House committee votes to have Alaska cities, boroughs pay full cost of school construction

JUNEAU — The Alaska House Finance Committee voted 7-4 Wednesday to stop payments on school construction debt incurred by local school districts, an act that would save the state an estimated $140 million per year but may cause property taxes to spike across Alaska.

In Anchorage, according to estimates from the Municipality of Anchorage and the Anchorage School District, local taxpayers would have to shoulder an additional $41 million in debt payments previously covered by the state treasury.

The municipality and school district could cut their own budgets to absorb the cost, or they could simply raise property taxes in response. The municipality’s revenue cap allows higher property taxes to cover debt payments.

For a homeowner with a $350,000 house, the required increase would amount to about $430 per year, said Jim Anderson, Anchorage School District’s chief financial officer.

From the 1970s through 2015, the state of Alaska agreed to pay a portion of any debt incurred by local governments to build new schools or renovate old ones. In 2015, the state suspended the program but kept paying for debt that was incurred before then. Last year, lawmakers cut the payments by a quarter. Now, they may be eliminated altogether.

Wednesday’s vote was suggested by Rep. Ben Carpenter, R-Nikiski, who sought to implement a cut first suggested by Gov. Mike Dunleavy. Carpenter, speaking to the committee, said the state’s budget this year is a binary choice: cuts to the Permanent Fund dividend or cuts to state programs.

“The point is, we either take PFD checks to pay for things, or we pay for them at the local level,” he said. “As a fiscal conservative, I would rather pay for things at the local level.”

Nils Andreassen of the Alaska Municipal League watched the debate from the committee’s gallery and excoriated the decision, saying officials are prioritizing the Permanent Fund dividend — which isn’t in the state constitution — over schools, which are.

“The governor has been successful in convincing many that their constitutional obligations matter less when it comes to funding schools,” he wrote in a press release. “At the same time, the governor’s pledge of ‘no new taxes’ applies only at the state level — increased and new taxes at the local level will be the direct result of the vote today, even as taxpayers come to grips with fewer services.”

Andreassen pointed out that while Anchorage would absorb the highest amount, the impact on rural areas would be greater: The $962,352 that the Lake and Peninsula Borough would need to pay is equivalent to more than a third of its entire current tax revenue.

According to the annual listing of the state’s debt, the state will pass on $107 million in school debt payments to boroughs and cities. Another $30 million or so in payments to rural education areas will also be eliminated.

In February, Dunleavy proposed significant reductions in state spending to accommodate a larger Permanent Fund dividend, one paid using the traditional formula in state statute. More recently, House lawmakers have been moving away from the governor’s proposal, suggesting instead that the state should reduce the dividend in order to preserve state services.

Neither lawmakers nor the governor are seriously considering tax increases as a third alternative.

Last week, the House Finance Committee unveiled the first draft of its alternative budget plan, one with much more modest reductions than the budget proposed by the governor. On Wednesday, members of the committee began debating further reductions as a final step before sending the budget to a vote of the full House. The debate is expected to take several days and may extend into the weekend.

The bond debt vote was the biggest cut accepted by the committee Wednesday, and lawmakers went back and forth on the concept for several hours.

“It’s not a saving; it’s a shifting to the local municipalities,” argued Rep. Dan Ortiz, I-Ketchikan.

Rep. Gary Knopp, R-Kenai, suggested a compromise — cutting the debt payments in half instead of eliminating them entirely.

“We want a step-down approach to give people time to adjust, and this does just that,” he suggested.

The idea was rejected, and the committee went on to approve the full cut.

Carpenter said there is “nothing pleasant” about the cut, but he feels it is necessary to help the state balance its budget. With a balanced budget, he said, investors will have more surety about taxation and will be more willing to spend.

A peony farmer, Carpenter turned to a gardening analogy.

“Trees don’t die because we prune them. Economies don’t die because we prune them. … Pruning will afford us an opportunity to grow, and it’s the only thing that will afford us an opportunity to grow in this state,” he said.