Mine opening won't fix city budget crisis

New tax impact unclear, still subject to city number crunching

Posted: Wednesday, July 08, 2009

The pending opening of Kensington mine will positively impact the city's projected budget deficit but "certainly won't fix the woes," city Finance Director Craig Duncan said Tuesday.

Falling or stagnant tax revenues caused Duncan this spring to project consecutive budget shortfalls of more than $5 million in 2011 and 2012.

There's no doubt last month's news that Coeur Alaska won its U.S. Supreme Court case and will open the mine is good for local jobs and Southeast Alaska's economy, but City Manager Kim Kiefer said she is holding her breath on what it means for the city budget.

"It won't get us out of the hole we're looking at for 2011 and 2012," Kiefer said. "It will make the hole less deep, but it won't take it away."

Coeur projects that the mine's total annual impact will be $2.5 million a year in taxes for the city, though some of that is already on the rolls because the company pays property taxes and some of the employees to be hired already live and spend money in Juneau.

Duncan said he needs to review the company's projections to determine how payments were calculated to see how much additional tax revenue the city can expect. The information may be ready to report to the Juneau Assembly next week, he said.

As Coeur begins to spend money to complete mine construction and starts hiring new workers, the greatest impact on the city budget could be realized in sales tax collections, Duncan said.

Sixty percent of the city's sales tax collections pay for general operations such as snow removal and staff salaries. Duncan did not have spending estimates Tuesday, but as an example said that if the mine and its workers generate an additional $2 million a year in tax revenue, $1.2 million would go into the general operating fund. The rest goes toward capital projects.

"But we were looking at a $5 million annual shortfall," he said. "It would make a dent in it but certainly not eliminate it."

The city collects $40 million in sales taxes each year, so a percentage point is worth $400,000. If the mine opening bumps collections a couple points, "it's a gigantic event for us," Duncan said.

Include 30 or 40 new homes and the associated property tax payments, and it all adds up, he said.

While Duncan last April called the projected budget deficit "an $11 million hole," it's only 6 to 8 percent short. "It doesn't take long to make a dent in that," he said Tuesday.

Construction at the mine also will increase the company's property tax payments to the city, but Duncan doesn't expect a large increase. And any increase probably wouldn't hit city coffers for two years, since assessments are done every January and taxes paid the next year.

The Assembly this spring worked to reduce spending and produced a conservative budget that will generate a surplus in 2010 to help decrease the deficit in following years.

Elected officials decided to put on hold a curbside recycling program and most of the transportation improvements suggested by a consultant.

Discretionary spending in city departments was cut almost completely before the budget passed, and staff discussed the possibility of cutting personnel.

In May, voluntary unpaid furloughs were offered to non-union employees.

City Manager Kim Kiefer asked department managers to scrutinize their budgets and recommend reductions of 5, 10 and 15 percent. Positions were ordered held open as long as possible, and employees were offered paid leave early, which can save by preempting raises for seniority.

Kiefer said Tuesday she is not sure how the mine might affect those cost-cutting measures.

• Contact reporter Kim Marquis at 523-2279 or kim.marquis@juneauempire.com.

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