Daily Sitka Sentinel

Walker Vetoes Shift More Costs to Sitka

By TOM HESSE and

SHANNON HAUGLAND

Sentinel Staff Writers

A string of budget vetoes by Gov. Walker could cost the City and Borough of Sitka more than $800,000 in next year’s budget.

Walker made headlines this week when he used his veto power to limit Permanent Fund Dividend payments to Alaskans to $1,000. But it was line-item vetoes totaling $1.3 billion in cuts that have finance staff at Sitka’s city offices and the School District taking another look at their budgets. 

Chief Finance and Administrative Officer Jay Sweeney said the governor’s 25 percent reduction to the school debt reimbursement fund could take a big chunk out of city coffers. 

“That is a game changer. In my mind, if you add another $835,000 requirement to the city, that’s almost another dadgum mill of property tax,” Sweeney said. 

The state’s school debt reimbursement fund helps support the bonded capital projects used for school construction. The Blatchley Middle School remodel, for instance, was paid for by such a bond. Presently, the city pays its share of local school bond costs through the seasonal 1 percent sales tax. 

“We transfer 1 percent of seasonal sales tax in the summer to the school bond debt payment fund, and 70 percent of that debt is reimbursed by the state of Alaska,” Sweeney explained. “So in the past, the 1 percent sales tax has been more than sufficient to meet the city’s obligation.” 

If the veto survives the next legislative special session, it will dramatically increase the amount Sitka has to pay to meet its obligation. Early state numbers suggest Sitka could be spending $700,000 to make up the difference, and by Sweeney’s early estimate the number could be more than $800,000. 

“If what I think is going to happen happens, we would lose $835,050 in FY 17. We have about $1.3 million (surplus) in the school bond payment fund. So that would take a huge whack out of that. We could survive one year. But if this becomes permanent, the 1 percent sales tax would be insufficient,” Sweeney said. 

At that point, the city would have to pay bond costs out of the general fund, which is facing a potential $3.25 million deficit next year. 

City Administrator Mark Gorman said the governor’s veto adds to a trend of shifting another burden from the state onto municipalities.

    “It’s a huge hit to us on top of the other hits,” he said today. “The ‘meta message’ is revenue sharing is going to go away.”

    The Assembly is already considering putting a 2 mill property tax increase on a special election ballot to close the $3.25 million gap in the 2018 budget. The governor’s veto would increase the shortfall to $4 million, Gorman added.

    “It’s very, very worrying,” the administrator said. He added that the governor’s plan to halve the PFD would also be a big hit to Sitka, not only affecting individual citizens, but businesses and city sales tax collections as well.

    But at the same time, he understands the governor’s position in the face of the state budget crisis. The city is dealing with the same challenges, and has limited solutions available.

    “He has very few doors he can go through right now,” Gorman said. “I’m definitely empathetic.”

    Mayor Mim McConnell noted that the Assembly passed a resolution in January encouraging the Legislature to come up with a sustainable budget for the FY 2017 budget year, which starts today. 

    “We’re frustrated because that hasn’t happened,” she said today. She is now looking for another Assembly member to co-sponsor a new resolution reiterating this point, but “more strongly stated.”

The governor’s vetoes will also affect the budget in the School District office. Business Manager Cassee Olin said the district’s cuts could be over $150,000. 

The largest is a cut in the per-pupil funding formula. During the final year of Gov. Sean Parnell’s administration, Alaska approved a stepped increase in the BSA. This year’s increase was supposed to be $50, but Walker’s veto would cut that in half, costing Sitka almost $70,000 in funding. 

Additional one-time funding was cut, costing Sitka $52,000, and state support for student transportation also took a hit in the round of vetoes. Olin said that cut doesn’t affect the district’s general fund but, similarly to the city’s situation, if the transportation fund can’t meet its obligation then the district has to make up the difference. 

“If our pupil transportation runs in the red then we’d have to transfer money from our general fund to balance that, like we would with Ventures or our other programs,” Olin said. 

The difference to the Sitka transportation fund would be a loss of $48,000. 

Both Olin and Sweeney said there’s little they can do with their budgets until the Legislature revisits the issues during the special session, beginning July 11. 

“What I understand now is that the Legislature can go back and override the governor’s line item vetoes.” Sweeney said. “I think everybody is kind of in limbo over what the devil’s going on in school debt reimbursement funds.” 

Sen. Bert Stedman said he is still calculating the region-wide losses to the communities with the governor’s veto, but he’s not blaming the governor for coming up with a plan to reduce the deficit in view of inaction by the Legislature.

    “The governor has to do something if the Legislature isn’t going to act. We’re burning too much cash,” he said. “I can’t fault the governor for what he’s done. We have to come up with a solution.”

    Stedman said he was pleased with one high-ticket veto item: Walker’s decision to pull out $400 million in oil tax credits, and cut it down to the statutory requirement instead of what was submitted by the industry. 

The move was a reaction to legislation that Stedman said didn’t go far enough in cutting back oil tax credits. 

    He said he had no predictions on what will happen when the Legislature meets on the 12th.

    “I would hope this gets their attention,” he said. “No action is definitely not appropriate for the circumstances.  ... The state is in a tough spot. We’ve got to do something.”

    Overriding the governor’s veto and continuing to spend all the cash available is not a solution, and he does not believe that is the action the Legislature will take, Stedman added.

    “Ignoring the problem and pretending it doesn’t exist is a disastrous position to put the state in,” he said. “This should get the attention of elected officials in Juneau to take come action that would exclude inaction.”