Calif. power woes hit Juneau

City invested $2 million in bankrupt electric utility

Posted: Thursday, April 12, 2001

The city is keeping an eye on its $2 million investment in troubled Pacific Gas & Electric Co., staff members said Wednesday.

The California utility filed for bankruptcy protection last week. The subject came up during a budget overview at a Juneau Assembly Finance Committee meeting.

The city's $85 million investment portfolio is controlled by city code and Assembly policy, City Finance Director Craig Duncan said. The city purchased a 90-day investment in Pacific Gas & Electric in November when it had the highest utility bond rating possible. The rating fell overnight when PG&E began to experience cash flow problems, Duncan said. The PG&E bond represents 2 percent of the city's total investments.

Duncan said the utility's problems could mean a decrease in the city's investment earnings from 7 percent to 4.5 percent. How much of the city's investment might be lost is unknown, Duncan said.

The city earned $5 million on its investments last year, Duncan said. City staff members have been participating in teleconferences about the utility's situation every two weeks along with 400 to 500 other groups and businesses, Duncan said. He said the city was receiving interest on its investment with PG&E up to April 2.

Long-term, Duncan said the city benefits from its investment procedures.

"This is the first time I can think about where the (city's) treasury has had an investment default," he said. "There is a potential to lose money on an investment and it's something which is absorbed into the (city's investment) pool."

The development comes as the Assembly begins work on its fiscal year 2002 budget. City Manager Dave Palmer said the city's finances are better off this year than last, but urged caution.

"We're not looking at the tough picture we were last year, but it's not so rosy that we're out of the woods," he said. "Several big ticket items could mean we have to start cutting budgets again."

The city is projecting a $2.3 million surplus because of increases in federal timber receipts, the Payment in Lieu of Taxes program, and sales and property tax growth, Palmer said. Four percent sales tax growth in fiscal year 2000 was twice what city officials predicted. Property tax revenues have grown because of increases in commercial building values and new construction, according to the draft budget.

The draft budget suggests a decrease in the mill levy from 12.02 to 11.99 because of debt payment. Palmer said wage and health insurance increases for staff members also fit into the picture.

In addition, operating funds for the yet-to-be-built ice rink, the city's rainy day account, education funding, and a request from the Capital City Fire and Rescue for three paramedics will need the Assembly's attention, Palmer said.

A funding request from Juneau arts groups for a performing arts center feasibility study, support for efforts to prevent a capital move and money left from the North Douglas road extension are other budget issues, Assembly Finance Committee Chairwoman Cathy Muoz said. The Assembly also needs to keep a close eye on the PG&E situation, she said.

"We want to be careful not to overspend potential surpluses in case we have to cover possible debt," she said.

Assembly member Ken Koelsch cautioned against the use of the word "surplus," adding that funds could be used to set a lower mill rate than 11.99.

Joanna Markell can be reached at joannam@juneauempire.com.



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