Fairbanks mayor proposes 92% cut to capital spending, citing lawsuit

Mayor Mindy O'Neall has proposed a 2027 City of Fairbanks budget that cuts capital spending 92.5%, citing lawsuit payments. The Fairbanks City Council began reviewing the proposal at a work session Monday.

Capital spending would fall from $16,433,307 in the amended 2026 budget to $1,232,118. The original 2026 capital budget was about $7.4 million. City departments requested $6.3 million in capital items and $1.6 million in General Fund additions. The proposal funds $1,232,118 of those requests, the entire capital budget, leaving out a $950,000 B Street storm drain and $476,000 in police vehicles. It would also add $685,754 to the city's fund balance.

O'Neall's Oct. 29 budget letter says most major capital projects are scheduled to finish in 2026 and that the budget "restricts any major capital investments for one year to rebuild capital reserves." It points to "Risk Fund losses." At Monday's session, O'Neall said: "I don't want to run a city like this, but the payments to the lawsuit have put us into this position."

The city's 2025 annual financial report identifies that case as Roberts et al. v. City of Fairbanks, settled March 27, 2025, for $11.5 million, with a final $3.25 million payment due in 2026. A federal court docket carries the same case title and names the city as defendant, though available material does not confirm it is the same case. Its orders say the plaintiffs, convicted in a 1997 murder, had those convictions vacated by agreement in 2015, then sued, alleging manufactured evidence and false statements. The city's Risk Fund ended 2025 at a deficit of about $5.2 million.

The General Fund balance fell 26.6% in 2025, partly from a $3 million transfer the council approved 5-1 in June 2025 instead of levying the amount in property taxes. Council Member Valerie Therrien, the lone no vote, said Monday that "we lost a lot of interest as a result of that." O'Neall's letter says Risk Fund losses begin recovering in 2028.

The 2026 levy rose to 6.381 mills from 5.833, including 0.860 mills for claims and judgments. A worksheet attached to the levy resolution notes those taxes were reduced by $4 million, to be levied over five to 10 years beginning in June 2028. The 2027 proposal would raise property tax revenue by $1,148,785, to $19.4 million.

The General Fund would spend about $51.9 million, taking in about $47 million in operating revenue and $5.6 million in other financing. The letter calls the budget balanced when those financing sources are counted, though O'Neall also told the council spending exceeds revenue. Both statements match the figures. Operating spending would exceed operating revenue by about $4.9 million. A $6.1 million transfer from the city's Permanent Fund is the largest item closing that gap. The budget adds 2.5 full-time positions and projects salaries and benefits rising by $1.9 million.

For decades, O'Neall writes, vacant city positions produced salary savings that helped pay for capital projects. With police and dispatch staffing nearing full strength, those savings are shrinking. She calls the "root cause" revenue growth that "is not keeping pace with rising costs" and says the city must find new revenue. She warned at the session that the trend will continue for three years without it. Neither the letter nor the session proposed a specific new revenue source.

Council Member Jerry Cleworth said the budget's room tax amounts do not follow city code and asked for a legal review. The proposal lists $150,000 for Golden Heart Plaza and Barnette Landing maintenance and $500,000 for discretionary grants. City code lists $50,000 and $400,000. Explore Fairbanks would receive up to $2 million, down from about $2.4 million listed in the 2026 mayor's budget. By this newsroom's calculation, the code's formula would give the organization about $2.7 million from the budget's $5.5 million in room tax.

Administration officials said the room tax formula was met. Chief Financial Officer Margarita Bell said the $525,000 the formula would otherwise distribute moved to the room tax economic development line and did not go to salaries or operating costs.

The Public Safety Employees Association contract, covering police and dispatch, expires Dec. 31 and is not included in the budget. Bell estimated about $1 million, maybe a little more, in 2026 savings, also outside the budget, and said some of it is investment income that must go to the Capital Fund.

The council has work sessions scheduled Nov. 4, 5 and 6. Explore Fairbanks is set to present to the council Nov. 9. Regular meetings follow Nov. 9, Nov. 23, Dec. 3 and Dec. 14. The city charter requires adoption by Dec. 15. Otherwise, the budget estimate, as submitted or amended, takes effect.