Legislature(2019 - 2020)ADAMS ROOM 519
03/18/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Alaska Municipal League Budget Discussion | |
| City of Unalaska | |
| Aleutians East Borough | |
| City of Valdez | |
| Mat-su Borough | |
| North Slope Borough | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 18, 2019
1:35 p.m.
1:35:09 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:35 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Tammie Wilson, Co-Chair
Representative Jennifer Johnston, Vice-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
MEMBERS ABSENT
None
ALSO PRESENT
Nils Andreassen, Executive Director, Alaska Municipal
League; Frank Kelty, Mayor, City of Unalaska; Brian
Carlson, Finance Director, City of Valdez; Vern Halter,
Mayor, Mat-Su Borough; John Moosey, Borough Manager, Mat-Su
Borough; Fadil Limani, Deputy Director of Finance, North
Slope Borough.
PRESENT VIA TELECONFERENCE
Alvin Osterback, Mayor, Aleutians East Borough
SUMMARY
ALASKA MUNICIPAL LEAGUE BUDGET DISCUSSION
1:35:40 PM
Co-Chair Foster reviewed the meeting agenda.
^ALASKA MUNICIPAL LEAGUE BUDGET DISCUSSION
1:35:57 PM
NILS ANDREASSEN, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL
LEAGUE, provided a PowerPoint presentation titled
"Municipal Impact Analysis" (copy on file). He clarified
that he was not an economist or an attorney. He shared that
the Alaska Municipal League (AML) had evaluated the impact
of the governor's proposed FY 20 budget to the best of its
understanding. He hoped to provide the committee with a
sense of that understanding and intended to call up
additional presenters to provide more in-depth
presentations on various communities. He began on slide 1
and reported that AML was older than the state at 69 years
of age. The organization included 165 incorporated cities
and boroughs - political subdivisions of the state. He
clarified that subdivision pertained to taxing authority
and fulfilling state obligations at a local level.
Mr. Andreassen highlighted that one of the primary goals of
the organization was to advocate on behalf of
municipalities to secure beneficial legislation and to
oppose legislation injurious to municipalities. He shared
that the principals of sustainability, predictability, and
affordability put forward in the governor's budget strategy
also applied at the local level. He elaborated that AML
reviewed the three principals as they applied to local
government [slide 1]:
• Sustainable communities where residents can find
employment and a satisfactory quality of life, for the
long-term
• Predictable communities where taxpayers see
reasonable tax rate changes staggered over time, and
that provision of services are not disrupted
• Affordable communities where the combination of low
or stable taxes and consistent government investment
reduces resident and business transaction costs
1:38:36 PM
Mr. Andreassen moved to slide 2 and addressed direct and
indirect fiscal impacts of the governor's proposed budget.
He remarked that it was much more difficult to look into
secondary and tertiary impacts at the local level, but
there clearly would be both. He noted that while an
economist would look for certainty in the evaluation, AML
looked for reasonability or plausibility. He began with
direct municipal impacts and reviewed the top three items
including petroleum property tax, shared fisheries business
tax, and shared fisheries resource landing tax. He detailed
the three items constituted preemption - the state
preempting what was rightfully a local tax and keeping the
tax only at the state level. He moved to school bond debt
reimbursement and reported that the repeal of the
reimbursement would shift almost $1 billion in costs to
municipalities over 16 to 19 years (more than $100 million
in FY 20).
Mr. Andreassen continued to review direct municipal impacts
that would result from the governor's proposed budget. He
detailed that the proposed cut to education in addition to
the removal of $30 million appropriated for FY 20 was just
under $300 million. The proposed repeal of capital projects
in HB 528, which would shift $32 million to communities
over the life of those debts. He detailed that those debts
had been taken on by municipalities to support ports and
harbors that were transferred from the state in poor repair
to municipalities in order to support local community and
economic development.
Mr. Andreassen noted there was a proposal to add or share
an alcohol tax with municipalities on top of community
assistance, which would result in an additional $20 million
(the only positive number - represented in black - on the
slide). He noted the slide did not include the other black
number - the waiving of bingo fees, which was around $1,600
for the municipalities that used bingo as a revenue source.
Other direct impacts would result from proposed reductions
to harbor grants, the Online with Libraries (OWL)
broadband, local emergency planning, transit match used by
municipalities to offset costs for low-income and senior
transportation, and the health service community matching
grant. He added that AML had been able to add new items to
the list every few days.
Mr. Andreassen addressed indirect municipal impacts on the
right side of slide 2. He relayed the McDowell Group had
estimated that for every $1 in General Fund reduction to
the Alaska Marine Highway System (AMHS), it would take
$2.30 out of the economy, which totaled a minimum of $8.7
million for coastal communities.
1:43:11 PM
Mr. Andreassen noted that state government staff and
spending reductions impacted the overall unfunded Public
Employees' Retirement System (PERS) debt. He used 5,000
jobs as an example with 22 or 28.5 percent actuarily
determined numbers, it would shift around $25 million onto
the balance sheets of municipalities. He clarified it did
not shift an additional payment to municipalities, but it
shifted a payment back to the state for their additional
contribution of $143 million.
Mr. Andreassen continued to discuss indirect impacts of the
proposed budget on slide 2. He referenced a McDowell Group
study showing that for every $1 in General Fund reductions
to the University of Alaska, $3 would be taken out of the
economy. He detailed that AML had applied local tax rates
to the number, which resulted in about $20 million. He
reported that AML was not able to assess the indirect
impact on municipalities of early childhood education
reductions. He moved to healthcare and relayed that if
Medicaid reductions over the last several years were
reduced by about 30 percent it resulted in a loss of about
$17 million. He noted that AML had not quantified what
public assistance or other elements of healthcare
reductions would be for municipalities.
Mr. Andreassen discussed that while the governor's proposal
included FY 19 and FY 20 distributions for Power Cost
Equalization (PCE) and community assistance, it did not
appear to AML that taking away the funds' corpus would lead
to sustainability, predictability, or affordability for the
communities depending on the two items. He discussed the
importance of the two items and reported that when
community revenue sharing went away for a number of years
in the early 2000s, 14 municipalities had ceased operations
and 25 percent of municipalities with sales taxes had
increased those taxes during that period. He stressed that
PCE and community assistance were critical, especially for
smaller communities.
1:46:14 PM
Representative Josephson reported that the committee had
heard from the state's economist that the governor's
proposals could lead to the dissolution of local
governments, which he had found surprising. He asked for
detail on Mr. Andreassen's testimony that 14 communities
had dissolved when the state had reformed local
contributions.
Mr. Andreassen replied that Legislative Research Services
had generated a report for Senator Gary Stevens in 2006
that talked about 14 communities that had ceased operations
on a day-to-day basis. He underscored that the numbers were
especially critical at the very small community level -
where taking 75 percent or more of a local government's
budget - the discussed impact would be a very real option.
Representative LeBon asked about the $904 million reduction
to school bond debt reimbursement. He asked if there was a
way to provide a breakdown showing how the $105 million
reduction in FY 20 would be spread across impacted
communities.
Mr. Andreassen noted he would answer the question in three
slides. He turned to slide 3 and highlighted various areas
that defined different local governments based on the 165
communities under AML membership. He detailed that
community assistance was the only item that impacted all
communities, whereas, PCE impacted 115 out of 165. He
reported that the Department of Commerce, Community and
Economic Development, Division of Community and Regional
Affairs had been working through identifying when
communities were stressed, which often appeared as
struggling to keep up with the cost of compliance at the
state or federal levels. He pointed out that 7 communities
would be impacted by the proposal to shift petroleum
property taxes to the state and 21 communities would be
impacted by the repeal of school bond debt reimbursement.
1:49:54 PM
Mr. Andreassen moved to slide 4 and shared that each of the
different items on the slide impacted a number of
communities differently. Community assistance impacted the
largest number of communities at a total of $30 million;
however, for the 7 communities impacted by the petroleum
property tax the impact was $439 million, and the reduction
to 21 communities impacted by school bond debt
reimbursement was $105 million. The bulk of the cost
shifting or cuts was felt by a very small portion of
municipalities and were felt most significantly by that
same group.
