Cuts, insurance costs put cities in jeopardy

Towns look at hacking services; some contemplate dissolving

Posted: Thursday, August 14, 2003

State cuts to municipalities combined with the rising cost of municipal insurance have Southeast communities scrambling to fill gaps in their budgets. Some are facing the threat of dissolving city government altogether.

Rising insurance costs and declining revenues also are causing some larger communities to rework their already tight budgets.

Kevin Smith, executive director of the Alaska Municipal League Joint Insurance Association, said the cost of municipal insurance skyrocketed in the mid-1980s. This prompted communities in 1988 to create a joint insurance pool that is administered by the Municipal League.

Municipal insurance covers natural disasters, workers compensation, liability for a third party injury and other unexpected costs.

Today, AMJIA represents 138 cities, boroughs and school districts across the state.

Smith said the cost of insurance dropped in the 1990s, due in large part to the technology boom in the stock market. But a decline in the stock market in recent years has pushed insurance costs back up to levels seen in the early '90s, Smith said.

He said municipal insurance has more than tripled between 1998 and 2003.

"That's probably indicative of the insurance industry as a whole," he said. "I'm not hearing that it's going to break the bank (in many communities). I am hearing that the cost of insurance means fewer services on the street or fewer teachers in the classroom."

In addition to rising insurance costs, cities are struggling to make up the funds lost through municipal revenue sharing cuts by Gov. Frank Murkowski.

Murkowski vetoed about $22 million this year in Municipal Revenue Sharing and Safe Cities programs, which are used by cities for public works projects, police, public safety, fire protection, emergency medical services, water and sewer services not offset by user fees and solid waste management and other services.

Smith said municipal insurance constitutes the majority of some communities' budgets.

Insurance represents about 94 percent of the budget for the Bristol Bay community of Manokotak, Smith said. In Tenakee Springs in Southeast, it represents about a third of the annual budget.

Michael Queen, city administrator for the city of Kasaan, a village of about 55 on Prince of Wales Island, said about 7 percent of the city's roughly $230,000 budget is used for municipal insurance.

With the loss of about $27,000 the city usually receives in municipal revenue sharing, Kasaan is looking for ways to fill the budget gap.

"Come next year we are really going to have to scramble, because we will lose a tenth of our operating revenues," he said.

Queen said the city is looking at charging more for water, sewer and garbage collection. The city also could close the city-run post office.

"It would save us about $10,000 a year, which would start to offset the cost of the insurance," he said.

Queen said there is talk of dissolving city government altogether.

"It hasn't been on any official table for discussion," he said.

He said dissolving local government would put the quality of life in Kasaan in peril.

"In terms of public health, I don't think it would be wise at all," he said, noting that discontinuing city government could result in elimination of basic services like garbage collection.

"I can very well imagine that people will start burning or dumping (garbage) someplace," he said.

Paul Reese, mayor of Kake, a community of about 750 on Kupreanof Island about 95 miles southwest of Juneau, said municipal insurance costs the city about 9 percent of its $950,000 budget. And the price tag has risen significantly over the last two years.

Reese said the city still is crafting its budget for fiscal year 2004 and has not decided where to make cuts.

"I know when the smoke clears it's not going to be a pretty picture," Reese said.

Other communities in Southeast say insurance costs and declining revenues could mean a decline in services.

Gregg Richmond, acting chief financial officer for the Haines Borough, said the cost of insurance this year came in about $50,000 over budget.

The Haines budget is about $6.5 million. About $250,000 goes toward insuring the town.

"I don't want to minimize this," Richmond said. "That's equivalent to one municipal worker."

Timothy Inklebarger can be reached at

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