KENAI — The rising cost of health-care premiums for city employees has the city of Kenai grappling with a proposed half mill rate increase as administration works to finalize the city’s operating budget for 2015.

Kenai City Manager Rick Koch said the mill rate has not increased in the eight years he has worked for the city but has actually decreased from 5 to 3.85. A proposed increase up to 4.35 would bring in an additional $415,000, he said.

A mill rate is the amount of tax payable per dollar of the assessed value of a property. Koch said for a home valued at $250,000, a half mill increase would cost the homeowner $10 more a month.

Koch said he looks at future projections for the next three years before selecting a mill rate so increases are not made year after year. Instability isn’t good for businesses or residents, he said.

“Frankly, if I would have been able to look into a crystal ball and see some of these health-care issues, I probably wouldn’t have proposed lowering it to 3.85 because I hate to see a mill rate bounce around,” Koch said.

The city’s current health-care provider, United Healthcare, quoted a 46 percent increase renewal rate, which would cost the city an additional $616,523. Kenai Finance Director Terry Eubank said health-care prices are a significant issue each year, which is why the city shops around to find competitive rates.

The city administration proposed three major changes to the employee health-care plan. First is a switch of carriers from United Healthcare to Premera Blue Cross. Second is an employee cost share increase from 8.5 to 10 percent and third is an increase to the employees’ deductible from $250 for an individual and $500 for a family to $500 and $1,000 respectively.

When the city received the 46 percent increase on the renewal quote, Koch said that stopped the whole budget process because it had been drafted with no mill rate increase.

“We had to throw a lot of paper away because none of it made any sense any more,” he said. “We modified our budget with more attractive health-care quotes.”

Last week the Kenai City Council held two budget work sessions to review the draft budget prepared by Eubank and Koch.

Koch said based on discussions at the work sessions some of the council members are not in favor of increasing employee premiums.

Council member Terry Bookey said he had a hard time increasing the cost to the employee while decreasing coverage.

Mayor Pat Porter said either city employees pay more or residents will.

Budget amendments council members made include an additional $50,000 for a feasibility study for the conceptual design of a convention center and park strip, $24,000 for firefighter gear and more security for senior citizen funding.

The Kenai Senior Center is largely dependent on state grants like the choice waiver meal reimbursement of nearly $400,000. Porter said funding would need to be increased in future years to maintain the current level of service to seniors.

The city of Kenai’s total proposed budget is $25,645,455, a 6.6 percent increase of more than $1.5 million from last year. Included is a cost-of-living increase of 3.5 percent for city employees. The impact from all funds totals $425,479.

The city’s budget is broken into five funds: general, special revenue, enterprise, permanent and debt service.

The general fund finances the city services, such as police, fire and public works, while the special revenue fund exclusively finances four city entities: the Kenai Municipal Airport, the city’s water and sewer, the personal-use fishery and its senior citizen fund.

The general fund is budgeted for $16.2 million, up nearly $1 million from last year. Eubank said sales tax and property tax revenue were lower than previous estimates.

“Our assessed value and sales tax revenue hasn’t been increasing at the same rate as some of the expenditures,” Eubank said.

Fees collected from the airport, water and sewer utilities and dipnet fishery are intended to fund their operations and be self-sufficient, Eubank said.

The proposed airport fund budget increased from $2.8 million to $3.2 million, a 13 percent change from fiscal year 2014 to FY15. The proposed fishery budget for 2015 is $492,621, up 2 percent from last year.

Funding for two capital projects totaling $180,000 has been included as transfers from the general fund in the FY15 budget, according to the draft budget. Sidewalk improvements for Overland Drive are budgeted at $60,000, and $120,000 has been set aside for construction of a playground for 2- to 5-year-olds at Municipal Park.

The council will vote on the 2015 budget at the May 20 council meeting.

Dan Balmer is a reporter at the Peninsula Clarion.