In less than two weeks, Homer citizens vote in a special election that will decide the fate of the city’s 2016 budget. Last month, City Manager Katie Koester submitted to the Homer City Council, and the council introduced, its budget for next year. Homer follows a calendar fiscal year, with the budget taking effect Jan. 1.
Like the state of Alaska, the city faces a fiscal gap. Koester estimates that with declining revenues and increased expenses, the city will be $1.2 million in the hole if the same level of services that were funded this year are funded in 2016.
Unlike the state, the city can’t dip into a savings account to fund government while it comes up with a long-term financial plan. Following a series of Town Hall meetings in which city officials, Mayor Beth Wythe, the city council and citizens explored options, the council introduced a proposal: for the next three years, .75 percent of sales taxes that go to the Homer Accelerated Roads and Trails, or HART, fund would instead be diverted into the general fund. That would raise about $1 million annually.
To make that change, the city needs voter approval.
That question, Proposition 1, goes to the voters in a special election held Dec. 1.
Koester, the council and city officials have proposed Prop 1 as a way to keep government going at
current levels while the city explores other long-term solutions to funding city government at a level citizens desire.
“Diverting the dedicated .75 percent that goes into the HART fund to the general fund for a limited amount of time is a way to buy the community time to figure out a long-term solution to the budget issues we face without losing services or the important infrastructure the HART fund provides for,” Koester said.
To help voters better understand Prop 1, the Homer News has put together the following questions, with answers gleaned from information provided by city officials.
Q: What is HART?
A: From the city of Homer’s description: “The Homer Accelerated Roads and Trials Program, also known as HART, was implemented in 1987 to encourage the development of roads and trails in the city of Homer. HART has been funded through a dedicated sales tax of 0.75 percent for the last 28 years and is set to expire in 2027.”
If Prop 1 passes, these tax dollars will be redirected to the general fund for three years, after which the HART dedicated tax will be reinstated and continue to fund the existing program.
Q: How much money is in the HART fund now?
A: About $7 million is in the roads fund and $500,000 in the trails fund.
Q: If Prop 1 passes, what happens to that money?
A: Nothing. It will remain in the HART fund. According to city code, HART funds can only be appropriated by the Homer City Council for “street reconstruction improvements and related utilities, construction of new local roads, and construction of new local trails.” The HART Policy Manual defines eligible projects.
Q: If Prop 1 passes, how much a year will be diverted to the general fund?
A: About $1 million a year. After three years, the dedicated tax will be reinstated and continue to fund HART.
Q: Would Prop 1 increase sales or other taxes?
A: No. The overall sales-tax rate of 4.5 percent for the city would stay the same. Including a 3-percent sales tax collected by the Kenai Peninsula Borough, the sales tax rate in the city of Homer is 7.5 percent.
Q: Has the HART fund been used for any recent projects?
A: Yes. Some recent projects include:
• 2012: repaving seven roads, $900,000;
• 2014: Old Town improvements, $151,000;
• 2014: Cottonwood Lane and Fireweed Avenue improvements, $30,000;
• 2014: Waddell Way, $357,000 ($200,000 not yet spent);
• 2014: Shelford, Rogers Loop trails, $65,000 (approved but not yet spent); and
• 2015: West Homer Elementary Phase 2 ($25,000).
Q: Why is the city of Homer seeking to divert .75 percent from the HART fund into the general fund?
A: The city says that to fund services in 2016 at about the same level as in 2015, it will come up short about $1.2 million. That is what city officials call “the gap,” the difference between a status-quo budget and anticipated revenue for 2016.
Q: How much less will the city earn in 2016 compared to 2015?
A: In her budget message to the council, Koester said the city estimates about $935,000 in decreased revenues. That includes $330,000 in cuts to the community jail contract by the state, $341,000 in cuts to state revenue sharing, $100,000 less in sales tax revenues, and declines in revenue for the port and harbor, water and sewer, ambulance and fire billing, and planning and zoning fees. Koester calls those projections “realistic and conservative.” They’re based on numbers from 2014, revenue received through September, and supplemented by state and borough economic projections. New third-quarter sales tax information comes out this month, and if there’s an increase, the council could make budget amendments based on new information.
