Loading...
HomeMy WebLinkAbout1987-02-03 Economic Development Commission SummaryECONOMIC DEVELOPMENT COMMITTEE February 3, 1987 - 7:00 PM Kenai City Hall Vince O' Reill¥, Chairman AGENDA 1. ROLL CALL 2. APPROVAL OF AGENDA 3. APPROVAL OF MINUTES of January 27, 1987 4. REVIEW OF PROGRESS TO DATE 5. PRESENTATION OF NEW MATERIAL 6. PRESENTATION OF TESTIFIERS AND/OR SPECIALISTS a. Roy Barton, Kenai Peninsula Borough - Finance Dept. b. Dick Swarner, Kenai Peninsula Borough School District c. Jack Cline, Kenai Peninsula Borough Tax. Assessor d. Charles Brown, City of Kenai Finance Director 6. PUBLIC TESTIMONY 7. COMMITTEE DISCUSSION a. Investigate Free Trade Zone - Request from Council 8. PREPARE NEXT AGENDA 9. ADJOURNMENT (9: 30 PM) ECONOMIC DEVELOPMENT COMMITTEE February 3, 1987 - 7:00 PM Kenai City Hall Vince O' Reilly, Chairman 1. ROLL CALL Ail Committee Members Present 2. APPROVAL OF AGENDA Secretary Loper asked to delete items 6a - c, the speakers were not able to attend. Mr. Bill Brighton will be speaking in place of Mr. Brown. 3. APPROVAL OF MINUTES of January 27, 1987 Committee Member Elson asked that paragraph 3, page 24 be changed to read: "Elson: Are there any physical or financial limitations, as far as communications are concerned in Kenai, that would prohibit marketing to a communications oriented industry with a possible need for international connections? Mr. Hyatt's response. Elson- I realize you are limited to local service, but you are familiar with the connecting carriers. Do you have any knowledge of conditions that would be limit Kenai in marketing? Mr. Hyatt: No." NOTE: Taken verbatim from written script. The Committee approved the minutes with the amendment. 4. REVIEW OF PROGRESS TO DATE The Committee agreed to consider bringing back some of the speakers that were unable to attend prior meetings. The second item of discussion was how to approach putting a report together. Committee Member Bond referenced the report received which Juneau had compiled, focusing on revenue and diversifying the economy. By developing our economy we will necessarily enhance the revenue which is a better way to focus on development. Juneau is focussing on the end result. Committee Member Elson felt that we should be taking an inventory of the City, looking at the positive sides and negative sides, then using that information for a report for persons in the private sector who may be interested in developing in Kenai. Also, there may be a need for a particular action on the ECONOMIC DEVEL lENT COMMITTEE February 10, 1987 Page 2 part of city government to respond. The role of economic development cannot stop at the door of the merchant nor City Hall, because their financial welfare is intertwined. We need to develop an inventory, then a full economic analysis as to what we recommend to the city government for the steps necessary to enhance the overall economic climate. See Page 9. 5. PRESENTATION OF NEW MATERIAL Mayor Williams commented on the potential direction of the lawsuits against the City as far as the location of the utilities within the corridor. The lawsuits that are presently pending at the Alaska Supreme Court level, if we lose them it could cost the City between 1/2 million and 1 1/2 million dollars. The lawsuit is such that it has never been tried before, virtually every other community that has ever been faced with this problem has simply capitulated to the utility company and paid the cost of relocating utilities. There is no indication of how long before we hear of the outcome. Two tapes on ANWAR were made available to the Committee. The tapes will be at City Hall. There is a video machine available in the public works conference room. 6. PRESENTATION OF TESTIFIERS AND/OR SPECIALISTS a. Bill Brighton for City of Kenai Finance Director Mr. Brighton explained the "numbers crunch" the City is currently under. One example is that the City used to receive $680,000 per year for Federal Revenue Sharing which is now gone. We do receive some federal money for the senior citizens program and ADAP which is the airport program spoken of previously. This program will expire in September 1987. That is $1.2 million received over the past 10 years which we will no longer receive. The point here is that the federal people are not cutting, but rather transferring the cost of government. The state is then cutting funding, to schools, municipal assistance, revenue sharing, school bonded indebtness, and school formula funding. Going to the Borough, the following figures will be in the current fiscal year. The Borough's budget is $91 million, of that 60% is schools. The problem is that the state is cutting the Borough in municipal assistance and revenue sharing along with those federal fundings in the amount of $7.8 million in debt service reimbursement. This Borough owes $180 million in school debt. The annual payment in the next fiscal year on that debt is $27 million. At the Borough level, 1 mill raises $3.3 million; 1 cent sales tax raises $3 million. All sales tax goes towards the operation of schools. It will take 3.5 mills next year to pay the Borough's share of the school debt. The