Vice-Chair Ortiz referenced the 34 communities impacted by
reductions to AMHS [slide 3]. He asked if the communities
represented the 34 ports AMHS served.
Mr. Andreassen replied affirmatively.
Vice-Chair Ortiz asked for verification that the number did
not include communities that would be impacted that may not
have a direct port-call but were located nearby and reliant
on AMHS.
Mr. Andreassen replied in the affirmative. He pointed to an
error on slide 3 and corrected that the number of
communities impacted by PERS participation was 64.
Mr. Andreassen turned to a table on slide 5 and highlighted
a list of the 20 hardest hit municipalities. He detailed
that AML had calculated the total gross impact for each of
the municipalities' FY 20 school bond debt reimbursement,
education reduction, petroleum property tax preemption,
fisheries business tax and fisheries business resource
landing tax preemption, AMHS implications, capital project
cost-shifting, University of Alaska implications, and had
added the alcohol tax back in. The total impact reflected
the transit matching, OWL broadband, and other direct
impacts he had listed earlier. Almost all of the
municipalities on the list were boroughs, home-rule, or
first class cities. The table showed the total impact as a
percentage of each municipality's FY 18 tax revenue and
listed a comparable number in terms of what an increased
tax may look like; it also showed the impact as a
percentage of total revenue and per capita (what it would
require for every resident in a community to make up for
cuts or cost shifting). He referenced a question by
Representative LeBon and noted the same information could
be compiled for every community.
1:53:54 PM
Representative Sullivan-Leonard asked about the table's
information showing AMHS income generation that may be in
the Mat-Su Borough. She recalled that when the McDowell
Group had presented the previous year, much of the
discussion had been about getting individuals from AMHS
through Mat-Su to Fairbanks and ultimately Denali. She
asked how the $250,000 had been derived by AML.
Mr. Andreassen answered that he believed the numbers in the
table were under representative of AMHS's impact on any of
the communities shown. He explained that it had only been
possible to apply the figure of $2.30 per resident (in
terms of statewide economic activity) for all communities
(the figure could be applied directly according to sales
tax for communities with a sales tax). For AMHS he had used
a flat number to come up with what it may look like for
boroughs or other cities without a sales tax or port. The
estimate was rough and reflected a placeholder until a
deeper dive could be conducted.
Representative Sullivan-Leonard planned to look at the
McDowell Group project analysis for AMHS. She understood
the tax percentage component of the calculation made by AML
but thought there was deeper quantitative data that may
change the numbers drastically.
Co-Chair Wilson surmised that according to the table, the
proposed reductions would cost each resident in the
Fairbanks North Star Borough $577. She stated residents in
her district would prefer that along with a $3,000
Permanent Fund Dividend (PFD) instead of a cut to the PFD.
Mr. Andreassen replied it would be one takeaway.
Co-Chair Wilson observed that even though the table
included the $577 for the Fairbanks North Star Borough,
there was not necessarily an increase to the borough on
most of the reductions because of its revenue cap. She
surmised that it would require the borough to make
government smaller. She believed there were quite a few
communities with revenue caps. She wondered if the issue
had been taken into consideration in the data in order to
know which communities would have the opportunity to
increase sales or property taxes and which communities
would not have the opportunity to increase taxes due to a
revenue cap.
1:57:26 PM
Mr. Andreassen replied that he would look at the question
in the coming slide.
Co-Chair Wilson thought it was unlikely the information on
the slide was what AML meant to show. For example, an
impact of $446 per person in Anchorage was better than a
$600 or $1,000 PFD.
Representative Knopp looked at total impact and tax impact
for the Kenai Borough shown in the last four columns on
slide 5. He asked if the presenter had gone to the boroughs
to determine their total taxable values and mill rates to
get the data.
Mr. Andreassen replied that the question built on Co-Chair
Wilson's question. He stated that AML was leaving it up to
the municipalities to determine their actual potential tax
increase. The information used on the slide used publicly
available data; AML did not have FY 19 actuals or
management plans or FY 20 budgets. The table reflected what
AML was able to calculate with the information it had. He
intended to discuss what the options looked like at the
local level. Additionally, there were a number of
presenters who would talk specifically about impacts to
their communities.
1:59:11 PM
Mr. Andreassen moved to slide 6 and addressed the total
impact to the top 20 municipalities [listed on slide 5].
The total was roughly $857,290,065 representing 93 percent
of Alaskans. He noted the total for all Alaskans was
roughly $888 million. He reviewed additional data on the
slide:
• Top 20 Median impact related to tax revenue = 76.31%
• Top 20 Median impact related to total revenue = 51.13%
• Top 20 Median impact per capita = $1486
Mr. Andreassen remarked that it was possible to look at
individual municipalities and say that an impact of $477
[per resident] was not much; however, when spreading the
cuts across all municipalities the impact was much greater.
He explained it would mean weighing a $3,000 PFD against a
potential $1,500 cut to services or cost shifting to
municipalities. He continued with slide 6 and reported it
was clear that 17 municipalities would have a total impact
of greater than 50 percent of their budget and 10
municipalities with an impact of greater than 80 percent.
He referenced an earlier question about what happened to
municipalities that no longer had revenue to sustain
themselves. Out of the 165 municipalities, there were 106
negatively impacted; 32 municipalities would be
significantly negatively impacted at $2 million or more. He
reported that some municipalities would benefit if an
alcohol tax passed, but the vast majority would not. The 20
municipalities representing 93 percent of Alaskans would
really struggle under the proposed budget.
Mr. Andreassen moved to slide 7 and addressed total impact
by district. He noted the information was not additive
because municipalities were often shared by districts.
2:01:47 PM
Mr. Andreassen turned to slide 8 and reported that
municipalities would not all feel the full brunt of the
impacts because there were barriers to their response. He
referenced Co-Chair Wilson's mention of voter-imposed tax
caps. He detailed that 7 of the 20 municipalities had
voter-imposed tax caps, meaning that for some of the cuts
or cost shifts those communities could not increase taxes.
When it came to school bond debt reimbursement the vast
majority of the municipalities could increase their taxes
above the tax cap, but 7 of the 20 would hit a limit and
would not have the ability to increase taxes without voters
changing the cap.
Mr. Andreassen moved to the second bullet point on slide 8
and relayed that it was already a struggle to maintain
stable budgets and taxes. There were 50 communities that
budgeted for more expenses than revenues in FY 17 including
7 of the 20 hardest hit by the governor's proposed budget.
Already, municipalities had seen large reductions in their
budgets and were struggling to continue making the best
decisions they could in the interest of residents. The
third bullet point highlighted that PERS participation was
one of the barriers to response (100 percent of the 20
hardest hit municipalities participated in PERS). He
elaborated that the elimination of a class or department
would trigger a costly termination study.
Mr. Andreassen continued to review slide 8. He reviewed
that the education minimum required local contribution
could be decreased. He noted there was still some
conversation about whether the change would be a good or
bad thing for municipalities - whether they would be
expected to make up the difference or whether a prorated
reduction would be limited. It could be that some portion
of the education reductions could not be made up by local
school districts.
2:03:54 PM
Representative Sullivan-Leonard asked if Mr. Andreassen had
spoken with the Division of Retirement and Benefits (DRB)
director on their opinion regarding a termination study.
She thought it was an important component. She stated that
if the impact hit local governments harshly and may cost
jobs, the legislature needed to see the information.
Mr. Andreassen replied that AML had the conversation with
DRB but did not want to speak for the division. He believed
it was a topic worth diving into. The state did not have a
termination study and there were three or so components of
a study, each with varying costs. Some of the costs were
merely to conduct the study and some addressed the unfunded
pension liability. There were some good things from a
termination study and some good things to be addressed
within the studies.
Representative Sullivan-Leonard agreed. She asked if it was
information that Mr. Andreassen could provide to the
committee. She wanted to know the what the ramifications
would be if the [governor's proposed budget] bill passed.
She requested to see the information from DRB to help
understand the trickle-down effect to local governments.
Mr. Andreassen agreed.
