By Sean Maguire
Anchorage Daily News 

State budget battle comes down to school funding and dividend


April 26, 2023 | View PDF

The budget battle between the Alaska House of Representatives, the Senate and the governor is shaping up as a fight between the size of the Permanent Fund dividend and a proposed increase to public school spending after years of flat funding.

Dozens of education advocates rallied on the Alaska State Capitol steps last Thursday evening in support of a substantial increase to the state’s per-student funding formula. The formula has not been significantly increased since 2017, and school administrators have reported struggling to balance their budgets with rising costs and inflation.

The bipartisan Senate majority caucus named increasing public school funding as one of its top priorities at the start of the legislative session in January.

A bill making its way through the Senate would increase the formula by $1,000 this year, about 17% — at a cost of $257 million — and by an additional $348 next year. Supporters of that figure say it would cover the costs of inflation since 2017, and provide a significant investment in Alaska’s public schools.

The House has advanced a budget that would increase the formula by $680, about 11%, at a cost of $175 million, with nothing additional the next year.

Senate President Gary Stevens, a Kodiak Republican, said not all members of the 17-member bipartisan majority support the $1,000 figure included in Senate Bill 52. But he said that the Senate majority would continue advocating for a school funding increase before the session ends, scheduled for May 17.

Without a permanent increase to the school formula, the increase could become a one-time boost just for the fiscal year that starts July 1.

“We’re going to do the very best we can to get the most we can for education — within reason — and in the foundation formula, if we can,” Stevens said Thursday.

School administrators from across Alaska testified before the Senate Finance Committee last week in support of raising the funding formula. The Yupiit School District, which has 450 students across three schools in remote communities near Bethel, has struggled to balance its budget and improve outcomes with a 40% to 50% increase in fuel costs.

The Kenai Peninsula Borough School District is projected to show a $13 million budget deficit next year, which has resulted in layoffs for district support staff, said Superintendent Clayton Holland. He said that if school funding was not increased, the equivalent of 78 educators would be sacked.

The Republican-led House majority caucus has expressed skepticism about approving a permanent school-funding increase this year. Some conservative members of the caucus want to further study the state’s school funding formula, and have expressed doubts that more spending will necessarily lead to better outcomes for Alaska’s students, who have regularly tested in the bottom of the nation in standardized tests.

Palmer Republican DeLena Johnson, who manages the operating budget in the House Finance Committee, said she thinks it’s unlikely that a permanent increase would pass through the Legislature this year. Instead, the House majority approved the one-time $175 million school funding boost. But the money would be paid from state savings, which presents a political problem.

Drawing from the $2 billion Constitutional Budget Reserve — the state’s main savings account — requires a three-quarters approval vote by lawmakers in both legislative chambers. That vote failed to get enough support from the Democrat-dominated House minority caucus, which wants to see a permanent increase, not a one-year boost.

There could be another vote if the draw from savings is included in the final budget bill negotiated between the House and Senate.

Education advocates have long said that one-time school funding increases are not predictable and do not easily allow for long-term investment.

Paying more for education and covering the annual PFD are in competition for limited state dollars.

The House budget includes a $2,700 Permanent Fund dividend, following the 50-50 model that shares Permanent Fund earnings 50-50 between the dividend and public services. The House PFD would cost more than $1.7 billion and create a more than $600 million deficit in the state budget, depending on oil prices.

House Speaker Cathy Tilton, a Wasilla Republican, said a $1,700 PFD is “a big leap” for her and some members of her caucus who had supported an even larger dividend. Most members of the Republican-led caucus are OK with drawing on savings to cover spending.

The Senate has indicated support for a $1,300 dividend and a spending plan that does not require drawing from savings. But members of Senate leadership acknowledged that there will likely need to be compromise with the House during final budget negotiations.

“It seems right now that the big issue is between funding education and the PFD and how that balances out,” Stevens said April 18. “They are interrelated in our budget, and if we have a very high PFD, there’s no money left for education.”

Gov. Mike Dunleavy could also be a factor in the level of additional education spending and the size of the dividend in the final budget.

“The governor acknowledges an increase in education funding is needed to reduce the impact of inflation. Discussions are underway with lawmakers on the amount of any … increase,” said Shannon Mason, a spokesperson for the governor’s office, in a prepared statement Thursday.

Multiple lawmakers said that Dunleavy has called for the Legislature to approve the House’s $2,700 dividend during closed-door meetings.


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