House Finance shifts costs to communities with cuts to school bond debt reimbursement

Update: The committee later rescinded its amendment to eliminate $30 million of forward funding for K-12 schools.

The House Finance Committee voted 6-5 on Wednesday to eliminate $30 million in forward funding for K-12 schools, nearly $100 million in school bond debt reimbursement and an additional $39 million in similar reimbursement for rural schools.

The cuts were made as part of a larger amendment process on the state’s operating budget, which also included a failed attempt to increase the state’s oil tax credit payments from the $70 million proposed by Gov. Michael J. Dunleavy to $200 million.

The changes to school bond debt reimbursement was proposed in Dunleavy’s budget, but restored through the earlier budget process in the House. Rep. Ben Carpenter, R-Kenai, proposed the amendment to eliminate the funding in one fell swoop on Wednesday.

He only addressed the cuts in terms of promoting private sector investments in the economy, never addressing the impacts that the cuts would have on education or local communities, which will have to make up the millions of dollars in lost funding.

“The question before this body, this committee more so than any other committee, is fiscal responsibility and the health of our economy impacts all of our lives, and the lack of growth is a contributing factor to so many of our challenges,” he said. “If we’re listening closely to the private sector, business investment in our state will increase when the state chooses to act fiscally responsible.”

He was the only member to speak in support of the cuts, which passed with support from minority and majority Republican Reps. Carpenter, Cathy Tilton, Kelly Merrick, Colleen Sullivan-Leonard, Jennifer Johnston and Tammie Wilson.

Opposing the amendment was Reps. Bart LeBon, Andy Josephson, Gary Knopp, Neal Foster and Dan Ortiz. Ortiz criticized the change as a cost shift onto local communities.

“While it’s true that we need to look for cost savings, this is not a cost savings. This is just a cost shift down to the local municipalities. The impact would be a significant impact on almost all the different school districts and communities throughout the state,” he said. “I can’t support this amendment.”

Local impact

The Alaska Municipal League quickly responded to the change, outlining similar concerns.

“Instead of reducing the size of State government, the Governor – and now House Finance – have shifted State obligations to others,” wrote AML Executive Director Nils Andreassen. “Moreover, they have prioritized some obligations over others, and prioritized some regions of the State over communities for whom cuts mean closed for business.”

The Alaska Municipal League and local leaders have been vocally opposed to many parts of the governor’s budget that either shift costs onto local municipalities or suck up local revenue through proposed changes to how municipalities can tax oil and gas properties or how fisheries taxes are shared.

Fairbanks North Star Borough Mayor Bryce Ward told the Fairbanks Daily News-Miner that the cut of funding, as well as the likely extension of a moratorium on the state matching any new bond programs, will put additional crunch on local communities.

“This is really, I think, the big touching point for our community and the local tax base. … That is something that has to be paid,” Ward told the paper, adding that debt falls outside of the borough’s revenue cap.

By the numbers

According to numbers provided by AML, here’s the expected impact on each community (and percent of overall tax revenue):

• Municipality of Anchorage – $43.1 million (6.91%)
• Mat-Su Borough – $19.9 million (14.14%)
• Fairbanks North Star Borough – $10 million (8.38%)
• City and Borough of Juneau – $8.5 million (8.19%)
• Kodiak – $5 million (31.09%)
• Northwest Arctic Borough – $4 million
• Kenai Peninsula Borough – $2.8 million (2.82%)
• Ketchikan Gateway Borough – $2.7 million (14.7%)
• Sitka – $2.45 million (12.5%)
• Valdez – $1.68 million (3.81%)

AML and local leaders have warned that cutting this funding will almost certainly translate into hikes on local property taxes, which in many cases can be raised above local revenue caps.