Alaska’s Budget – Local Government Impact
Current State Budget Decisions – Local Government Impact
- State and local government are intertwined and interdependent, dating back to statehood. The Alaska Statehood Act and the Alaska Constitution recognize the state’s unique size, geography, isolation, distance from markets, and low population necessitated State provision of public education, public safety, public health, public welfare, infrastructure, and more.
- We’re going to show different scenarios that highlight choices that have been proposed, each of which means something different to different local governments. This isn’t an exhaustive list – the State’s budget decisions are much more expansive than this – but these have the most direct impact. Varying levels of impact mean that local governments have their own set of choices, all of which impact residents and local taxpayers in some way.
- We’re comparing State shared revenue with total community revenue, or State support for an expense to total community expenses, often coming up with relative ratios. The way to think about these ratios is that if they are high, they squeeze out other choices that a community might make. If they are pushed higher because of State choices, that comes at the expense of other programs at the local level. The State could also make choices that decrease local costs, which would free up funding for other local priorities, or increased investment.
- The topics are often much more complex than presented here, but we’ve tried to describe things accurately and in terms that should be accessible to everyone.
- Local government spending falls into a few categories:
- 30% public safety – police, fire, and emergency response
- 35% schools – required contribution, respond to district needs, 75% of schools
- 25% utilities – roads, landfills, water and sewer
- 10% quality of life – libraries, museums, rec centers, parks, playgrounds
- Larger local governments have more choices, larger tax base. State funding – or its loss – often comes at the expense of infrastructure improvements, followed by reductions to programs in one of those categories. Smaller local governments… don’t. Relatively small amounts of State funding literally keep the lights on.
- There are many State-funded programs that are in law, and the distribution to local governments based on a formula or commitment by the State in statute.
- These all include language in law that says the State “shall” do something, but that direction is undermined by the fact that many are also subject to appropriation.
- That leaves the State with a law that can be skirted based on the budget, which increases uncertainty. Alaskans expect laws to be followed, and local governments build their budgets based on that expectation.
- If the Legislature, or through a Governor’s vetoes, fails to appropriate funding as directed in law, it increases distrust and creates instability in Alaska’s communities.
These programs are the building blocks of the intergovernmental partnership between the State and its political subdivisions.
PERS – the State-Managed Pension System
PERS – the State-managed pension system
- 64 communities are locked into participation in the State’s pension system.
- Many others are as well – schools, housing authorities, the university, and AHFC.
- For many, it costs more to get out than it does to stay in, even as current costs are unsustainable for many.
- The way that was managed in the past resulted in an agreement that the local rate would never go beyond 22%, and the State would pick up the difference up to the actual rate of just over 30%.
- One of the reasons for the high costs is that the system has an “unfunded liability” that results in a past service cost being applied to every employee. That is more than half the total right now – 17%.
- You can see here the impact of different rates relative to the local governments total budget.
- These communities then have little control over retirement benefits they can offer employees, nor control over what they are spending.
- The national average for how much this pension payment is relative to total budgets is 4.6%
- PERS is higher than 4.6% of budget for 47 of 64 communities
- It is higher than 10% for 20 communities
- Eliminating the need for the past service cost would push that to less than 10% for all communities, and fully half would be under national average
- The difference between the current and potentially lower rate is $61 million
- In other words, taxpayers in 64 communities pay $61 million more because of the State’s underfunded pension system
- If the State couldn’t make its payment, it would add $48 million to local taxpayers to make up for
- Smaller communities have a harder time managing PERS or lowering those costs
- Eliminating a “class” may trigger extra costs; for small communities, that may mean a single employee; for larger, they could reduce their staff significantly before eliminating a class
- Even if they make reductions to their staff, they still must pay toward the State’s unfunded liability
- Local Governments make up only 18% of PERS
- The current pension system impacts recruitment and retention – while local governments pay 22%, 10.2% of that does not end up as employee benefits, and even less for new employees
- This is a 40-year-old program that recognizes the State’s tax base is greater than that at a local level, and essentially local provision of services that would otherwise fall to the State.