Vice-Chair Johnston referenced that the state had paid down
some of the unfunded liability. She stated there had been
an extension to the tail [of the liability]. She noted the
cost would be to other employers and not the state. She
hoped AML took the concept into consideration.
Mr. Andreassen replied that AML's understanding was that
termination studies were an anachronism. He detailed the
studies had been developed with good intentions but were no
longer necessary. It remained that PERS had a net pension
liability, which was felt by all employers, and when there
was a shift or reduction by the largest employer, it
impacted all other employers. He noted the issue was of
concern to AML.
2:06:59 PM
Mr. Andreassen continued to address slide 8. He highlighted
that each of the top 20 municipalities had different tax
bases and were not all created equal; 4 of the top 20 had
no property tax - there was little probable property tax
beyond things like the fisheries tax that would be
considered preempted, which made it extremely challenging
for many of the municipalities to adjust. He explained it
would not merely be a question of raising taxes, the
municipalities would be fundamentally challenged in their
ability to respond. He relayed that the 59 municipalities
that would be significantly negatively impacted and all but
one of the top 20, carried quite a bit of debt totaling
$3.2 billion in general obligation/revenue bonds. The
municipalities were contributing to infrastructure
development (including schools) and any shifts or cuts
would compound the debt obligations.
2:08:13 PM
Mr. Andreassen advanced to slide 9 and addressed municipal
choices. He reported that communities could deficit spend
and take from savings - they could choose to cover some of
the deficit that may be felt from proposed cuts and cost
shifts. The length of time the option could be sustained
varied for each municipality. He reported it was likely
that those municipalities that would be the hardest hit
could not survive the cuts and cost shifts for more than
several years. In the short-term, deficit spending would
reduce cash on hand to cover emergency expenses. He
reported that AML believed it was critical for
municipalities to have cash on hand to cover things like
public safety and emergency response. He relayed that
deficit spending impacted credit ratings or worthiness. He
imagined that assemblies and taxpayers objected to the
erosion of those investments.
Mr. Andreassen moved to slide 10 and addressed tax
increases as the second choice available to municipalities.
He reported that an increase in taxes would not accommodate
the full scale of cost shifts or cuts. He explained that
locations without a cap would be limited by the actual tax
base. He noted it would be felt differently by different
regions of the state - their ability to respond was
sensitive to their conditions. He relayed that voters would
have to approve a cap change - it was only possible to tax
a certain amount before economic and living conditions were
threatened. He highlighted that taxes were statutorily
mandated for boroughs. Additionally, where the state
preempted tax collection in the form of the petroleum
property tax or shared fisheries taxes, it was likely a
different tax would have to be considered. He noted it was
a critical element of the subdivision of sovereignty.
2:10:22 PM
Mr. Andreassen moved to slide 11 and addressed program
elimination as the third choice available to
municipalities. He detailed that municipal budgets were
comprised of three buckets: public safety, public works,
and quality of life. He informed the committee that many
municipalities had told AML their first line of options was
to eliminate quality of life programs (i.e. parks and rec,
community pools, libraries, and grants to nonprofits). The
second and third line of response would be to reduce public
safety and public works investments. For instance, reduced
law enforcement for the 70 communities with police powers.
When it came to public works, many municipalities took on
road repair, snow removal, ports/harbor upgrades, and solid
waste.
Representative Josephson referenced the last bullet point
on slide 10 related to the critical element of the
subdivision of sovereignty. He understood that
municipalities were creatures of the state. He asked if AML
was claiming that local governments shared in some of the
sovereignty. He asked if the statement was philosophical or
merely that the preemption treaded on a prerogative. He was
trying to understand the meaning of the bullet point.
Mr. Andreassen replied that the statement was both
philosophical and a reality. In terms of municipalities as
political subdivisions of the state, the subdivision was of
the state's sovereignty. Taxation of powers was one of the
key elements of the sovereignty - when the state preempted
the collection it threatened the fulfillment of sovereignty
at the local level.
Vice-Chair Johnston noted that the state had the power of
taxation.
Mr. Andreassen replied in the affirmative.
Vice-Chair Johnston remarked that the point [on slide 10]
was more philosophical.
Mr. Andreassen answered that the state constitution
highlighted that the state shared taxation with local
governments. He stated that in AML's mind it was less about
"allow" and more about constitutionally arguing that local
governments had the power. He added that statutorily,
boroughs were required to tax.
2:13:33 PM
Vice-Chair Johnston looked at slide 11 and pointed out the
impact reducing municipal employees had on termination
studies and additional costs to municipalities.
Mr. Andreassen moved to slide 12 and stated there were
implications from each of the choices. The presentation
considered the choices as three options, but in reality,
there was likely no single choice that would be made at the
local level. He looked at one plausible scenario regarding
shared fish taxes. He reported that in AML's conversations
with affected communities, the taxes and or moorage fees
would increase. Additionally, seafood prices would remain
low or flat; small vessels would not make their needed
revenue to remain open; local or small vessels would
potentially have to sell off to larger fleets; and fleet
consolidation would accrue to outside owners.
2:15:22 PM
Representative Sullivan-Leonard asked for an example of how
the shared fish tax system worked. She wondered if there
was a memorandum of agreement between the state and local
communities that collected the tax.
Mr. Andreassen relayed there would be presenters later in
the meeting that could speak more in depth on shared fish
taxes. Additionally, he would follow up with more
information.
Mr. Andreassen continued with slide 12. He reported that
shared fish tax funds were used to maintain and repair
ports and harbors. The governor's proposal would mean
maintenance and repair of ports and harbors would be
diminished - state transferred assets would increasingly be
unable to serve seafood or tourist industries. Local
governments would have to consider additional taxes where
none exist. Additionally, there would be duplicate industry
taxing and decreased economic growth. He explained that the
scenario was plausible and had been seen historically; it
was a scenario that local governments were concerned about
and were working to avoid.
2:16:49 PM
Mr. Andreassen moved to slide 13 and addressed a scenario
pertaining to school bond debt. He explained that spending
caps could be increased for debt obligations. There was a
limit to how much tax a local community could sustain;
therefore, municipalities would have to choose between debt
obligations and funding schools above the basic minimum. He
highlighted that where bonding occurred through the
Municipal Bond Bank it represented a moral obligation of
the state. He noted that default reverted to the state. He
clarified that AML believed municipalities would meet their
debt obligations. He noted the issue was an important
component of the scenario. He pointed out that those who
bonded independently may have tied bonds to the state's
moral obligation and/or and anticipated tax base - default
could result in legal ramifications. He emphasized there
was no believe that municipalities would default but
walking through the scenarios was important.
Mr. Andreassen moved to slide 14 and addressed choices
combined and the micro-implications. He stated that the
choices combined would have an impact on communities and
local and small businesses. He explained it was possible to
select any point on the wheel (shown on slide 14) and
consider the plausibility at the local level. He detailed
that any small change to a local government's budget or to
a small community could trigger any one of the different
things shown on slide 14 in a way that negatively impacted
local government, residents, schools, and the economy.
2:18:53 PM
Co-Chair Wilson asked if Mr. Andreassen was saying there
was no place that local governments could make
efficiencies.
Mr. Andreassen answered that he was not implying that. He
believed there were many local governments actively working
to find efficiencies. He detailed it was an ongoing
conversation as part of a best practices discussion that
local governments were working to right-size, decrease, or
find efficiencies on a daily basis.
Co-Chair Wilson appreciated the numbers, but she thought it
was sending the wrong message that if any reductions were
made that communities would dissolve. She did not believe
that was necessarily the case. She knew that the smaller
the communities were, there was likely little adjustment
they could make. She thought everyone would have to tighten
everything up and work together. She thought the portrayal
was almost an "us against you" picture. She hoped that was
not what the presentation was supposed to show.
Mr. Andreassen answered that it was not the intention to
imply that there was not a negotiated process and a
conversation that did and should take place between local
and state governments. He stated it was something that
happened over time and both sides were at the table working
through. He stated that would feel like a good process to
AML.
