Anchorage Assembly: Budget and Finance Committee-of-the-Whole

Zach Johnson. Daniel Voland. Anna Brawley. And on the phone we have Mr. McCormick. Here, thank you.

And we have members of the administration. They'll introduce themselves during their items, and folks from Budget Advisory Commission, MOA Trust Fund, members of the public, and Legislative Services, and the Clerk's Office. So our first couple of items are updates. So I will turn first to Mr. Slivka for the MOA Trust Fund Board, then I'll ask Mr. Mills to come back. Thank you.

Through the Chair, Alex Livka. Just to report, the MOA Trust Board met on May 29th and approved our annual letter report to the Assembly, which will be filed in one of your packets in due course. The highlights, among other things, in it is that the returns for the last 3 years have been about 11.8%. And to put that in context, our goal is inflation plus 4%, and that number is 7%. So the trust over the last 3 years has done an excellent job of outperforming inflation, keeping the current value of those funds in place to support dividends both today and in the future.

We also declared the first half of the dividend for this year, and on Monday that should have hit the bank account. 8.5— $2.6 Million was sent to the municipality.

The other thing I want to let you know, I've said it before, but we're going through an asset allocation review that most likely will have us coming to you in the fall wanting to revise code where it talks about allowable investments. Right now code is kind of convoluted and very confusing, and we want to clean that up a little bit. And most likely we're also going to want a little bit more authority to buy illiquid investments where the returns can be much higher. So just a— that's going to come in the future. And before that happens, I think we'll try to have a work session so we can be really clear about what we're doing and why.

And then just finally to remind you that the, the trust is and continues to be in full compliance of all chapters of code. And with that, I will see if there are any questions. Okay, thank you. And before we get to any questions, I'll just note we have Mr. Handlin on the phone at 10:02, and then Ms. Baldwin-Day and Ms. Park walked in person in about 10:03, 10:04. So any questions from members?

Questions? Okay, not seeing any. Thank you for being here. And then I'll just note for the body or for the committee body that we will hear some updates on these proposed code changes when they're available as the MOA Trust Board works through its process and/or we will have a work session if it really merits a full hour of discussion. So more on that in the fall.

Okay, next I will invite Mr. Billingsup to give our Budget Advisory Commission update.

Yeah, thank you. We met last week. It was a good meeting. We did the year-to-date revenue, looked through that. Thank you to Mr. Cipriano, Mr. Crawford for coming down and briefing us on that.

We also had a discussion about some upcoming meeting topics, and I think The plan that we have put together is to talk about the Foundation Formula for the school district in our August meeting and key into the school district budget cycle a little bit with some public outreach on that. And that might include a resolution or some public meetings, haven't fleshed out yet. And next month at our July meeting, we're looking at service areas. My intent is to bring myself and the other commissioners up to speed on how some of that works. So that any future service area conversations, we're up to speed and we can have valuable input.

Happy to take any questions. Okay, thank you. Questions for Mr. Mills? Ms. Baldwin-Day. Yeah, thanks for being here, Mr. Mills.

Um, do you have, um, after the, the conversation about the ASD Foundation formula, do you have other topics in mind or things that you're going to be interested in having the BAC briefed on? We have not discussed any topics past August. I know that typically in the fall we do focus on the budget cycle. That's normal for us. But we haven't said anything firm.

Happy to take suggestions. Sure. I'll send you an email. Sure. Thanks.

[FOREIGN LANGUAGE] Okay. Other questions from members? Okay, and as always, folks on the phone, just text me if you want to get in the queue. Okay, yeah, thank you, Mr. Mills, and looking forward to continuing to work with the Budget Advisory Commission. Thank you.

Okay, next we have— so I'll note we do have the agenda in front of us on paper, so I'll just note we're going to continue moving through our reports. I'll ask our presenters to try to keep it brief on all the— our usual reporting, we'll go through those, and then wanting to move to the muni fund positions hopefully by about 10:20, 10:25, and then saving about 15, 20 minutes at the end for discussion about our priorities resolution. So just wanting to keep time there. So next I will turn to—. I believe—.

I don't know if we're doing revenue or budget to actuals first, but I will turn to OMB to direct which order we want to do things. Okay. We'll have Mr. Cipriano come up, so we'll do our revenue report first. Thank you.

Glenn Cipriano, Municipal Treasurer. I have a brief report, Chair, for revenue summary highlights as they are recorded in SAP as of the dates of June 16th of this year. We're showing about 6.2% of the budgeted revenues for the year, about $38 million. And I'll just hit a few highlights if I could. Real property tax collection has begun.

Invoices were mailed out on the 1st of June. They come from Louisiana, so it does take a little bit of time to get here, but that process is underway. I'd call your attention to room tax. We're Paying a lot of attention to room tax this year. That's a very difficult revenue estimate to make.

Last year we thought we could see some peaking in retail traffic through the Anchorage area hotels and other providers. We're at $9.4 million for the first quarter, which will keep us on track for that $46, $47 million annual revenue estimate that we did. Most of the revenue, as you see in the notes, comes in July through October, so we're We're encouraged by the $9.4 million year-to-date, and I think we'll be on track for what Treasury had indicated at the end of the first quarter, which is that $46, $47 million number. Dropping down here, I call your attention to the motor fuel excise tax. We had forecasted $14 million.

Looks like we're on schedule for that. But if we see the current drop in oil prices continue— this morning, oil oil was at $74 for the standard crude price that we look at from the '90s. So we should see some pickup in the motor fuel excise tax numbers. On page 2, I'd call your attention to building safety, which is running ahead of our estimates. 2026, We have it $5.9 million, currently at $3.4 million.

