Finance Director Mason Villarma has been on the job for about five months and is proposing changes to the borough assembly that he believes could bolster Wrangell’s financial health.
At a work session Jan. 25, Villarma said the borough’s assets totaled $39.7 million as of Dec. 31, a mixture of cash, cash equivalents, money market funds, investments and other accounts. Some can be spent, some is in long-term savings, and some is reserved for self-sufficient funds such as the electric utility and port and harbors.
Almost one-quarter of that money is in the borough’s “permanent fund” — similar but much smaller than the Alaska Permanent Fund. The borough’s fund grew 22% from $8.7 million to $10.6 million from June 30, 2020, to June 30, 2021.
Over the past six months, to Dec. 31, the fund grew an additional 3.3%.
Like the state’s Permanent Fund, which spins off earnings to help pay for public services, the borough sets aside a portion of its savings account to supplement tax and other revenues in the budget.
“(The permanent fund) pays for the pool, parks and rec,” Villarma said Monday. “The goal is to build that up so investment income can go to the library, Nolan Center, police and fire.”
Moving forward, Villarma said he wants to work with the assembly’s investment committee to grow the fund with quarterly contributions, if the borough can afford it, so that Wrangell can one day use it for larger capital projects.
He also recommended creating an “operating capital account” to invest the borough’s enterprise fund reserves with broader exposure to market risk. That could mean investing reserves from the port and harbors fund, electricity utility fund and others in potentially more profitable investments, but with higher risk.
Any changes in the investment code would require assembly approval.
Investments, other than those housed in the permanent fund, are currently restricted to low-risk treasury bills; federal, state or municipal bonds; or federally insured certificates of deposit at financial institutions.
The larger savings account can be invested into stocks and bonds. Villarma wants that ability for the other funds, too. The preferred allocation of asset classes for the permanent fund is 50% stocks, 45% bonds and 5% cash and equivalents.
“We want investments other than the Permanent Fund to be exposed to U.S. equities based on predetermined thresholds set by the assembly,” Villarma said in his presentation Jan. 25. “We want to be able to invest a small portion of funds more aggressively.”
When the borough encounters periods of low interest rates, he said, that would allow moving some money out of bonds and money market funds and into stocks.
Villarma also told the assembly he wants to discourage interfund loans, such as an interfund loan from the borough’s general fund to the water utility at zero percent interest for 10 years as proposed to cover a third of the engineering and design costs for a new water treatment plant.
“The lending of money back and forth between funds — when we lend money from the general fund to an enterprise fund — that is an interfund loan. These are not healthy loans to engage in,” Villarma said. “We don’t want to get in the habit of that. … You don’t want too much cross sharing.”
If interfund loans do occur, they should be paid back to the general fund with interest, Villarma said.
Another smart financial move, Villarma said, would be to consolidate water rates in borough code. There are 42 different water rates, from bakeries to grocery stores. The standard rate for residential unmetered service is $47.15 a month, last adjusted July 1, 2019.
The finance department recommends a standardized rate structure, and increasing residential water rates from $47.15 to $56.07 per month to pay off one of the federal loans to fund the new water treatment plant.
Any change to utility rates would require a public hearing and assembly approval.
Villarma also proposed a rate increase for trash pickup, where rates have not increased since 2015. He recommended the port and harbors department adopt its rate study recommendations to increase fees at The Marine Service Center for short and long-term storage, in order to bring Wrangell in line with other fees elsewhere in Southeast.
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