While Alaska lawmakers wrestled with serious budget issues over the last year, Juneau and many other communities have been relatively untouched by the fiscal calamity occurring at the state level – until recently.
With a stroke of his pen, Gov. Bill Walker vetoed a number of items that impacted Juneau significantly. The largest of these items – amounting to approximately $3 million – was a portion of Juneau’s school debt reimbursement. Designed to help communities fund school construction and improvements, this program was discontinued last year but previously funded projects were grandfathered in – allowing 70 percent of their debt payments to be reimbursed each year.
Combined with the impacts of a reduced Permanent Fund Dividend, other smaller vetoes and a $450,000 school district shortfall, CBJ Finance Director Bob Bartholomew estimated Juneau was facing a $4.8 million deficit this coming fiscal year.
City leaders had anticipated a reduction in overall revenue and taken steps to mitigate this, but the size and severity of the vetoes caught them off guard. Initially, there was hope some of the vetoed funding would be restored but this didn’t happen. It’s likely significant cuts resulting from state reductions will be forthcoming in future budget cycles as well.
Fortunately, Juneau has managed to accumulate sizeable reserves in the form of a budget reserve (aka “rainy day fund”) and fund balance (carry forward) that will allow some period of adjustment as we transition to a smaller, more efficient budget. However, much like the statewide controversy about using the Permanent Fund, there are similar concerns about how much of Juneau’s reserves should be used to subsidize CBJ operating expenses.
In his budget update to the Assembly Finance Committee in August, City Manager Rorie Watt initially recommended using $3.1 million of the Budget Reserve (almost 25 percent of the fund) to help offset the FY17 budget deficit. Ultimately, the Assembly took a slightly more conservative course, by drawing down about $2.8 million from the CBJ fund balance – an amount that still leaves it well above its recommended benchmark of 5 percent of the operating budget. In addition, the Assembly reaffirmed its commitment to continue adding to the separately dedicated budget reserve in order to eventually reach an amount equal to two months of operating funds – or $16 million.
The balance of the projected FY17 budget gap will be offset by diverting previous appropriations and unexpected revenues while finding some cost savings and reductions yet to be identified.
Watt believes services and programs will eventually need to be cut and has provided examples of areas to be considered, including school facilities and parks and recreation. He also feels acceleration of public land disposal to the private sector will help raise revenue and stimulate our economy and property tax base.
It goes without saying that services supporting public safety should be protected, but our city manager’s suggestions certainly indicate a willingness to consider a wide range of possibilities (many of which could be unpopular) in balancing our municipal budget.
At this point, Watt has recommended against any across-the-board cuts in staff, department operations, or capital spending as well as consideration of a hiring freeze or elimination of vacant positions, although these would not be off the table in future budget discussions. Watt’s thinking here is that premature, drastic changes like these may result in unintended reductions in service levels and negative impacts on our economy.
Time will tell whether this gradual, measured approach is an appropriate level of response given the budgetary challenges we face. Largely it will depend on whether Watt is able to achieve the kinds of reductions and cost savings being considered, which in turn will depend on whether Juneau citizens are willing to accept them as necessary and prudent.
The similarity between our financial situation at the local level versus Alaska’s at the state level could not be more obvious. Like Alaska, Juneau has revenue, expenses and savings. A sustainable budget can only be achieved by a very careful balance of all three.
Juneau voters are rightfully nervous about where our economy may be headed. Two Assembly candidates on Tuesday’s municipal ballot advocated raising taxes last year on senior citizens rather than considering other cost-cutting measures first. Voters will get to weigh in on whether that was wise policy.
So far, in addressing this most recent shortfall, our city leaders seem to be on the right track but the devil is in the details. Additional revenues in the form of taxes will not be palatable to the majority of Juneauites unless they’re convinced that reasonable cost-saving measures have taken place first.
That is where our state government did not deliver as promised, resulting in political stalemate and fiscal uncertainty.
If our city leaders heed this one lesson, Juneau can avoid a similar fate.
• Win Gruening retired as the senior vice president in charge of business banking for Key Bank in 2012. He was born and raised in Juneau and graduated from the U.S. Air Force Academy in 1970. He is active in community affairs as a 30-plus year member of Juneau Downtown Rotary Club and has been involved in various local and statewide organizations.