total Borough mill level is 4 mills. It is going to take 3.5 to fund our debt which is before the Borough doors open, the janitors and teachers are hired, in other words before a penny is spent. They are going to lose a ECONOMIC DEVEi MENT COMMITTEE February 10, 1987 Page 3 half million in municipal assistance, a half million in revenue sharing, and possibly $12 million in school formula funding. On state cutbacks. The state is cutting back, however, the individual is going to pay for it by the mill raising to 10. All of this money is not money which we have paid on property taxes and sales taxes but a federal income tax which the federal government has sent back or that the state has given us from oil revenues. You have two presenters from the Borough which are going to speak so I will not go into Borough finances any further. Mr. Simmons is the man with the hands-on experience. Our current operating budget is $6.27 million which does not include the airport operations nor the water & sewer systems which are self-supporting. Mr. Brighton again reiterated that the Federal Revenue Sharing money is gone. We are going to have a shortfall next year in real property taxes. The Borough is reducing the assessed valuation of all residential and commercial property by 2%. In terms of a home with a valuation of $102,000 this year, next year it will be worth $100,000, which is an automatic reduction in revenues. Committee Member Thomson asked for the reason for the reduction in assessed values, Mr. Brighton answered that probably the reason goes back to the value of the market, where a $90,000 house is now worth $80,000. Chairman O'Reilly asked if the Borough $180 million debt coverage or service diminishes as the state's 70% of' the bond issue comes into effect. Mr. Brighton answered from statistics from the treasurer of the Borough, the 70% is really only going to be 56% because some of those bonds were sold with a 100% guarantee, and the $180 million is several bond issues, all with varying percentages and have been cut. By the time it is all calculated out, the state is only going to be paying 53% on the total bonded indebtedness. Committee Member Elson stated that of those 10 mills only 47% is covered. Hypothetically, if the Borough goes to 10 mills, and put the City down for 3 mills, and the hospital has a bonded indebtedness, and that mill rate should be 1.2, with a total of 14.2 mills which is more than twice what it is today. Today that is 4 mills for the Borough, 2.7 for the City, and .9 for the hospital for a total of 7.6. Another way to look at these figures is if you bought a home worth between $80,000 and $100,000 which is an average, your monthly payments are going to increase by $150 per month just for taxes. I am giving you these figures so that you will get an idea of how serious the situation is here on the Peninsula. The people on the street do not want to hear about these figures and problems. The school situation is absolutely horrendous. The Mat-su Borough, population wise is about the same as Kenai as is the school population. They sold $71 million worth of bonds at the same time we sold $80 million. Their budget that they are proposing, ECONOMIC DEVEL~ ~ENT COMMITTEE February 10, 1987 Page 4 addresses the problem, a layoff of 67 school teachers, the elimination of 4 educational programs within the system, and not opening one perhaps two of the new schools that were to be ready to open next fall. To date, the Kenai Borough has not addressed the problem at all except that the teachers have indicated they want a 6% salary increase. I have difficulty in identifying where the problems are, let alone try to tell you where they are, however, when something gets out of control someone had better try. If the state goes through with the severity of the cuts they are talking about that is going to be the shape we will face here. Every cut the state is going to make is going to cost you, as a local taxpayer, more money. They are not cutting someone's pay. We are the last government in the line and if we want services, we are going to have pay, if we don't want to pay, then we need to eliminate some services. This increase applies to every special taxing districts in this Borough including K-Beach fire district, recreation district in Nikiski, the road district which has been formed also. In Homer, the tax rate is 6 mills for the City, 4 Borough, 3.5 for hospital totaling 13.5. If the Borough goes to 10 mills, they will be at 20 mills without a city increase. I am really trying to get the message across to some people with knowledge about this business to let them know how serious it really is. I can guarantee that the City of Kenai will have the lowest mill rate on the Kenai Peninsula Borough. Committee Member Thomson observed that the key is not the city mill rate but the Borough mill rate and that relates straight back to schools. Of $91 million total Borough budget, $56 million is direct educational costs. This does not count general government appropriations such as maintenance of all the school buildings which is a direct school cost but is in the Borough budget. The insurance