to individuals, now," she said. "It will be a compelling story for foundations."
Baugh said the state's capital matching grant program, despite sizable annual reductions in recent years, has provided money for several worthwhile causes in Homer, including the library fund, a much-needed future animal shelter, the Homer Chamber of Commerce and the Homer Hockey Association.
"The animal shelter fund is virtually all matching grant money," Baugh said.
Also possibly lost to the animal shelter project will be nearly $25,000 Kachemak City was expected to receive in municipal aid, Baugh said. Money received by Kachemak City under the program in past years has typically been forwarded to Homer to help pay for projects mutually beneficial to the neighboring municipalities, he said.
Kachemak City, however, is in line for $40,000 from the federal fiscal relief program. No decisions have been made by the Kachemak City Council about how to spend that money, though it comes with no strings attached.
Homer city officials already are lobbying against future cuts, Baugh said.
"We will work with the Alaska Municipal League to get revenue sharing and safe communities back," he said. "The state keeps cutting our revenues and asking us to do more. That may help their budget, but it's putting big holes in all of ours."
Meanwhile, across Kachemak Bay in the city of Seldovia, cuts also will be felt.
Seldovia was to receive $25,000 in matching funds with which it expected to renovate the Seldovia Community Building. The city also expected almost $26,000 from the Revenue Sharing and Safe Com-munities programs.
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