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Alaska’s Small Cities in Crisis
In 2003, there were 94 cities with annual local government operating budgets under $300,000 per year, and averaging $164,000, to provide public services for an entire community (according to State figures, DCED). From 2003 to 2005, those 94 cities (out of a total of 146 cities in Alaska) lost an average of approximately 42% of the revenue required to provide basic public services. The crises are due to massive State cuts to cities at a time of skyrocketing local costs and economic downturns. In 2004, Alaska became one of two states that eliminated its local government revenue sharing programs. Most small rural cities operate in a cost effective manner with many part-time or volunteer positions. However, most of Alaska’s small rural communities have very little local tax base due to cash poor subsistence economies.
Examples of Approximate 2003-04 Cuts/cost increases: -($69,000)
- 2003 State Cuts to Revenue Sharing/Match Grants -($10,000)
- 2004 State Eliminates Revenue Sharing -($40,000)
- Fuel/electricity/goods rise due to oil prices -($7,000)
- Community insurance increases -($6,000)
- State mandated increases (PERS) -($4,000)
- New state inspection fees, service transfers, etc. -($2,000)
Growing Impacts of Loss of Revenue Sharing, etc.
It is difficult to know the status of small rural communities. Few that fail have the administrative capacity to take steps to formally dissolve. They simply layoff their employees, cease being able to hold elections, cancel insurance for community facilities, stop providing services, etc. In some cases tribes or other organizations take over key government services.
Municipal revenue sharing adopted this year can save many small cities and the public services they provide
- Small cities disintegrating:
Per State DCCED, this year:
- 9 cities no longer functioning
- 17 more cities in deep debt
- 39 more cities have terminated key local services this year (e.g. police, road/utility/facility maintenance)
- Small cities uninsured:
Uninsured cities place a huge liability on the State, far in excess of the cost of a municipal revenue sharing program.
- Insurance for up to 9 cities has been canceled
- Up to 33 more are on month to month payments due an inability to pay.
- Rural Alaska Fuels the Urban Economy:
- An estimated 20% of the urban job base directly or indirectly depends on trade and services to other parts of Alaska. (Alaska’s Economic Links – Gross and Assoc, Chase Economics, Northwest Strategies, 1998)
Status Update (DCCED 3/1/05)
Municipal Governments
There are 20 first class and 113 second class cities in Alaska. These municipal governments are responsible for providing core services to the residents in those communities. The revenue they receive to provide these services is categorized in to three classes. Locally generated revenue is a category and includes sales taxes, profits from gaming operations, user fees from services, rental of buildings and equipment and administrative fees from management of grants. Grant revenue as a second category is frequently used to provide social services, or assist in paying for governmental services such as police. A third category of funding for municipalities is state-shared revenue. This includes Payment in Lieu of Tax (PILT), Shared taxes (fish tax, telephone coop taxes), and up to the past year Revenue Sharing/Municipal Assistance/Safe Communities/Temporary Fiscal Relief Payment.
In the past few years we have seen a reduction in funds distributed to municipalities at the same time as an increase in cost through higher insurance premiums, fuel costs (and thus transportation costs), and retirement plan costs. This set of circumstances has put many municipalities in hard financial times.
In examining the financial status of municipalities we can break them out into several categories:
Getting situational reports that can be used to evaluate the financial health of every municipality is extremely hard. While the communities in the first and most financially distressed category are relatively easy to define, it is likely that there are additional communities in the other two categories that we are not aware of.
Closed down or transferred operations to another entity,
Currently there are 9 municipal corporations in the State of Alaska that have ceased day to day operation. These nine are Ahkiok, Kiana, Kivalina, Kupreanof, Mekoryuk, Nikolai, Platinum, Quinhagak, and Russian Mission. Two of these cities, Kiana and Quinhagak continue to maintain a shell of a municipality (no employees, but hold elections and joint council meetings) in order to maximize revenue coming into the community.
Accured significant debt or financial problems yet to be dealt with.
There are 18 communities that we know about that have extreme managerial or financial problems. These problems are severe enough that they could be considered to be insolvent. The problems include:
- Not completing the basic function of municipal government including holding elections, holding regular council meetings, or adopting a yearly budget,
- Large debt to vendors, including; the IRS, fuel companies or the state for delinquent fuel loans, or insurance companies,
- Operating without workers compensation insurance,
- Having lawsuits filed against them (or unpaid judgements) and not able to afford legal council,
- Having to transfer operation of water/sewer to other entities in order to eliminate expenditures. Sanitation is considered a core service that is almost always the major capital investment made by state and federal agencies in the community. Remaining services provided by city are minimal.
Struggling with financial situations or have made significant reductions to core services.
There are 39 communities that we know about that have significant financial problems. These problems could become severe enough in the next 24 months to cause closure of the city administrative offices and result in the financial insolvency of the municipality. These municipalities have already eliminated a core governmental service. The problems include:
- Eliminate core municipal services such as police protection, closure of washeteria, or elimination of road maintenance due to lack of available funds,
- Large PERS debts from terminating from the PERS program,
- Large IRS debts or default fuel loans to the Alaska Energy Authority,
- Significantly behind on payment for insurance or fuel.
The following listing of municipalities by category of distress is based upon evidence provided from various sources to the Division’s Local Government Specialist staff. There is no way to completely and accurately predict the future. These are estimates of the municipalities we believe to be in various levels of financial distress.
Closed down or transferred operations to another entity (9 municipalities)
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Ahkiok
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Kiana
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Kivalina
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Mekoryuk
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Nikolai
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Platinum
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Russian Mission
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Kupreanof
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Kupreanof
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NOTE: AML has also been notified that the cities of Kobuk, Ambler, Noatak, and Kwethluk are no longer functioning as of 4/20/05
Accured significant debt or financial problems yet to be dealt with (18 municipalities)
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Allakaket
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Buckland
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Chevak
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Grayling
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Holy Cross
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Hydaburg
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Napaskiak
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Nunam Iqua
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Pilot Point
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Saint George
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Shageluk
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Shishmaref |
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Upper Kalskag
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Wales
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Toksook Bay
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Goodnews Bay
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Lower Kalskag
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Point Hope
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Struggling with financial situations or have made significant reductions to core services (39 municipalities)
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Akiak
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Alakanuk
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Ambler
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Anaktuvuk Pass
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Angoon
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Atquasuk
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Chignik
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Chuathbaluk
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Clark’s Point
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Diomede
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Eek
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Emmonak
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Gambell
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Golovin
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Hooper Bay
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Kaktovik
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Kobuk
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Kotlik
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Koyuk
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Koyukuk
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Mountain Village
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Napakiak
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Nightmute
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Noorvik
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Nuiqsut
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Old Harbor
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Pelican
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Pilot Station
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Port Lions
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Ruby
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Saint Michael
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Scammon Bay
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Selawik
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Shaktoolik
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Shungnak
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Teller
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Tenakee Springs
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Togiak
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Wainwright
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Revenue