March 30, 2013
Saturday AM

The views expressed here are my own and do not represent any official position of the Borough Assembly.

A recurring theme during my terms on the Borough Assembly has been the misguided notion that the Borough's General Fund Reserves were built at the expense of school funding. The implication being that reserves are not necessary and that reserves grew by cutting local funding to our schools. Neither assertion is correct.

A prudent fiscal policy for any borough needs to include a plan related to reserves. Resource based economies, such as Alaska s, are subject to boom and bust cycles. Ketchikan's economy is still struggling to recover from the bust cycle of the local timber industry.

Determining the correct amount of reserves a local government should carry is not an exact science. The unofficial Borough policy is 25% of the General Fund. This figure does not include any consideration of reserves (in approximate numbers) for the Airport Enterprise Fund ($1.2 million), debt service funds ($1.3 million), capital improvement funds ($1 million) or the 5% legal limit school district reserve ($2 million). Including these items would require increasing the reserves from the current $5 million level to $10.5 million.

In stable fiscal times an adequate reserve for the Borough may fall somewhere in between these two figures. However these are not stable fiscal times. Federal programs are being eliminated and funds that had been expected are being sequestered. The state of Alaska is facing massive deficits due to growth in government spending, declining oil production and pending planned tax cuts on the oil industry.

Reserves are built during revenue boom cycles so they can help temper the impact of revenue bust cycles. Locally, our revenue boom cycle started in 2008 with the advent of CPV funds that allowed the Borough to offset some of the expenses the General Fund was incurring due to the cruise ship industry. In 2009, after the Borough boundaries expanded, Secure Rural Schools funding increased by almost five fold and the federal PILT program payments more than doubled. Consequently, with conservative budgeting, the Borough was able to increase its General Fund Reserve from $1.4 million in 2007 to $5 million today.

Currently the community is looking at a revenue bust cycle with the potential loss of Secure Rural Schools funding of $1.2 million, federal PILT payment of $1 million, and state revenue sharing of $894,000. Additionally, the state is looking at a projected 15% budget deficit due to declining oil production and the proposed tax cuts on the oil industry. If the state were to implement a 15% across the board cut, that would decrease local school funding by $2,850,000. Making up these shortfalls locally, would more than deplete our current $5 million in reserves.

Wise counsel by professional financial advisors who work for the State of Alaska indicate that the Ketchikan Gateway Borough's reserves are clearly not excessive. If anything, they are weak. Moreover, it cannot be reasonable concluded that the Borough's reserves (which were previously dangerously inadequate) were built by cutting education funding.

The solution to the dilemma of education funding lies in getting the State to live up to its Constitutional responsibility for education and fully fund basic need for all school districts.

Agnes Moran
Ketchikan, AK

About: "Local resident interested in education funding issues"

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