- Today it sends about 16% of what it did in 1985, of if inflation adjusted it should be 964% more than what it is now…
- It went away for a couple years in the 2000s, and 14 communities ceased operations. Many others added or increased their sales taxes.
- As you can see, it means something more or less to different communities, in terms of their overall budget.
- For those 15 communities for whom Community Assistance is more than 40% of their budget, if it went away we could assume they would cease operations
- For those 65 communities for whom it is between 10 and 40% of their budget, it would mean significant staff or program reductions
- Well, what does that look like?
- Unable to afford village police officers, or provide housing for VPSOs or Troopers
- Closing of washeteria, or unable to afford bulk fuel purchase for power
- Landfill operations and/or airport plowing cease
- The difference that communities experienced recently, with Community Assistance reduced by a third: for 93 that meant less than a $10,000 reduction; for 57 more that was between $10,000 and $100,000 reduction
- It doesn’t sound like much, though as a % of budget it was significant still for some. But:
- $1,000 is equal to filling 17 potholes
- $10,000 is equal to annual support by some for their Chamber of Commerce
- $100,000 is equal to four days of plowing snow on the weekend, in a large community
POWER COST EQUALIZATION
Power Cost Equalization
- This fund was established over time to offset the cost of power in rural Alaska communities
- While State investment in infrastructure in urban Alaska lowered those costs, it chose not to do the same in rural Alaska, where the scale of the effort would be much greater.
- The endowment was established to be a sustainable source of funding for the program, which is available for residents and community facilities.
- Local governments don’t receive funding directly but it does offset some of their power costs, as a portion of community facilities
- Lowering those costs for local governments keeps taxes stable and ensures the ability to fund other priorities of the community.
- For nearly a quarter of communities that receive PCE, the savings to local governments may be more than 10% of their budgeted expenses
- The total municipal savings may be as much as $6.6 million, roughly 2.86% of total expenditures on average
- The reduction in costs means maybe more importantly that limited resources can go to services instead
- The average municipal savings is around $50,000
- That’s a third the cost of a dump truck, or about equal to a month of landfill operation
- That would equal 25 EMT responses
SCHOOL BOND DEBT REIMBURSEMENT
School Bond Debt Reimbursement
- One of the State’s primary, Constitutional obligations is to establish and maintain a system of public education.
- 75% of all schools are owned and maintained by local governments.
- While the State has a grant program for construction and maintenance of schools not owned by local governments, it has relied on the School Bond Debt Reimbursement for many of the rest
- The program commits to local governments that if they bond for a project, the State will reimburse them 60 to 70% of the bond payment each year
- That’s been called into question these last few years, with that payment either vetoed or funded at 50%, which shifts the cost to the local government
- These local governments have already paid for the school bond debt
- Their portion is already 30-40% – out of a total debt left of $900 million, local taxpayers are paying $350 million
- Shifting the State’s reimbursement commitment means the State is asking taxpayers to cover their portion, another $550 million
- State spending on rural schools is tied to levels of school bond debt reimbursement
- If the State doesn’t reimburse at all, it requires 86% of Kodiak Island Borough’s budget, and about 20% of Ketchikan Gateway Borough, Northwest Arctic Borough, Haines Borough, and Lake and Pen
- Even a 50% reduction, is nearly or well more than 5% for 10 local governments
- The 50% reduction is equal to what it costs to conduct a math/reading assessment for 4 school districts, or to two in-service days for teachers
MINIMUM REQUIRED LOCAL CONTRIBUTION
Minimum Required Local Contribution
- While it’s the State’s obligation to maintain public education, it requires certain local governments to contribute a local share.
- This is currently 2.65% of assessed property value; and used to be 4% (these are measured in mills…)
- For these 34 boroughs, and home rule or first class cities in the unorganized borough, this contribution is significant.
- Many give well beyond the minimum, though there is also a maximum.
- Four give more than the State’s contribution.
