Juneau Assembly begins annual budget process with school district exiting crisis, hospital facing one

The Juneau School District is resolving a financial crisis, Bartlett Regional Hospital is facing one and city leaders are trying to perform a balancing act during the next couple of months in crafting a budget that doesn’t raise residents’ property taxes.

Extra drama from past and future years is factoring into the Juneau Assembly’s annual municipal budget process, which got off to a marathon start on Saturday with a seven-hour Finance Committee meeting. Among the challenges are implementing the school district’s consolidation plan, moving some or all downtown city employees into new buildings — including those vacated by the district — and the hospital reporting it will run out of cash in three years without major operational changes.

The good news amidst the shaky scenarios is the draft budget for the fiscal year starting July 1 is essentially a stable status-quo budget similar to this year’s, based on general policy goals set by the Assembly at its annual retreat last December.

“The first assumption was maintain city services, as there was no direction from the Assembly to either increase or decrease city services,” City Manager Katie Koester said during her introductory overview of the budget. Also, “the aspiration expressed at the retreat was to keep a flat mill rate. I think we really worked hard with departments to curb unnecessary increases (and) really maintain a status quo budget to try to achieve that goal.”

An overview of the $440 million total budget by city staff was followed by presentations from several city-funded entities including the school district, hospital, Juneau International Airport, Eaglecrest Ski Area, and Docks and Harbors department.

While the meeting was meant to be informational without Assembly members taking action on specific items, most expressed opposition to a proposed property tax increase to 10.32 mills, up from the current 10.16, to pay for the $1.1 million cost of taking over three buildings the school district is vacating as part of its budget-cutting plan.

Members also added a bit of levity to the long session when asked at the beginning for suggestions to make this year’s budget process go smoother.

“I would like us to agree that we laugh at least once every meeting,” Mayor Beth Weldon responded.

The Assembly faces a mandatory June 15 deadline to pass a balanced budget, although Finance Committee Chair Christine Woll said June 3 is the target date for approval. The Assembly members are scheduled to do most of their subsequent work at weekly Finance Committee meetings, with a public comment meeting scheduled April 29.

One wish list item expressed by Assembly members was avoiding a repeat of Saturday’s extended session.

“Could we agree to not let the Finance Committee meetings go past 9:30 at night, because our decision-making becomes less effective the later in the night that we go?” asked Assembly member Wade Bryson when it was his turn to offer suggestions.

The big picture and a small mill rate increase

Total proposed budget figures include about $441 million in revenue and $459 million in expenditures — the latter a drop of about $20.5 million due largely to cuts in the school district’s budget and funding for capital improvement projects. About 30% of the revenue, or $137 million, is under the city manager’s purview, while other large chunks are controlled by entities such as the school district, hospital and airport.

If there is a deficit in the final overall budget the city is expected to have about $40.6 million in combined restricted and unrestricted fund balances at the end of the current fiscal year on June 30, according to Koester.

The municipality’s portion of the budget contains numerous adjustments within departments while remaining about the same overall, Koester said. She said staff working on the budget were “aggressive with revenue forecasting” at the direction of Assembly members based on December’s retreat, yet conservative with the bottom line.

“We had an epic snow year and we spent $100,000 more for plowing this year than we had anticipated,” she said. “And I feel like that’s justifiable. So the nature of our budgeting really is it just has to be conservative because we’re conservative folks. You know the last thing a city manager wants is to come and say ‘I’m grossly over budget,’ because honestly I don’t have the authority to be grossly over budget. That’s illegal.”

Major one-time expenditures include $6 million for public safety communication infrastructure, $3 million for a long-discussed rewrite of CBJ’s land use code, and $1.65 million for maintenance and similar “shared services” of buildings that were previously funded by the school district.

Staffing levels — or at least the funding for them, as the city struggles with workforce shortages affecting many employers — generally remain even across departments. Examples of shifts include the Engineering and Public Works Department, which is adding about four people to a roughly 140-person staff (expressed in financial terms as adding 3.7 full-time equivalent employees to the existing 140.5 FTEs) as additional transit operators. The city is also planning a one-time allocation to equip seven new electric buses and fund the training for them.

Phrased in the same accounting terms is 7.2 more FTEs for the 107.2 in the Parks and Recreation Department. The Finance Department is also adding an extra accountant for the specific purpose of analyzing the school district’s budget, due to the Assembly agreeing to provide a $4 million interest-free loan and nearly $6 million this year and next in “shared services” funding to help the district resolve its crisis.

Satisfied with school district’s solution

But despite the city’s help — which mostly covers a shortfall in the current year’s budget — the drastic measures in the school district’s budget for next year include laying off 12% of its employees, which among other things will raise the pupil-to-teacher ratio to 30-1 for all grade levels except K-3 students with a ratio of 26-1.

[School board passes budget that cuts staff 12%, hopes for BSA increase that will save some jobs]

The district’s $67.8 million operating budget for next year is about 10% lower than the current year, due to a projected $9.7 million shortfall revealed to the Juneau Board of Education in January. That came on top of a projected deficit of more than $8 million for the current year, which was covered primarily through the city’s loan and takeover of costs, along with some spending reduction measures such as a hiring freeze.

School board members approved next year’s budget at their March 14 meeting, basing it on a consolidation plan that combines all students at Juneau’s two high schools into Juneau-Douglas High School: Yadaa.at Kalé and puts all students in grades 7-8 and the HomeBRIDGE program at what is currently Thunder Mountain High School.

The financial crisis was triggered by the discovery of a series of accounting errors totaling several million dollars that were attributed by top district officials to the former administrative services director, who resigned Dec. 1. However, officials emphasize other major factors including mostly flat per-student state funding during the past decade and a steady decline in enrollment are creating the long-term deficit scenario that necessitates the consolidation plan.

