A big unexpected loss, but a bigger unexpected gain: City expects to have $4 million less than predicted for next year’s budget due to investment losses, but an extra $16 million from the state due to oil price boom and elections.
The bad news is a terrible investment year means the city has $4 million less than expected in its portfolio, which combined with an expected $3.5 million deficit means there’s a $7.5 million hole in next year’s budget. The good news is it appears likely the city is going to get an unexpected $16 million grant from the state to reimburse past short-funded school bond debt.
“Add the extra funding and there’s a $10.5 million surplus” when taking into account other factors, City Finance Director Jeff Rogers told the Juneau Assembly’s Finance Committee on Wednesday, noting it is the latest of multiple allocations from the state due to the COVID-19 pandemic and other circumstances.
“We just continue to get additional tranches of money from the state,” he said. “Don’t look a gift horse in the mouth, I guess I would say.”
The city is expected to incur a -3.73% loss — totalling nearly $6.3 million — on its relatively conservative investment portfolio for fiscal 2022, Rogers said. He said that’s not a high figure in comparison to other investment benchmarks as the pandemic continues to wreak a heavy financial toll, but it still is a big number for the city to cope with.
“On a $168 million portfolio it’s a lot of money,” he said.
The $4 million “loss” in planning next year’s budget is “the difference between the (actual) loss and what we thought we would earn,” Rogers said. He said Bartlett Regional Hospital is especially hard hit because its finance officials weren‘t as pessimistic in its projections as the city.
Rogers said a more typical return on the city’s investments is expected during the coming year and, much as brokers recommend clients to avoid overreacting to a short-term market downturn, a change in the city’s current investment strategy is ill-advised.
“The only thing we can do is invest even more conservatively, which is not recommended for a municipality of our size,” he said.
The city can in theory cover the shortfall – and projected $3.5 million deficit – in next year’s proposed budget since it has about $10.5 million in its general fund balance. But maintaining adequate reserve funding for emergencies and other urgent purposes is a core requirement of sound government financial planning.
Luckily, it appears the city will receive $16 million from a $221 million statewide allocation to reimburse school bond payments for the past five years. Such reimbursements have been short-funded due to low oil prices and large state deficits, but with booming oil prices and an upcoming election it appears the Alaska Legislature will approve the makeup funding “and there’s no indication at this time the governor will veto it,” Rogers said.
He said final action on the allocation should be known before the Assembly is required to pass a final budget on June 15.
• Contact reporter Mark Sabbatini at email@example.com.