That's a good indicator of future building activity. So that's very encouraging. Finally, I would look at alcohol and marijuana tax. We are seeing weakness in that revenue stream which began a couple of years ago, but has— I have a report here that I wanted to share some totals from. This is the Gallup tracking company, and they've reported that alcohol consumption in the US hit a record low in 2025 with only 54% of adults reporting that they drink.

This is the historic low in nearly 90 years of Gallup tracking. And we've seen that reflected in the state's collection of alcohol revenue tax. They've gone from a high of $21 million in 2022 down to about $19.5 million in 2025. So as that— As that revenue is dedicated to certain causes and We have tried to be as conservative as possible. For 2026, we're calling for 14.2 million, and I think we're going to be close to that number.

The same is true of marijuana. We said— we brought down our estimate to 5.0 million for the year of 2026 from 5.4 in 2025. And the cause there basically seems to be a retail saturation of the Anchorage area. But again, that— Mm-hmm. Revenue stream is dedicated to the ACE Fund, so we have advised them of what we are thinking about for 2026.

So as a brief summary, I think we're in good shape for the numbers that we saw at the end of the first quarter, but the economy seems basically to be flat, as we talked about, I think, at the end of the year. So with that, I'd be happy to take any questions. Okay, thank you. Questions from members.

Ms. Bolden-Dave. Everyone is shocked that I have questions. I actually wanted to return to something that you said right at the beginning of your presentation. I've gotten some very interesting questions from constituents about why we use a firm in Louisiana to print our tax bills. And is there—.

Why do we do that? And why is it not done, you know, in states, et cetera? If you could just speak to that briefly, I think that'd be very helpful for all of us in responding to questions. Sure. Through the chair, we have a formal RFP process, and the current vendor, who is Peregrine, has done this function for us as a successful bidder for at least 15 years that I'm aware.

And we had a little bit of a delay. We put in an insert kind of 2 or 3 days before the processing of those mailings was done. But to change that process, we'd have to go through a formal RFP process. And at the end of this year's— tax exercise. I think we're going to probably gather together with the CFO and kind of review best practices and see if that— if we should continue.

But it is the post office's services from Louisiana to Anchorage that caused the delay. Most, I say 75% of the invoices went out on the 1st of June, with the balance going out on the 2nd.

That is very helpful information. Thank you. Thanks. Next, Mr. Martinez and his part. Thank you.

Just go back to the revenue streams and the weaknesses in the revenue streams for alcohol and cannabis, particularly cannabis. Um, what's the dip from— what's the—. What—. I'm just not tracking the dip from what we thought it would be to what it is. And you described retail saturation as a reason.

That doesn't really make sense to me, but what's the dip first? The difference between 2026 actuals and our 2026 budget is $400,000 in annual revenues. And we changed our numbers due to the patterns we saw in the third quarter. And the reason for the dip is just the maturation of that industry in Anchorage, in my opinion. So in other words, you have companies creating their distribution network, and in my opinion, they're a little too aggressive early in the process of the legalization of marijuana, and then that catches up somewhere down the road.

And I think that's what we're seeing. I think that the— it's—. That's a—. Thank you for highlighting that. The number is very small in terms of the dip, and I wanted to flag that because we're not seeing a marked difference, which would sell me something else.

But it doesn't add up that saturation would change the number because the market still sells the amount, the same amount, customers still are buying the same amount, right? So like there's, that's a, that problem would be to the business side of it, not necessarily to the revenue collection for us in terms of the taxes. But it is interesting because I am tracking other phenomena that I think we can follow up with offline. Mm-hmm. That speak to why the dip may be softening, but it's not an incredible dip.

Um, and I think it has to do with tracking and some of the other products in the marketplace that might be impacting the returns that we're seeing. So I think there's a substantial conversation with enforcement that we can follow up with in terms of— Sure, and we will welcome that. Thank you. Thank you. Next, Ms. Park.

Would it be possible to have a provision to allow a preference for local contractors in the RFP? I defer to the administration for that. The answer is yes. We currently have a preference for local contractors in the invitation to bid process. There is not one for the RFP process.

Okay, thank you. Madam Chair. Yeah, Mr. Gergen. It's just more of a comment. I just want you to know I am personally committed to keep the alcohol numbers up as high as I can.

Somebody clip that. Somebody clip that right now.

I will note we have employee wellness programs.

Okay, thank you. Any other—. Mr. Gates, go ahead. On a more serious note, I was just wondering why The mailing for tax bills. Sure, we can hear.

Thank you. Go ahead. Am I on? Okay. Sorry.

I was just wondering why the mailing for tax bills, the contract is done by RFP instead of ITB.

I'd have to double-check for that. I'm— RFP is the process that's generally used.

I could follow up with you.

Thank you. Any other questions? Okay, thank you very much.

Then next we have, um, Ms. Brouse, I believe, and we'll look at our budget to actual numbers. Yes, thank you. Ona Brouse, Director of the Office of Management and Budget. I think most of you should have this most recent budget to actuals in front of you. The current status is we are 41.1% through the fiscal year on this report.

That's through the end of May. And the total number in the lower right-hand column of percent of budget spent and encumbered is 40%. So we are right on the nose. There in terms of the amount of budget that has been spent through the year. There are a couple of departments that are running slightly hotter than others, but they are the same departments that traditionally run hot throughout the beginning of the year and then balance out because of contractual encumbrances.

And also M&O, which we have talked about numerous times, and their first quarter snow activity. Mm-hmm. Had their labor running a little bit hotter than normal. But for the most part, our departments are swinging around the percentages they should be for the period that we're in right now. Any questions on page 1?

No. Okay. On page 2, the labor versus non-labor report. The labor budget for our departments is at 41%. Our non-labor is slightly underspent at 38%.

