Assembly needs more facts before making drastic budget cuts

Juneau’s City Hall on July 4, 2025. (Mark Sabbatini / Juneau Independent)

By Max Mertz

The Assembly should slow its budget-cutting exercise and let more facts roll in before proceeding with cuts or increasing revenue.

CBJ has accumulated significant general government reserves in recent years. The general fund (including sales tax fund) had $59.1 million in fund balance at the end of last fiscal year. That amount grew from $34 million just three years earlier, and at the end of last year represented 45% of an entire year’s worth of spending. While the Assembly earmarked some of the fund balance in the current year’s budget, much of those, such as planned reduction for the FY26 budget, won’t be used due to budget lapse (lapse is actual results better than budget), or the long-term nature of the earmarks.

The manager has also socked away money in other funds, such as its equipment replacement fund which had $13.9 million in fund balance at the end of last year. That balance has more than doubled since 2019 as CBJ has transferred money from other funds to the equipment fund, which now represents roughly two years of recent years average equipment replacement and maintenance spending (net of federal and state grants that cover some of these costs).

What has driven these increased balances? The CBJ hasn’t reliably predicted future spending and income. As part of preparing its budget, the CBJ manager provides forecasts on expected budget outcomes for the current fiscal year, and how much it will lapse. In the CBJ manager’s budget estimates made this time last year for FY25, the manager overestimated the use of general fund balance by $4.7 million. In other words, the manager told the Assembly in March that CBJ would have $4.7 million less than it actually did in June, just four months later. The year before that, the manager’s end-of-year prediction in March overestimated fund balance use by $12.4 million, and two years prior by $4.4 million.

This year, the manager is telling the Assembly that in the current fiscal year ending June 30 that only $4.7 million of the budgeted use of fund balance of $13.8 million will be used. Results over the last three years indicate that even this rosy estimate will likely be millions of dollars better by this June when actual results are in.

Another cause of recent increases in fund balance is due to wildly conservative budgeting. In fiscal year 2025, the general fund lapsed $19.1 million. The budget estimated a use of $20 million in fund balance, but actually only $900,000 was used. The lapse was even greater in FY 24 and 23 with $25.3 and $33.9 million lapsed, respectively. These misses are so large as a percent of the total budget that mere explanation of ‘actual results can differ from estimates’ doesn’t cut it. As part of the solution to close the perceived budget gap in FY27 arising from the voter-approved sales tax and property tax reductions, the manager has proposed to make up about $3.9 million by changing "budget assumptions" — the stroke of a pen — which appears to be both a recognition of the overly conservative prior budgets and an indication that the $3.9 million is likely still very conservative.

The CBJ’s internal accounting and reporting function also needs significant improvement. Imagine trying to operate a business without reliable financial reports or planning your home budget without checking on your account balances. The Assembly (and public) receives no regular reports (such as monthly or quarterly) that show current income and spending against its budget and prior results. This absence of reporting is a symptom of internal accounting controls that are sorely in need of improvement.

Another indicator of problems is the very late completion of the audited financial statements and what the auditors say about internal controls in their reports. The June 30, 2025, financials were not issued until nine months after year-end, March 31, 2026 (the deadline they were due to the federal government). The auditor reported (starting page 12) that significant internal control issues, which have been the norm in these reports for several years, continue.

The financial statements also contain material corrections (pages 102 and 103) to the amounts reported in the prior year. Together, the lack of timely and reliable financial information along with the items noted by the auditor indicate that the CBJ doesn’t have the financial chops to produce good financial information, and indicate the Assembly is stabbing in the dark in its current effort to make cuts and raise revenue.

The measures approved by the voters last fall to reduce sales and property tax weren’t an "anti-tax" movement, but were borne out of a growing sense that the Assembly and CBJ manager are not living within their means. Its recent financial track records support that belief. The CBJ needs to get its act together on its financial front, hopefully quickly. In the meantime, it should move forward slowly and judiciously to not exacerbate the problems Juneau is already facing.

• Max Mertz is a certified public accountant and resident of Juneau for more than 30 years who serves governmental entities as part of his practice.