Mayor ponders budget belt tightening — Nonprofits say costs of cuts go beyond borough funding

By Jenny Neyman
Redoubt Reporter

Money doesn’t grow on trees.

It’s an especially fitting adage in trying financial times, such as the situation Kenai Peninsula Borough Mayor Dave Carey is concerned the borough may soon find itself in. Oil prices are down, which may affect how much state revenue sharing funds the borough receives. The borough also doesn’t yet know what impact the new sales tax exemption on nonprepared foods will have on its coffers.

In response, Carey is considering pruning the borough’s budget, including funding for nondepartmental organizations — such as the Kenai Peninsula Economic Development District, the Kenai Watershed Forum, Central Area Rural Transit System, Small Business Development Center and the Kenai Peninsula Tourism Marketing Council — by starting those organizations out at zero in the administration’s proposed budget.

That zero may or may not turn into funding as the organizations state their case for why the borough should fund them and more information on the borough’s financial status becomes clear.

Axing the amount of nondepartmental funding the borough gave these agencies last year would save over $600,000. But agencies say the money they’ll lose from that cut would actually be much higher.

That’s because money may not grow on trees in the literal sense, but when it comes to governmental funding, it does grow in budgets.

Gaining leverage

In the world of government grant funding, “local support” is often the magic phrase that opens the federal treasure chest. Many governmental funding programs give out matching grants, awarding funding that meets, and often exceeds, money pledged on the local level. In the case of the agencies that have received borough nondepartmental funding, those local dollars are leveraged into larger sums through higher levels of governmental funding. For those grant programs, if the borough’s contribution doesn’t come, state and federal funding may not, either.

Jennifer Beckman, executive director of CARTS, said the organization can at least double the amount it receives from the borough through leveraging. Depending on which funding sources Beckman matches the local contribution with, CARTS could turn $50,000 into as much as $165,000, she said.

John Torgerson, director of the Kenai Peninsula EDD, said the organization leverages the $50,000 it receives from the borough into state and federal grants to round out its budget. About 20 percent of the EDD budget comes from the borough, 30 percent from the federal government, 25 percent from the state and the other 35 percent the EDD generates on its own, in part through the programs it operates, like rent from its Business Incubator Center, he said.

“We can say it is a package deal. The $50,000 helps us leverage more money from other partners. It makes a good package when we show that we have support of all the public sectors,” Torgerson said.

“Without borough funding, some of the programs would be more difficult to do.”

Torgerson said zero-based budgeting is not an unusual tactic, and he welcomes the opportunity to sing for his supper, as it were — to demonstrate to the mayor and borough assembly the work EDD does with its funding.

“There’s a lot of good questions and one way to really bring a lot of these things to the forefront is, not necessarily to zero us out of the budget, but to start at zero and look at the jobs being performed and evaluate each one of those functions. Maybe $50,000 is not the right number. Maybe $50,000 should be lower, or maybe it should be higher depending on the job we do,” he said.

Nonprofit, not a handout

While the EDD is a nonprofit organization, Torgerson doesn’t see the borough’s funding as a charitable contribution. The EDD is more like a contractor performing services for the borough, most notably economic planning, in return for the funding it receives.

“The more of a service we can do for the borough, the more we can help out the people of the borough. It’s almost a straight-up business arrangement. It’s a similar arrangement with the federal government and the state — we perform a function for the money we get,” he said.

A similar argument could be made for the other agencies. Yes, they’re nonprofits, but they provide services of benefit to the borough, without the borough having to hire people and operate the programs itself.

The Kenai Watershed Forum received $100,000 from the borough in nondepartmental funding for the first time last year to conduct a specific task — repair or replace culverts that are impeding fish passage on borough roads.

Robert Ruffner, executive director of the watershed forum, said the money came after former Mayor John Williams saw the culvert work the organization was doing on state roads with the Alaska Department of Transportation. Williams decided to reinvest fish tax money into habitat protection by writing the $100,000 into the budget for the watershed forum to expand its work to borough roads. The assembly agreed.

“I think it’s really good the borough is working on getting its house in order in terms of that particular issue. It is a big deal all over Pacific Northwest,” Ruffner said.

Since receiving that money in July, Ruffner has leveraged it into a little more than $400,000 in funding from Fish and Game, the U.S. Fish and Wildlife Service, the Natural Resources Conservation Service and the Department of Commerce through the National Oceanic and Atmospheric Administration, he said.

“We took one dollar from the borough and turned it into five for roads,” Ruffner said. “We were more successful than I thought at leveraging other funds. There’s a general sense of enthusiasm amongst the funding agencies at having local governments really stepping up wanting to fix them.”

