Alaska budget battles could pit the dividend against a school funding boost

JUNEAU — Annual budget battles between the Alaska House of Representatives, the Senate and the governor are shaping up as a fight between the size of the yearly 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 Thursday evening in support of a substantial increase to the Base Student Allocation, 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.

In the background of annual budget debates are calls made by lawmakers and Alaska Gov. Mike Dunleavy to implement a long-elusive fiscal plan that addresses the volatility of oil revenue, the dividend, and could potentially include taxes on Alaskans. Dunleavy, a Republican, told legislators earlier in the week that he would soon introduce a yet-unseen state sales tax bill as part of a fiscal package.

The bipartisan Senate majority caucus named increasing public school funding as one of its top two priorities at the start of the legislative session, alongside reestablishing a public sector pension plan. The Senate majority has acknowledged that implementing a new pension plan will take longer than one legislative session. But the Senate’s desire for a permanent increase to the state’s per-student funding formula remains on the table for this year.

A bill making its way through the Senate would increase the BSA by $1,000 this year — at a cost of $257 million — and by a further $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 measure that would increase the BSA by $680 at a cost of $175 million. House Bill 65 is scheduled for a public testimony hearing in the House Finance Committee Monday afternoon.

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

“We’re gonna 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.

More than a dozen lawmakers — mostly Democrats and independents — joined the rally calling for increased school funding on the Capitol steps Thursday afternoon. To chants of “raise the BSA,” speakers said that public schools needed relief.

School administrators from across Alaska testified before the Senate Finance Committee earlier in the week in support of raising the BSA. 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% rise in fuel costs.

“We desperately want to improve the education system for our students based in Yup’ik values,” said Scott Ballard, the district’s superintendent, during a Tuesday committee hearing.

The Kenai Peninsula Borough School District is projected to have 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 making 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 House’s operating budget, said she thinks it’s unlikely that a permanent BSA increase would pass through the Legislature this year. Instead, the House majority included a one-time $175 million school funding boost as a compromise in the operating budget to be paid from state savings.

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 minority caucus, meaning the one-time school funding boost was deleted from the House’s budget, which advanced to the Senate on Monday. But there could be a second chance if a draw from savings is included in the final budget bill.

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

Lon Garrison, executive director of the Alaska Association of School Boards, said “the timing has always been terrible” for one-time boosts because they come at the tail end of school districts’ budget-making processes. Some administrators may choose to gamble on the Legislature approving a larger increase, but it’s a risk, he said.

“We can always find a home for funds and put them to work,” Garrison said. “The question is whether one-time funds can really be used for ongoing costs.”

The House’s largely status quo budget includes a $2,700 Permanent Fund dividend, following the “50-50″ model, at a cost of over $1.7 billion. After the price of oil dropped substantially last month, revised revenue forecasts projected the House’s budget to be $600 million in deficit, which could balloon further with additional spending for infrastructure projects.

The House majority has called for a comprehensive fiscal plan to stabilize the budget in the long term, but no bills have advanced to the floor for a final vote. House Speaker Cathy Tilton, R-Wasilla, said shifting from supporting a full statutory dividend to a 50-50 dividend was “a big leap” for her and some members of her caucus.

The Senate has indicated support for a $1,300 dividend at a cost of almost $900 million 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 during a press availability Tuesday. “They are interrelated in our budget, and if we have a very high PFD, there’s no money left for education.”

Gov. Dunleavy could also be a factor in the level of additional education spending approved this year, and the size of the dividend in the final budget. Alaska’s governor can eliminate or reduce any line item in the budget, and three-quarters of lawmakers are needed to then override their veto — the highest threshold of any state in the nation.

“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 BSA increase,” said Shannon Mason, a spokesperson for the governor’s office, in a prepared statement Thursday. “The governor wants a fiscal package to address the uncertainty that comes with volatile oil prices.”

Multiple lawmakers said that Dunleavy has called for the Legislature to approve the House’s $2,700 dividend during closed-door meetings. His office did not respond to a request for comment whether there was a BSA range that Dunleavy would be prepared to accept.