for all these buildings is also in the Borough budget not the school budget. I would like some time to force them to put all direct school costs in the school budget so you know how much you are paying for schools. You are paying $8,700 per year for every child in public schools on the Kenai Peninsula. There is only one other place in the U.S. that costs more and that is the North Slope Borough. The national average is about $3,400. We pay $5,000 per student per year more than the national average. You can not build $4 million schools and hope for 16 students and keep costs down. Committee Member Sheldon commended Mr. Brighton on his efforts to get this information across. Chairman O'Reilly asked if there are any services that may be cut. Mr. Brighton answered that any thing he would say now would be premature in that the Council has not yet gone over the budget. There will be a cut in the seniors program. I can tell you now that unless it is 6" of snow on a Saturday or Sunday, the road grader will not be out there on time-and-a-half. Our purpose is to save as much of this budget as we can. Normally, every year we ECONOMIC DEVEL ~ENT COMMITTEE February 10, 1987 Page 5 have a hold-over amount because we do not spend them all. Each of the last three years we have gotten tougher on those folks who are in charge of making and spending those monies. Once again, the City of Kenai is not in the tragic state the Borough is in, even though we are going to lose $1.2 million in revenues next year over past years. The Councils have been extremely frugal over the years and we have some cushion and I am praying that what we are seeing ourselves in is merely a transitional period as people of Alaska have gone through for years and years, and that within a 24 month period we will be coming back out of that. Chairman O'Reilly asked if the bonded indebtedness is funded. Mr. Brighton answered that the City has 1.5 million in bonded indebtedness. Only half a million of that is unfunded. $1 million is funded in escrow with us. Chairman O'Reilly asked if we have any exposure on these local improvement districts. Mr. Brighton answered that it was entirely different. Any time you do a special assessment district you have some exposure and that exposure is that the property owner won't pay, if he doesn't we take his property, if we take his property, we hope it will pay for what he owes. That is a long answer which is no. Chairman O'Reilly stated that what he is trying to find out is if there is anything of an unusual nature that we may be faced with, such as sewer lines. Mr. Brighton answered no. The City is in tremendous shape. Our sewer treatment plant is running at about between 50 - 60% of capacity. In other words we can absorb a tremendous amount without any capital investment. The water system is running at about 60% which means that we can absorb a tremendous amount without major capital investment. We are not facing any major capital expenditures on a necessity-must basis over the next few years. Chairman O'Reilly asked for the reserve amount. In 1980 the City had about $100,000 in the reserve. The reserve now contains close to $6 million. Over the last three years, just over a million dollars have been added. This is exactly what the reserves are for, times like these. Soldotna is the only other community on the Peninsula that is in good shape. Their sales tax collections surpassed ours. Soldotna's population is 3500, ours is 6500, which means that 50% of the people of Kenai spend their money in Soldotna and they collect more sales taxes then we collect. Committee Member Scott, you say you hope we are going into a slump and then it will start back up, with all the things the City has built, the roads, the rec center, everything. Is the maintenance on any of those going to be drastic. Mr. Brighton answered that most of the capital improvement money has been put into the ground and on to the road thereby having no maintenance. The addition to the library will be insignificant; we added to the public safety building and that will be insignificant; the airport is self maintaining; the rec center is very nearly self-maintaining. We have not built any white elephants that are going to be heavy drains except the roads. The more roads we can pave the less ECONOMIC DEVELC~ !NT COMMITTEE February 10, 1987 Page 6 strain on the budget. Gravel roads take three times the maintenance as asphalt. Committee Member ThomsonAa~k~e.