Vice-Chair Ortiz thought it was safe to also say that the
communities throughout the state had been forced to find
reductions in recent years as budgets had been reduced. He
cited reductions to community revenue sharing as an example
of a reduction that had forced communities to find
efficiencies in the past.
2:21:07 PM
Co-Chair Foster allowed another 10 minutes for the
presentation.
Mr. Andreassen shared that AML had asked its members to
send in municipal impact statements showing how the
governor's proposal impact communities and tradeoffs at the
local level. He continued to slide 15 and addressed
scenario development for the City of Kodiak:
The combined reductions and cost-shifting will mean that
the City of Kodiak anticipates:
• Potential staff reductions = 13 of 133
• Public Safety budget reduced by 8%
• Public Works budget reduced by 8%
• Harbor budget reduced by 1 FTE (lack of need for
officers at AMHS Terminal and loss of revenue ($
50,000) at Pier I and II
• Quality of Life programs potentially eliminated
include the Kodiak Public Library and Parks and
Recreation programs
Mr. Andreassen added that Kodiak had undergone a robust
sales tax review; implementing a new sales tax would be
challenging. He moved to slide 16 and addressed the
information for the City of Atka with a population of 54:
The combined reductions and cost-shifting will mean that
the City of Atka anticipates:
• Potential staff reductions = 4
• Public Safety budget reduced by 100%. Atka has a
VPSO through the regional tribal entity but provides
about $6,000 in additional support from City funds.
• Public Works budget reduced by 40%
Mr. Andreassen elaborated that while the tax base in Atka
was limited, if the city taxed itself it would not cover
the cost of implementing or managing tax collection.
2:23:05 PM
Mr. Andreassen moved to slide 17 and reviewed information
for Petersburg Borough:
The combined reductions and cost-shifting will mean
that the Petersburg Borough
anticipates:
• Property Taxes would need to increase by 1.7
mills in service Area 1 to offset the elimination
of the State school bond debt reimbursement.
The current property tax levy for Education of 4.35
mills would need to double to make up the lost funding
from the State. Due to the Borough's tax cap of 10
this would not be possible as we are already at 9.25
for school and general services. This would mean
drastic cuts to our school and local government,
including:
• Quality of Life programs potentially eliminated
including our community aquatic center, reduced
hours to the library and to our Parks &
Recreation Department.
• Loss of School Activities (sports, music, etc),
and increase in classroom sizes.
• Reduction of staff Borough wide (Borough, School
and Hospital).
• Major rate increase for Harbor moorage and its
resulting impact on the economic engine of the
Borough.
Mr. Andreassen relayed that the municipal impact statements
bore out many of the assumptions earlier on in the
presentation related to choices available to local
governments. He turned to slide 18 and reviewed information
for the City of St. Paul:
The combined reductions and cost-shifting will mean
that the City of Saint Paul anticipates:
• Potential staff reductions of 3 to 4 full time
positions with a reduced work week from 40 hours
per
• week to 35 hour per week.
• Public Safety budget reduced by 7 to 11%.
• Public Works budget reduced by 18 to 22%.
• Travel and training budgets reduced by 90 to
100%.
• General fund capital improvement budget reduced
by 100%.
• Local sales tax would need to increase by 90 to
95% to offset these decisions.
• An increase in utility (electric, water, sewer,
and refuse) rates to cover the administrative
costs for
• operation of these utilities.
Mr. Andreassen concluded with the City and Borough of
Yakutat and provided an excerpt from slide 19:
The combined reductions and cost shifting will mean
that the City and Borough of Yakutat anticipates:
• Potential staff reductions = 3 of 17 or 17%
reduction in staff.
• Public Safety budget reduced by 20%
• Public Works budget reduced by 20%
• Taxes would need to increase by 300% to offset
these decisions
Mr. Andreassen addressed some solutions that AML would
suggest (slide 20). He shared that in November and in prior
years, AML had supported the option of a broad-based tax
and continued to believe that revenue needed to be
addressed at the state level. He elaborated that AML also
supported the concept of a community dividend. He believed
both items were outside the scope of the current
conversation, but it was important for AML to be clear
about its support for the items. In terms of local
governments responding to the state right-sizing or looking
for efficiencies, there were a number of areas where the
state could strengthen local governments. He reviewed
options on the slide:
The legislature can strengthen local governments by
increasing local control:
1. Remove the mandatory senior citizen exemption =
$84,684,847 (means-based local option)
2. Remove exclusive state authority of a net income
tax, and restrictions on severance tax
3. Require mandatory sales disclosure to improve
accuracy and fairness of property tax
4. Implement transformation over a reasonable time
horizon to mitigate negative impacts
5. Include municipal impact analysis in budget process
and in legislative fiscal notes
6. Remove audit/financial statement requirement in
Title 29
7. Negotiate with partners subdivision of resources
comes with the subdivision of sovereignty
8. Savings at one level of government should not signal
less responsibility at a higher level
2:27:05 PM
Co-Chair Wilson referenced slide 19 on Yakutat and asked
for confirmation that there was $637 per person in PCE
funding [$351,731 divided by the population of 552].
Mr. Andreassen replied that he had additional data on PCE
he would provide. He noted that the data on the slide had
come from the City and Borough of Yakutat.
Co-Chair Wilson stated that she was using simple math to
make a calculation. She surmised that the state was
providing $562 per person in community assistance. She
clarified that she had used the community assistance total
of $310,615 divided by 552 [the number of residents]. She
asked if her calculations were a quick analysis.
Mr. Andreassen replied that was his understanding.
Representative Josephson asked if AML would have
appreciated an approach that would have involved a grand
summit in a place like the University of Alaska Fairbanks
that touched on constitutional questions and a broader
discussion about hitting the reset button (which the
governor's budget did). He wondered if AML would have
appreciated a broad conversation about the role of each
government rather than just making the changes in the
budget.
Mr. Andreassen replied he believed the dialogue was
critical for engaging stakeholders and in bringing partners
to the table. He believed the scenario highlighted by
Representative Josephson would help contribute to a shared
vision and implementation. He believed scenario development
was a good way to evaluate a proposal like the governor's
budget. He stated that the work could be done in a scenario
like the one presented by Representative Josephson.
2:29:45 PM
Representative LeBon addressed school bond debt and
recalled that most of the bonds had been voter approved at
a 70/30 split. He asked if the number was generally
accurate.
Mr. Andreassen agreed. He noted that some of the bonds were
a 60/40 split.
Representative LeBon asked if AML had considered trying to
hammer out a compromise instead of losing the entire
reimbursement (e.g. a 50/50 split).
Mr. Andreassen replied that the state could initiate a
conversation about reasonability with the affected
municipalities. He reported the idea was something AML
would be happy to be a part of. He thought perhaps the
dialogue would come up in some of the bill efforts related
to school bond debt reimbursement.
Co-Chair Foster thanked Mr. Andreassen for his
presentation.
^CITY OF UNALASKA
2:31:46 PM
FRANK KELTY, MAYOR, CITY OF UNALASKA, introduced himself.
He relayed that Unalaska was the number one fishing port in
the country; the city did well on its revenues from fish
tax. He shared that he had lived in the Aleutians for 48
years; he had run processing plants for 35 years and had
been an elected official for over 25 years. He reported
that the current budget was the toughest he had ever seen.
He remarked that one of the governor's goals was no new
taxes on Alaskans, but the proposed budget had shifted the
total burden onto the communities, which he found
disappointing.
Mr. Kelty reported that the total impact to Unalaska was
about $17 million. He detailed that the state shared fish
tax was a hit of about $8 million or about 26 percent of
the city's general fund revenue. He relayed that the loss
would be difficult for the city to make up. The community
prided itself on taking care of many things on its own. He
detailed that the community provided $1.2 million to its
nonprofits annually. Many of the nonprofits took on
responsibilities that had been the state's concern in the
past. He reported it had been over 10 years since the
community had a health and human services representative.
He elaborated that the women's shelter was heavily funded
[by the community], health and human services, alcohol and
drug abuse programs, mental health clinics, and public
broadcasting. Additionally, the city had been funding the
school district at the cap amount for at least 30 years.