- This is a State-mandated property tax, dedicated to pay for education
- It applies to 36 local governments, with 130 not required to make any contribution to education
- It’s only boroughs, and then home rule and first class cities in the unorganized borough
- Those 36 represent the majority of the State’s 54 school districts
- For a majority of these, the State tax represents more than 10% of their budget
- Local governments give much more, of course, and many others provide other forms of support for schools – housing, maintenance agreements, sponsored activities
- This minimum contribution – a total of $260 million in taxpayer funding – is equivalent to 10% of the total tax collected by all local governments
- For Ketchikan Gateway Borough and Kodiak Island Borough, this contribution is 40% and 68% of their total budgets, respectively.
- If the tax reverted back to 4 mils, which it used to be, it would require an additional $70 million – for the Kodiak Island Borough it would equal 99% of its current budget.
SHARED FISH TAXES
Shared Fish Taxes
- The State tax on fish landings and business is shared with communities where those occur.
- Those funds support the infrastructure and capacity necessary to ensure a successful fishery.
- Statute requires 50%, and allows 100% (though the latter hasn’t occurred).
- Many communities must turn to additional raw fish taxes to make up the difference, to support this important piece of their economy.
- If the State didn’t share this current tax, many communities would be unable to meet the demands of industry, or need to raise their own taxes.
- The basic principle behind this program is that where economic activity is local, it’s supported by local infrastructure.
- When it comes to a State resource, sharing that revenue recognizes this as well as the State’s role in redistributing the benefits of the resource to all Alaskans.
- For 6 communities, shared fish taxes represent more than 20% of their budget.
- Out of a $5 billion industry, State taxes represent less than a 1% draw. The local share of that State tax, then, is .05% of total value.
- The top 7 ports represent 69% of the total shared
- 18 local governments receive less than $100,000, with 8 under $10,000
- 46 local governments receive some form of revenue – about 25% of all local governments – with it representing about a 3rd over 10% of their budget, a 3rd between 1 and 10%, and a 3rd under 1%
AVIATION FUEL TAX
Shared Taxes – Aviation Fuel Tax
- Federal law requires that all taxes collected on aviation motor fuel be used in direct support of airports. The State handles this requirement under AS 43.04.010(e). That law requires a refund to municipal governments of 60% of the monies collected (minus administrative costs). The rest is deposited into a special aviation tax fund, which is to be used to support airports.
- Taxes are collected monthly and are held in the General Fund. The revenue from the preceding fiscal year is disbursed in July. These taxes have been trending down over the last 5 years. Here is a table of payments to the eligible communities
COMMERCIAL VESSEL PASSENGER
Shared Taxes – Commercial Vessel Passenger
- The State of Alaska charges a tax of $34.50 per cruise ship passenger, which is deposited into the General Fund. AS 43.52.230 designates a $5 payment to the first seven ports of call for that passenger.
- Therefore, the Vessel Passenger Tax is a passthrough payment to the municipal governments, with any excess remaining in the General Fund.
- Funds are collected monthly and held until the end of the calendar year. The shared amount from the preceding calendar year is distributed to the local government in February.
- Here are the payments over 5 years. Note that when an eligible city resides within a borough, they split the revenues (Ketchikan and Kodiak).
Commercial Passenger Vessel Fee Sharing
- This is a State tax on cruise ship passengers, shared with the first seven ports of call.
- It supports the services provided by those communities who take on additional responsibilities responding to increased load on local infrastructure.
- This is a significant portion of some budgets, lessening the need for other types of taxes on residents.
- Keep in mind, too, that the majority of ports and harbors are municipal-owned, and these funds offset user fees for the fishing industry.
- Out of a $3 billion industry, the State’s direct taxation equals .54%, which is shared with impacted communities
- CPV represents more than 20% of the annual budget of 3 communities – Hoonah, Whittier, and Ketchikan
- Ketchikan is doubly impacted, with both the Borough and the City relying on this economic activity
- For Haines and Seward, it is 10% of their budget, and an important part of the budgets for Juneau, Sitka, and Yakutat
ELECTRIC AND TELEPHONE COOPERATIVE
Shared Taxes – Electric and Telephone Cooperative
- AS 10.25.550 imposes a 2% tax on the gross revenue of telephone cooperatives in the State.
- AS 10.25.555 levies a $0.005 tax on each kilowatt hour of electricity provided by electric cooperatives in the State.
