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New Senate bills end scholarships, shift pension obligations to cities and schools

  • Author: Nathaniel Herz
  • Updated: September 28, 2016
  • Published March 28, 2016

JUNEAU — Alaska Senate leaders proposed Monday to roll back a signature college scholarship program of former Gov. Sean Parnell's as they continue to hunt for cuts to fix the state's budget crisis.

A new bill from the Senate Finance Committee, co-chaired by Pete Kelly of Fairbanks and Anna MacKinnon of Eagle River, both Republicans, would eliminate the $11 million-a-year Alaska Performance Scholarship program by 2022. If it passes, students wouldn't be able to apply to the program after July 15.

The bill, Senate Bill 208, was unveiled Monday morning as part of a package of four measures from the committee affecting communities and school districts. Senate Bill 210 would halve what has been an annual $60 million oil revenue distribution by the state to cities and other communities, while Senate bills 207 and 209 would force school districts and municipalities to pay tens of millions of dollars more to support the state's pension systems.

"The state of Alaska is on the brink of going broke. We have a $4 billion deficit and it seems every time we turn around, it increases," Sen. Lyman Hoffman, D-Bethel and a member of the Senate's GOP-led majority, said at a news conference. "Somehow, we need to come to terms with the fact that the financial condition of the state of Alaska has changed. And everything has to be looked at and on the table."

The performance scholarships were first paid in 2011 under a program championed by Parnell. In the state's last fiscal year, about 3,000 students received scholarships of up to $4,750 a year, based on grades, test scores and course work, to attend colleges or training institutes in Alaska.

"That was a stake in the ground for Gov. Parnell," said Mike Hanley, Parnell's education commissioner. Hanley left his job this month after being held over for a year by Gov. Bill Walker. The program, Hanley said, was designed as an incentive for schools, students and parents.

"There are hundreds of stories of parents who are thrilled to be able to get their kids to go to college," he said.

Parnell responded to an interview request with an emailed statement in which he recounted a conversation with a waitress at an Anchorage restaurant. The woman, he said, was a single mom working two jobs, and she said the performance scholarships allowed her daughter to attend the University of Alaska Anchorage and become the first member of her family to go to college.

"These are the young people and hard working parents for whom Alaska Performance Scholarship gives an opportunity," Parnell said. He added: "With that said, I understand that financially tough times require tough decisions."

The scholarships are paid out of the Higher Education Investment Fund, which contains more than $400 million. Kelly said at the news conference that money currently set aside for the scholarships would be used to offset what would otherwise be school districts' larger pension payments tied to SB 207.

"These state scholarship programs were adopted at a time when oil value was setting not only record prices, but record state revenue," Kelly and MacKinnon said in a prepared statement about the bill.

SB 207 would ask school districts to pay about 50 percent more next year to help close a shortfall in the state teachers pension system — then increase those payments by 1 percent for each of the next three years.

Municipalities' contributions to a separate public employee pension system would notch up by 2.5 percent next year, then another 1 percent over each of the following two years, under SB 209.

Neither Kelly's office nor a spokeswoman for his Republican-led Senate majority caucus could immediately provide projections of costs that would be shifted to municipalities and school districts if the two bills pass. But according to an estimate by the Alaska Municipal League, its members would be asked to give $12.5 million more to the pension system next year, and an additional $5 million for each of the following two years.

The Anchorage School District would be faced with about $20 million in higher pension costs under SB 207 — though that new obligation could be mitigated if lawmakers keep Kelly's promise to offset the impact with the money from the performance scholarships, said Mark Foster, the district's chief financial officer.

"The big 'if' that we draw a big red circle around is whether the Legislature can fund and follow through on the commitment," he said, adding that was a "considerable uncertainty."

If the money to offset the higher pension bills doesn't come through, Foster said, the school district would most likely have to lay people off to make up the difference.

Anchorage Mayor Ethan Berkowitz, meanwhile, sharply criticized the Senate's package of legislation, calling it "a deception."

The city last year, under the state revenue sharing system, received an estimated $15 million; that amount would likely be cut substantially under the Senate's legislation, while its pension payments would go up.

"They're claiming to reduce state government but they're doing it by pushing those costs on to local government," Berkowitz said in a phone interview. "So the impact is that local taxpayers are going to pay for their supposed cut, because it's not really a cut."

He added that the Senate was approaching the state's fiscal crisis with a "bunker mentality," rather than collaborating with local officials to find efficiencies in shared services in areas like road maintenance and health care costs.

"Work with us — don't do things to us," Berkowitz said. "This is not giving municipalities a stake in the outcome. This is putting a stake into municipalities."

Senate leaders have spoken of an aversion to using taxes to close the state's budget gap. But local tax increases that could result from their new legislation are implied in the bill to scale back the revenue sharing program.

The measure would eliminate a state requirement that municipalities grant property tax exemptions to senior citizens and disabled veterans on the first $150,000 of value of their homes, according to a preliminary reading by the Alaska Municipal League. That would grant a longstanding request by some municipalities.

But the provision, according to Kathie Wasserman, the league's executive director, essentially suggests that local officials could pay for the costs shifted to municipalities by raising taxes on senior citizens and disabled veterans, which state lawmakers "never had the balls to do," she said in a phone interview.

"No mayor's going to do that," she said.

In its floor session Monday, the Senate fast-tracked the bills by referring them only to the finance committee, where a hearing on all four is scheduled for Tuesday. Senate Democrats asked that the bills be vetted by more than one committee, but were voted down each time along caucus lines.