The $12 million budget deficit projected for the next two years has caused city management to propose some big cuts. While some are still being discussed, such as closing the downtown Augustus Brown Swimming Pool, most reductions to services and departments have already been OK’d by the City and Borough of Juneau Assembly.
The city makes its budget two years out, so it is now balancing for fiscal year 2015 and 2016. The shortfall for 2015 is a little less steep than the following year -- the city must cut about $4 million to balance 2015 and $7 million to balance 2016, totaling the $12 million overall shortfall. The city must approve at least the 2015 budget by June 15. It has a little more breathing room for 2016.
The Assembly is still weighing what stays or goes, but no matter how they slice it, major cuts are needed to get city coffers back on a “sustainable path,” city finance director Bob Bartholomew said.
Mayor Merrill Sanford said the city has never had to deal with this large of a shortfall.
“I don’t think that we’ve had this many cuts ... that we have to juggle around to make everything fit into the appropriate category,” he said. “It’s bigger and more contentious to do it this time around. There’s plenty of money in different areas to do the things we want to do. But is there money to be sustainable?”
But that’s not to say balancing the CBJ budget isn’t possible.
“I know that $12 million number is a big number, but it is stretched over this year and next,” Sanford said.
The Assembly has mostly decided what services and departments to cut — now they just need to decide when, he said. Because of the difference in shortfalls for 2015 and 2016, there’s a little wiggle room.
“We have to figure out if it’s going to be cut for this year or next year,” Sanford said. “Those are all part of the budget makeup that we have to balance.”
Why the deficit?
A major culprit in the budget crunch is a drop in sales tax revenue. The city predicted Juneau would bring in $44.6 million in sales tax in fiscal year 2014. With a quarter of the year over, the city now expects to fall $1 million short of that figure.
“That’s $1 million less to carry over into the next year,” Bartholomew said.
The shortfall could be due to several things, but the city is still looking into what happened to cause such a big difference between the prediction and the reality. One theory is that good weather over the summer kept tourists outside and away from Juneau’s shops.
“We don’t yet know the weather effect,” Bartholomew said.
But so far, the city hasn’t noticed a significant difference in the tax revenue of the city’s biggest businesses.
“The top 20 taxpayers have been relatively stable, so we have to keep doing analysis: Where is that change coming from?” Bartholomew said.
The next quarterly tax revenue update will come before the budget is finalized, but that quarter — February, March and April — generally sees the smallest amount of sales tax.
In hindsight, the 2014 sales tax prediction was probably just too optimistic, Bartholomew said.
“We probably got ahead of the sustainable growth level,” he said.
It’s important to remember that the budget predictions made every year are just that — predictions subject to change, Sanford said.
“They are estimates,” he said. “You estimate what dollars you’re going to take in. If for some reason the bottom falls out of something, you get into a non-balanced budget.”
Besides the lower-than-predicted tax revenue, previously negotiated pay and benefit increases for city workers also contributed to the mismatch in budget projections and reality for 2014.
“That gap gets bigger real quick,” Sanford said.
Juneau’s economy did see some growth in the past year, but it was less than government was hoping it would.
“I don’t want to scare anybody here,” Sanford said. “We did good, we grew, we were positive, but it’s a very slow positive.”
Goodbye grant money
The fiscal year 2015 and 2016 budget is also suffering from the loss of $3.5 million in state and federal grants. The city had been using those to pay for programs and salaries.
In the next two years, Juneau will lose its state transportation grant, a federal police grant, and federal money designated for rural schools. The police grant paid the salaries of several Juneau Police Department officers; the city will keep the officers even after the funding disappears.
The city will also stop receiving payments for federal land within CBJ boundaries. Formally known as a “payment in lieu of taxes,” or PILT, the money is intended to compensate the CBJ for the fact that the federal government doesn’t pay property taxes. Juneau will get $1.7 million in FY 2015 but nothing in 2016. .
A declining general government fund balance is another problem. Alaska cities are restricted in the types of savings accounts they can have, so most rely on a financing technique called “fund balance.” It’s the money left over in the city’s checking account after the bills are paid and carries over from year to year as a de facto savings account.