Ruffner said there are probably 30 culverts on borough roads that “really need to be fixed,” he said. Remediation costs range from $30,000 up to $2 million, which is taken into account when prioritizing projects. Funding at the federal level is still available to continue work on the culverts, but far less would get done without the borough contribution.

“There are a lot of federal programs out there that work on those types of issues. The biggest issue is getting the nonfederal match secured,” Ruffner said. “Occasionally there’s some grant opportunity that doesn’t have a federal match requirement, but it’s pretty rare. We certainly wouldn’t be doing five or six a year. It’ll scale way back.”

Costly cuts?

KPTMC Executive Director Shanon Hamrick contends that the borough will lose money, not save it, by cutting the organization’s funding.

Last year KPTMC returned $4.50 for every dollar invested in the organization, Hamrick said. When tourists come to the peninsula, they contribute greatly to the economy. Some sales taxes target tourists specifically, including the per seat, per day tax that went into effect in 2007, and the sales tax on nonprepared foods, which is now only collected during tourism season. In 2007 alone, tourism contributed $400,000 new dollars to the borough economy from the per seat, per day tax, Hamrick said, and she expects 2008’s figure to be even greater.

“What they have to acknowledge is that their contribution to KPTMC is not a contribution to a nonprofit organization. It is an investment with a marketing agency that conducts marketing on behalf of the Kenai Peninsula Borough. For every dollar spent with us, we return many, many times over in dollars that come in by people coming to visit,” Hamrick said.

Carey doesn’t dispute that tourism brings revenue to the borough. But he does question how much effect KPTMC and its Outside marketing efforts have on visitors coming here, as opposed to people coming because they’re repeat visitors or from word of mouth.

“I want to see data that advertising is what brings people here,” Carey said. “ I don’t know how many people see an ad Outside and say, ‘Oh, I’ll go to the Kenai.’”

Alaska has gotten far better publicity lately than KPTMC could provide, with Gov. Sarah Palin’s notoriety from her vice presidential campaign and Alaska’s quarter and statehood stamp coming out. Carey suggested Alaskans use the notoriety to encourage friends and family Outside to visit.

“Call those people back and invite them to come to Alaska. That is a stronger marketing tool than putting ads in Outside newspapers and magazines,” he said.

A downturn in the economy is the worst time to reduce peninsula marketing efforts, Hamrick said, because that’s when tourism dollars matter most, yet are hardest to get. People may decide to come to Alaska for reasons other than KPTMC, but Hamrick wants them to come to the Kenai, not get captured by other areas’ marketing efforts.

“By not investing in marketing during this economy, especially, we are going to see unprecedented losses to other areas of Alaska that are aggressively marketing,” Hamrick said. “If we want to quit marketing, we can just sit here and watch all of our visitors going north instead of going south, because you can bet they’re aggressively reaching out to the visitors coming here this year, because the fact is Alaska tourism will be down this year.”

Hamrick was expecting this year’s budget to be $650,000, compared to the Matanuska-Susitna Borough tourism marketing arm, which has a budget of more than $900,000, with 80 percent of that coming from its borough, Hamrick said.

Hamrick was expecting about half of KPTMC’s budget to come from the borough, since Carey advised her in the fall to submit a borough funding request of $325,000 this year — a 10 percent increase over last year, Hamrick said.

That was when borough finances appeared sounder. Now, Carey wants his administration and the assembly to evaluate each of the nondepartmental agencies in line for funding.

“That’s the first question that has to be asked — is this something the borough should be funding, period?” Carey said. “Second, once the answer is yes, is certainly looking at the impact of it. On a number of them, certainly, we’re looking at it in terms of how much it leverages and is that a proper function of the borough? … It’s always balanced with, is this the best way for us to take the taxpayers’ dollars out of their pocket?”

If it’s determined that borough funding for an organization, like KPTMC, should cease, that doesn’t mean the organization will disappear. If taxpayers want to support it, they still can, Carey said.

“If we can leave more money in their pockets through lowering the mill rate, with the savings that will occur, they could then make their own choice to give that money to KPTMC, if that’s the decision we make,” Carey said. “Other than government taking money and deciding we know best, leave money in the hands of taxpayers and let them decide what’s best.”

Hamrick said she appreciates the desire to lower the mill rate, since she’s a taxpayer, too, but doesn’t believe doing so at the expense of KPTMC is in the borough’s best interest.

“People having lower property taxes isn’t going to mean a thing if they can’t pay their mortgage because they don’t have enough business coming through their door,” she said.

Carey: Taxpayers should have more money left in pockets

By Jenny Neyman
Redoubt Reporter

Kenai Peninsula Borough Mayor Dave Carey is keeping an eye on troubling financial times he sees on the horizon as he prepares the borough’s fiscal year 2010 budget.

