Municipalities continue to try to figure out how to move forward with projected cuts

Municipal governments around the state are in a state of shock over the scale of Gov. Mike Dunleavy’s proposed state budget cuts, which transfer almost $1 billion a year in school and other obligations to local governments.

The Matanuska-Susitna Borough’s share of this would be about $60 million a year, the borough has estimated.

A grim scenario was laid in Juneau by the Alaska Municipal League last Monday before the House Finance Committee.

Nils Andreassen, the league’s executive director, told legislators that municipalities have few tools to absorb the costs. Many have tax caps and are obligated to make payments on school bonds, he said.

AML is the association of Alaska cities and boroughs.

While Mat-Su will be hit hard, most Alaska municipalities will be affected, some hit even harder relative to their size.

The Fairbanks North Star Borough would experience $56.3 million in loss of annual revenue; the city of Valdez would see $47.3 million in lost income, the bulk of it because of the state’s taking away the city’s ability to tax oil property, and the Kenai Peninsula Borough would suffer a $39.8 million in lost revenue.

The Aleutians East Borough, home to the nation’s largest seafood plants, would lose $10.7 million not only to school cuts being cut but also elimination of fish tax revenues shared with coastal communities. It is a big part of the borough’s operating budget, said Al Osterback, mayor of

East Aleutians.

Mat-Su Borough Mayor Vern Halter was also part of AML’s presentation. He said the borough has a local property tax “cap” of 10.5 mills and has set its rate at 10.33 mills for the current year. Many property owners in road and fire service areas pay additional assessments on top of the borough’s base tax to as high as 15 mills to 17 mills in some parts of Mat-Su.

If the transferred costs were to all to be paid by local property tax payers it would add about 6.7 mills on local property tax bills, the Mat-Su Borough has estimated.

The reductions for Mat-Su include $18.3 million in school debt support; $39 million in cuts to state education funding for the school district; $1.97 million in community revenue-sharing and $710,563 in state funds supporting bonds for the Port MacKenzie port.

Borough manager John Moosey, who joined Halter in the presentation to legislators, said the effect of the reduction in school debt payment support would be to load 100 percent of the debt service on local taxpayers instead of 30 percent.

Voters in the borough agreed in 2011 to support $214 millon in bonds to build badly-needed schools on the promise of the state to pick up 70 perent of the cost of the bonds. While that is not legally obligated – like all state expenditures it is subject to annal appropriation by the Legislature – it is definitely a switch in the deal.

“Instead of the state picking up 70 percent it is now telling us to pay 100 percent,” Moosey said. There are about $200 million in bonds still outstanding but when the interest is included the total of the debt is $300 million, he said.

Halter said the borough has some capacity to raise revenues. “I believe we can handle some of the cost shift. He is committed to protecting the borough’s Double-A credit rating, also. “Under no circumstances will we not pay our bond debt,” he told the legislators.

The mayor said the borough has seen cuts in state school debt support before, such as a reduction by Gov. Bill Walker in 2015 and 2016 when state oil revenues collapsed. “Gov. Dunleavy is not the first governor to cut debt support,” Halter said. But the scale of all these cuts, in combination, is unprecedented.

It puts the borough in a very difficult situation, too. “By law we have to close out our budget and send out tax notices by July 1,” he said. The deadlines are tighter than that, with a budget to be proposed by the mayor on April 16 and passed by the borough assembly

Mat-Su is the state’s fastest-growing region, growing at a rate of 2,500 people a year, Halter said. Mat-Su’s population, now at 110,000, is estimated to reach 125,000 by 2025, he said.