At a meeting Tuesday night, the Haines Borough Assembly voted to use a mixture of capital funds and CARES Act coronavirus relief to address the borough’s $448,149 budget shortfall.

The shortfall was created last month when Gov. Mike Dunleavy vetoed all of the state’s support of municipal school bond debt payments, leaving communities across Alaska with unexpected budget deficits.

In past years, the state typically paid for 70% of municipal school bond debt with the municipality responsible for the other 30%. In FY20, Dunleavy reduced the state’s share of school bond debt payments to 35%. When drafting this year’s budget, borough staff had anticipated a repeat of FY20.

During budget discussions this spring, assembly members introduced a series of cuts to offset anticipated reductions in sales tax revenue due to COVID-19 including elimination of funding for the Haines Economic Development Corporation and the Mosquito Lake Community Center, reduced staffing and hours of operation at the library and museum, a three-month closure of the pool and budget reductions for the tourism department.

At past meetings, assembly members had said that additional cuts would likely be necessary to compensate for the complete loss of school bond debt reimbursement in FY21. In a memo discussed at Tuesday’s meeting, borough chief fiscal officer Jila Stuart offered the assembly an alternative.

Under Stuart’s proposal, $224,075 of the deficit will be covered by redirecting capital funds earmarked for future projects (delayed under Stuart’s proposal) or already completed projects that came in under budget. Roughly half the funding comes from $100,000 the borough had saved for improvements to the Chilkat Center’s air-handling unit.

The other half of the school bond debt payment comes from freeing up funds used to respond to COVID-19 by replacing them with CARES Act funding.

When Dunleavy originally vetoed the state’s portion of school bond debt payments, he said he hoped municipalities would be able to use CARES Act funds to replace the loss of revenue. However, this didn’t pan out. Under the CARES Act, funding for states and local governments can be used for expenses directly tied to COVID-19, but not as revenue replacement.

Stuart’s memo outlined a workaround where CARES Act funds are used to replace a portion of payroll expenses for jobs involved in pandemic response like police, dispatch and public facilities. The property tax revenue that would have gone toward these expenses is now used to pay school bond debt.

At Tuesday’s meeting, assembly members spoke favorably of Stuart’s proposal.

“I really was excited and pleased to see the creative approach to this,” said assembly member Brenda Josephson, who made the motion to incorporate Stuart’s recommendations in the working draft of the FY21 budget.

The assembly unanimously approved Stuart’s proposal for the FY21 school bond debt payment along with a second proposal to use a portion of CARES Act funding to cover items including emergency supplies and payroll in the FY20 budget.

In total, the borough is expected to receive $4 million in CARES Act funding in three installments during the course of this year. The first installment is $2.1 million. The borough must spend 80% of this installment before it receives the second and third payments.

In a separate memo related to CARES Act funding, Stuart proposed dividing the initial $2.1 million between borough expenses ($647,000, most of which is accounted for in the budget amendments made at Tuesday’s meeting), assistance for individuals ($500,000), assistance for businesses ($500,000) and utility bill assistance ($500,000).

The cost of direct payments to individuals adds up quickly. For example, half a million divided between 1,600 residents is $300 per person.

To receive assistance, individuals would need to demonstrate economic impact through an application, Stuart said.

Direct assistance for businesses and nonprofits could be based on sales tax reports, or 990 forms for nonprofits, Stuart said. The borough could also provide up to $500 to help businesses, regardless of financial need, cover safety-related expenses like plexiglass barriers and handwashing stations.

Utility assistance could be made available to individuals and businesses that qualify for direct financial assistance or to residents who submit proof of local, non-grocery purchases, Stuart said. She said the “support local and save” recommendation was based on an idea from Juneau’s Economic Stabilization Task Force.

Stuart suggested holding off on a fixed plan for the remaining $1.9 million in CARES Act funding as the course of the pandemic is hard to predict.

“Tentatively, priority for those funds should be for healthcare and prevention with the possibility of another later round of direct economic assistance if funds are available,” Stuart wrote in the memo.

The assembly will discuss Stuart’s proposal and additional CARES Act spending ideas at an ad hoc committee meeting on June 4.

Other budget-related discussion at Tuesday’s meeting included introduction of a ballot measure that would ask voters to approve a $450,000 draw from the borough’s permanent fund to offset unprecedented costs due to COVID-19. The money is roughly 5% of the permanent fund’s total value.

If the assembly approves the ordinance and the measure is passed by voters in the fall, it would allow the assembly to reverse some of the cuts it has introduced to operating and capital funds this year, said assembly member Zephyr Sincerny, who proposed the measure.

The ordinance was introduced in a 3-3 assembly vote with Mayor Jan Hill as the tiebreaker. Josephson, Rogers and Lapp opposed the ordinance.

“I think that there is no harm in introducing this ordinance and allowing the public to comment on it for us. There is no better way than a vote of the people to decide a topic like this,” Hill said.

Josephson proposed sending the ordinance to the finance committee. The assembly voted unanimously to send the ordinance to the finance committee on June 2. The first public hearing for the ordinance will take place June 9.