Did officials from the Bronson administration deliberately downplay Anchorage’s revenue forecast to score political points in an ongoing budget debate?
That’s what Assembly members wanted to know at a Friday work session, where they grilled city finance officials over what information they presented to S&P Global Ratings before the agency downgraded Anchorage’s credit rating last month.
The administration used that credit downgrade to push for cuts to the city’s budget, which the Assembly is poised to reject at a meeting on Tuesday.
The ratings drop means the city will have to pay slightly more interest on its bonds for capital projects.
At Friday’s meeting, several Assembly members suggested the administration might have purposefully underrepresented how much money the city would earn this year from a hotel bed tax when it presented its revenue forecast to S&P. In their presentation to the credit agency, finance officials assumed revenues would be roughly the same in 2022 as they were in 2021. They also said that revenues from the fourth quarter of 2021 would drop steeply.
“It says $23.9 million projected year end actuals for 2021,” said East Anchorage Assembly member Forrest Dunbar. “But that is almost exactly equal to our year to date, I think it should be year to date, not year end, right?”
Chief Fiscal Officer Travis Fisk said the administration used a conservative estimate to calculate the projected revenue. He said that while the official projection in the presentation included a lower number, the city communicated to S&P that the actual revenues could be higher, but a lot hinges on the coronavirus.
“We did pivot off of that to say we’re not sure the impact of the delta variants,” said Frisk. “And now with the new — I think it’s called omicron — the new variant, we’re not sure what’s going to happen in 2022. But we did specifically identify that we were looking at probably about a $26 million annual book motel tax collection.”
That didn’t convince Assembly member Kameron Perez-Verdia, who represents West Anchorage.
“My concern, I will just share, is that it doesn’t seem conservative, it just seems wrong,” he said. “I don’t know how it’s possible that we could actually take a loss next year based on what we know now.”
It’s not clear how much the bed tax revenues factored in to S&P’s decision to downgrade Anchorage’s rating. In its 10-page report, S&P cited a decline in the city’s revenue reserves as the main reason for its drop, which it said was due to FEMA not reimbursing costs from the massive 2018 earthquake and COVID-19.
While the report noted that revenues had declined in 2020 and into 2021, it also said the city’s tourism economy had shown some signs of recovery from the pandemic.
“There are signs of recovery, and management expressed surprise at the amount of air travel visitors, given that cruise ships still are not travelling to Anchorage and that for much of 2020, Canada closed its borders to recreational vehicle traffic from the U.S.,” the report says.
Economists say the impact of the rating drop on taxpayers is likely to be small and that the city still remains in a strong financial position. Jonathan King, an independent economist in Anchorage who also serves on the city’s budget advisory committee, calculated that a taxpayer who owns a $400,000 home will have to pay about $.40 more for $50 million of new bonded debt.
“In the long-run the MOA will save money with a higher credit rating, but in the current low interest rate environment there is very little ‘on-the ground’ effect of being AAA vs AA+ or even AA,” wrote King in an email sent to an Assembly member.
Chugiak/Eagle River Assembly member Crystal Kennedy pushed back on that assessment.
“I think one of the things that we have to be careful of is to not sugarcoat any of this,” she said at the meeting. “And that’s what I’m hearing a lot of is trying to look at the positive when really there are some serious things to consider here.”
Bronson and the Assembly are currently locked in battle over the 2022 city budget.
In late November, the Assembly rejected most of the budget cuts Bronson had proposed. But Bronson then vetoed most of the funding the Assembly had added back. The Assembly is expected to override that veto at a Tuesday meeting.