In the labor categories, you can see a few departments, as I mentioned before, that are running slightly hotter than the 40% through the year so far. And in the middle of the page, you can see maintenance and operations is running at 48%, and again, that's part of their first quarter record snowfall response. And let's see who else is a high number in here. Hmm, doesn't look like many. On the non-labor side, the Chief Administrative Officer, that department is, at 54%, and that's due to the venues and the contractual encumbrances that they make in the first quarter of the year.

Those numbers usually balance out. We have very high non-labor spend in PM&E at 80%, but that is because their non-labor budget is very small and the bulk of it is encumbered, not actually spent in contractual—. Contractual. Requirements, and for the most part, there aren't any departments that we've gotten reports from so far that are concerned about their non-labor. There have been a handful of cost increases in the fire department with fines and fees being— had to be paid by the fire department for some of our administrative paperwork, but I think that we will keep an eye on that and come to you at the end of the year if we need any sort of—.

Thank you. Additional fix there. Any questions on page 2?

I don't see any at this moment. Oh, Ms. Bondi. I'm sorry, if you, if you said this, I missed it. The Health Department, is that, is there a non-labor spend as a result of grant expenditures and encumbrances? What's up?

What's, what's up with the Health Department? Fantastic question. I love this one. And I said this specifically to the executives in the report. The Health Department, you'll notice a lot of that percentage is in the encumbrance column, and that is because the Health Department has, in the last couple of years, the Health Department has really done a 180 on their administrative budget keeping paperwork, the grants.

You'll see when we get to the alcohol tax and marijuana tax that the administrative response on the grants in particular is crackerjack. They are on top of it. They have encumbranced covered their contracts, they have gotten them out the door, and so there's a significant portion of the Health Department that is part of the contractual encumbrances related to their annual operations. But you— I should say that the Health Department is the department that during the budget process in first quarter we talked about having to come back to you with additional appropriations once we saw the community assistance numbers from the state. In order to round out the total dollars available for the shelter operations for the entire year.

They are not a different cost than the 2025 shelter, but because we had to cut the alcohol tax and had additional surge capacity consumed in the first quarter, there will be an appropriation that comes forward to the Assembly once the community assistance number is final and known. Thank you. Which we currently project it to be at least double what we have in our budget right now due to the legislative activity and the fact that they supercharged that fund during the legislative session. We're just waiting for it to clear the actual gubernatorial approval and come through from the DC CED with a number that they tell us is the total that Anchorage will be receiving. [SPEAKING NATIVE LANGUAGE] So that's the Health Department.

Okay. Okay, don't see any other questions. Overtime report. This is the comparison on the left side versus the right side is the '25 spend versus the '26 spend. Those are both interesting.

The right side is the '26 actuals. And so we wanna look at those to see how the departments are operating. Over the last few years, we have seen an imbalance in the use of OT for some of our departments because of the vacancy factors. They have had empty positions, so people have had to work more overtime than they normally would and/or work overtime at all, which means that they would be working without an overtime budget. So you can see that in a handful of the departments.

One of the key things that I noticed in this report in particular is that some of the departments that have been running more overtime in the last couple of years have started curbing that overtime activity in this year. So in particular, when you look at, you know, the Municipal Attorney's Office, about two-thirds of the way down the page, the 2025 overtime spend for the Municipal Attorney was almost $101,000. And that is not part of their approved budget, having an overtime spend. But if you look at the 2026 actuals, they're at about $8,500 spend in overtime. And that is a concerted effort to— from the director and the department to make sure that they are controlling that cost and that they now have full— I believe almost full personnel positions.

So the attorneys that had previously been relying on additional support from the people who worked in the department and contractual support are turning it into more of the regular budgeted labor cost. There's, let's see, other departments that have curbed greatly, let's see. The Health Department, again, is one of those departments that has a relatively small OT budget, and their actual overtime so far this year is only $10,000. So their ability to constrain the amount of overtime they're consuming because they finally have a full personnel roster is, is very good in terms of what we are trying to get to on some of these overtime totals. Thank you.

Our police and fire departments are still running hotter than their overtime budgets. They traditionally do. One of the reasons that we'll highlight in the fall when we talk about overtime budgets again is that some of these total dollar amounts need to be adjusted for the labor increases that have actually occurred in the last few years because these are calculated based on the amount of wage that it takes to clear an overtime hour. And The maintenance and operations line item, we talked about this at the last meeting. Again, this department, because of their first quarter snow response, has consumed almost 100% of their annual overtime budget.

And so part of the item that you have on the agenda for Tuesday is approving additional overtime budget for maintenance and operations, as well as the funding that goes along with that M&O overtime appropriation from unspent 2025 budget. So that's on your agenda for Tuesday. Any questions? Don't see any right now. Okay.

Next page is the travel budget. Oh. The travel budget is on track and underspent significantly, but that fluctuates depending on the department activity. I will note that the last meeting we talked about the pending adjustment for the fire department. Because of the amount of reimbursable travel that the fire department is doing with the state on the wildfire season.

So we would expect to see next month a budget adjustment there with almost all of the additional travel being reimbursable and not directly from municipal operating. The next page is the alcohol tax, and this is part of what I was mentioning earlier with the health department. If you look at the alcohol tax report in the right-hand column, the percent of budget spent and encumbered is at 94%. And that is due to the fact that the bulk of the alcohol tax is our grant awards or contractual encumbrances. And so the top category of child abuse, sexual assault, and domestic violence prevention, those are— grants that are rolled out by the Health Department.

The homelessness category is mostly contractual encumbrances for performance under the sheltering system and housing and homelessness operations. And so the alcohol tax being at 94% encumbered and spent at 41% through the year, I think I can factually say has never occurred during the alcohol tax existence in the, in the 6 years that the alcohol tax has been functional, we have never been on top of the budgeting, accounting, and reporting like we are this year.

