Legislature's plan balances 2015 budget by draining $1.3 billion education fund

The budget approved by the Alaska Legislature Monday would drain a $1.3 billion account set aside to provide school districts some measure of financial stability. The plan would end the "forward funding" of kindergarten-though-12th grade public education in Alaska, a system under which lawmakers had set aside money more than a year before it would be needed.

But the overall budget bill, passed by both the House and Senate Monday on the way to adjournment more than a week late, does not resolve a $3.2 billion financial impasse for the 2016 fiscal year that starts in July.

The budget bill would use the education savings account to cover the state shortfall for Fiscal Year 2015, which ends in two months. To pay for government operations in the next fiscal year, legislators will need to withdraw about $3.2 billion from the Constitutional Budget Reserve. While the Senate majority has exactly the three-quarter margin needed to withdraw that cash, the House majority does not. Both ruling caucuses are led by Republicans and contain rural Democrats -- one Bush Democrat in the Senate, four in the House.

So far, the 13-member House Democratic minority has been steadfast in arguing for a restoration of education cuts and approval of Medicaid expansion, among other things, before supporting the budget plan adopted by the majority.

The Senate, in a Monday morning vote, approved the budget 15-5, agreeing to the Constitutional Budget Reserve withdrawal.

A six-member budget conference committee approved the wide-ranging budget proposal late Saturday. It would take the money set aside for future education funding and not replenish the account. "That would leave you with a zero balance in the public education fund at the end of FY (fiscal year) 16," said David Teal, the director of legislative finance.

In October, former state Revenue Commissioner Angela Rodell said the practice of putting $1 billion aside to pay for future education expenses was a key element in building financial stability for the state.


"If we just pared back the appropriation of FY 16 education expenses made in FY 15, our operating budget could have been as much as $1 billion less. But we chose not to do those things. Rather, we looked for actions that provided more meaningful stability," she said.

Only a year ago, legislators said they had "guaranteed" funding for future education. Now, in canceling that guarantee, they said they never expected oil prices to fall so far so fast, and they have to spend that money now.

For the next fiscal year, the state is facing a shortfall of $3.2 billion, which could be filled with the CBR, an account that contains about $10 billion. Legislative leaders in the House and Senate were not willing to cut a deal with the Democratic minority in the House to win the necessary votes to spend those funds. The Democrats said they wanted negotiations and compromise, while the Republican leaders equated the opposition with obstruction.

On Saturday, Fairbanks Republican Sen. Pete Kelly said the cuts to education are not really cuts, but are increases approved last year, for which funding is now being revoked. "What we're doing essentially is pulling back the increases. We're not really cutting," said Kelly.

He also said of the account set aside to fund education in the future, "That money isn't actually being spent. We're just not recharging it. In most of the budgets we would then take an additional $1.1 billion or $2 billion, whatever we thought it could be, and forward-fund that a year. We won't be doing that this year because we don't have the votes, or the money. And one of the reasons we can't get the money is because we don't have a three-quarter vote. That might be something that would be on the list of the three-quarter vote to the minority, so that we could forward-fund education."

Rep. Les Gara, D-Anchorage, like Kelly a member of the House-Senate conference committee, said the savings account for education amounted to "seed money" that would help the state pay for education during times of reduced revenue.

"In this budget, the Legislature is eating up the full $1.2 billion so it's never available to help us get through these lean times in future years," Gara said.

He said there are other options available to the state, including looking at the imbalance in oil company tax credits and the potential savings from Medicaid expansion to pay for the $48 million in education cuts proposed by the House and Senate majorities.

"Right now this state is paying out $650 million, over the next two years, more in tax credits to oil companies than we're getting back in production tax revenue. That's the big hole in the state's budget," Gara said.

Kelly interrupted to say, "I've had it with the tax credits discussion. It's almost always disingenuous. They take a tiny piece of the revenue we get."

At that point, committee co-chair Rep. Mark Neuman stopped the meeting and the microphones were shut off. Gara said later it provided a chance for everyone to cool down.

Gara, who has introduced a bill to curb tax credit spending, said he has not been disingenuous about the subject and that legislative leaders have refused to acknowledge this as one of the "glaring loopholes" in the SB 21 tax system.

Kelly has argued in recent weeks that production taxes are only a portion of state revenue from the oil industry and should not be looked at in isolation. The state also collects money from the oil that it owns, from property taxes and from corporate income taxes, he said.

Dermot Cole

Former ADN columnist Dermot Cole is a longtime reporter, editor and author.