Mr. Kelty explained that there were two primary pots of
money related to state shared taxes (there was a small
third pot with commerce). First, the Alaska fisheries
business tax was paid by shore plants responsible for
processing fish in the communities. Second, the 3 percent
resource landing tax (put forward in legislation in the
past by former Representative Carl Moses), which was paid
by people processing at sea (factory trawlers) and shared
with the community where the fish product was landed.
Unalaska was the major fishing port in the Aleutians off
the Bering Sea; the city did well off of the revenue.
2:35:51 PM
Mr. Kelty shared that Unalaska had recently taken out a $40
million bond for its commercial shipping dock, which the
city was taking care of on its own. He continued that the
city took care of road paving and 25 years earlier it had
taken over the state-owned small boat harbors, which it
maintained. Unalaska had the largest seafood industry in
the nation and had to provide water, sewer, landfill, and
wastewater. The city referred to the items as enterprise
funds - the city owned all of the utilities. Unalaska
usually used earnings reserves from the funds for capital
projects. He believed the last time the state helped the
city out on a capital project was with a $10 million for
the Carl Moses Boat Harbor; it was part of the debt
reimbursement program, which still had about $6.6 million
floating around.
Mr. Kelty pointed out the importance of considering that
fishing communities around the state all had local sales
tax. Unalaska had a 3 percent sales tax, a property tax of
almost 11 mills, a 2 percent city landing tax on raw fish
(fish landed in the community at a processing plant), all
were over and above the state's share. He highlighted that
the city was proud that it was not scared of trying to take
care of itself. The fishery dependent communities in Alaska
provided over 56 percent of the nation's fish. He stressed
that a loss of state shared fish tax revenues would be
devastating to many of the communities. He questioned how
the communities would support the industry that was
critical to Alaska and the nation. He detailed that the
Trident Seafoods plant on Akutan Island was the largest
processing plant in the nation. He added that Trident was
the largest American-owned seafood company in the nation.
Mr. Kelty stressed that the impacts were a big deal. He
underscored that fishery dependent communities paid much of
their own way. Unalaska was concerned about how it would
take care of needed projects. He reported the community was
doing capital projects and was taking on the idea of wind
energy on its own. The community was also considering the
possibility of a geothermal project in partnership with
some private investors in the region, "to try to get off
the diesel band wagon."
2:39:20 PM
Mr. Kelty reported that the $1,100 cut to the Base Student
Allocation (BSA) would be a 17 percent cut to Unalaska's
school budget. He detailed there were two schools in the
community, both were top notch with a total budget of $7.7
million. He explained that Unalaska only had reserves of
$700,000 due to the 10 percent cap. He stressed that
Unalaska could not make up for the cut using reserves.
Currently, the school district's reserves were about
$500,000 because $200,000 had already been used to balance
the FY 20 budget. He stated it was only possible to cut a
certain number of supplies. He pointed out that Unalaska
was an island in the middle of the Bering Sea - its travel
budget was almost $500,000 for student athletes, teachers,
and for other extracurricular activities. He noted that the
school district even helped to fund bringing teams to the
community in order to have a home game. The cost of
roundtrip airfare from Anchorage to Dutch Harbor was
$1,100. He relayed it was difficult to get anyone to travel
to the community for games.
Mr. Kelty continued that a cut of $1.3 million meant the
school district would have to cut positions, raise
classroom sizes, and revert back to split classes. The
district did not want to do any of those things. He
highlighted that the graduation rate was almost 94 percent
and the high school had been named one of the best high
schools in the country several years back. He reported that
the elementary school had been a runner up for the award a
few years back. He shared that the district had well-
maintained facilities, which was taken care of by the city.
Additionally, the city funded the food service program for
low income students - the district only received donations
of about 10 percent for the program. The city paid 100
percent for the preschool (families also made donations).
Mr. Kelty explained there was a community schools program
to fund half of the maintenance and programs. He explained
that because the city was already funding at the cap, it
would be unable to help the school district increase
revenues if it took a cut like the one proposed. He
reiterated that the district would lose teachers, staff,
and other positions. He did not know how the community
would be able to make it up.
2:42:49 PM
Mr. Kelty stated that the cut to the AMHS was another issue
for the community. He reported that Unalaska only had ferry
service from May to September twice a month. The cut would
mean no trips in September.
Co-Chair Wilson asked Mr. Kelty to wrap up.
Mr. Kelty shared that the total impact of the cuts was
about $17 million. Unalaska supported funding for public
broadcasting; it was located in the tsunami zone and if it
lost its local radio station it helped to fund, the
community would be in big trouble. Additionally, debt
reimbursement was about $6.6 million for the Moses Boat
Harbor and about $900,000 for its elementary school
bonding.
Representative Knopp asked if the $17 million included the
general fund impact and school impact.
Mr. Kelty replied that the amount was everything combined.
He specified that about $9 million was related to state
shared fish taxes.
Co-Chair Wilson agreed that Unalaska had an amazing school.
^ALEUTIANS EAST BOROUGH
2:44:54 PM
ALVIN OSTERBACK, MAYOR, ALEUTIANS EAST BOROUGH, read from a
prepared statement (copy not on file):
The Aleutians East Borough is responsible for the
municipal governance for the communities of Akutan,
Cold Bay, False Pass, King Cove, Nelson Lagoon, and
Sand Point. These communities consist of approximately
3,141 residents and a large transient fishing
population. The borough has 11 full-time employees who
fulfill the obligations of local government. Our only
local tax base was raw fish tax. In FY 18 these taxes
were 48 percent of our total budget; the remaining
revenue largely came from state and federal funding
sources.
Based on the governor's proposed FY 20 budget I have
highlighted some of the impacts his decisions will
have on the borough and our residents. Our shared
fisheries business tax comes to approximately $2.2
million representing 28 percent of the borough's
budget. Our school bond debt reimbursement for FY 20
is anticipated to be $650,000, which is 8.4 percent of
our budget and the total debt outstanding is just over
$7.5 million, which would fall back on local
taxpayers. Our harbor bond debt reimbursement for FY
20 is anticipated to be $381,000, which is 4.9 percent
of our budget.
The combined financial impact based off the governor's
proposed reductions to the borough for FY 20, not
including the cuts to the K-12 foundation formula
money, is a decrease of over 40 percent in the
borough's annual operating budget. A 40 percent
reduction to funding is a hard obstacle to overcome,
especially when the borough is obligated to pay for
education, bond debt, and other items the borough has
entered into agreements for. We are obligated to pay a
minimum of $517,000 for education and our bond debt
for FY 20 is $2,482,000; that alone over $3 million,
which is the majority of our operating budget, if the
proposed cuts go through.
The borough also takes lead on many capital projects
that support communities and commercial fisheries.
These include, but are not limited to, construction of
harbors, docks, and clinics. These are economic
drivers for our community that improve our residents'
quality of life. The borough also provides funds to
support the link between Akutan and the airport on
Akun and to the King Cove to Cold Bay Road, which are
necessary transportation routes for both communities.
Dunleavy's proposed budget puts the burden on
municipal governments to collect the revenues that he
will be cutting. It will be extremely difficult for
many communities to make changes in their existing tax
structures or create a new revenue source, especially
those whose fiscal years begin on July 1.
The Aleutians East Borough has one source of tax
revenue, which is fish. We do not have a property tax
and we do not have a sales tax, although many of our
communities do; therefore, raising our tax base in a
span of a few months is next to impossible. So, to
accommodate the proposed budget cuts we would have to
make cuts and diminish our services that we currently
provide.
The governor's proposed reductions also negatively
impact our community. Based off of the FY 19 amounts,
the cuts to the shared fisheries business tax program
alone would decrease some of our communities' general
fund revenue [indecipherable]: the City of Akutan, 29
percent; City of False Pass 7.5 percent; City of Cold
Bay, 2.7 percent; City of King Cove, 25 percent; and
the City of Sand Point, 14 percent. These communities
cannot sustain a reduction like this. If these
proposed cuts go through, as well as reductions to
education, Alaska Marine Highway System, the
University of Alaska, public broadcasting, and other
items, the services the borough and our communities
can provide diminish the quality of life
significantly, will decrease. We ask that you take
these impacts into consideration as you go through the
budget process. A municipality such as the Aleutians
East Borough simply cannot survive if a 40 percent
budget cut occurs. Thank you for the opportunity to
speak.