~~ the City can provide good services with cutting $4~'out of the projected budget, Mr. Brighton answered he felt the City could. Further, Mr. Brighton proposes to ask the Council to place several large projects on the shelf until after the legislature adjourns and we find out where we are. Committee Member Thomson asked if the City has a policy to try to put their work with companies who are within the tax base of the City of Kenai. Mr. Brighton answered that the policy does exist. The Council tried to adopt a preference situation by giving a 5% edge to local people and that never did pass, there were too many legal technicalities. Committee Member Carter stated that just as the City is trying to cut, the Borough is looking at trying to get their bonds extended over a longer period of time which would reduce the $27 million down to $19 million. Committee Member Elson, with the situation with the federal and state economy and with the bonds that the Borough has sold, I think there is going to be a problem with making any kind of deal on any of our bonds. Mr. Brighton stated that while Mr. O'Reilly can answer that better, I do want to state that there are many legislators who are afraid that the North Slope Borough will end up defaulting on those bonds and the rest of us will have to pay. Committee Member Elson, getting back to the Borough, it has been my experience that whenever a government has been faced with the situation this Borough is, they will attempt to stick their head in the sand and defer until next year. Do they have any room to do that or are they really up against it? Mr. Brighton answered that that is a political question. Unless someone takes the reins and takes over, I do not see any thing happening. Over the past 4 years, no one has ever had to use any initiative, creative thinking, reserve or hidden personal resources to resolve any of these problems, they have just thrown more money at it. Chairman O'Reilly asked if the Borough had the cash reserves, answer no. Committee Member Elson asked if there was any place to dump this year. Answer no. They have to cut or face the tax rate. The reserve was blown when they moved the mill rate to 1.75 and they spent all reserves. Mayor Williams explained the philosophy behind the school bonding stating that persons were afraid of allowing the state to become 100% involved in the construction of our schools, the State Department of Education would have too much to say in what we were teaching. Mr. Brighton informed the Committee that Anchorage will be harder hit than the Kenai area. Anchorage will adopt a sales tax within the next 18 months. Committee Member Sheldon noted that this would help the Peninsula as a large number of persons shop in Anchorage ECONOMIC DEVE~ .~MENT COMMITTEE February 10, 1987 Page 7 to escape the sales tax. Committee Member Elson commented that if you look at the City of Kenai financial statement for the last year, compared to all the other municipalities in the state, there is probably not any one of them that are in as good a position as the City of Kenai. With all this funding, the revenue sharing, etc drying up, I can't help feeling that other cities are going to suffer worse than the City of Kenai. We may be offset somewhat regarding the practices of our Borough, but overall the stress on the other municipalities is going to be severe. It is definitely a statewide syndrome and we will still find ourselves in better shape than anyone else. That is not to say that that's good. At our last meeting, I looked at what the people from Enstar were saying particularly as to what their policies would be for rate changes, etc. how that would put us in relationship to other communities, whether it be Soldotna or Eagle River. Now is the time to act as far as having any voice in what is happening in the Borough or state government, prior to the time their budgets are completed. Mr. Brighton answered that, I am trying to get to some people who understand something about government and costs of government so that these people will, finally, have some idea about what is about to happen to them. The example of the girl that works as a teller in a bank, or right upstairs in City Hall, she has no idea of what is going on. She is typical of many women, divorced with a couple of children at home, she's working, making payments on a house. She says, if my payments go up $150 just to cover the taxes I will have to move out of my house because I am on the edge right now. The moral of the story is she is typical of many more people in the same situation. If the taxes go up they will not be able to own their homes and will have to go to renting. You and I know that our gas, electricity, and other things are going to cost us more. Our people are not going to get a salary increase, they did not get one last year, and with the cost of living going up, they will continue to fall behind, the take home dollars buying less and less. Committee Member Elson noted that there is nothing good about increasing to 15 mills, it is a hard fact of life. Mr. Brighton commented that government in the City of Kenai on a per capita basis is cheaper than any place else in the State of Alaska. And again, that is not to say its good, it could be better. Mayor Williams noted that the Board of Education is realizing these things and one of the things I have noticed this year is more basketball tournaments than I have ever seen as opposed to single games. They are up to 5 teams playing in one weekend. One of the sad facts I have learned since becoming Mayor is in talking to the man on t he street, is the number of people who don't know what is going on. A comment from one lady is that she would let the Borough buy her property from her, she wouldn't pay the taxes when in reality, the Borough would not buy it from her, they