Any questions on alcohol tax items? Mr. Johnson. Yeah, thanks. So my recollection is that we adjusted this because we we're estimating we would receive less alcohol revenue this year, but then we also heard from Mr. Saprano that we're maybe even underperforming our lower expectations. Are we going to have to maybe adjust this again?

Through the Chair to Member Johnson, I didn't necessarily get that from Glen's statement. I think it's a let's wait and see how it goes. For the most part, we cut the budget, we wait to see how the amounts are actually rolling in. I would expect if we need to make another adjustment, it would be done in one of two ways. We would either make an adjustment towards the end of this year, either in Q3 or Q4, or we would resolve it in an under-budget practice in the '27.

Because it's a closed fund, the revenue and the spend stays in the same place. So if we accidentally overspend— but not actually overspend, it's that the revenue didn't come all the way in— then the subsequent year would have to be budgeted in a tighter fashion in order to make up the deficit. Okay. Okay, thank you. And the next page is the marijuana tax and the ACE Fund.

And this is again in a very strong encumbered and spent practice of 83% so far. And again, most of that is— there's about 6 or 7, I think, budget line items that are active in the ACE Fund, and the largest ones have been encumbered in the grant category. And then board administration and tax collection are the administrative categories that have consumed an appropriate amount of budget for the timeline through the year. Any questions from members?

Okay, I just have one quick question before we finish up here, and best beginning in the ACE Fund. I know that's been funded by alcohol tax in the past, just wondering, I see it's 0%. I know there's also been some issue around, you know, it's been granted, the intent is there, and then it has run into some issues. So is this one, when is that expected to go? That's a very good question.

And one of the things that has changed about the Best Beginnings Grant is that because the Health Department has been doing the bulk of the grant administration on the alcohol tax and marijuana tax items, The health department is administering this library-appropriated grant for Best Beginnings, but that transition happened a couple of months ago. I spoke with the library yesterday, and they said as far as they know that it's on track to be appropriated and given to the organization. I think it's a reporting requirement in getting the information back from Best Beginnings before the new grant can be—. Mm-hmm. Put out the door, but I can ask the Health Department specifically on what the status is, and hopefully by the next meeting we will have it complete or aware of where we're at with that one.

Great, thank you. Any other last call questions from members? Okay, not seeing any. Thanks for the reports. Then we will move on to our— one of our bigger substantive items, and we will talk about the current position of our muni funds, specifically those in deficit.

Address it. So I will turn it to Mr. Fauzi, and I'll note we have a presentation online and on paper. All right, thank you, Madam Chair. This is the first of what I think is going to be several conversations for us between the administration and the assembly, and I think is actually a kind of gratifying place for us to find ourselves in now, because one of the mayor's priorities has really been good government and getting our finances back in order. This is the beginning of that next piece of that puzzle.

We are still behind in our ACFR timeline, but knock on wood, everyone knock on wood, we should be receiving our audited financials on Monday. And so when we are able now to tell you with high probability what these muni fund positions are that are of interest. So every ACFR has contained for the last many years this section in Note 2, Subsection B, on deficit fund balances and deficit net positions. I'm sure you're all intimately familiar with Note 2, Subsection B. Here is what the 2024 one will look like when we receive it on Monday.

In the past, I have said there are 4 funds that are in deficit. Here you'll see in this note the General Liability Workers' Compensation Fund, which is showing a fund deficit of $16.6 million. Number 2, the IT Internal Services Technology Fund showing a fund deficit of $14.7 million. Number 3, the enigmatically named Other Restricted Resources Fund showing a fund deficit of over half a million dollars. That decodes as the Downtown Improvement District.

Number 4, the Federal Grants Fund is showing a small deficit of $1.1 million. And everyone is saying, wait a minute, I thought the 4th fund was— Oh, And that's a really unfinished FEMA recovery. Number— we talked in the past, the 4th fund has been the Building Safety Service Area. So I'm going to say there are 4 plus 1, which is 5, and I'm going to take you on a whirlwind tour of every one of those. The longest conversation we're going to have is about workers' compensation and general liability.

And this shows up with a growing fund deficit. And right now we're at $16.6 million. That is over $15 million from the previous year. And this is known to us because we've been having this conversation in the Audit Committee section— setting. So Internal Audit released a report that said this fund deficit was growing.

That is absolutely true. And that audit report, when management's responses included showing how the fund deficit has changed over time— So the fund has been in a small deficit position for a number of years. Years, but it really began to take off after 2020. So instead of hanging at $3, $4, or $5 million, after 2020 we went $6.5, $9.4, $13.7. We're going to get a little bit into the weeds on this to get our common understanding of what this is about.

The current liabilities of the fund, which roll into the overall fund deficit, include these claims incurred but not reported., which also get called IBNR because in order to make things more inscrutable, we use acronyms. So, um, they're IBNR. What is IBNR? IBNR is an estimated claims expense, and I put in a definition that we put in the audit report here. You can think of this as we know we're a going concern.

Somewhere out there in the municipality, someone has tweaked their back but doesn't know it yet, or someone has been exposed to a chemical that's going to cause some kind of claim down the road. These are all claims that we are squirreling away money before, but that haven't shown up on our shores. And we don't make up that number. That IBNR number is given to us by a contractor that gives us a 150-page report. It's full of regression analysis and interesting graphs.

That number has changed a lot over time. And what I wanted to show here is that part of the story of why this fund deficit has grown is that The IBNR, the claims that we know we should keep money— what's scrolled away for, but that haven't actually materialized yet— has significantly grown. It's grown by about $3 million since 2019, 2020. And that does account for a good chunk of the swing here. If you're thinking about the fund just on like a claims-incurred cash kind of basis, the fund has itself been solvent through 2021, but it did kind of go actually, no kidding, negative in 2022.

