Assembly Finance Committee warned of deep sales-tax shortfall; manager proposes phased cuts and $7.7M fund-balance use

Miss Kester, finance presenter, told the Assembly Finance Committee on April 11 that Juneau is facing a substantial sales-tax revenue shortfall that the manager's proposed FY27 budget addresses with a mix of reductions, new revenue and one-time fund-balance use.

"We're expecting additional 3.7 million in investment earnings to stay within the general fund," Miss Kester said, while also noting that sales-tax receipts have softened well beyond initial estimates and that the committee should plan for phased reductions because validated remittances from the first full quarter with the new exemptions will not be available until May.

Why it matters: staff framed the FY27 proposal as a two-year strategy to respond to an estimated $14 million drop between the FY26 forecast and the FY27 proposed sales-tax level. The manager's proposed budget includes $3.9 million of budget reductions identified by staff, $2.3 million of newly projected revenue (including fee and dockage adjustments), and a planned $7.7 million use of unrestricted general-fund balance for recurring operations plus $2.6 million for one-time items.

The nut of the debate centered on timing and risk. Staff recommended phasing cuts rather than deep, immediate reductions while final sales-tax remittance data are processed. "We need to be prudent — use fund balance to smooth the adjustment, but aim to reach recurring savings over the next budget cycle," Miss Kester told members. Several Assembly members urged caution about drawing down reserves too far; staff noted the restricted budget reserve target is roughly $24.2 million while current restricted balances are near $17.3 million.

Key details and trade-offs

- Sales-tax performance: staff reported roughly $9 million in year-over-year softness in the sales-tax picture for FY26 and an additional roughly $3 million shortfall beyond the expected effects from newly approved exemptions. Validated quarterly remittances will not be fully processed until late May, which drove staff's recommendation to phase changes.

- Investment earnings: staff projected an additional ~$3.7 million in investment earnings retained in the general fund versus the prior estimate, a partial offset but not enough to close the gap.

- Vacancy and lapse strategy: the manager's budget reflects an intentional vacancy/lapse approach that reduces budget authority (a multi-million-dollar personnel lapse) while keeping FTEs intact. Staff said the method uses a three-year average and applies an 80% factor to expected lapses so departments retain hiring flexibility but start with less budgeted salary authority.

- Fund balance and risk: the proposed FY27 budget would use $7.7 million of general-fund balance for operations and another $2.6 million for one-time items, leaving a projected unrestricted balance in the low double-digit millions after accounting for pending items. Staff flagged near-term risks (Eagle Crest subsidies, flood mitigation, collective-bargaining outcomes) that could require further action.

What the committee asked staff to do

Assembly members pressed staff on options to protect core services, asked for more granular cost and usage data for facilities (pools, rinks, parks), and emphasized seeking alternative revenue where appropriate. Staff committed to provide department-level impact estimates for member-proposed reductions and to compile submitted reduction proposals ahead of the next AFC meeting.

Next steps

The committee set a firm near-term calendar: Assembly members were asked to submit draft service-reduction proposals to the manager's office by Thursday (per staff guidance) so the administration can consolidate and publish a package for the upcoming AFC meeting. Staff emphasized that the Assembly's December direction (seek $2$4M in service reductions and limit one-time fund balance use) remains the operative target range but that members may adopt a different mix as they finalize decisions.

This meeting did not include a formal vote on budget adoption; the manager's proposed budget was presented for review and for the committee to provide direction and request follow-up detail.