By SHANNON HAUGLAND
Sentinel Staff Writer
What sales tax revenue does the city expect in the next fiscal year?
What are the prospects for the busy cruise ship season?
What is the balance between covering infrastructure and making Sitka affordable?
These were some of the topics of discussions at the Assembly’s opening special meeting Thursday evening on the fiscal year 2022 budget.
“One of the big challenges is we don’t know what’s coming next year,” Finance Director Melissa Haley summarized today.
Haley and City Administrator John Leach told the six Assembly members at Thursday’s meeting they are looking for some direction as they create the first draft of the budget for next year.
“Given the projected shortfall in revenue, do they want us to make severe cuts or do they want us to present a deficit budget to maintain services?” Haley said today. The Assembly members can draw down reserves to cover a deficit, if they choose.
Haley reviewed the general fund budget with a PowerPoint, highlighting a number of challenges, including the loss of sales tax revenues – the city’s main source of income – from the cancellation of the cruise ships and decline in charter boat and other visits.
“There are so many unknowns out there,” Haley said in opening the presentation.
But both Haley and Leach said they are looking for “big picture” guidance in order to start the process.
“What we’ll come back with is a budget that will reflect our current level of service as leanly as possible,” she said. “From there we’ll identify areas where cuts may be made. Ultimately, that discussion will be had with the Assembly.”
It will be the Assembly’s job to weigh any cuts against possible effects, both in the long and short terms, Haley said.
Enterprise funds (e.g. electric, solid waste, harbors) also were reviewed, with a few Assembly members weighing in against rate increases, keeping increases to a minimum, or needing more information before giving an opinion. Finance staff said considerations of holding off on rate increases in the various funds need to be weighed against staving off larger increases in the future to pay for infrastructure, or cutting back services.
Leach said the budget in the general fund, after being adjusted for current-day dollars, has remained flat for more than 10 years.
“We’re doing our best to tighten our belt,” Leach said. “We’re doing everything we can to be as frugal as possible.”
Although there were different opinions, the Assembly in general was optimistic that the cruise ship season will occur this year, and the charter industry be back to more normal activity. Those were the biggest hits the budget took this year, through a huge drop in sales tax revenues.
In her summary of the general fund, Haley said sales tax revenue was higher than anticipated in the first part of fiscal year 2020 so the impact of the pandemic was muted when compared to the budget. However, she said, there were significant reductions in sales tax revenue for the second half of the fiscal year.
Sales tax revenue declined by $1.2 million from fiscal year 2019 to 2020; and July to September revenues, under fiscal year 2021 dropped by $1.7 million. (Fiscal year 2021 started July 1, 2020, and ends June 30, 2021.)
Although property tax assessments are going up, the senior exemptions are keeping pace with the higher assessments. The city taxes $1.1 billion in property. Some $248 million are mandatory exemptions from the state, including for seniors and veterans; and $98.7 million in property are for “optional exemptions not taxed.”
A line on Haley’s presentation shows an increase in federal dollars, and a decline in state dollars.
FY2020 general fund expenses were down by $902,000 compared to FY2019. Haley said, and that the biggest year-to-year decreases were in administration and police departments, with some cuts in services were related to the pandemic.
She added that city employee vacancies were a leading reason for a decrease in expenses, but city hall is more fully staffed at this time.
Enterprise funds
Slides on the enterprise funds showed fund balances and the most recent rate increases, which included:
– 2 percent for electric rates, and a delay in seasonal rate hike, due to the pandemic.
– 2 percent increase in water.
– 2 percent increase in wastewater.
– 5.5 percent increase in solid waste rates, due to contractual adjustments from the city’s contractor and to pull the fund out of the red.
– 5 percent increase in the harbor fund.
Haley said she plans to bring back options for the city for the fiscal year 2022 budget, including various rate scenarios and the impacts they would have on the fund in general.
Assembly members at the meeting asked a number of questions about various enterprise funds, and the general fund, and weighed in with their views on rate increases and crafting the budget.
Valorie Nelson said she favors a conservative approach when it comes to anticipating revenues, and wouldn’t vote in favor of any rate increases. But in general, she said, it’s too early to make too many decisions.
“I think this is a bit premature,” she said. “We’re coming up on the second quarter of 2021; some of these decisions would be better decided after sales tax revenue for this quarter is known.”
Mayor Steven Eisenbeisz said he also favors a conservative outlook regarding the budget, and adjusting the budget on the revenues side, as needed, once figures are known.
“I’m not convinced we need to dip into reserves,” he said.
Thor Christianson talked about going into reserves, but said the amount needed to balance the budget could vary greatly, depending on revenues. He said one of the bright spots in the last year is the city’s taking action to recover sales tax from online sales.