- These taxes add up to about $4 million per year and are split between 83 qualifying local governments. However, 100% of these taxes are refunded to the local government in which the cooperative resides.
- The taxes are due on April 1st and are immediately processed for distribution. That process typically takes 2 months to complete.
Shared Taxes – Liquor License
- When a business pays its biannual liquor license fee to DCCED, the Department of Revenue turns around and pays that money to the municipality that is responsible for enforcing the local, state, and federal laws required by the license.
- These fees are collected as they come due and held in the general fund until the next scheduled disbursement. A disbursement occurs every March and July.
- These fees add up to just under a million per year and are shared with 35 local governments.
- The State, over time, has implemented programs that meet the State’s priorities, help it to accomplish goals that it has – or even following through on constitutional or statutory requirements – and support Alaskans
- Local governments are the partner that deliver the service – the State’s transfer of funds to the local level means that State agency operations don’t have to grow to manage delivery within communities
- These transfers to local governments as partners help to offset local costs and tax burden, and bolster economic activity
- Ultimately, without this basic funding made available by the State, Alaska’s communities would be able to do less to meet the economic needs of residents, the infrastructure needs of businesses and families, and the quality of life expected by residents
- These aren’t one-off appropriations; they provide continuity of operations, help respond to emergencies, and address critical infrastructure needs
HARBOR MATCHING GRANTS, PROJECT REIMBURSEMENT
Harbor Matching Grants, Project Reimbursement
- Over the course of the 1990s the State transferred almost all of its port and harbor assets to local government.
- Many of these were in desperate need of repair.
- The State made commitments to fund those improvements, as part of the process.
- The Harbor Matching Grants program matches 50/50 community investments.
- There were a few projects that communities bonded for, which the State committed to reimbursing. That obligation hasn’t been met recently.
- Alaska has more coastline than the entire US, and the State has no active role in constructing or maintaining ports and harbors
- Alaska’s seafood industry created $5.6 billion in total annual economic activity for Alaska; and the cruise industry and the visitors they serve account for $3.0 billion of the state’s economy.
- These two economic sectors contribute 15% to the state’s GDP, almost entirely dependent on local government infrastructure and services
- The reimbursement program – a commitment by the State in place since 2002 – receives less attention than school bond debt, but when neither are funded they combine to be 15% of the Aleutians East Borough’s budget (2/3 of which is education spending!)
- Over the 10-year period of harbor matching grants, Juneau and Sitka have contributed $20 million to improved harbors in their communities
- In total, local governments have matched the State’s $84 million with an equal or more likely greater (as part of their general harbor maintenance budgets) contribution
- Code Blue is a State grant program that distributes about $500,000 annually
- Local government fire departments, or other public safety, use these funds to support equipment purchases that they wouldn’t otherwise be able to afford for emergency medical response
- It’s a small total expense to the State, and a small amount that goes out to communities, but…
- This “seed” money is then added to by local matching dollars and by other agencies.
- Communities purchase transportation (ambulances/transport vehicles), patient care equipment (airway kits, cardiac monitors, AED’s), training equipment and communication equipment.
- Average of $6k can be compared to cost of an ambulance, which is roughly $200,000.
- The total amount of funding provided by the State is about equivalent to one fire engine, if it went to one community.
- Roughly 45 communities receive grants a year.
- The vast majority of Code Blue grants are under $5,000
- The most grants that have gone out in one year was almost 60; the fewest 2 – usually it seems to be around 20.
- 110 communities have received some portion of this funding since 2011
- The total funding over that period would have purchased just about 12 ambulances
- Or, put another way, State funding would have contributed about 2.5% toward a new ambulance, based on a $5k grant
COMMUNITY AND REGIONAL JAILS
Community and Regional Jails
- The State maintains a unified court system, according to the Constitution.
- While the majority of prisoners are held at State jails or facilities, 15 communities maintain facilities on behalf of the State’s pre-trial services
- State funding for these have been cut, and stagnant for 6 years, pushing more costs to local governments.
- If these services went away, it would add costs not only to the Dept. of Corrections but also the State Troopers.
- At the same time, communities may lose this service.
- For five local governments, State funding in FY15 represented more than 10% of their total revenue; by FY21 all recipients received funding that was less than 10%.