would take it. Another comment from a small businessman open for about a year, under this scenario I don't think we're going to survive another year. We are strained right now and are hard pressed. The ECONOMIC DEVE', MENT COMMITTEE February 10, 1987 Page 8 $100 more he has to pay in taxes is $100 less he has to spend on flowers for his wife, a new TV set, etc. Committee Member Thomson commented that by being positive the public may be hearing what they want to hear and still keep the attitude that the good times are around the corner, their version of around the corner being next week instead of 2 to 3 years. Committee Member Carter commented that Mr. Brighton had done a good job in presenting data and a lot of the problems being faced, and the next thing is action, and we do that by very carefully incorporating the data he has given us into statistics and information we will be compiling. I do see positive sides such as the water and sewer systems, the reserves, comparison to other cities, and we can put this together and can show that this is a viable area for economic development. The Committee commented on the system the state is considering which is to pay permanent fund on the one hand and take in income tax on the other. Bureaucracy expending money where it would not have to. Add to that, the state can no longer afford to pay senior citizens' property taxes, so the local taxpayers voted to pay it. If your dwelling sits in the middle of your property and you have $400,000 of property you don't pay any taxes, the girl who is making $5.50 per hour is paying those taxes for those people. Committee Member Thomson asked if there were any way that could be reversed, answer it would have to be a referendum or the Borough would have to place it on the ballots. Committee Member Elson, based on what the gentleman from Enstar had to stay concerning options exercised by October 1987. Mayor Williams answered that we have 3 days. Mr. Brighton stated that he felt Council had lost total interest and the City is no longer a viable owner. Committee Member Elson asked if there were ever natural gas built on city lands whether the right to market that through the Enstar or Kusco system. Mr. Brighton answered that we would be entitled to a royalty. Daubenspeck gave the City acreage on the bluff that is in the Cannery Loop unit, the Council dedicated any revenues from our royalties on that gas to parks & recreation. However, if any other real estate such as streets, alleys, or other real estate is defined as any producing wells, we will receive royalties. It may not be significant numbers but it will be something. Committee Member Elson asked if there is anything that administration feels that this Committee could do or should address that would enhance the City's position as far as economics is concerned. Mr. Brighton answered that because the Mayor gave this group, I don't know what your finalization is going to be but should it be that there would be an active economic development group connected with the City, they could perform a real substantive function for the City. We don't have the manpower, sometimes we don't have the expertise to follow up on all the things that come across my desk that might ultimately turn out to ECONOMIC DEVE~ MENT COMMITTEE February 10, 1987 Page 9 be a substantial capital investment in this City that would produce jobs. We follow and work on a lot of them but we don't have the manpower to really do it as effectively as we could. Members of this group, should you decide at the end of this time to go on, and have people that could, from time to time, give us the extra man power and expertise to help us pursue some of these things. As an example, Indiana was successful in acquiring a new Japanese automobile plant. That plant is going to cost $500 million to build, Indiana put up almost $100 million to get it. It is more complex and expensive than you think. Committee Member Elson commented that what Mr. Brighton is talking about is marketing. Committee Member Elson asked what type of help administration is looking for. Mr. Brighton stated that what people want to know is things like the availability of electricity, the cost of it, the tax base, labor force, climate, some things they may not have to confront here that they may have to elsewhere, etc. It takes a myriad of people contributing to that bank of information. Mayor Williams commented that one of the things he has wanted to get developed for the City for a long time is a brochure which is not tourist oriented, but more industry oriented. When visiting with the Hudson Bay people, I visited with the dept of commerce. They have several brochures from around the state from various small communities called profiles. In that profile of that city are the very things mentioned are listed, including size of harbors, airports, etc. That brochure is to take inventory of all the assets of the City and present them in a manner that is well understood by anyone who may be thinking about moving in. If the Committee sees fit to have the Commission come on line, one of the very first charges of that Commission will be to