September 26, 2006
Tuesday

Fellow citizens,

On 9/25/06 I presented the case against consolidation to the Ketchikan Chamber of Commerce. My Power Point presentation focused on the three main areas that will result in massive spending increases for the community should we vote to consolidate.

Those areas are:

1. PERS cost increases due to consolidation.
2. Service Shifting from the State to the local level.
3. Cruise ship taxation initiative and subsequent loss of revenue if we consolidate.

The following is a brief overview of that presentation. It is edited for Power Point, so it may be difficult to read. If you need additional information on any specific area please email me at thedials(at)kpunet.net

Research into this topic included:

• Review of the consolidation documents.
• Review of the PERS contribution rates of various municipalities.
• Correspondence with the State of Alaska, Department of Retirement and benefits.
• Filing of a Freedom of Information Act request for information concerning the KCC and State Department of Administration. (8/8/06).

Background

"As of December 31, 2003, the City had 21 funds (including KPU) totaling $29,632,000; two
Account groups and approximately 315 employees (210 City and 115 KPU). As of June 30,
2004, the Borough had 18 funds totaling $31,106,000; two account groups and
Approximately 112 employees."
(Source consolidation petition)

The current number of City and KGB employers (FY06-07) is slightly higher.

1.2(a) P.E.R.S. Contribution Rates for Fiscal Year 2008-Active Employers

122 Ketchikan Gateway Borough -- 27.13%
181 Ketchikan, City of -- 41.68%
(Source State of Alaska, Department of Administration)

Difference of 14.55%
Why?.....

"The City of Ketchikan recognized up to a maximum of 25 years of past service for covered employees at the time they began participating in the PERS. In addition, the City allows up to a maximum of 5 years past service for certain employees who were covered with IBEW but transfer to a PERS covered position. The costs associated with past service drive the contribution rates up considerably as contributions were not being made to the system during the time this service was being earned. The Ketchikan Gateway Borough did not recognize past service for covered employees."
(Source: Charlene Morrison, Chief Financial Officer, State of Alaska Department of Administration)

From the consolidation petition.

"Duplicate City and Borough positions have been programmed for the higher of the City or Borough salary and the three-year budget assumes full staffing for all positions."

And.

"The Municipality of Ketchikan will enter into a new Public Employees Retirement
System participation agreement with the State of Alaska"

Per the State of Alaska, if you move employees into the higher of the two plans, you will at a minimum pay the current, highest PERS contribution rate.

Remember that

• Benefits are contractually guaranteed
• Multiple unions represent the employees of the KGB and City.

So what does this mean?.....

The PERS costs for 114 employees will increase by at least 14.55% after consolidation. This means that for every $100 of payroll paid to the employee, the increased cost to the taxpayer is $14.55.

But it doesn't end there

The KGB pointed out that there may be a dichotomy between wages of IBEW represented employees from the City and the Borough and these differences would need to be addressed. (Source consolidation document)

The only way this dichotomy will be addressed is by contract negotiation should consolidation pass.

Information obtainable from the KGB and City indicates that the borough labor force is, on average, paid between 15% to 30% lower than the cities labor. KGB officials will tell you that although wages are lower, some benefits such as health care are better. For example some Borough IBEW employees do not have to pay anything in the way of payroll contribution for insurance. This has allowed the KGB to keep salaries lower by providing better benefits.

You are going to face a situation where borough employees will want the pay of their city counterparts, and some city employees want the benefits of their borough counterparts. They will use the aforementioned statement in the consolidation document as the legal basis to obtain those pay increase and benefits.

Still more
The City recently authorized a nearly 100k contract to complete an employee wage and classification study.

• Basis for wage increases now.
• Position descriptions will change if consolidation passes, resulting in a basis for future wage increases.
• Contracts will be renegotiated (KGB has 4 unions, City even more)
• Any increase in benefits = further increased PERS costs

Also, per the State of Alaska, Department of Administration, the new municipality will have to pay the cost associated with the work the State will conduct regarding entering into a new PERS agreement with the State.
(Source: Charlene Morrison, Chief Financial Officer, State of Alaska Department of Administration)

This cost has not been factored into the proposed 3-year budget of the consolidated municipality.

Bottom Line.