The other thing I want to say about that is that the workers' compensation general liability fund not only has liabilities, claims that it actually has to pay, but it has some assets, and one of the assets is listed here as advances to other funds. What is that? You probably would not be able to guess. It is actually the archives property. When the municipality in 2017 was given the opportunity to acquire the Archives site for future development and had to buy it for about $6 million.

And at the time, the decision was made to use an inter-fund loan to take some of the cash out of the Workers' Compensation General Liability Fund to front that. So now this fund is owed just under $6 million, $5.8 million, which is supposed to receive back when the Archives property is sold. There's a small amount of interest that's associated with that. The Assembly extended the term on that in 2024. So if you're thinking, you're trying to get your mind around the entirety of this Workers' Compensation General Liability Fund, there is an actual fund deficit and there is a looming reimbursement that has to happen somewhere down the road after the Archives property is sold.

And of course, I should say here, if the Archives property sells for $8 million, it gets fully reimbursed. If the Archives property sells for $4 million, we have to make up that deficit to this fund too.

Okay, the punchlines are the deficit in this, in this account is really an accounting issue. It doesn't affect any real-world service of general liability or workers' compensation claims. We are now attempting to stop the bleeding by doing an annual true-up. So we look at our actual claims experience for the previous year, the current employees we really have on the books by their department,, and we are no longer trying to dig this hole. But clearing this deficit is going to require real money, meaning that because we have undercollected for this fund for several years, at some point you will need— we, the collective we, will need to put cash into this account that otherwise would go to services.

So fixing this is going to involve a real trade-off. Okay, that's the end of workers' compensation, general liability. Uh, just one quick question, and then I'll pause and see if there's— because I know this is a big one. Just to make sure that I'm understanding. So I'm going to use the analogy of like an HOA, homeowners association, where you're putting away money for capital improvements.

I realize it's different. And so what you're saying is that it's not that we have a number of claims that we can't pay for now, it's more that we are anticipating that the volume of claims that we might have in the future means that we're not collecting enough money to pay for those, in theory, in addition to these other issues. I would say it's a little bit of both. For many years, I can say stepping all the way back, we pay all of our claims. We always pay all of our claims.

Whether this fund is at a minus $1 billion or plus $1 billion, it doesn't change the actual program itself. We're paying our claims. For many years, we were under-collecting on the claims we didn't know about, the incurred but not yet reported. In the last few years, we have actually been under-collecting for the actual experience, although we stopped doing that in this budget cycle. So this is, this is not correct.

This is a thing that we do need a plan to correct at some point down the road.

Through the Chair, part of it is that this fund and the way this fund is recovered should be calculated and analyzed on an annual basis. There were a few years where that was not occurring, and during that time frame, the costs of the claims also increased. So the inflationary impacts of the cost of everything combined with the, the sort of lost corrections on an annual basis to do this annual true-up that we have now done sort of ballooned the deficit that we saw occurring. So now we're able to come in, understand what the actual numbers should be going forward, how much we should be—. Mm-hmm.

Putting into the departments for collections, how much we expect these new costs to, to impact our budget to have to collect. And so we would expect that the movement going forward should begin to mimic the previous activity where we sort of sustain a relatively stable deficit position. But, but the, the size of the deficit position is what we would like to get away from and correct for what we can correct for going forward, which will help sort of smooth it out and adjust it down over time. Thank you. Uh, Ms. Baldwin-Day.

So to, to be sure I, I heard you correctly, so the, the recalculation of our workers' compensation rates that hasn't happened or hasn't been happening has now happened. We've done that work. Awesome. So in essence, we are going to now stop digging the hole deeper, and the question is, how do we backfill the hole that exists? Excellent.

Thank you. That's exactly correct. All right. I said—. Go ahead.

Thanks. I'm still actively learning all of this, so appreciate the patience with my questions, but to me, it just obviously seems very bizarre that there was a loan from the workers' comp, like, category of our budget to buy an archives building. Yeah. Yeah. Oh, just the land.

Okay. And so, and it feels— and obviously this, like, balloons the deficit that we see in this category. Is that right? Like, it could, I would say, meaning it all depends on what the archives property actually sells for. Okay, but is that liability currently being reflected in the, like, $16 million?

I would say the opposite is true. It's currently reflected as an asset. As an asset. It is owed $5.8 million from general government. Okay, got it.

And through the Chair, I would say that while it may seem bizarre, it was part of the Assembly approval process in order to acquire the Archives site because the municipality saw value in the archive site. Right. And the inter-fund loan nature of it, I think, is something that the municipality uses in other funds in for other assets. This one was just particular for workers' comp, and ideally, once the property is sold, the revenue goes back in and the loan is taken care of and it's no longer an issue. I think the timeline for the sale has been much longer than anybody really anticipated, including the Assembly when it was approved.

Okay, thank you. Thank you. I'll just note it looks like that was originally approved in 2017. Okay. Okay, mindful of the time, I said that would be the longest one.

I think we'll go through the remainder of these. [FOREIGN LANGUAGE] Okay, fund number 2 is the Information Technology Fund, and this one is an even more complicated story. The net position of the IT Fund is minus $14.7 million, and that has grown over the $10 million, but it is not a cash fund. It is a full accounting capital assets with depreciation fund, which makes this harder to intuitively understand for moving money around. What do I mean by that?

In the assets of this fund, it is the capital that we bought, the stuff we bought in the fund minus its actual depreciation. So we bought SAP, it had a cost basis, and we've been slowly depreciating it over time. The main story for why that fund is continuing to go negative is that the depreciation is outstripping the department's payments back into the fund. And that means this is actually pretty confounded by non-cash accounting issues, but there is a real kind of cash story that's in the base of this, which is when we bought SAP, there was a decision made at the time to not require the departments to pay back the cost of SAP on the same timeline that we depreciated SAP. So if SAP all-in cost $80 million, For accounting purposes, you're taking that down to zero at some point in the distant future.