inventory all of the city's assets and develop that profile as your working tool. Indeed the Commission is going to wind up as a sales force. Committee Member Scott asked what percent of things in the industry line come across the City Manager's desk are you able to handle. Mr. Brighton answered, about 60%. Committee Member Scott commented that if we are missing 40% of the opportunities then this body would be of benefit. Mayor Williams noted that in conversations with Enstar regarding raising the rates, he learned that Enstar has about 15 to 18 people that do nothing all day but sit in front of phones and answer questions, it is strictly a communications function of that company. There is no reason why that kind of business cannot sit here in Kenai. There is no communications group here from multi- million dollar insurance company down to the smallest business. 6. PUBLIC TESTIMONY None 7. COMMITTEE DISCUSSION ECONOMIC DEVEL i~ENT COMMITTEE February 10, 1987 Page 10 a. Investigate Free Trade Zone - Request from Council Mayor Williams commented that this is to be an investigative area for the Commission when they come on line. Mr. Brighton stated that Gail Phillips of Homer, and Borough Assembly person came to Mr. Brighton to solicit support from Homer, Seward, Kenai, Soldotna to get the Borough to go for the entire Borough to become a free trade zone as opposed to each municipality individually. Valdez has had it for over a year and nothing has come of it. Ms. Phillips stated that if you are accepted as a free trade zone, you pay, federally, something in the neighborhood of $100,000 per year which is in lieu of tariffs. Individually, the municipalizes would have a hard time with that money, where if the Borough were to do it they would pay it. When the Borough has projects, often times municipalities end up paying or losing. Mayor Williams commented that Governor Cowper mentioned the free trade zone in his state of the state address and picked Anchorage, Fairbanks because they both encompass surrounding communities. Committee Member Thomson commented that a free trade zone in other areas usually means that it is a place of limited area that is actually, as far as the customs people are concerned, is not part of the country of which it sits land-wise. A fenced area is used, raw materials come in and are value-added and exported. There will be a lot of problems if you want to make the entire Borough a free trade zone because if someone sets up a factory in Moose Pass and one in Homer, it will require a lot of difficult safeguards from the manufacturers standpoint to just ship things because it has to be bonded. We will need a staff of customs people you woUld not believe. I would like to find out if we are looking at having a number of small areas, and how are we going to try to administer them and what are we going to do with this. There is not much point in having something if we don't ever do anything with it. Mr. Brighton commented that Valdez has had it for 18 months and it has accomplished nothing for them. Mayor Williams referred to the Bechtel Company in Valdez. They have a financial interest in a refinery in Valdez, while it is not going to be a free trade effort it is another industrial development and their primary purpose is value added in surpassing the federal ban on oil export by shipping finished product from that refinery to the Pacific Rim. I think if the Borough had the opportunity to administer free trade zone and set up an area, a person could set up five acres for his area. The big thing that we would derive from free trade zone is the jobs created by whatever it is that they are going to value add. Committee Member Thomson stated that we would not see any revenue on the finished product, what we are going to see is in jobs and some construction. There are free trade zones in other parts of the world that have gotten into a big bind because there is literally hundreds of millions of dollars of goods flowing through it but very little stays in that area. Mayor Williams commented that we nearly created a free trade zone when Tesoro came in, we said we will forgive 10 years of taxes, they used our natural gas and oil, but they had value added ECONOMIC DEVEL ~ENT COMMITTEE February 10, 1987 Page 11 and created jobs. We had about 600 people in Kenai in 1963, and 1100 people in 1965. Committee Member Miller commented on the assembly industry which would take advantage of our airport. A product could be flown in, we would assemble it and flown back out. 8. PREPARE NEXT AGENDA Chairman O'Reilly asked for suggestions for the date of the next · meeting. Wednesday, February 18th was agreed upon. The meeting will be at the Library. Invited will be Larry Simmons and a representative from the State Dept. of Commerce, plus those persons that were missed at prior meetings. Chairman O'Reilly and Committee Member Scott will attempt to locate a knowledgeable person in the free trade zone area to speak this evening also. 9. ADJOURNMENT (9: 30 PM) There being no further business, the meeting was adjourned at 9-15 PM. Janet A. Loper, Planning Specialist Secretary to the Committee