• Consolidation will increase local government PERS contribution rates by a minimum of 14.55% for approximately 114 employees.
• Wage increases for dozens, perhaps hundreds of employees.
• Benefit increases for some City employees (further PERS increases).
• No increase in services provided.
• The cost becomes greater each year after consolidation as PERS costs continue to increase.

This is taken directly from the Consolidation document that we will vote on

Part 7. Whether the Proposed Consolidated Borough Serves the Best Interests of the State
AS 29.05.130(a) provides that the LBC may grant the consolidation Petition only if the Commission determines that the proposal is in the best interests of the State. The LBC is guided by 3 AAC 110.065 and 3 AAC 110.980 in making the requisite best interests determination.

3 AAC 110.065. Best interests of state. In determining whether incorporation of a borough is in the best interest of the state under AS 29.05.100(a), the commission may consider relevant factors, including whether incorporation
(1) promotes maximum local self government;
(2) Promotes a minimum number of local government units;
(3) will relieve the state government of the responsibility of proving local services; and
(4) Is reasonable likely to expose the state government to unusual and substantial risks as the prospective successor to the borough in the event of the borough's dissolution.

If we consolidate the State will transfer services to the local level. Some of those services include public safety and road maintenance. It has happened in other consolidated communities such as Anchorage, Juneau and Sitka, and will happen here.
In the decade since Juneau consolidated they have seen their cost to provide public safety increase by 94% due to service shifting.but don't take my word for it.

Juneau 2006
BUDGET HISTORY AND OVERVIEW

GROWTH MANAGEMENT
When discussing growth management, it is important to distinguish between the various types of services provided by the CBJ and how these services are funded. While all of the services we provide require operational revenues, the sources vary greatly. General governmental functions and local support for education are largely supported through property and sales tax levies while other functions such as the hospital, utilities, airport, and harbor services are funded through user fees. In addition, there has been some shift in who provides the service. Due to budget constraints, the state has stopped providing some required local services. Local governments have assumed many of the more critical services. One of the most visible examples of this shift was the elimination of State Trooper law enforcement services in Juneau. By default, the Juneau Police Department ultimately assumed this public safety service. Service shifting has resulted in a significant operational impact to the CBJ that continues to show in the budget. In FY93, the total operating budget for the Juneau Police Department (JPD) was $5.16 million. The FY06 revised budget includes $10.0 million in proposed funding for the JPD. A large portion of this 94% increase can be attributed to services previously provided by the State.

This is one of the reasons that the per-capita tax in Juneau is significantly higher than in Ketchikan. Consolidation has cost them millions due to service shifting alone. Sitka is no different.

Here is what Anchorage went through..

Insert (4) Anchorage Daily News articles.

BOTTOM LINE EXTRA COSTS ---MILLIONS---

Complicated but the concern is basically this..

• Current City Cruise Ship Tax ($7 as of 1/07)
• Tax under the initiative ($7 grandfathered, or $5 under new law) for the island if we consolidate.
• If we do not consolidate, City $7, and Borough $2.50 (1/2 share) or $5, for a total of $9.50 to $13.00
• Loss 2.2 Million minimum

"The recently passed Cruise Ship Tax potentially creates a huge impediment to the consolidation effort. To wit: the unconsolidated borough may have the opportunity to receive over $2 million in revenue from this tax.

While it is expected that the tax will be challenged in court and there are severe restrictions on the use of that tax revenue locally, (not to mention the political decision locally to tax our key industry at an even higher level - bite the hand that feeds us so to speak), foregoing $2 million by consolidating simply would not make sense."
-Glen Thompson, Chair Ketchikan Consolidation Commission 9/12/06-

Closing

Why is it reasonable to expect that consolidation will do something positive for Ketchikan that it has not accomplished for Juneau and Sitka?

Insert slides showing per capita income, housing affordability, avg. rent, construction costs, local taxes.

Bottom Line

• Consolidation will result in massive tax increases for all.
• Consolidation will put pressure on the new government to eliminate the Senior Citizen Sales Tax Exemption (what the consolidated government of Juneau is doing now)
• The extra millions that consolidation removes from our community will be at the expense of our schools and other critical programs.

Please vote no... we simply can not afford it.

Education is when you read the fine print. Experience is what you get if you don't - Pete Seeger "singer and composer"

Rodney Dial
Ketchikan, AK - USA

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