And way we actually pay for that was we take it out of this fund, and then each of the departments annually in their budget is paying some intergovernmental charge to pay off that cost. But that is happening over a longer timeframe than the depreciation is occurring. The punchline for that is this net deficit position is not a cash deficit. It's not like $14 million of cash is missing. It's a complicated non-cash story.

The cash story, to the extent we can pull that thread out, is that the debt for SAP was paid faster than the recovery from the departments. Annually right now, the departments are pushing about 4— the departments and the enterprises are pushing about $4 million through 2020— 2033 to pay off the full SAP debt. That breaks down as about 64% from general government and about 36% from the enterprises and the utilities. If you push money into this fund, you can make that— you can change that annual amount that is going to the IT fund from the departments through 2033. But this story is also kind of complicated because the fund will recover on its own, meaning by 2034, this problem will fix itself.

Okay.

So what happens when we have to pay more money to SAP for updates and whiz-bangs and wangdoodles and whatever it is that we pay them for? We spend a lot on wangdoodles, and we are actually wangdoodling this fall. On Labor Day, we are implementing the S/4HANA upgrade. Which I like to think of as a little bit like moving from Windows 10 to Windows 11. So there are more costs associated with SAP, just as there are other software costs, and that's what that IT fund is for, that we're making multi-year cost purchases and then spreading them out over time.

I take that maybe what may be behind that question is what happens if we don't recover on the same timeline as the draws from that fund so that it does go into a deficit position. Yes. I mean, effectively, the fund is just borrowing from the cash pool, right? I mean, the bills still get paid, everything still works out, but internally, there is an accounting where, oh, the IT fund overspent or is in a deficit position, and so it is taking away from the cash pool, and there's an accounting and an interest true-up that happens there. So through the Chair, because we recover this through intergovernmental charges, IGCs, to all of the departments, essentially, if we needed to— collect more, what we would do is increase the amount of the departmental IGCs, and then all of the department budgets would either go up or the non-IGC line items in each of the budgets would have to be cut in order to accommodate that IGC increase.

So ultimately it lands as we have to find more money. Because that's where it all lands in the end. So will our fall Windows 11 update, will that purchase essentially push this fund further into a deficit position? How does that work? S/4HANA is budgeted right now.

So the, so that, and that's how going forward any capital projects or IT investments that need to be made are ideally part of the approved and known budget, and then we build in that recovery, and ideally the depreciation and recovery timelines are the same, and so we don't get this sort of inversion activity that's going on on this one. But for the most part, it's, it's part of our standard budget and spend process. Okay, thank you. Really quick before we continue, just housekeeping. Is there anyone here to provide audience participation?

I don't see anybody. And it's mostly employees back there. So I'm going to ask the body's indulgence if we can extend to 10 after. I know there is a committee meeting after this. But I want to make sure that we get through this and then we have a very brief discussion about this budget priorities resolution.

So, okay. So that will be the plan. So we'll go on. So the third fund. Okay.

Two funds down, three to go. But they get much faster. Fund number 3, the Other Restricted Resources Fund, which is really code for the Downtown Improvement District. It's now showing an over half a million dollar fund deficit, which grew, grew over its $350,000 fund deficit. This is—.

Not a general government tax story because reminder, what's supposed to happen here is that the downtown businesses and property owners have voted themselves into a special assessment district. Which largely goes to pay for the Anchorage Downtown Partnership. They're supposed to collect— we're supposed to help them collect those special assessment dollars and then return it back to the Anchorage Downtown Partnership. It should be what goes in comes back out. That's not what's happening here.

And the, the 2024 ACFR is going to show that we budgeted to collect $1.1 million in special assessment revenue, but actually only collected $900,000, which is causing this variance. I will candidly confess to this assembly, this is a work in progress that I have not— this is a mystery that I have not fully solved yet. And as part of investigating this, I didn't have this slide in the printed version. I am now discovering, as we have elected to pick up all the rocks, that there are mysteries behind just about every rock that we pick up. This is the Downtown Improvement District fund balance since nearly the beginning of time.

It was approved in 1996. It went into operation in 1998. And for some reason it has been hanging in a negative position pretty much annually. And I think I maybe can guess as to why that occurs. I think we pay the budgeted amount and then there's been an annual true-up, but something has gone— something different has happened since 2026, and I don't know what that something different is yet, but I am committed to figuring it out and then we'll bring some kind of solution to the body.

Um, what I will say is whatever the solution is, is that it is almost— it is very likely not a general government tax solution because this is supposed to be a self-contained issue. Okay, still under investigation. Fix not general government. Number 4, federal grants. That one is then the negative $1.1 million.

That one is a relatively straightforward story. I think is well known to this body that it's still the pending amount of FEMA disaster recovery going all the way back to the earthquake. And that brings me to number 5, the Building Safety Service Area. The Building Safety Service Area is found in the detailed statements, not the actual act for itself, and it will now show that its total fund deficit is $12.8 million, and uniquely, it's actually a little better than it was the last year. It is a long-standing issue—.

Okay. —Dating all the way back to a 2010 decision to say we're no longer going to collect taxes for the Building Safety Service Area and all the humans and the people that are working in development services. And instead, the decision at the time was to say it should be 100% fee supported. That didn't work out pretty immediately. By about 2013, at least by 2013, because I couldn't find the detailed statements for 2011 and 2012, but at least by 2013, the fees are not covering the costs.

We have in recent years as a community chipped away at that deficit with a small levy, which eats tax cap capacity. Mm-hmm. So if you are filling this building safety service area with a tax levy, that is taxes you can't levy for police, fire, parks, or roads. It's not individually flagged in Note 2, Subsection B, because it's actually part of the overall five majors fund balance. So it doesn't get reported in the main ACFR as a fund of sort of interest.

