By SHANNON HAUGLAND
Sentinel Staff Writer
The Assembly directed city staff Thursday to continue building next year’s budget under a moderately optimistic scenario, although a number of questions remain.
The biggest unknown discussed at the special Assembly meeting is whether or how much the visitor sector will rebound, and the effects on sales tax revenues, which is the city’s biggest source of revenue.
City Administrator John Leach and Finance Director Melissa Haley asked for direction on a number of questions, such as filling certain staff positions and whether to continue forward with a mix of “scenario 2” and “scenario 3” when it comes to projecting revenues from sales tax.
Scenario 2 anticipates a slight improvement from last year, when COVID largely canceled the visitor season; Scenario 3 anticipates a greater recovery, but still below pre-pandemic revenue levels.
“These assumptions are what we’re basing the budget around,” Haley said.
“We will be closely watching where revenue is trending,” she said, adding that she will recommend changes to the Assembly as needed.
Sitka Public Works street maintenance worker George Hardison fills a deep pothole at the intersection of Barracks and Seward Streets this afternoon. The city budget for the 2021 fiscal year did not include money for capital projects such as resurfacing roads. Because of the pandemic and the resulting decreased tax revenue there will likely be no city capital projects in Sitka in the 2022 budget. (Sentinel Photo by James Poulson)
The draft budget for fiscal year 2022 anticipates revenue from all sources at $26.8 million, and expenses at $28.3 million, for a deficit of $1.5 million. Since Alaska law does not allow local governments to adopt deficit budgets, the gap must be closed through cuts, new revenue or dipping into reserves.
City staff is currently projecting a $1.5 million surplus at the end of this fiscal year, June 30, and those funds could theoretically be carried over to balance the FY22 budget.
Haley said today that from the Assembly’s comments at the meeting, her understanding is that members favor balancing the budget by using those funds.
Besides the upcoming visitor season, city staff cited other unknowns for FY22, such as the amount of federal pandemic impact stimulus funds that might be received.
“We’re not in great shape but we’re not in a bad spot right now,” Mayor Steven Eisenbeisz summarized at the end of the meeting. He said the city is continuing to provide a high level of service to community members.
Outlining the various scenarios for sales tax revenues at the meeting, Haley said the administration’s budget uses “scenario 2” for half of fiscal year 2022 (through Dec. 31, 2021) revenues, and the more optimistic “scenario 3” for the second half (through June 30, 2022).
But Haley said in her presentation that increased mandates may mean the Scenario 2 revenue projection is high. On the other hand, if Sitka is in line for help through federal stimulus funds, or the cruise industry comes back in force, the projections may turn out to be “overly conservative.”
The more optimistic Scenario 3 assumes more recovery but notes there may be more “systemic impacts” of the pandemic on the economy.
Sales tax revenues – the city’s main revenue source – dropped steeply during the 2020 summer months with the loss of the cruise ship season, as well as a drop in independent and charter boat visitors.
Haley said the visitor month revenues were hit particularly hard, with revenue down by more than $1 million for each of the summer quarters as compared to a pre-COVID year.
Revenue outside the summer months this past year is expected to be closer to non-COVID years, Haley said, noting it’s still a few weeks early to say for certain.
“The revenues coming in so far are on track with previous years,” she said today.
The Assembly was generally in favor of going forward with staff’s recommendations for the various revenue-expense assumptions, with the Assembly to be kept posted if changes are needed.
“We always adjust as we’re going,” Assembly member Thor Christianson said.
As for the current outlook, Leach noted some high points, such as the high vaccination rate in Sitka. He said air travel already is increasing, with Alaska Airlines opening the middle seats again, and lodges and charter operations reportedly taking bookings.
“The big question is cruise ships,” he said.
City staff plans to present the draft budget to the Assembly Feb. 24.
Other decisions that need to be made include the level of education funding. The state has increased the allowable local funding cap for communities, but the Assembly did not weigh in with a decision on education funding at Thursday’s meeting.
The Assembly will meet with the School Board to discuss budget issues on Feb. 4.
Assembly members discussed some city staff positions – community affairs director, assistant fire chief, and procurement specialist.
Most members were in favor of keeping the positions as proposed by Leach for the time being, but Valorie Nelson objected to adding new permanent positions, noting the difficulty in cutting positions once they are added.
“I just don’t believe this is a good time to add more positions,” she said.
Haley said the Assembly provided direction to keep the lobbying contract in 2022 but review it the following year, and to fill a funded position for community and government affairs. An additional staff position – procurement specialist – will be included in the draft budget but the Assembly asked for more information on the assistant fire chief position and an additional dispatcher.
Haley said she also received direction on spending the $525,000 in the sinking fund on capital projects in FY22. The city had no new capital projects budgeted in FY21. Haley said she will work with public works staff on a projects list, and it will not affect the bottom line for 2022.
Kevin Knox expressed concern about deferring capital projects, since they might end up costing much more later.
Kevin Mosher said he was wary of committing revenues to new capital projects, but would be in favor of looking at spending some of the sinking fund on projects that had been put off, and were needed.
Education support – the city’s single largest expense – remains a huge question. State funding has been flat in recent years, and no federal funds are expected through Secure Rural Schools, which usually provides about $500,000, half of it going to schools.
“What level of funding do we budget for local education?” – one of the decision points raised – will be discussed with the School Board Feb. 4. Christianson, whose wife is a teacher, spoke in favor of funding schools to the cap, and district teacher Rebecca Himschoot, a new Assembly member, agreed and said funding schools is a good investment.
“It’s not our biggest expense, it’s our biggest and most worthy, most critical investment,” Himschoot added today.
