Fairbanks mayor proposes cutting capital spending 92.5%, citing lawsuit payments

Fairbanks Mayor Mindy O'Neall has proposed a 2027 city budget that cuts capital spending by 92.5%, citing payments on a lawsuit settlement. The City Council began reviewing it at a work session Monday.

"I don't want to run a city like this, but the payments to the lawsuit have put us into this position," O'Neall told the council at Monday's session.

Capital spending would drop from about $16.4 million in this year's amended budget to about $1.2 million. Left out are a $950,000 storm drain on B Street and $476,000 in police vehicles.

O'Neall's budget letter says most major capital projects are set to finish this year, and that the budget holds off on major capital investments for a year "to rebuild capital reserves."

The settlement is Roberts et al. v. City of Fairbanks, which the city settled in March 2025 for $11.5 million, according to its 2025 financial report. The last payment, $3.25 million, is due this year. The city's risk fund ended 2025 about $5.2 million in the red.

A federal court case with the same title was brought by plaintiffs who were convicted in a 1997 murder. Their convictions were vacated by agreement in 2015, and they sued, alleging manufactured evidence and false statements. Available records don't confirm it's the same case.

The city's 2026 property tax rate rose to 6.381 mills from 5.833, including 0.860 mills for claims and judgments, according to the levy resolution. Another $4 million in those taxes was put off, to be collected over five to 10 years starting in 2028. The 2027 proposal would raise property tax revenue by about $1.1 million, to $19.4 million.

The city's general fund balance fell 26.6% in 2025, partly because the council voted 5-1 that June to transfer $3 million instead of levying it in property taxes. Council Member Valerie Therrien, who voted no, said Monday, "We lost a lot of interest as a result of that."

O'Neall's letter calls the budget balanced, counting transfers and other financing. But day-to-day spending would outpace day-to-day revenue by about $4.9 million, and the biggest piece filling that gap is a $6.1 million transfer from the city's Permanent Fund.

O'Neall wrote that for decades, vacant city jobs freed up salary money that helped pay for capital projects. Now that police and dispatch are nearly fully staffed, that cushion is shrinking. She called the "root cause" revenue growth that "is not keeping pace with rising costs" and said the city needs new revenue. She didn't propose a specific source.

Council Member Jerry Cleworth said the budget's hotel room tax amounts don't follow city code and asked for a legal review. The budget would give Explore Fairbanks, the city's tourism bureau, up to $2 million, down from about $2.4 million in the mayor's 2026 budget. By Alaska News' calculation, the formula in city code would give it about $2.7 million.

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

The budget doesn't account for a new police and dispatch union contract; the current one expires Dec. 31. The council must adopt a budget by Dec. 15, or the mayor's version takes effect as submitted or amended.