But the punchline for that is, If there is a general government 5 major fund balance, you can clear this deficit without actually spending any cash, meaning there isn't an opportunity cost. If you have $1 of general government fund balance, you don't have to spend that dollar to put a dollar into the Building Safety Service Area. You do need to operationalize it in a budget, and it does affect how taxes are levied. But you can relatively costlessly fix this. And the one piece of good news I will end with here is we said long ago in August that we had already in the 2023 ACFR realized a significant FEMA recovery, but it was accounted for in the wrong place.

We have fixed that for the 2024 accounting. So I'm highly confident there will be a positive fund balance, which means our intent is It's proposed that we clear the Building Safety Service Area deficit entirely in the next budget cycle. And that brings me to the end. Thank you. So that was a lot of financial information.

Thank you very much. Questions from members?

Okay, not seeing— oh, Ms. Zuckow. Yeah, and again, thanks for your patience as I learn. Are there any— is this the appropriate time, I guess, to ask about any potential projections about liabilities or impacts to our liabilities and deficits with school closures? Is that something that will be part of this conversation in the future, do you think? I would say probably not.

The school district's funds do roll up into our report. Reporting, but with the school closures, there's going to be conversations about where those properties go. Formally, those are all held by the municipality, so I don't think it creates an accounting problem. It does create a cost, though, because we then become responsible for the utilities and the associated with those buildings once they are no longer occupied. Okay, thanks.

Mr.

Thank you. I think I heard you say on the tail end, Bill, there in this budget cycle, we are attempting to get rid of the BSSA deficit. In the 2027. Through the chair, we have to go through the 2027 budget development in order to determine how and exactly how much of the BSSA can be transitioned during the 2027 budget. It's the intention to clear all of it, but I think while we're finalizing the ACFR and working through '27 development, we'll have more information about how we're actually able to do that.

And to that point, next month, I think it's the intent for me to dazzle you with a presentation about service areas. [FOREIGN LANGUAGE] And so that will carry forward some of this content that Mr. Falzy has spoken about today. Because the, the service areas and the relationship of the service areas within the municipality play a lot into how we can recover this and, and how the taxes are levied just generally throughout the municipality. So, um, I think that we'll learn more about service areas and how the BSSA specifically is impacted and what we can do looking forward to '27. Service areas tend to be pretty non-controversial on this body.

No, um, If I could get like a sneak preview, what would be the vehicle, like the mechanism? I mean, is it cuts elsewhere in the budget? Is it something for voters? No, so because of the nature of the tax cap and the funds that are included in the tax cap, the 5 majors, the BSSA is one of those funds, even though that makes it a 6th major, which we'll get into more again next month. What happens is when there is a fund balance available in any of those funds, because they have a similar footprint, we are able to toggle the levies within each different service area specifically to spread out that, that cost recovery.

And ideally, the, the way you do that is either in a stepped progression if the service areas are vastly different, but when they're similar, you can shut one off and turn one on, and it's the same property tax impact. Okay, great. Thank you. Thank you. So I know we're, we're got 10 minutes left now, or up to 10 minutes.

I'll just bookend this with a couple things. One is any detailed discussion about the ACFR and other audits will be at the Audit Committee, of course. We bring these in to the extent that they affect our finances overall, and they have big implications there. I also note the thing that Bill did not say, Mr. Fauzi did not say, was if we build more stuff, the Building Safety Service Area also fills itself back up, as we saw in the revenue. And so that is also a relevant piece piece of that conversation.

And then I'll note there's a number of things that happened in 2010 that I think we want to keep unpacking, policy choices that have implications for today. So we will also be coming back to that topic. And I think, yeah, just setting the stage for kind of bigger conversations. So whether it's a work session or in this committee, we will continue to dig into these issues. So thank you so much for the information.

More to come. And lastly, we'll briefly turn to— you have two documents before you, and this is really just to start a discussion.. And we'll kind of have— we can have more time in the July meeting for this as well. But just to orient you very briefly, so for the past several years, the Assembly has passed sometime in the summer, sometimes early fall, budget guidance for the administration as they develop the budget. Of course, we get the end of the process.

They are developing it right now, working with departments, but we also have the opportunity to express our policy priorities up front. So provided here is a PDF of the 2025 version, and then the very drafty version that you're seeing here with a bunch of notes and kind of fill this in is a first pass at doing this from myself, Mr. Boland, and Ms. Baldwin-Day, who has joined us as the third member on this committee. But this— the goal is not that this coming from three of us, it's from all of us. So we wanted to bring this to you all. Um, And I'll turn you to the second page.

So really, you know, we have whereas clauses. You'll see last year's, we kind of laid out some of the things that we were talking about and why. So again, this is a draft. We want input, members' input. But I'll just note kind of briefly what's drafted here now.

And then of course for discussion and reaction. This has two sections. The first section really deals with asking for information in what's called the preliminary budget memo or the 120-day memo that that will come out around September 1st. So it's really asking for basically scenarios or any information to really, you know, project that the point of that memo is to say, here's the revenue we expect, here's the big trends, here's our capital improvement program list, and really kind of a preview of what the actual budget will look like. So the 3 sections here are asking for basically what happens or what— Yeah.

What would it look like if we fully funded schools within the cap at our optional local contribution? How much would that require of cuts to other services? And the reverse situation, if we fully funded general government, what would that look like in terms of a reduction? 'Cause we know that that's on the table. Another option, of course, for this body is to take a position on those, but I think we just don't have the information right now.

So that's one request. The second one is asking really about, quoting, I believe it was Donald Rumsfeld, the known knowns and unknown unknowns. We don't know the unknown unknowns, but we do know there's some factors that we just don't understand right now the impacts of. So we know there will be additional personnel at JBAB, for example. That is a fact.