“I am going to be very conservative. If I don’t know we have money in the bank, I’m going to assume we do not have it,” he said.

Several factors have put him ill at ease. Oil prices have dropped over the past year. During a trip to Juneau four weeks ago, legislators gave notice that the resultant decrease in state funds could mean a decrease in funds passed on to local municipalities, Carey said.

“The forward funding they set aside for revenue sharing was very much now in play. Up to 50 percent of that could end up not coming to us,” Carey said.

He’s heard that increases in state education funding are secure, but he’s concerned about the capital budget, which has not yet been released. Projects that had been cut from previous attempts at state funding were expected to see money this year, but that may no longer be the case, Carey said.

Local revenue is also in question, he said. He does not yet know how much the seasonal sales tax exemption on nonprepared food will decrease revenue, and property tax revenue may not come in as expected, either.

Property tax assessments have been sent out, and as of Friday 1,740 people had contacted the assessor’s office seeking to have their assessment lowered — thus having to pay less in taxes, Carey said. He said Monday that he’d heard 340 of those assessments were being changed.

Carey is also waiting to hear how much the borough can expect in oil and gas industry property taxes. Last year the borough budget included $603 million in oil and gas industry property taxes, Carey said. The state does assessments on all oil and gas property taxes, and businesses still have a chance to appeal and get their assessments lowered.

“The question is, how much do we get?” Carey said.

Carey is required to submit a budget to the assembly by May 1, but said he may not have answers to these questions before the budget is due. As a result, Carey said he’s taking a cautious approach by examining all aspects of the budget for areas that can be trimmed. Times are tough for borough taxpayers, too, he said, so his goal is to keep as much money in taxpayers’ hands as he can, possibly through a mill rate reduction.

“We’re committed that in these difficult economic times, if we can lower how much money we take out of people’s pockets, it would be better than if we increase it or even if we keep the same,” Carey said.

Carey asked borough departments to submit budgets with no more than a 4 percent increase, he said. And service areas are being examined for ways to save funds, although that isn’t an area Carey has much control over, since borough voters approve service area mill rates.

Grants are being examined to make sure they are “good” grants — ones that won’t stick the borough with years of costly maintenance, management or upkeep costs after the grant capital is spent. The level of forward funding required also will be examined in applying for grants. Many grants require the recipient to pay costs up front and apply for reimbursement, which can strain a municipality’s fund balance if it doesn’t have the money available to do that.

Carey also has moved to zero-based budgeting for nondepartmental agencies, including the Kenai Peninsula Tourism Marketing Council and the Kenai Peninsula Economic Development District. Affected nonprofit agencies will start out with no borough funds allocated to them, although money may be added back into the budget as the agencies’ purposes and contributions are examined, and the appropriateness of borough funding is considered, Carey said.

“Primarily in these tough economic times, I believe government has to be extremely frugal in how we spend public money, which is what my goal is and that is what we will do,” Carey said. “It is obviously a partnership between myself and the assembly and the people as to what the mill rate will be and what the budget will be and it is very much a concerted team effort.”

Editorial: Belt tightening good, but don’t squeeze too tight

Kenai Peninsula Borough Mayor Dave Carey is right in taking a cautious approach to the borough budget this year. Financial storm clouds are on the horizon — with a drop in oil prices affecting state revenue sharing, a decrease in sales taxes from the exemption of nonprepared food and a question mark over how much the borough will feel the deepening national financial crisis. Whether the storm amounts to a drizzle or a hurricane, it’s good fiscal policy to put sandbags in place now, before the rains come.

Carey has asked all departments to submit budgets with no more than a 4 percent increase. He’s looking at service areas and grants for ways to save money and avoid costly obligations down the road. He’s also instituted a zero-based budgeting approach to the nonprofit organizations the borough has funded in the past, meaning the organizations will have to justify why and how much the borough should fund them.

These are all sound financial practices, and Carey’s desire to lower the mill rate to keep more money in taxpayers’ pockets is an idea that’s sure to be popular.

That desire can be carried too far. Government’s role is to provide essential services on behalf of the people funding it. But when “essential” is defined too narrowly, it does a disservice to residents, even if it means they have some extra cash after tax season.

In the case of the nonprofits, they do a service to the borough far beyond the value of the funding they receive. They leverage local funding into much more on a state and national level, and do important work with it without the borough having to hire people or create programs.

There is a line that delineates what’s proper for the borough to fund and how much that funding should be, and this is a good time to examine it. If the mayor and assembly decide to cut, they should do so with their eyes open the full impact those cuts will have on these organizations, the services they provide and the revenue they bring into the borough.

Belt tightening is in order, but let’s not strangle ourselves in the process.