GUEST COMMENTARY: Impacts of budget cuts at a local level calls for negotiated solutions
There’s a lot of good work being done to measure the impact of the Governor’s proposed 2020 fiscal year budget and produce a measured response.
The Alaska Municipal League has worked to answer the questions that both Senate and House Finance leaders have asked – what will be the impact to Alaska residents, local governments and the economy? We can answer those questions when it comes to municipalities, and we can walk through the implications at the community level for residents and businesses.
The governor’s proposed budget amounts to cuts (with direct and indirect impacts on local governments), cost-shifting (State responsibilities now asked of local governments) and clawbacks (preemption of local taxing authority) that amount to nearly $900 million as an impact to local governments. That’s just for the 2020 fiscal year.
The proposal to repeal school bond debt reimbursement will shift another billion dollars to local governments over the coming decade. Further, the proposal that the Power Cost Equalization endowment (that’s earned 8 percent on average over the last 10 years) be swept into the general fund (where it would earn less than 2 percent on average of 10 years) is a billion-dollar impact.
We can estimate the secondary impacts of cuts to the University and the Marine Highway System based on the economic impact they both have, and apply that to local government property and sales taxes, at roughly $20 and $9 million respectively.
While Community Assistance — which keeps the lights on in many city offices around the state — has been reduced by 946 percent since 1985, adjusted for inflation, the governor has proposed that this be cut by another 30 percent next year.
While the state does less with less, responsibilities can’t be shifted beyond the local level. Municipalities will have fewer options to deal with these proposals that result in roughly a $1,500 per capita impact or a 51 percent increase in local taxes or decrease in services.
The impact is more than 50 percent of nearly 20 local government budgets, and more than 80 percent of 10. We know that for those local governments that face cuts of that size, history has demonstrated that they very likely cease operations.
Our members have looked at this in each of their communities and provided some analysis of the trade-offs. There are three basic options at the local level: 1) increase or add new taxes, 2) reduce or eliminate services, or 3) try to make it work out of existing revenues.
Reduction or elimination of services fall into basically three buckets: public works, public safety, and quality of life programs. Municipalities have said that while quality of life programs would be the first to go, public safety and public works budget would plausibly see reductions.
An analysis of just one element — the state forgoing reimbursement for school bond debt — shifts $100 million back to 19 local governments. Local governments have overwhelmingly said they would need to increase taxes to make up the difference. That doesn’t just equate to a portion of a property owner’s PFD. For the largest commercial property owners, increases are substantial and will determine just how open for business Alaska is. Just for school bond debt reimbursement:
Increased property taxes in the Matanuska-Susitna Borough will fall on Mat-Su Regional Medical, Enstar, Fred Meyer, Alaska Hotel Properties, and GCI, and amount to $547,944.
Increased property taxes in Fairbanks will fall on Alyeska Pipeline, Fort Knox, Doyon Utilities, Alaska Communications, Petro Star, GCI, and Flint Hills, and amount to $1.85 million.
Increased property taxes in Anchorage will fall on GCI, Alaska Communications, Alaska Regional Hospital, Providence Medical Center, Fred Meyer, Enstar, Hickel Investment, Alaska Airlines, BP, Dimond Center, and JL Properties, and amount to $1.52 million.
Local governments have said that in response to the proposed budget, they would leverage every available option, and the combination of choices they have is the best way to mitigate negative impacts.
We have had numerous reports from mayors and managers that describe the micro level implications of cuts and cost-shifting, which go beyond statewide employment. We know that in many of our communities, there’s a feedback loop between employment and quality of life, which attract families and businesses, which strengthen the community and economy. Decreased services result in the erosion of both.
Yes, Alaska has a fiscal challenge. That won’t go away when the State shifts the burden to local governments. AML is looking forward to working with State leaders, developing better solutions, together.
Nils Andreassen is the executive director of the Alaska Municipal League.