Assembly members, some of whom were visibly and verbally angry when approached for assistance by district leaders in January, were more gracious on Saturday after reviewing the budget and released measures taken by district leaders to resolve the crisis.

“I just want to say thank you to you and the board,” Woll told Superintendent Frank Hauser after he presented the district’s budget to Assembly members. “What you all had to do the last few months is incredibly difficult and you all did so much work to engage the public in a short order. I know those decisions were incredibly hard and I know no one will think they’re perfect, but just want to recognize the magnitude of what you all had to do to get where we are today.”

A suggestion to offer further assistance to the district was made by Assembly member Greg Smith, noting the city is taking over about $3.9 million in shared services costs this year and $1.7 million next year – with the lower amount approved by the Assembly earlier this year while the district’s budget plan for next year was unclear.

Smith said the Assembly should consider adding the remaining $2.2 million to match this year’s funding to provide the district some additional financial security as they face future costs such as paying off the city’s loan if state lawmakers fail to approve an education funding increase during the current session.

Assembly member Paul Kelly said he favors giving the district the extra money regardless.

“I think the school district has proven that they made a lot of really difficult and consequential decisions…and I would be interested in seeing us fund the shared services regardless of whether or not the state meets its constitutional obligations,” he said.

Hauser has stated the district will be able to avoid most the layoffs — but not the consolidation — if the Legislature passes a $680 increase in the $5,960 Base Student Allocation, which is currently included in the House’s draft budget. The increase would provide an estimated $5.2 million in additional funding to the district.

Hospital CEO: “I apologize for bringing such dire information”

While there isn’t much other drama in the budget for the coming year — with the airport, docks and harbors budgets being notoriously uneventful in their presentations — Assembly members were presented with another major emerging financial crisis as they were wrapping up work on the school district’s woes.

Put simply, according to Bartlett interim CEO Ian Worden, the hospital has been losing money steadily for several years and will have a negative fund balance within the next three years without significant corrective actions.

“Today’s presentation is not meant to ask for funds, but really to demonstrate the issues that we are going through, and that we are prepared to make the appropriate decisions with the advice and counsel of the Assembly,” he said.

Worden also noted “today’s presentation really has been designed to provide the Assembly with significantly more information that they’ve had in the past. And that’s by design to show you some of the issues that we’re dealing with.”

Bartlett lost between $3.5 million and $6.9 million in operating cash annually between fiscal 2020 and 2o23, said Joe Wanner, the hospital’s chief financial officer. The situation is far worse for the current fiscal year with a projected decrease of nearly $13 million in the hospital’s fund balance, leaving about $32.7 million remaining.

The hospital’s proposed $150 million budget for the coming year is essentially a status quo plan, which projects a net loss of about $7.5 million, Wanner said. But he noted that includes a number of community health services — such as hospice and home care, which Bartlett took over last year when the previous provider stopped due to financial constraints — that “are services you find almost in no other hospitals in the Lower 48.”

Hospital leaders are already undertaking a complete review of all programs, staff and expenses in an effort to come up with a sustainable operating plan during the next three years, Wanner said.

“We’re evaluating staff,” he said. “We’re looking at new positions as we have turnover — is a position required to continue the operations of the hospital?” he said. “We’re also reviewing the amount of contract labor we have, and can we do replacements and substitutions for those positions with full-time staff? We’re also looking at all contracts and commodities that we bring in that are needed to run the hospital on a day-to-day basis, and eliminating any contract that isn’t absolutely necessary for the operations of the hospital.”

Among Bartlett’s other “ancillary” programs are Rainforest Recovery Center which provides addiction treatment and Wildflower Court which provides long-term nursing care, the latter of which was acquired by the hospital last July despite the expectation it would operate at a loss of about $1.7 million this fiscal year. Meanwhile, staffing for the hospital and other programs remains a significant problem due to a nationwide shortage resulting from the COVID-19 pandemic that resulted in skyrocketing salaries for what were frequently temporary workers.

“I think the issue that we’re trying to illustrate is that we are not sustainable at the large facility that has been funding the other entities,” Worden said after Wanner finished presenting the budget overview.

Worden, appointed interim CEO last fall after overseeing major transition at hospitals in other states, said nearly 80 hospitals in small rural areas declared bankruptcy last year and nearly 650 hospitals in the U.S. are in at-risk financial situations.

“We’re in a very difficult position and I think programmatic closure is not out of the realm of what most hospitals are doing these days,” he said.

Deputy Mayor Michelle Bonnet Hale asked if it is possible to determine the ratio of Juneau residents at the hospital’s ancillary programs, which Worden said is part of the ongoing analysis. For instance, he said, about 40% of the patients at Rainforest Recovery Center are Juneau residents.

“We’ll go through that for each of the programs,” he said. “What we’re doing is a financial analysis and a history of how those organizations were developed, and then the economics of those.”

Woll, as chair of the Finance Committee, said a vital next step as the Assembly spends the next couple of months working on the budget is knowing what the hospital’s leaders are seeking in terms of guidance and/or help with the dilemma,

“I’ll be upfront and say I’m not sure this body is going to be in a place to make decisions — yes or no — to cut major services before the end of our budget process,” she said. “But that feels like a conversation we’re going to have to have over time about what things we need, what things we don’t need, what things the people are willing to pay for, what things they aren’t.”

Worden said honing in on services most important to the community, as well as those offering potential for growth and thus more revenue, will be among the information that’s useful.

“Because I’m not a resident of the City and Borough of Juneau I’m very sensitive to the fact that we we need that input from them as we move forward,” he said. “Obviously, I apologize for bringing such dire information to your attention.”

• Contact Mark Sabbatini at mark.sabbatini@juneauempire.com or (907) 957-2306.