Problems lurk in Palmer’s finances, ex-city manager warns

On a superficial basis, the city of Palmer appears in okay financial shape. However, there are problems beneath the surface.

Former city manager Stephen Jellie warned of those before his recent resignation. Privately, city officials agree with Jellie but don’t speak out because of controversy around his brief two-month tenure as city manager.

It was when Jellie started to address the problems that a firestorm erupted, however, causing city council members who had earlier supported his initiatives to run for cover.

Basically, Palmer is experiencing increases in its costs of services that will soon result in deficits unless the city council embraces new revenues, most likely with tax increases, which it has been loathe to do.

The same no-tax, no-spend philosophy got Palmer in trouble with the U.S. Environmental Protection Agency a few years ago over shortcuts taken in operation of the city’s water and wastewater utility.

Those problems have since been addressed with upgraded facilities paid for through debt and city general funds, but Palmer is still under a U.S. Department of Justice compliance order and potential large fines as long as the city operates the utility properly.

However, EPA is now raising new questions about the city’s willingness pay its utility maintenance staff competitive wages, which is leading to a loss of trained workers to other employers who pay better. Utility operators are required to have certain training.

Jellie warned, however, of the impact of debt showing on the utility’s books as money owed the city general fund, the uncertainty as to how the city can finance a new $15 million to $18 million public library and the trend of increasing costs of overall services.

Gina Davis, Palmer’s finance director, said the council has not yet decided on a final plan for the new library, which was damaged by a roof collapse. “The approach in the 2025 proposed budget by Jellie was to maintain city services at present levels and to start setting aside funds for the city’s library project to help reduce the actual bond debt the general fund would have to incur,” Davis said in an email.

Palmer voters have approved $10 million in general obligation bonds, which are paid for by taxpayers through the general fund. But the city would like to reduce the amount to be borrowed through bonds as much as possible to reduce burdens on taxpayer.

Jellie arrived at his new job as city manager Sept. 16 with less than a month to prepare the first draft of Palmer’s 2025 budget, which was required to be submitted to the city council by Oct. 15.

The new city manager did a quick but deep dive into the city’s finances with Davis, the finance director, and the two were able to submit the draft budget on time, but with an expectation that the council would make changes in the final budget by the end of December, when it was adopted.

Davis, in an interview, said the draft budget is essentially a status quo spending plan that balances expenses, as is required. There were some reductions made to offset increases due to inflation, she said, and to achieve Jellie’s hope to begin building a budget surplus to help meet the cost of the new library.

It was those reductions, however, that prompted an outcry mainly from city public safety employees who saw reductions in that department as a threat to jobs.

Jellie said in a subsequent interview that his initial budget review showed the public safety department to be funded disproportionate to other departments, like public works, for a small city like Palmer.

Three dispatchers in Palmer’s emergency response call center, from the staff of seven, also resigned to go to work in Wasilla’s emergency response center where the jobs are better paid.

Jellie did not replace the three in his draft budget, which the public safety workers saw as a cut. The city manager also said he wanted to explore a shared services arrangement with Wasilla as an economy measure, although no proposal was actually made.

Jellie said he discussed the idea with several city council members and was given encouragement to explore the idea if it could save money. However, the idea of shared or merged services was seen as a further threat to jobs by current city employees, which further fueled opposition.

It also rubbed many in Palmer the wrong way because of a traditional rivalry between Palmer and Wasilla and a desire to have local control over emergency dispatch, and not have this done in Wasilla.

The decision on this would be made by the city council along with restoring funding for the emergency dispatch center. Jellie said he had no problem with the funding restored if the council wanted to spend the money.

In the proposed budget, which will be discussed soon at the council, the city’s general fund expenditures are proposed at $15.04 million, down from $15.134 million for the current year ending Dec. 31.This will change if the council adds back some of the reductions.

Revenues are estimated at $16.65 million, up from $15.25 million in the current year. The combination of these will result in a small surplus which could go toward the library fund Jellie envisioned. However, an unexpected event during the year could quickly erase any surplus, he said.

No change is proposed in the current sales tax of 3% and no change in the property tax of 3 mills, or 3% of assessed value.

Meanwhile, costs continue to rise. There is a new pay plan for city employees, who received a 3.25% cost of living raise in the current year and 3% last year. The new budget also includes an estimated 8% increased cost in employee health insurance on top of a 6% increase in the current year.

The new budget also proposes a 6% hike in water and sewer rates and a 10% increase in city airport tie-down and lease fees, but those revenues go to the city enterprise funds and not the general fund.

“You can’t offset these rising costs with fee increases,” Jellie said. “At some point you’ll have to raise general revenues.”

The water and sewer fund has a $4.8 million bond debt with USDA and has made payments on this debt since 2018. The 2025 budgeted payment in the water and sewer fund is $172,000. The water and sewer fund owes the general fund $2.7 million, an interfund loan. The plan is for the water and sewer fund to start paying back the general fund starting in 2025 and over the course of the next five years.

It’s important to get this debt off the water and sewer utility’s books as soon as possible, Jellie said in the interview, because it could be a red flag for bond raters when the city gets ready to issue bonds for the new library.

Without new general fund revenues, such as from taxes, the only way to do this is by reducing spending to build up a surplus in the general fund. Grants for the library are always possible but they can’t be counted on and any federal grants may require local matching funds.

Without a clear plan as to how the debt service on new bonds can be paid it’s unlikely the bonds can be sold despite Palmer’s current lack of general debt and good credit rating, Jellie said.