The city projects the general fund will have a balance of about $5.7 million at the end of fiscal year 2014. About $3.1 million of that is reserved for previously negotiated wage and benefit increases over the next two years. There will only be $1.6 million available in the fund once all FY 2015 and 2016 costs are taken out.
“Local revenue stopped growing, state and federal funds dropped — that has come together to say we need to get back to that sustainable level,” Bartholomew said. “We had all these things come together at the same time. It definitely manifested in a bigger way this year.”
Years of flat education funding from the Alaska Legislature also put a ding in the city’s budget, as local government attempted to pick up the state’s slack by contributing the maximum available. The entire list of reasons for the deficit can be found page four of this online document: www.juneau.org/clerk/ASC/FC/2014/documents/BudgetShortfallPacket.pdf .
How did the city prepare?
The city began to notice the downward trend in sales tax revenue in October, Bartholomew said.
“That’s when we started feeling the need to make sure the (city) departments knew,” he said.
City management has been “letting people know through the year to get them ready” and telling department leaders to “prioritize their services and programs.”
“We asked them, ‘If there’s reductions needed, what reductions would you take? Bartholomew said.’”
Each city department then put together a list of services and facilities they were most OK with scaling back or cutting and submitted it to city manager Kim Kiefer. That’s how Kiefer developed her list of cuts to balance the budget, including closing the downtown Augustus Brown Swimming Pool later this year.
Draining the pool
Fifteen city departments are taking a hit in the manager’s proposed budget. The cuts total $3.6 million over the next two years — about $1.5 million in fiscal year 2015 and about $2.1 million in 2016.
The hardest-hit department would be Parks and Recreation, which is expected to lose $1 million in services and positions over the next two years. This includes the pool closure and personnel cuts equivalent to more than 11 full-time positions.
The Assembly so far has OK’d all cuts to Parks and Recreation besides the closure of the pool. At its last finance committee meeting, it placed the pool on its “pending list” along with three other items for further evaluation.
The downtown pool could be “mothballed” starting in November, saving the city about $250,000 in 2015 and twice that in 2016. Mothballing the pool means less savings than an outright shutdown, but it also means the pool could be reopened if money becomes available.
Even then, the pool needs millions in repairs, Kiefer said. That essentially sealed the deal when it came time to make some difficult decisions.
The 40-year-old pool costs about $900,000 annually and brings in about $200,000 in revenue, Kiefer said at a recent Assembly Finance Committee meeting. An evaluation of the facility will be finished in July. At that point, the city will better know what repairs are needed and if and when the pool will be reopened.
Some Augustus Brown employees would be transferred to Dimond Park Aquatic Center to reinstate that building’s Monday hours. Dimond Park opened in 2011, but the city never planned to shut down the older pool after opening the newer one, Bartholomew said.
“The plan was definitely to maintain two pools,” he said.
Across the city, Kiefer anticipates cutting the equivalent of eight more full-time jobs beyond the Parks and Recreation losses. A full list of cuts can be found on page 13 of this online document: www.juneau.org/clerk/ASC/FC/2014/documents/2014-04-02_AFC_Packet.pdf.
All job cuts besides two associated with Capital Transit were OK’d by the Assembly. It’s still weighing a $400,000 cut to the bus system.
The city manager’s proposal does not fund the Juneau School District to the cap over the next two years, funding $200,000 less than the cap in 2015 and $500,000 less in 2016. During years of flat funding, the district came to rely on the city to fund to the cap. The Assembly placed cuts to the Juneau School District on its pending list for further discussion. Part of that is to wait and see how the state will fund the schools. With one day left in the Legislative session, an education bill that would increase funding to public schools is still being revised.
District director of administration David Means said it’s too soon to say how the city’s proposal would affect the district. The superintendent’s cabinet will discuss how this could play into the district’s own budget crunch on Monday. Means said he will bring a recommendation to the school board on Tuesday.
“This would be considered in the context of any Legislative funding that we may receive,” he said in an email. “We are only focused on FY 2015, and have not spent too much time considering FY 2016.”