- The decline in State funding meant that while expenses have stayed the same since 2015, consistent with State funding levels then, State support now covers:
- Dillingham – 82% of annual expenses
- Haines – 49% of annual expenses
- Kodiak – 77% of annual expenses
- Petersburg – 44% of annual expenses
- Seward – 54% of annual expenses
- Reductions in State spending don’t make things less expensive, nor do they eliminate costs, except to the State. Communities pick up the difference.
ONLINE WITH LIBRARIES
- Online With Libraries (OWL) supports community internet access at libraries.
- Began as a federal program that transitioned to the State
- In many communities, these are public facilities, and local governments own and operate the majority of libraries in the state.
- Internet access is critical, and while not a significant $ figure, it still ends up important to those who rely on it to provide the service.
- The loss could equal reducing library hours or closing one more day a week.
- 21 communities receive this support for their libraries, out of 46 communities with public libraries – the majority of libraries in the state
- The biggest beneficiary is City of Unalaska, with a $27k grant; three communities receive about $10k, and then the rest are $6k and under
- 6 communities receive just $2k
- For three communities, it is nearly 5% or more of their annual revenues, to support this expense.
- The impact of OWL goes well beyond communities that receive direct support
Human Service Community Matching Grants & Community Initiative Matching Grants
- These are only available to Fairbanks, Mat Su, and Anchorage, which match with their own funding grants in support of nonprofits that have effective health and human service programs
- The total amount of funding, while not high, allows the State to essentially localize programs that it might otherwise have had to organize, and leverages State funding.
- These funds complement the State’s own program, Community Initiative Matching Grants, with funding that goes to a variety of nonprofit organizations.
- The total State funding between the two programs is $2.2 million, with the matching grant program meaning that local governments add another $1.3 million to achieve the State’s goals:
- “Services provided through these programs support Alaska’s most vulnerable population. The homelessness, hungry, and destitute depend on these services to remain alive and safe. These services are of the most basic type where sometimes the goal is to simply keep someone from freezing to death.”
- This is less a question about #s – funding is a relatively small portion of budgets – and more about how do we build capacity at the local level to support health and social service needs
- The important thing is that State funds are leveraged – these are matching grants where local governments are contributing to fulfilling the State’s goals
List of 2018 Grantees include:
First City Homeless Services
Juneau Cooperative Christian Ministry (The Glory Hole)
Aiding Women in Abuse and Rape Emergencies, Inc. (AWARE)
Brother Francis Shelter, Kodiak
Alaska Legal Services (Bethel Area)
Alaska Legal Services (Juneau Area)
Alaska Legal Services (Kenai Area)
Alaska Legal Services (Dillingham Area)
Bethel Winter Shelter Lions Club
Bristol Bay Native Association
Copper River Native Association
Nome Emergency Shelter Team (NEST)
Nome Community Center
Independent Living Center-Homer
Kenaitze Indian Tribe
Southeast Alaska Independent Living, Inc. (SAIL)
Women in Safe Homes
Native Village of Unalakleet
Copper River Native Association
Palmer Senior Citizens Center, Inc.
VILLAGE SAFE WATER
Village Safe Water
- The State’s expenditure here is simply matching dollars to leverage federal funds – 1 State $ = 8 federal $ – for water/wastewater improvements
- This grant program, basically, is available only to rural communities, roughly speaking, while separately the State has a Revolving Loan Fund program for urban communities that then pay about 1.5% on their loans
- The scale of the need for water and wastewater across Alaska is pretty immense – demonstrated here – but roughly speaking the State appropriates about $80 million each year to meet a $1.9 billion need.
- This chart just shows where VSW funds went in FY21, and how needed they would be relative to an annual budget of one of these local governments.
- The ability for local governments to construct and repair modern water and wastewater systems is beyond the capacity and tax base of the majority of Alaska’s communities.
- For two of 18 communities, the investment was more than their entire annual revenues
- For others, major improvements would have required between 10% and 42% of their budget
- Those funded are 6% of the total number of projects in need
- Total funding that went to local governments in 2019 was only $5.7m, in State funding