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State tells Anchorage, Bristol Bay schools it won't reimburse voter-passed bonds

  • Author: Tegan Hanlon
  • Updated: May 31, 2016
  • Published September 7, 2015

The state education department told two Alaska school districts in letters last month that it will not help pay for school bonds approved by voters in April, due to a five-year moratorium on state reimbursement passed by the Alaska Legislature earlier this year.

The letters prompted the Anchorage School District to fight back and the Bristol Bay Borough School District to seek alternate funding to repair sections of its school's siding and roof, among other fixes, because the superintendent says the small community can't afford to shoulder the costs alone.

In short letters to the school districts dated Aug. 12, Elizabeth Nudelman, state Director of School Finance, wrote that the Alaska Department of Education and Early Development would not issue agreements to reimburse debt from school bonds that voters had approved after Jan. 1, 2015, but before July 1, 2020. She attached copies of Senate Bill 64.

The letters came months after state lawmakers had tangled in debate over the reimbursement of school bonds -- specifically over whether or not they could avoid reimbursing the multi-million bond package proposed by the state's largest school district. Talks swirled and votes were cast about effective dates and retroactive clauses that would allow a five-year moratorium on state reimbursement to reach back to the beginning of the year. As that debate continued in Juneau, Anchorage's vote on the bond package crept closer.

Ultimately, the Legislature transmitted Senate Bill 64 to Gov. Bill Walker at 1:01 p.m. on April 7, according to legislative records. About six hours earlier that day, polling places opened in Anchorage and residents began voting on Proposition 1, a $59.3 million school bond package. By that evening, voters had passed that proposition, but Walker still hadn't signed the bill into law.

The Senate bill had two effective date provisions -- one that made it effective immediately upon becoming law, and the other that made the five-year moratorium on school bond reimbursements retroactive to Jan. 1, which would affect the bonds approved in April by Anchorage and Bristol Bay voters.

In a message dated April 25, Walker wrote that he had allowed the bill to become law without his signature. He said that news reports led him to believe that some members of the public remained confused about what transpired during the legislative session, and whether the retroactive effective date would apply to the just-approved bond package.

"This confusion is understandable," he wrote. "So while the bill is legally sound, and even though I support efforts to reduce our State's budget, including debt service, I would prefer that this have been done in a manner more understandable for Alaskans."

Uncertainty in Anchorage

Mark Foster, chief financial officer for the Anchorage School District, said that it appeared to him that some uncertainty existed on Anchorage's election day about if the state would help reimburse the school bonds.

About the Aug. 12 letter from the state, he said, "I wouldn't say it was expected or not."

"I think we really just wanted a formal determination from the state in writing so we knew how they had framed the issue and we could evaluate that and prepare the response," he said.

Anchorage's election ballot said that the projects under the school bond proposal qualified for up to 60 or 70 percent of state debt reimbursement, but noted that "state reimbursement is subject to annual legislative appropriation."

The Anchorage School District's website said that if the bond package passed and the state didn't pay the reimbursement, Anchorage residents would see a greater increase in annual property taxes. The website also had a chart showing that the state had paid 100 percent of its debt obligation since 1992.

The School District said that if the bonds passed and there was not state reimbursement, the owner of a $100,000 house would pay about $14.11 more in annual property tax. With reimbursement, the same homeowner would pay an additional $5.59, according to school district figures.

Foster said that the school bonds approved by voters in April have not yet been sold.

"The earliest we'll be paying on debt without state support is late spring 2016," he said.

Ross Risvold, the municipality's public finance director, said that if the state did not reimburse the school bonds, it would not affect the municipality's credit rating. He also said it would not affect the mill rate until next year.

Foster said the School District expects to submit a formal request to the state in September, asking it to reconsider its stance on the eligibility of April's school bond package for debt reimbursement.

When asked if the state would reconsider its stance, Nudelman, who sent the August letters, said, "I think the only thing I can assure you at this time is that we are going to implement that statute as written."

A blow to Bristol Bay

Bill Hill, superintendent of the Bristol Bay Borough School District, said the bonds approved by voters in his area would have paid for projects to make the school in Naknek more energy efficient and bring it up to code -- siding has pulled away and doors and windows have outlived their renewal and replacement schedule, he said.

With the borough's small size -- just about 1,000 people year-round, Hill said -- it would be difficult for local revenue alone to pay the project bills. Years ago, the district began to explore different funding options for capital projects. In spring 2014, it decided to look into the state's debt reimbursement program. It took about a year to get a design team together and to start crafting the language for the referendum, Hill said.

"We are extremely disappointed that we weren't able to take advantage of this program," he said. "We put an awful lot of time into it."

Hill said that the borough's vote was based on if the School District could apply for state reimbursement. So when the state blocked that program, the School District's plans for renovations temporarily stopped, too. They had to look for alternate funding to get the work done, he said.

"The retroactive nature of that moratorium really jerked the carpet out from under us," Hill said. "So we felt sort of shorted there."

He said the School District's current plan is to apply for the state's major maintenance list and hopefully get funding that way.

Sen. John Coghill, R-North Pole, the majority leader, said that as the Legislature grappled to close a multi-billion deficit during the last legislative session it had to make cuts and it would have been wrong for the state to agree to the state reimbursement program when it wouldn't have the money to pay the debt.

"Could we continue to afford to do it? The answer was no," he said. "I think the real message is, we want to work with communities but we can't afford to be doing everything that we've been doing previously."

Sen. Berta Gardner, D-Anchorage, the minority leader, echoed that the Legislature had to make difficult choices this session. She said she would prefer to see money spent inside of the classroom, through the per-student funding formula, than spent on capital projects.

She also said she felt that she could not exempt Anchorage from the bill's immediate effectiveness even though the day of the election fell on the same day the bill went to the governor.

"When we have to cut back, which we do right now, we wanted to make sure that it's fair and equitable across the state (and) it applies to everyone at the same time," she said. "And also to the extent that we have to make choices, I would rather see services inside the building than seeing them outside the building."

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