City of Kenai preparing for state budget cuts

Mar 6, 2019

 


Kenai Mayor Brian Gabriel and City Manager Paul Ostrander teamed up for what was billed as a state of the city presentation at a meeting of the Kenai Chamber of Commerce Wednesday.

 

 


There are some bright spots to point to, but also challenges to address. Not least of which is the proposed state budget.

More local investment is one bright spot, as is an increase in sales tax revenue. That will be something the city tries to focus on by way of broader economic development over the long term. In the short term, though, Kenai, like all cities and boroughs, is grappling with the realities of what could be a dramatically smaller role for state government.

“All of you know Governor Dunleavy unleashed, I mean unveiled, his budget several weeks ago. There are substantial changes in that budget that will affect the city’s finances," Mayor Brian Gabriel said.

The cumulative effect of the governor’s budget proposal is shifting costs from the state to the local level. That includes money for capital projects; things like water and sewer upgrades or other infrastructure spending that used to be covered, at least in part, with state grants. Those have dried up over the past three years as the state has weathered an extended recession.

 

City Manager Paul Ostrander said between 2011 and 2015, Kenai received between $4 million and $6.5 million in capital grants.

“In 2016, 2017, 2018, the capital grants went to zero.”

And, he doesn’t expect them to return any time soon. One of the underlying challenges in dealing with that loss of revenue is simply maintaining current assets, never mind getting new streets paved or buildings put up.

“The assets of the city of Kenai depreciate to the tune of about $1.6 million a year. As (part of) responsible budgeting, you should probably be funding capital to the tune of that amount that you’re depreciating every year. So, we should be funding at $1.6 million per year. Again, that’s been covered by the state in the past, we don’t anticipate that occurring into the future, so we’re going to have to somehow replace that with municipal revenues.”

A look over to Soldotna shows one way a city can get capital projects going; by issuing bonds. A dim outlook for state capital expenditures is one of many reasons the city of Soldotna chose to try to finance a new fieldhouse with general obligation bonds. But, as the unofficial results of that special election show, making capital spending a political issue introduces a lot of uncertainty. Mayor Gabriel hopes cities won’t have to rely on that option.

“Honestly, it’s a cost to residents when you go to bond for things. But they’re for things that improve the community, so that’s something that the city would have to get out ahead of and say look, we’re not just taking this money. This is what you’re getting in return, and this is the value. (Let’s take) the bluff stabilization project. If you had to bond that and it gets built and generates economic activity, that could overcome some of those bonding costs...I certainly hope that we don't get to the point after 40 years, that we're ready to move forward, and it's all based on a bond vote that failed. That would be terrible."

While the state budget is being debated, the city’s budget for the next fiscal year is being developed. Ostrander says it will almost certainly include some cuts and potentially new revenues.

 

The draft of that budget will be released next month.