Co-Chair Wilson thanked Mr. Osterback for his testimony.
^CITY OF VALDEZ
2:50:01 PM
BRIAN CARLSON, FINANCE DIRECTOR, CITY OF VALDEZ, a
PowerPoint presentation titled "Valdez, Alaska" (copy on
file) that modeled the impact of the proposed budget,
particularly in relation to the change in the method of
collection of the oil and gas property tax. He detailed
that the oil and gas property tax accounted for 80 percent
of the city's total revenue. He began with a sampling of
the many points of contact between the municipality and the
community stakeholders.
Mr. Carlson turned to slide 1 and explained that Valdez was
a full-service government in an unorganized borough,
meaning the municipality took on many of the traditional
borough responsibilities such as fire, emergency medical
services, and police. Valdez was home to the Trans-Alaska
Pipeline System (TAPS) Marine Terminal. He reported that
Valdez had an extensive partnership with industry that
extended well beyond its relationship with Alyeska. The
city supported its local schools to the cap and was proud
to have some of the best preforming schools in the state.
Additionally, Valdez supported many quality-of-life
initiatives including cultural services, support for
nonprofit organizations, expensive recreation
infrastructure. The city was also a willing partner in
cooperation with state and federal governments including
the military.
2:52:08 PM
Mr. Carlson advanced to slide 2 showing services provided
by the city. He highlighted the public safety and ports and
harbors categories showing the many support services the
city provided to industry and other political subdivisions.
He pointed out that the city's suite of education services
and cultural services was robust.
Mr. Carlson moved to slide 3 depicting a representation of
the impact of the proposed method of taxation. The left
portion of the slide showed an immediate reduction of $38
million in city revenue. The right portion of the slide
showed some of the impact beyond the immediate reduction to
the city's revenue. He reported that the city's few
remaining revenue sources would also experience severe
downward pressure. He elaborated that there would be an
exodus from the city, which would exert downward pressure
on non-oil and gas property values and the associated
revenue. He stated that the picture started off horrific
and only worsened over time.
2:54:00 PM
Mr. Carlson turned to a chart on slide 4 titled "Impact to
Fund Balances." The chart showed the city's best efforts to
manage the radical downsizing and the impact on its
accumulated fund balances. The blue line showed his
proposed downsizing model. He noted that a downsizing of
the magnitude of the governor's proposed budget did not
take place all at once; there would be an unwinding. He had
modeled a five to six-year reduction in staff down to 25
percent of the current level. He reported that city
government currently had 134 employees and would need to be
reduced down to approximately 30 employees, which he
characterized as a crash landing. The green area on the
graph represented the city's aggregate fund balances,
excluding the Permanent Fund. The best efforts to manage
the scenario would exhaust the city's fund balances by
approximately 2025 and yet the city would continue to have
annual eight-figure deficits.
Mr. Carlson highlighted slide 5 showing status quo services
provided by the fully funded community [identical to slide
2]. He turned to slide 6 showing services that would remain
midway through the hypothetical downsizing under the
governor's proposed change in the method of taxation. He
emphasized that the remaining skeletal community picture
did not represent equilibrium, a solved problem, or long-
term solvency. The picture merely illustrated services that
would remain midway on the community's path to bankruptcy.
He communicated that the dismal trajectory applied to the
municipal government, but on the micro-level it applied to
every business owner and household in proportion to what
was shown on the slide. He explained that everyone fully
invested in the community would be on a similar trajectory.
Mr. Carlson addressed the proposed change in taxation. He
suggested that proponents of the measure viewed it as a
zero sum game. He detailed that revenue would move from one
entity to another entity - one set of books looked worse
and the recipient's set of books would look marginally
better. He had heard opponents of the measure detract
somewhat from the perceived benefit by pointing out that a
shift in revenue would bring a shift in obligations, which
had costs. He explained it would begin to eat into the
perceived benefit of the revenue shift.
2:57:57 PM
Mr. Carlson offered another point that further diminished
the idea. He stated the idea was capital, including
accumulated value and capacity and potential. He explained
that capital is comprised of financial resources and things
built below and above the ground. Additionally, there was a
difficult to quantify, intangible category of capital. The
intangible factors tied the larger picture together. He
explained that for the City of Valdez and the other
communities along the pipeline corridor, capital would
evaporate in the course of managing the crash landing. He
furthered that the capital would not be shifting to some
future oriented productive use, it would simply be burned
up in the radical change to the communities' way of life.
He argued that the sums involved in the erosion of capital
far exceeded the proposed revenue shift contemplated in the
budget.
2:59:34 PM
Representative Sullivan-Leonard asked for the city's
population, mill rate, annual revenue, and annual budget.
Mr. Carlson replied that the official population count was
3,950 (give or take 20). The annual general fund revenue
and budget was approximately $54 million.
Representative Sullivan-Leonard asked for the mill rate.
Mr. Carlson responded that the city's rate was 20 mills,
which applied to industry and non-oil and gas properties.
Representative Sullivan-Leonard looked at a graph on slide
4 and asked if the city's fund balance was $125 million in
a reserve account.
Mr. Carlson answered that the total was a combination of
general fund balance, project and other reserves, and
enterprise funds. He noted that the disposition of more
than 60 percent of the fund balance in current year was
only recently settled in the city's favor. He stated it was
natural for the city to retain the balances while it took a
long-term planning process. He reiterated that the funds
had been in dispute until recently - there was a tremendous
downside if the decision had been not in the city's favor.
He explained that the funds reflected a significant portion
of the fund balance shown in green [on slide 4].
3:01:41 PM
Representative Merrick looked at slide 6 and observed that
airport terminal support and Ravn Airlines were listed as
items that would not sustain the proposed cuts. She asked
if the two items were related. She asked if Ravn was owned
by the city and if other operators would provide access to
Valdez. She knew that the pass was often snowed-in.
Mr. Carlson answered that Ravn Airlines operated through
the state-owned airport, which was leased by the city and
subleased to various service providers. The city would have
to cease its terminal operation. He continued that the
ensuing exodus from the city would mean the air traffic
would no longer pencil out.
Representative Merrick asked if Ravn was the only
commercial airline flying to Valdez.
Mr. Carlson answered in the affirmative.
Representative Josephson pointed to service facilities and
tanker contingency dock under the Ports and Harbor category
(slide 6), which he understood was related to oil spill
contingency. He asked if the city paid for some features of
oil spill mitigation and protection.
Mr. Carlson characterized the related costs as indirect and
costs related to the capacity of having the needed
infrastructure and to be able to provide first responder
services. He shared that he was not a subject matter expert
on all of the many complex relationships in the oil
response structures. He offered to follow up with better
detail.
Representative Josephson asked if the city had some
unreimbursed share of responsibility for regulation and
care of the port facility and the transport of oil -
meaning if the city did not do anything, there would be a
difference in standard.
Mr. Carlson answered in the affirmative, though city
financial resources did not flow directly to the marine
terminal, but the city spent its own resources on
interrelated support, backup, and responder services. The
city spent its own resources to keep the services in good
order. Aside from standard things like debt reimbursement
for projects, there was no direct reimbursement from the
state or elsewhere.
Representative Knopp referenced Mr. Carlson's testimony
that the petroleum tax accounted for 80 percent of the
city's budget and that the city's mill rate was 20. He
noted that the city had quite a bit of infrastructure,
business properties and personal properties that were all
taxed at 20 mills. He was surprised that revenue from those
properties only made up 20 percent of the city's budget. He
thought there had to be a substantial assessment value for
the City of Valdez.
3:06:21 PM
Mr. Carlson answered that the assessed value of all of the
taxable properties was made up of 90 percent oil and gas
properties and 10 percent to non-oil and gas properties. He
reported that property tax revenue was 90 percent of the
city-wide revenue picture. He detailed that 90 percent of
90 percent yielded an 80 percent figure attributable to the
marine terminal and the related [Alaska Statute] 43.56
properties.
