Education funding in focus amid growing budget impasse
It’s either an education funding raffle, drawing Permanent Fund earnings or an income tax: lack of agreement on any one of these three solutions is stymying action in the Alaska Legislature this week while as yet no conference committee is named to roll up sleeves and get to work filling a $2.6 billion hole.
Education forms 44 percent of the Alaska budget between K-12’s $1.3 billion need and the University of Alaska system’s $325 million allocation. That’s the elephant stuck in a keyhole, according to legislators working through three possible solutions under consideration.
These are the bills put forth to help fund education in fiscal year 2018, which begins July 1:
• House Bill 115: The House Finance Committee sponsored this bill and it passed 22-17 on April 15. Called the Education Funding Act, it seeks to gain $650 million in an income tax for education. This bill is now before the Senate and isn’t wildly popular there due to the philosophy that it hurts in times of recession to tax citizens, said Sen. Anna MacKinnon, R-Eagle River. Rep. Paul Seaton, R-Homer, advocates HB 115 as a fair mechanism for securing a steady revenue stream for education in the years to come.
• Senate Bill 78: A new bill produced in the waning days of the Alaska Legislature by Sen. Click Bishop, R-Fairbanks, would allow Alaskans to voluntarily sign-up for a raffle to fund education — and possibly win big money — when they send in their annual application for the Permanent Fund dividend. The bill, which also carries other provisions, passed 19-1 in a Senate vote April 17.
• Senate Bill 26: Using $1.8 billion of the Earnings Reserve from the Permanent Fund Corp. This would allow the Legislature reduce the draw from the state’s Constitutional Budget Reserve savings account. For the past five years, $10 billion was subtracted from the CBR. The Senate is calling a draw from the earnings a cornerstone of the 2018 budget. This bill passed the House after amendments that increased the guaranteed dividend to $1,250 in the first two years, and required its oil tax increase and income tax in HB 115 to be approved by the Senate before SB 26 can take effect.
“We’re at an impasse. The focus is on the cornerstone… through SB 26,” Sen. MacKinnon said April 18. “We’re trying to keep people focused on what we believe is a must-have in a fiscal construct.”
A fourth partial aid for education is in the form of the MacKinnon-sponsored SB 103, which would eliminate some parts of the Alaska Performance Scholarship over a four-year period. That would add millions to K-12 education grants to motivate innovations in schools. After originally proposing to eliminate all of the scholarships, an amended version of the bill would keep the Tier 1 APS for students who achieve a GPA of 3.5 or higher. Currently, 54 percent of the recipients are at this level.
Staff for MacKinnon emphasized the priority should be improving K-12 outcomes given that 52 percent of enrolling students at the UA require some kind of remedial coursework.
According to MacKinnon’s office, only 5 of 100 average ninth graders now in Alaska will graduate from the UA system within six years.
Senate and House leaders have not yet put together a conference committee to reconcile disagreements over the budget due to the funding questions deadlock.
“Once we’re not deadlocked on that, we can then appoint a conference committee for the operating budget,” MacKinnon said. “The (budget) hole is so enormous. We need SB 26 to fill the hole.”
Though the 90-day session is over, with the utmost issue yet to be resolved — how to fund the budget — there’s a flurry of last-minute bills on education and other matters to resolve.
Rep. Harriet Drummond, D-Anchorage, chair of the House Education Committee, said with so many moving targets, it might not be bad news that it’s slow-going in Juneau.
“There is a lot of work to be. Major bills are still under consideration,” she said. “There are a lot of moving parts.”
The House’s solution for funding education to avoid the Senate’s proposed cuts that include 5 percent to the Base Student Allocation statewide came in the form of the income tax in the HB 115.
Now it is before the Senate to vote on Drummond said, and could end up in conference committee with the overall budget if no consensus is reached.
Meanwhile, the House will be analyzing and voting on Bishop’s SB 78 solution. Bishop touts that as a new revenue stream for education in a multi-layered structure, while providing a raffle drawing.
First, half of the proceeds would go directly to the state’s annual education budget. Second, one quarter of the proceeds would go into an endowment that — after it grows to $1 billion — would spin off income to the education budget.
The final one-quarter would go into an endowment to grow the prizes, and 20 percent of that fund would be used each year for prizes, according to release from the Senate.
Under the bill’s provisions, Alaskans can dedicatee all or part of their Permanent Fund dividend, in $100 chances, to enter the raffle and support education. The bill structures the check-off in a manner similar to the familiar “Pick.Click.Give.” program.
“The odds in winning are incredibly; good compared to other raffles,” MacKinnon said. “Only 700,000 individuals qualify for the PFD. Something like half are children. If that’s the case, 300,000 to 350,000 people would be able to enter. It would give payoffs for education and payoffs for individual Alaskans.”
The option to take from the Permanent Fund faces big hurdles in the House. It is proposed “because of the enormous shortfall and how little we have at our disposal to fix the problem,” MacKinnon said. Education became the focus because it’s the costliest of the top five budget items.
If $1.8 billion is taken from the Fund earnings, the need to draw from the CBR would be more minimal, MacKinnon said.
“A dialogue is happening. Everyone is trying to move their members toward a conversation that unites us,” she said.
While options are available to avoid K-12 funding cuts, not much is in the works to help UA.
When the University of Alaska Board of Regents met in Fairbanks April 13, they listened to an assessment from UA President Jim Johnsen and campus chancellors on contingency plans if proposed cuts are passed by the legislature.
The House passed a status quo budget for UA, leaving them at $325 million in appropriations. But the Senate slashed $22 million, proposing $303 million for fiscal year 2018. The Senate amount represents a 20 percent decrease in unrestricted general funds for university operations over the past four years.
“We’re at a place now where we can’t take more incremental cuts. There are employees wearing multiple hats, doing so at less time per week in order to save the university money,” Johnsen told the board.
Continued enrollment declines and a reduced ability to meet the state’s workforce needs were just two of the dismal outlooks for UA’s immediate future. Johnsen predicts discontinued degrees and certificates, reduced research, and fewer faculty and staff to serve students.
From 2011 to 2015, UA’s enrollment dipped from a high of 34,983 students to 30,496 in 2015, the latest numbers available. That’s a 12.8 percent loss in the student body.
Johnsen emphasized that to avoid this type of “hard landing” in the future, UA is working on a Strategic Pathways process to diversify revenue streams. Less reliance on state funds is the goal. In the spirit of optimism, regents in fact asked for an increase in the allocation for fiscal year 2018 at $16.3 million over last year’s allotment.
The money would have gone for workforce development programs, facilities maintenance, research conducted by the Institute for Social and Economic Research, economic development and K-12 partnerships.
Regents unanimously passed a resolution in support of the Alaska Higher Education Investment Fund, which provides revenue for the Alaska Performance Scholarship and the Alaska Education Grants.
“If these programs were eliminated, it would be a triple whammy… It would lead to reduced access (and) yet another budget cut,” Regent John Davies said at the meeting. He was referring to the $22 million in cuts, plus the previous four years of cuts that represent loss of 14 percent of the UA budget.
One funding piece may not be on the way out, however. If the legislature agrees to keep the Tier 1 level of the performance scholarship, UA will continue to benefit from those scholars.