Deciding what services to cut has been the hardest part of the budgeting process so far, Sanford said. There are about four weeks left in the process.
Those services that we provide to the community right now -- some of those are going to have to be cut,” he said. After being on a budgeting holding pattern since 2009, “we’re running out of places to cut or trim any fat.”
“There are things that have to stay, and we have to try to make them cost effective,” Sanford said. “And there are a lot of things we do that we don’t actually have to do. But everything we do there’s a constituency out there of people who like it and don’t like it and we’re effecting people when we cut it.”
New library scrutiny
While jobs have garnered the most attention, public scrutiny is also falling on the CBJ’s capital improvement projects. The Assembly is evaluating all the city’s building projects and determining if anything can be cut or put off.
The city has plans for $8.7 million in projects for 2015 and $8.9 million in 2016. These include $4.7 million for a new library in the Mendenhall Valley. That project has taken the most criticism since the austerity budget was unveiled.
The city currently rents library space from the Mendenhall Mall for $240,000 per year, he said. Building a library building will allow the city to “control its hours and its use,” Bartholomew said. The library’s operating budget is expected to be exactly the same in the new space.
Because the new library is already funded significantly by state money and operating costs will be the same, Bartholomew said cutting it from the budget is “a possibility, but it doesn’t change the budget at all.”
Other capital improvement money is going toward deferred maintenance — projects the city needs to catch up on.
“We’re always trying to catch up to our deferred maintenance,” he said. “We could reshuffle the priorities but that money’s not available.”
The Assembly is expected to direct the city on what to do with capital improvement projects and the proposed budget reductions.
More property taxes
There’s also a city proposal to raise property tax to help balance the budget. The increase would amount to approximately $142 extra per year on a $300,000 home, Bartholomew said. Increasing property taxes would add $1.9 million to the budget both years.
The city’s “rainy day” budget reserve could also be dipped into. One city proposal uses about $1.7 million in fiscal year 2016 from the city’s budget reserve, a pot of money meant only to be used for emergencies.
Sanford said the Assembly is also working on a plan not to use any of that money. Over recent years, he said, the city has worked hard to build up the reserve to between $9 and $12 million. But now the amount recommended by city accountants is a reserve of between $15 and $16 million, Sanford said.
“There is a plan to use some of that but we have to be careful with that,” he said. “There’s a number we target and ... try to maintain.”
If the Assembly decides to go with using some budget reserve money, “we have to have a written plan of how we’re going to put the money back in. We have to come up with a plan from the taxpayers’ pocketbook later on.”
The reserve is supposed to be two months’ worth of city operating money, in case of a catastrophe or if funds from other sources dry up completely.
“There’s all kinds of disasters that we’d maybe have to go through, let alone budget cuts from the federal government and the state of Alaska,” Sanford said.
The budget surplus — a different fund comprised of extra money rolled over from previous years — has about $3 to $4 million in it. That fund will remain in tact during the budgeting process.
Why the difference in first and second projections?
At the March 10 Assembly Finance Committee meeting, Bartholomew and Kiefer announced a projected $5 million shortfall over the next two years. But then, at the March 19 meeting, the number spiked to about $12 million.
The shortfall prediction grew because the finance department wanted to get the Assembly a report sooner rather than later. In their haste to get the projection out the door, Bartholomew forgot something.
“I decided, ‘I want to pull it together sooner so we can give the finance committee the heads up,’” Bartholomew said. “We were still getting information from departments. I missed one big component of the analysis.”
When the city was creating its FY 2014 budget last year, the Assembly asked Bartholomew to supplement it with $3 million from the general fund balance. He wasn’t supposed to do that this year, he said.
He forgot and left the $3 million in, making the 2015 budget appear cushier than it really was. The initial shortfall projection for the March 10 meeting was created outside of the city’s budget system, so the mistake wasn’t caught, Bartholomew said.
With some tough decisions and tweaking, Juneau’s budget can and will get back on track, Bartholomew said. A more realistic picture of the city budget will become clear over the next few days as the state finalizes its own budget.
“Juneau is a financially strong and stable economy, but we do need to make some adjustments to get back on a sustainable path,” he said.