Co-Chair Wilson thanked Mr. Carlson for his testimony.
^MAT-SU BOROUGH
3:07:07 PM
Representative Sullivan-Leonard disclosed that her husband
served on the Mat-Su Borough Assembly.
VERN HALTER, MAYOR, MAT-SU BOROUGH, shared that it was his
tenth budget cycle with the borough - he had served six
years on the assembly and four years as mayor. He
communicated that the proposed budget would be one of the
more trying ones for the borough to balance its budget on.
He added that Governor Mike Dunleavy was not the first
governor to shift costs of school bond debt. The borough
had received a $5.7 million shift under former Governor
Bill Walker several years back. He explained that although
the shift had come after the borough's budget had been
solidified, it had been able to absorb the costs. He
stressed that times had changed. He reported that the
borough's tax cap was 10.5 mills. He detailed that in the
preceding year the borough had budgeted the rate at 10.33
mills. He explained that if the bond shift was almost $20
million for the borough, it would be close to 2 mills,
meaning Mat-Su would exceed its tax cap almost immediately.
Mr. Halter continued that additionally there would be a $5
million to $6 million reduction in other areas in the
school allocation funding of almost $40 million. He stated
that he had confidence in the legislative session. He
recalled that in 2015/2016, there had also been a difficult
budget. He stated that sometimes the borough just needed
time to understand what the legislature's decisions were.
He elaborated that the budget process could take until June
including the governor's veto process and the legislature's
override process. He shared that by state law, the borough
was required to close out its budget and issue tax notices
by July 1. He stressed it was very difficult for the
borough to make tough budget decisions and solidify its
budget when the state's budget had not yet been determined.
He asked the legislature to work on the budget as quickly
as possible.
Mr. Halter believed the borough could handle some of the
cost-shifting, but the total amount would be very
difficult. He explained that Mat-Su was a residential
property tax borough. The borough also had a cigarette tax
bringing in $8 million and a bed tax that brought in $1
million; it also had a gasoline tax. The areawide mill rate
was 10.5 and the non-areawide rate was six-tenths of a
mill. He reported there were also fire service and road
service areas; the rate was 14 to 18 mills including those
areas as well. He stated that the work done by the
legislature was critical to the borough to try to maintain
its residential property taxes. He shared that the borough
was growing by 2,500 people per year and currently had a
population of 110,000. He reported that some statisticians
projected the population would be 125,000 by 2025. He
elaborated that schools the borough had built with bonds
were now at capacity with portable annex buildings outside.
Mr. Halter continued that the borough also had to fund
roads, emergencies, and ambulances as well. He stressed his
concern about those items. He shared there had been four
deadly road accidents in the past month in Mat-Su. The
borough wanted to grow its emergency services as its
population increased. He underscored that some of the
interior roads were horrible. The borough had a road bond
package that was 50/50 with the state. He argued that some
of the costs for schools that were being shifted to the
borough were critical to the borough. He shared that the
borough had a AA bond rating with Fitch and Moody's, which
it was proud of. He emphasized that the borough would pay
its bond debt. He stated that if the legislature figured
out the state budget, the borough would "get it done." He
thanked the committee for its time.
3:11:58 PM
JOHN MOOSEY, BOROUGH MANAGER, MAT-SU BOROUGH, commented the
governor's proposed cut to the Mat-Su Borough was about
34.6 percent. The allocation to the schools would be 16
percent. He reported there was approximately $200 million
left on the school bond debt reimbursement bond; with
interest, it would be a shift of approximately $300 million
to the borough. He shared that in 2011 there had been a
large student crunch; the community had reported to
taxpayers that the state would pick up 70 percent of the
cost to build six schools and upgrade many others. Well
over 60 percent of borough residents had voted for the
70/30 deal. The borough had been very disappointed three
years back when former Governor Walker had cut "5.7," which
the borough had been able to deal with through reductions.
He thought the message to citizens was it was a switch;
there had been agreement on the bill, but now the proposal
meant the borough would be responsible for picking up all
of the funds. He thought it hurt the trust established with
citizens.
Mr. Moosey reported that the hit the borough could take was
smaller than what Mr. Halter believed. He implored members
to look at the message being sent to taxpayers. He
appreciated the difficult work done by the legislature.
Mr. Halter agreed with Mr. Moosey. He stated that the
challenge of the school bond debt combined with the school
funding was about $60 million for the Mat-Su Borough.
Mr. Halter congratulated the recent Iditarod winners.
3:14:40 PM
Representative LeBon referenced the school bond debt
reimbursement and asked if there had been language in the
bond put before voters specifying that reimbursement of 70
percent was subject to annual appropriation.
Mr. Halter replied in the affirmative. The bond had gone to
the voters specifying an annual appropriation of 70/30.
Representative LeBon recalled the same language when he had
been on the Fairbanks School Board. He asked if the
borough's revenue cap allowed the borough to absorb and
increase its cap if the reimbursement was modified to
50/50.
Mr. Halter answered in the affirmative. The borough could
go above its mill rate cap of 10.5 (the borough had a mill
rate tax cap, not a revenue cap); however, he did not want
that to happen.
Representative LeBon understood the reluctance but stated
it could be done.
Mr. Halter agreed.
Co-Chair Wilson thanked the presenters. She noted the
legislature was aiming to be finished no later than May 15.
^NORTH SLOPE BOROUGH
3:16:13 PM
FADIL LIMANI, DEPUTY DIRECTOR OF FINANCE, NORTH SLOPE
BOROUGH, a PowerPoint presentation titled "North Slope
Borough" dated March 18, 2019 (copy on file). He began on
slide 2 of the presentation related to the foundation of
the borough. He detailed that the foundation of the borough
was attributed to the vision and leadership of the founding
father, Eben Hopson Sr. as prescribed in the borough's
municipal charter preamble:
We, the People of the North Slope Borough area, in
order to form an efficient and economical government
with just representation, and in order to provide
local government responsive to the will of the people,
and to the continuing needs of the communities, do
hereby ratify and establish this Home Rule Charter of
the North Slope Borough of Alaska.
3:17:28 PM
Mr. Limani moved to slide 3 and provided an overview of the
borough. The borough was the most northern municipal
government in the United States, comprised of an area of
approximately 95,000 square miles in the Arctic Circle of
northern Alaska. The borough was larger than 40 states in
the U.S. and represented about 15 percent of Alaska's total
land. He read from slide 3:
• The Borough extends 650 miles from Point Hope on the
Chukchi Sea to the Canadian border and 225 miles
south from Point Barrow.
• Most of the Borough's residents reside in eight
communities: Utqiagvik, Anaktuvuk Pass, Atqasuk,
Kaktovik, Point Hope, Nuiqsut, Wainwright, and Point
Lay.
• The Borough's total population as of Jan. 1, 2019
was 16,302
Mr. Limani elaborated that the 16,302 population figure was
for tax gap purposes. The local population was
approximately 9,500 and the remainder accounted for the
transient workers in the oil patch.
3:19:00 PM
Mr. Limani briefly highlighted a map of the borough on
slide 4. He advanced to borough governance slide 5:
• The Borough was incorporated on July 2, 1972 and
adopted its home-rule charter in 1974, giving it the
ability to exercise any power not prohibited by
State law, in addition to its mandatory powers of
taxation, property assessment, education, and
planning/zoning services.
• Legislative power of the Borough is vested in the
Assembly, which now consists of eleven members
elected to staggered three-year terms.
3:19:53 PM
Mr. Limani reviewed borough services on slide 6:
The Borough is a full-service municipality, providing
a variety of services including:
• education
• police and fire protection
• search and rescue services
• sewer and sewage treatment facilities
• health services and clinic facilities
• light, power, water, and heat
• garbage and solid waste collection (among others)
Mr. Limani reported that the borough was comprised of 14
departments including administration and finance, the
mayor's office, search and rescue, police, fire, wildlife,
and many others.
