The Kodiak Island Borough Assembly voted on an ordinance that will resolve a $2.6 million budget gap created when Gov. Mike Dunleavy reduced the school bond debt reimbursement rate by 50% in June.

The ordinance passed unanimously, with all assembly members present, during a meeting held on Thursday. The vote ends more than six months of conversations about school bond debt reimbursement, during which assembly members and borough staff proposed various avenues for addressing the budget shortfall, including increasing the amount of funds allowed to be used from the Facilities Fund earnings.

“Our decision last year about funding was as informed as it could be, but it was a gamble and we kind of lost at that point,” Assembly Member Julie Kavanaugh said on Thursday. While the governor had indicated he intended to cut school bond debt funding, the assembly had hoped that the Legislature would override the decision, to not avail.

Borough Finance Director Dora Cross said at the meeting that she was notified last week that the state will be reimbursing the district at a rate of 49.54062%, rather than 50% as expected, leading to a loss of an additional $39,000 in state funding. 

The majority of the funding to cover the budget gap was supplied by the school district, which announced in November 2019 that due to an unusually high fund balance for the fiscal 2019 budget, the district would be transferring $1.6 million to the borough.

The borough used around $400,000 from the facilities fund to cover the remainder of the budget gap. That amount accounts for 50% of the allowable 85% of the prior year’s interest income from the fund, which is the ceiling for allowed uses of facilities fund revenues for debt service.

In order to cover the budget shortfall, the assembly also reduced funding for renewal and replacement by $120,000. In the past, Borough Manager Michael Powers has issued a warning that any reductions to the R&R Fund could seriously jeopardize maintenance of borough buildings.

The rest of the shortfall was covered by fiscal 2020 property tax income, amounting to $2.5 million; motor vehicle registration tax, amounting to $220,000; and the debt service fund 2019 balance, which was $472,000 as of July 2019.

According to borough figures, the estimated fund balance in June 2020 will be $175,000, significantly lower than the $275,000 reserve policy goal set by the borough. 

The upcoming fiscal year state budget will also provide only 50% reimbursement for school bond debt. Local leaders have speculated that the amount won’t increase in the foreseeable future, leading many to believe that a tax rate increase is in the books for Kodiak residents. 

Borough budget discussions for the upcoming fiscal year will begin Feb. 15 at 9 a.m. in the Assembly Chambers.

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