Alaska’s unfulfilled public education promise

The original Alaska Statehood Act stipulates that 5% of the federal Alaska territorial land taken over by the state should be sold to fund public education, which would include public K-12 education and the University of Alaska system. Interestingly, the Alaska Statehood Act does not stipulate which lands were for education or when those lands would be “sold” for education. Here, the term “selling” can mean mineral lease land sales and the royalties from those sales. The Act only states that public education should receive the money from the sale of lands.

Those state lands might include riverbeds, snowy mountain peaks or even tidal lands that have limited value. However, it is hard to believe that the intention of the Statehood Act was to sell the least valuable of all state lands for education. Nor is it likely the authors of the Act intended for the state to wait decades for such land acquisitions to occur. Rather, the federal government probably envisioned that an average land value of any given tract of land be used for education and that those lands should be turned over to public education expeditiously.

I would argue that the turnover of funds should have happened right at the time of any lease sale, or land auction, and right from the start of any oil reservoir development. For example, education should have already received 5% of Prudhoe Bay’s royalty value, 5% of downtown Anchorage, and 5% of any given mine or other valuable lands — all items whose values can be readily determined and parsed out. This means that by the current year 2020, education has forgone large earnings potential with its lack of identified lands to sale or lease. As this is a federal government stipulation, it applies irrespective of the state’s constitution or laws, just as federal highway money must follow federal rules.

Think about how this should have already worked: Every time the state identifies a tract of land that it wants — say, the central North Slope area — then those lands are turned over to the state and leased, which is the selling of the use of that land. Of those lands, 5% of the average value, then, should belong to public education, including the royalty payments from those mineral leases.

Interestingly, from 1980 to 1990, the state of Alaska received roughly $20 billion in royalties, so about $1 billion of that by rights should have been put into public education. Crucially, though, there is the question of lost earnings on those dollars. If, indeed, education is owed a net loss of royalties accrued over decades, and those funds could have been invested to create earnings and savings, they could be worth as much as $10 billion or more for public education today. A careful investment-aggregated accounting should be done to determine if indeed public education has lost money on those 5% of sales.

Intriguingly, the Permanent fund Came from royalties and other oil taxes, which were derived from the state’s ownership of land mineral leases. Therefore, a careful analysis might show that public education lands have been used for Permanent Fund money, which is to say that over the years, public education may have been subsidizing Permanent Fund dividend payments.

As the state continues to have difficulty organizing its finances, including for public education, this critical matter should be addressed. Our students and our state deserve an accounting and an explanation of where the lost funds have gone. Instead of nickel-and-diming our educational institutions, we should be begging their forgiveness and turning over the cash they need to do their work.

Doug Reynolds, Ph. D., received his doctorate in economics. He has lived and worked in Fairbanks and has studied Alaska’s and the world’s oil and gas industry for more than 20 years. He can be contacted at ffdbr@yahoo.com.

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