We don't know exactly what that might do to our budget. And then we also have things like the natural gas line development that's actively being discussed as we speak, other potential projects. We know that there's discussion about a sustainably funded Wildland Fire Division. So really just asking for some kind of initial, even if it's just general statements about what that might look like to kind of help us think about what the next year's budget looks like. The second section, and I'll keep it even shorter, is really what we did last year and just writing, you know, what are our general policy statements, whether it's very broad, like, you know, looking at expectations for what sustainably funded services look like, or getting very specific and talking about— [FOREIGN LANGUAGE] Last year we talked about a few specific things you can see in that memo.

So I'll stop talking there, but I think just if folks have thoughts, questions, or things that you would like to see in this resolution, the intent is that we bring this forward probably at the July 21st meeting, so we have some time. And of course, this does not need to reflect every single person's individual priorities. We want to find what, you know, at least a majority of us can agree on at this point. Thank you. So, so I'll stop talking there and just see if there's initial reactions, thoughts, questions, even if it's just a request for more information.

Sounds like you all love it.

Yeah. Yeah, and I recognize folks are just reading through it now, so.

Miss Baldwin, thank you. How would you like to receive feedback about this draft? That is a good question. I think certainly we need to run things through staff. So right now, normally we would have a budget analyst who would be working with us on that.

Right now that person is our clerk, Ms. Hines. So I think one, one thought is to send those individual priorities, whether it's marked up as as an amendment to this. Of course, this is a draft, so don't look at this as, you know, final. And then the other would be that we, I guess I would ask the body, do we want to just take this up at our next committee meeting? Do we want to try to schedule a work session sometime after the Fourth of July, essentially?

Ms. Scott, go ahead. I'm wondering if this could be an opportunity to have a more public conversation, like a— yeah, a more public meeting or work session where we do some targeted outreach to folks, maybe as like a follow-up to the— our muni— our budget conversations, bring people in on what they want to prioritize and learn about through this process.

That's more of a comment. Yeah, yeah, I think that's an interesting idea, and certainly this is meant to reflect the body. I guess one, to partly answer that question, I'll ask OMB kind of, you know, we, last year we passed this in September. We know that's pretty late. In terms of kind of when some kind of guidance like this would be useful, what timeframe would you recommend?

I think unfortunately the answer is it depends. Through the Chair, I would say the larger the dynamic of the recommendation or the sort of prioritization that you would like to see the administration look at, the more time we need in order to be able to do it. And so if it is about reimagining the funding of a specific program or of cutting a specific program, we would need to know that by August at the latest, I think. When it comes to—. Thank you.

Smaller cost items or adjustments, those are things that can be ideally flexed in between the September through November timeframe. But August, I think, is the latest when— that we would really have to be able to contemplate moving large pieces around. Mr. Voland. Thank you, Chair. I think that's a really good question from Member Scout.

I think where I see this piece, this is sort of like the beginning of the budget conversation. And if you, as you read through a lot of the resolves, mostly these are informational requests, you know, provide for us these scenarios, you know, identify where we, there can maybe be efficiencies.

There's a little bit of sort of our priorities, but those are kind of established priorities, housing, for instance. So that kind of kicks off the dialogue, and then we hear from the administration what their priorities are, and also a response to our informational request in this document.

But then, you know, we have until November to really engage with the community and the public, and I think, yeah, there could be ample opportunity for discussion about what do we do and what are, you know, what are the expectations as a community for municipal services when we're facing, you know, a potential fiscal cliff? What are the trade-offs? What future revenue sources does our municipality want to have a serious conversation about? So, yeah, I think that this is— this could move forward on the timeline that we just talked about with the anticipation that, yeah, we need to have a really robust public conversation. Thank you.

Ms. Baldwin-Day. Ms. Brouse, going back to your, your, uh, it depends answer, if we were going to put forward some kind of preferred framework, uh, in terms of, for example, number 3 asks for a little bit of a recalibration of the CIP and the CIB and to consider projects in terms of acuity, really, like urgency and severity of need versus how long have we just been sort of carrying this project on the list? Would— is that a sooner than later kind of piece of policy guidance? Through the Chair to Member Baldwin-Day, I can look to Mr. Wilbur here, but I would say that the department already looks at the acuity of when they're ranking and cataloging the recommendations to the administration. But when it comes to something like the framework of how we would look at the capital projects, we would need to know that in July, because that's when we start looking at them.

But the sort of movement of Project A over Project— A, no, G— to go here and there because it has become an emergency or because it is a specific emergency within a district, that can happen throughout the entire process through November.

Yeah, Mr. Gerker. Yeah, as far as the, uh, where we have this discussion, makes sense to me to make this a committee, uh, discussion because that does also leave the opportunity for the public to come and testify versus a work session, um, and because I don't want to have more meetings.

Yeah, that's fair. And if you've looked at the July calendar, you'll see that as a challenge. So, um, And I think to Ms. Counts' point too, I think that is a great thing that we could recommend in here is essentially robust public engagement, which I think we all strive to do, but we often get charging along on the timeline that we have for the budget. So yeah, so I think, so next steps on this, we'll bring it back to the committee next month.

We'll make sure we have time to discuss it, ample time to discuss it. And then in the meantime, if you have individual thoughts, please share with Jamie by email, and then we can bring those back. And then the three of us will work certainly incorporating those. And then ultimately, this is a resolution we would have on our agenda. It's not a public hearing item, but we can also entertain floor amendments because, as you can see on the version that we passed, there were amendments at the end that time.

So, okay, Miss Brouse, last comment. I just wanted to make the comment that this reminded me that in 2024— well, in the 2025 proposed process, we changed the way we did the 120-day memo, and in the capital Project Consideration specifically, we included the entire list of eligible projects from the departments as opposed to.