During World War II, the Alaska territorial government found itself unable to pay its bills, even though it had a growing surplus set aside in an exclusive fund for road construction at a time when no one was building roads.
"Now, I know we can't legally borrow money but the fact of the matter is that we did," Juneau attorney Mildred Hermann, a delegate to the Alaska Constitutional Convention, said in Fairbanks during a 1955 debate at the University of Alaska about that financial pinch. She said the territory was forced into borrowing because of inflexible budget rules.
She wanted to avoid duplicating that problem once a government was established in the new state. She said the "real evil" in setting funds aside for a single purpose is that it "so often leaves the general fund short of funds on which to operate." Persuaded by this and other budget horror stories, the delegates banned so-called "dedicated" funds in the constitution, deciding that the Legislature should have the flexibility of changing where money is spent depending upon current needs.
The Permanent Fund, adopted by an amendment in 1976, is the biggest exception to the ban on dedicated funds in Alaska. But the limits and the definition of dedication remains subject to legal debate, most recently in the school funding lawsuit before the Alaska Supreme Court.
The oral arguments presented Wednesday focused on a narrow question of whether the mechanism spelled out in state law that requires local governments to pay a certain amount for schools violates the ban in the Alaska Constitution against dedicated funds. But the implications for Alaska's local governments and schools could be widespread, depending upon how the court handles it.
The Ketchikan and Fairbanks boroughs argue that the law is unconstitutional. The state defends the current system, along with the statewide teachers' union, school boards and school administrators. The mandated statewide total from local governments is more than $200 million, which is less than one-fifth of what the state spends on K-12 schools. It's like a copay for health insurance, a state attorney said. Not all of it is done with taxes, as the local districts in St. Mary's and Galena use in-kind contributions for their share.
"The required local contribution is the Legislature's way of saying, 'If you choose to live in a community with children, you have responsibility to those children,' " said assistant attorney general Kathryn Vogel.
The National Education Association says the Ketchikan decision, if allowed to stand, "will destabilize the state's ability to provide a free, quality public education to students wherever they live in Alaska."
It would not create an overwhelming problem. If the decision stands, however, it would force the governor, Legislature and local governments to rewrite the rules and rethink the balance of state and local taxes, which will not be an easy task.
It would also reignite an old debate about the fairest method of paying for schools across 55 school districts with large variations in economic conditions and local governments. There are 19 Rural Education Attendance Areas under state supervision that don't have a local tax for schools, for instance.
Officially, the court case is not about whether the state should pick up the share of education funding now supplied by local governments or how much local governments provide to schools, but those background issues loom larger than the technical question in dispute.
In some parts of the unorganized borough, the vast area of rural Alaska not in any borough, there is a potential property tax base, while in all parts of the state there are people earning income that could be subject to a statewide tax, under one of many potential alternatives.
The status quo would remain in place if the Supreme Court overturns the Superior Court decision.
Complicating public understanding of this debate is that the boroughs say it is the mechanism in the law that they find objectionable, not the notion of paying for schools. In both Ketchikan and Fairbanks, as well as in about 30 other cities and boroughs, local governments voluntarily appropriate more than the minimum requirement to help pay for local schools.
"The argument is that the mechanism that the state has chosen to require a certain amount of funding be sent directly to school districts is unconstitutional," said Louisiana Cutler, the attorney for Ketchikan.
That the boroughs contribute more than the minimum has been cited by the state as proof that they really don't object to the system. At one point, the state said, the boroughs are making the "unspoken, unsupported assumption that the Alaska Constitution requires all education funding to come from the state."
The constitution requires that the Legislature shall "establish and maintain a system of public schools," but doesn't spell out funding levels. During the oral arguments at the Supreme Court, Justice Daniel Winfree said the Ketchikan reasoning was "very cleverly orchestrated to avoid the question of who has the obligation to fund."
"Who has the responsibility to fund the public schools in the state of Alaska? Is it the state? Or is the state and local governments?"
He asked if the court has to know that answer before it decides the dedication dispute. No, according to Cutler. The court can find that the dedication clause has been violated and doesn't have to decide whether the state has to fund all education.
"But you might have to indulge this court," Chief Justice Craig Stowers said, "because we're curious to know. It might make a difference."
"From my way of thinking, if the state were obligated to pay 100 percent of the education, I think the argument of the state requiring local entities and municipalities to tax their own citizens and make contributions might very well be a violation of the anti-dedication clause."
If the state does not have that obligation, then the idea of requiring a local contribution may have merit, he said.
Most Alaskans will never care if the required local contribution is a dedicated fund or not. But they care about schools. If the court decides that the state is obligated to pay for local schools, then the entire funding system will need to be overhauled.