Most people, businesses and governmental organizations have debt, and the City and Borough of Juneau is no different. All year long, city staff and the Assembly do the same thing that you do at home – look at income, savings, debt and assets, and dream about the future.
Currently, CBJ has $88 million in debt from General Obligation Bonds. This kind of debt is paid off by general government taxes (CBJ also has $61 million in revenue bonds, which are paid back through user fees). Eighty-eight million dollars sounds like a large number, but it’s manageable on a yearly basis. CBJ’s annual debt and interest payment is $19 million for the fiscal year we’re in now, FY18, and will decline by $2-3 million each year. The State of Alaska reimburses CBJ for $11 million, or about 70 percent, for school debt payments. The remaining $8 million of the FY18 debt payment should be considered in the context of an overall general government budget of about $110 million.
An appropriate amount of debt is healthy and normal, and while CBJ’s numbers are larger, the municipal discussion sounds a lot like the one that happens around the kitchen table. It’s a weighing of wants and needs, the balance of savings versus spending. Debt allows a person to enjoy homeownership for many years, a business to get startup capital and a government to deliver services – and the common factor is that it allows all of those benefits to be enjoyed faster. CBJ’s current debt is primarily the result of the community deciding to invest in our facilities, like schools and the Dimond Park Aquatic Center.
Given low oil prices and the uncertainty in the State of Alaska’s budgeting, the Assembly chose to not pursue new debt this year. Generally, the timing didn’t look quite right. And recently, the credit rating organizations downgraded the State’s rating, which means it could be more expensive for CBJ to incur new debt.
Next year, the conditions might change enough that taking on some debt in the following years makes sense. CBJ staff will be watching the broader economic indicators, like interest rates, oil prices, local tax revenue and the state budget. The city’s debt burden is declining, so in the near future, there is opportunity to take on some debt, enjoy the immediate benefits of the expenditure while maintaining our current debt-related tax rate. And there are times that incurring debt allows us to take on large maintenance and facility upgrade projects, and use existing cash flow to pay back debt over time. Because, like you, city officials want to ride into the sunset and leave everything in good condition for the next generation.
(This originally appeared in the August 2, 2017 Juneau Empire in a segment called, “City Corner”)