Mr. Limani moved to slide 7 and shared that the current
mayor's vision emulated the founding father's vision by
providing a solid foundation and stable outlook on the
borough's finances and continuing to work towards the
founding father's vision of self-determination and
sustainability of the home-rule government for the
betterment of the borough's people. The mayor's objective
was to strive towards the sheer basic necessities of the
villages across the North Slope where some of the services
were taken for granted in established cities.
3:21:23 PM
Mr. Limani turned to a table showing the borough's
projected resources for FY 20 on slide 8. The slide
demonstrated that the borough's property taxes were the
most significant portion of its total revenue at
$378,490,000 for FY 19 to FY 20. Other revenues included
federal and state grants, charges for services, investment
income, other revenue comprised of payment in lieu of taxes
(PILT) primarily with the oil industry. Total revenue was
$402,359,380.
Mr. Limani reviewed the borough's projected expenditures
for FY 20 comprised of the borough departments, support to
the school district, the tribal college, transfers from the
general fund to the enterprise funds, and debt service. He
reported the borough had a statutory cap on operations and
debt service (debt service accounted for $85 million). The
total operating expenditures were $402,359,380. He
highlighted that of the $253 million for borough
departments, 40 percent represented contractual
obligations. He elaborated that in essence it went to show
the borough's ability to utilize contractors,
professionals, and many other businesses outside the North
Slope in an effort to provide its continuing services. Some
of the contractual obligations were necessary to create
efficiencies within the borough's government.
3:23:22 PM
Mr. Limani addressed the impacts of the governor's proposed
budget on the borough on slide 10:
• The Governor's FY20 budget proposal would "Decimate"
the North Slope Borough as a result of repealing the
levy of tax surrounding the oil and gas properties.
• 95-97% of NSB Tax Base is Oil and Gas Infrastructure
• The Borough is subject to an operating tax cap and
does not have other assets to tax to make up the
difference of loss revenues
• The Borough does not have the ability to eliminate
programs at any level to conform to such legislation
Mr. Limani elaborated on the third bullet point and
reported that most of the tax base was comprised of Native
allotments that were not subject to tax.
3:24:02 PM
Co-Chair Wilson handed the gavel to Vice-Chair Johnston.
Mr. Limani continued to review slide 10. He expounded on
the fourth bullet point and explained that the borough did
not have the reserves the Office of Management and Budget
director believed it had. The borough's net assets were
primarily comprised of long-lived assets that were not
easily convertible into cash to offset its operating needs.
He reported that the borough's use of the Permanent Fund
was established in 1984 for the sole purpose of operating
as a savings account when the oil and gas resources deplete
to offset some of the basic needs across North Slope
communities.
3:24:58 PM
Mr. Limani advanced to the borough's impacts of the
governor's proposed budget on slide 11:
• The proposed legislation does not conform to Federal
and State constitution
o NSB pledged their "full faith and credit"
including Ad valorem taxes on property within
the Borough to secure and pay for general
obligation bonds
square4 Current outstanding debt (P+I)
$251,431,154
square4 Enacting such legislation would "impair"
contractual obligations of the bonds
• Such proposed legislation would impede the Borough
from fulfilling its Pension and OPEB obligations
o NSB's share of Net Pension and OPEB liability
$150,693,191
Mr. Limani elaborated on the fourth bullet point and
reported that impairing contractual obligations of the
bonds was in violation of the state and federal
constitutions. He addressed the pension obligation and
other post-employment benefits (OPEB). He shared that prior
to 2008, most of the municipalities had individual pension
plans and were required to contribute to whatever the
contribution rate needed to be. He elaborated that a bill
had been adopted in 2008 that converted the pension plan
into a cost sharing plan, which enabled all of the
participants to contribute to a maximum of 22 percent.
Annually, there was an actuarial valuation determined on
the plan assets to see if there was additional contribution
beyond the 22 percent; in most cases there was. The
shortfall had been called a special provision that the
state helped fulfill.
Mr. Limani continued that there had been a couple of bills
a few years back that had contributed about $1 billion into
Public Employees' Retirement System (PERS) and $2 billion
into Teachers' Retirement System (TRS) that had helped
increase funding levels of the plan assets. He explained
that with the adoption of Governmental Accounting Standards
Board (GASB) 67, 68, and 75 with OPEB, the borough was
required to show its unfunded commitments in the balance
sheet of the governmental-wide statements. The borough's
share of the net pension and OPEB liability was
$150,693,191.
3:27:28 PM
Mr. Limani moved to slide 12 and continued to address the
impacts of the governor's proposed budget on the borough:
Governor's proposal surrounding the reduction in
Baseline Student Allocation creates a burden for the
Borough in the amount of $4,511,923 for FY20.
Mr. Limani reported that the borough provided the highest
funding to its school districts - approximately twice the
state's contribution. He addressed the school debt
reimbursement program and detailed that currently the
Department of Education and Early Development (DEED)
reimbursed the borough on one project - design work for the
Meade River School comprised in the 2014 B bonds. The
borough had approximately $65.9 million in capital projects
for schools, which were eligible for reimbursement;
however, DEED had not reimbursed the borough since its
issuance of 2004 bonds with the exception of the Meade
River work.
Mr. Limani discussed that several years earlier there was a
suspension of the school debt reimbursement program for new
projects. He explained the change did not necessarily mean
a school had its lights turned off. He expounded that
schools in the Arctic saw substantial deterioration due to
the environment and the borough had continued to issue
general obligation bonds to keep the infrastructure intact.
The borough's total cost over the timeframe was
$131,509,000.
Mr. Limani addressed the borough's support to the state on
slide 13:
• Since inception, the Borough has continued to be the
solution in fulfilling the needs and obligations of
the State across the North Slope by providing the
following services on its behalf:
o Education, Public Safety, Fire, Correctional
Facilities, Search and Rescue, Health,
Permitting, Roads and etc. Approx. $175 million
annually in operating funds.*
• The Borough receives little to no support for such
services
• In FY18, the Borough received approx. $7.5 million
from the State in the form of Grants.
*Does not include capital infrastructure
Vice-Chair Johnston handed the gavel to Co-Chair Foster.
3:30:33 PM
Mr. Limani concluded his presentation with slide 14:
• The Borough has not levied taxes to is full taxing
authority, resulting in significant resources to the
State.
Mr. Limani expounded that the fact that the borough had not
levied taxes to its full taxing authority was attributable
to its financial conservatism, fiscal discipline, and
ability to manage its resources within its means. He
detailed that in the past 30 years the state had received
in excess of $643 million in which the borough had not
levied to its full taxing capacity of 20 mills. The amount
represented about 10 percent of the borough's annual budget
for the past 30 years. He continued reviewing slide 14:
o Over the last 3 budget cycles, the Borough has
reduced its mill rate to 17.99 in an effort to
provide additional resources to the State to
offset some of its fiscal challenges. The .51
mill has resulted in approx. $35 million to the
State over this time frame.
o As a result of the State's budget crisis over
the last 4 yrs., the Borough entered into an
MOU with DOR and has provided significant
financial resources for the Assessment and
Audit Functions of the State for AS 43.56
properties.
Mr. Limani expounded on the last bullet point on slide 14.
Over the past four years the borough provided close to
$500,000 to $700,000 to the Department of Revenue in an
effort to avoid disrupting the assessment function of oil
and gas properties.
Mr. Limani shared that the North Slope Borough had been
without a state trooper office for the past 30 years.
Several years back, through the state, the borough had been
able to provide funding for a district attorney. The
borough was the largest employer in the North Slope and
eliminating 1,500 employees as a result of the governor's
proposed budget would go beyond the livelihood of those
communities.
Co-Chair Foster thanked the presenter. He reviewed the
schedule for the following day.
ADJOURNMENT
3:33:35 PM
The meeting was adjourned at 3:33 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AML - Municipal Impact Analysis.pdf |
HFIN 3/18/2019 1:30:00 PM |
AML Presentations to HFIN - AML |
| Valdez House Finance 3.18.19.pdf |
HFIN 3/18/2019 1:30:00 PM |
AML Presentations to HFIN - Valdez |
| NORTH SLOPE BOROUGH HOUSE FINANCE 3-18-19.pdf |
HFIN 3/18/2019 1:30:00 PM |
HFIN AML Budget Discussion |