The Administration Department also gets funding from overhead for revenue from enterprise funds, so a decline in that funding also means a loss in funding for administration.
Q: How much are increased expenses?
A: The city also estimates health insurance will go up about $162,000 and utilities about $25,000. Other increased expenses are for performance-based merit pay increases. Homer Police patrol officers also received a modest pay increase to make their pay more level with other Kenai Peninsula police departments.
Q: Why not cut the budget?
A: The city intends cuts. City Manager Katie Koester presented two budgets that do include cuts, Budget A and Budget B.
Budget A, which assumes Prop 1 passes and the general fund gets added revenue from the HART sales tax, makes cuts of $704,427. That includes not filling one Homer Police dispatcher and one jail officer position, cutting a Planning Department code enforcement position, cutting about $30,000 in library books, cutting a half-time administrative assistant in the city manager’s office, cutting a finance department position, cutting two half-time public works positions, and not giving grants to the Homer Senior Center and the Homer Hockey Association. That cut brings the gap down to $495,573.
Budget B makes those cuts, plus $567,990 more: one Homer Police Department patrol officer, two part-time medics, a half-time clerk, two half-time library clerks, a half-time community recreation position, a part-time Public Works equipment operator, closing and putting on cold status the Homer Educational and Recreational Complex, reducing funding by 70 percent to the Homer Foundation, Pratt Museum and Homer Chamber of Commerce, and reducing funding to economic development. The total cuts in this “bare bones budget” are $1.2 million.
If Prop 1 passes, under the ordinance Koester introduced, Budget A takes effect, although the city council still could adjust it.
If Prop 1 fails, Budget B is the default budget.
Q: Wait a second — with the Budget A cuts, that means the city has a gap of $495,572. Why does it need to divert the HART funds of $1 million?
A: Good question. If Prop 1 passes, $1 million would be raised. Subtracting the gap of $495,572 results in $504,427. The city also wants to put more money in reserves — an account used to fund maintenance and depreciation. Koester said the city needs things like a new roof for City Hall and new Homer Police Department patrol vehicles.
“These are expenses we can no longer ignore,” she said. “We are having to make emergency purchases for critical equipment because reserves have not been funded over the last three years.”
Q: So that means the voters have two choices and two budgets, right?
A: Right. Under the budget proposed, Budget A assumes voters pass Prop 1, divert the HART sales taxes into the general fund for three years and the city takes $704,427 and adds $504,427 to reserves.
If Prop 1 fails, Budget B goes into effect, with $1.2 million in cuts and no money into reserves.
Q: Can the city council try other options?
A: If Prop 1 passes, the council could make adjustments to line items to the budget — adding more to some accounts and taking it out of the contribution to reserves. Council members can propose changes, but any additions have to be made up in either cuts to other line items or show some new revenue.
If Prop 1 fails, the council has to come up with $1.2 million in cuts, either the cuts Koester proposed in her Budget B, or other cuts.
City of Homer Special Election on Proposition No. 1
What: Proposition No. 1 asks this question: “Shall the dedication of 0.75 percent of the City sales tax to the Homer Accelerated Roads and Trails (H.A.R.T.) Program be suspended for a period of three years, to make such 0.75 percent of City sales tax available for general government purposes?”
How: Voters are asked to vote “yes” or “no.” A “yes” vote means Proposition 1 passes. A “no” vote means it fails.
When: Special election, Dec. 1. Polls are open 7 a.m.-8 p.m. at Homer Precinct No. 1, Homer City Hall, and Homer Precinct No. 2, Homer Senior Center.
Absentee voting in person is 8 a.m.-5 p.m., Monday-Friday, Homer City Hall, through Nov. 30 (except Nov. 26-27, when city offices are closed for Thanksgiving).