Anchorage faces $31M deficit across internal service funds

The Municipality of Anchorage has accumulated roughly $31 million in deficits across funds that support general government operations, the Assembly Budget and Finance Committee learned Thursday.

The workers' compensation and general liability fund carries a deficit of approximately $16.6 million, while the information technology internal service fund shows a $14.7 million shortfall, a municipal finance official told the committee. About 89 percent of the workers' compensation deficit (roughly $14.7 million) is attributable to general government departments rather than enterprise or utility operations, the official said. On the IT side, general government owes about $9.3 million, or 64 percent of that fund's deficit.

Anchorage's internal service funds centralize the cost of services like self-insurance and information technology, charging user departments through internal rates. Persistent deficits in these funds either require subsidies from the general government or future increases in internal charges to departments. The 2023 Annual Comprehensive Financial Report identifies both the Self Insurance Fund and the Information Technology Fund as key internal service funds whose net positions are important to the municipality's overall financial health. The 2022 and 2023 ACFRs reported deficits and net-position issues in these funds, showing the shortfalls have been building for several years.

The deficits accumulated because the municipality paid claims and operating expenses without collecting sufficient revenue from user departments to cover those costs, the official explained. For workers' compensation, the municipality has been paying out claims for employees injured on the job or involved in accidents without charging departments high enough internal rates to fully fund those payouts. The internal IT service fund incurred expenses that it has not recovered in real time, the official said, and while the municipality has paid all of its bills, it is carrying these deficit positions that ultimately need to be addressed.

The official told the committee he is hopeful the administration will present a plan to retire most of the general government's liability to those fund deficits when the final 2024 Annual Comprehensive Financial Report is released, anticipated in June. He cannot finalize that plan until the full ACFR is complete, he said.

The administration has already instructed the enterprises and utilities to work on figuring out their share of the deficits, the official said, and those operations should be able to contribute to retiring their portions as well.

Assembly Vice Chair Anna Brawley, who chaired Thursday's committee meeting, offered an analogy for understanding the fund dynamics. As the committee looks at these big long-term funds, it is kind of like a bathtub, Brawley said: you have to think about how much you are filling it up, how much is draining out, and ideally you are keeping the bathwater in there enough that it can cover those costs.