As Alaska faces declining revenues from dropping oil prices, the loss in state funding also will affect municipalities like the Kenai Peninsula Borough, Borough Mayor Mike Navarre said last Thursday in a talk with the Homer-Kachemak Bay Rotary Club. Navarre estimated the borough could see an 8 percent hit or about $12 million of the $140 million the borough gets in state funding for education, revenue sharing and other needs.
Navarre also floated the idea of a health care task force that could lead to changes in how the peninsula’s public hospitals are funded and managed. On Saturday, Navarre visited Homer again for an open house at the Kachemak Emergency Services new Diamond Ridge Fire Station.
Navarre, who served as a state representative from 1984-96 during a steeper drop in oil prices in 1985, said this time Alaska should not overreact as it did in the 1980s.
“We are facing a fiscal dilemma, not a crisis,” Navarre said. “We don’t need to panic.”
Noting Gov. Bill Walker’s discussion about taking a measured approach to dropping oil revenues, Navarre said he agreed with that perspective. The borough sets its budget after the end of the Legislature and before the start of the borough fiscal year on July 1, so that gives the Kenai Peninsula Borough Assembly time to react to any cuts in state funding.
“We’ll make adjustments depending on some of the actions of the Legislature,” Navarre said.
The borough has a $1.5 million surplus left over from the last fiscal year that gives it some breathing room. That came about because the borough managed its budget, but also because the borough saw an increase earlier in oil and gas revenues.
“We’ve been through it before,” Navarre said. “We should learn from the mistakes of the past. Alaska’s economy is strong. We have reserves in place. We can ride out a short-term, low-oil-price scenario — but we should plan for the future.”
Part of the response to declining revenues will be to look at available state resources and look at budget cuts.
“We have to reduce unnecessary spending,” Navarre said. “Of course, one person’s unnecessary spending is another person’s unnecessary spending.”
In 1990 when Navarre had suggested possibly looking at other revenue sources like a state income tax, Navarre said his political opponents misrepresented that by saying he wanted to reintroduce the income tax.
“The folks who seem to think government doesn’t have a role in their lives and don’t always receive the benefits we get will say, ‘Don’t raise taxes — just cut the budget.’ That would be the wrong way to approach it,” Navarre said.
Despite the prospect of declining revenues, Navarre said he supported funding a position for oil and gas liaison, about $67,000 for this year and $150,000 for next year. The borough needs to stay ahead on planning for a proposed liquid natural gas, or LNG, pipeline to Nikiski. At the lower end of the project’s cost of $45 billion, that could mean $22 billion investment on the peninsula. Initial reports with the Federal Energy Regulatory Commission, or FERC, could be filed this week, Navarre said.
“When that starts, it triggers a timeline where we have to weigh in as a community on a social-economic impact report,” he said.
The final decision to build the pipeline will come in 2018 or 2019.
“You can’t wait until then to start planning for it or you’ll be so far behind the curve,” Navarre said.
Navarre also has asked for $200,000 to fund a health care task force with the goal of reducing health care costs. According to a 2011 Institute of Social and Economic Research study, Alaskans spend $7.5 billion annually in state. In 2010, that was equivalent to half the total wages earned in Alaska. The United States has the highest per-capita health care costs in the world, and Alaska has the highest health care costs in the nation.
“We win. We have the highest health care costs in the world, but we don’t have the best health care system,” Navarre said.
One idea Navarre suggested was giving hospital powers to the borough. That would mean instead of having hospital service areas for the central peninsula and south peninsula, the borough itself would have hospital taxing and management authority through the assembly. How that would work with Central Peninsula Hospital and South Peninsula Hospital is an open question.
If the LNG project goes through, that would mean more revenue for the borough. The central peninsula service area is taxed at .01 mills while the south peninsula service area is taxed at 2.3 mills. An LNG project would increase the north peninsula industrial base
“But those assets are borough assets. We should look at a way to utilize that asset base to address needs throughout the peninsula,” Navarre said.
If the borough had hospital powers — in effect, one service area — the mill rate would be .5 mills and would generate as much revenue now as the two disparate rates do.
“It should be an easy sell for the south peninsula,” Navarre said. “I know there should be some fears about what would happen to this hospital here.”
The task force will look at if there could be some efficiencies and economies of scale of the borough adopts hospital powers.
“I ask you to keep an open mind when that discussion takes place,” Navarre said
On a closing note, Navarre said he listens to his constituents.
“I hear from a lot of people on every single issue,” he said. “I want you to know I listen. I don’t always agree with you. There are 57,000 people on the peninsula. There are more opinions than that on any particular subject.”