In a series of hearings last week, members of the Alaska Legislature heard emotional testimony about the need for more education funding.
As lawmakers consider the idea, it’s becoming increasingly clear within the Capitol that more funding for public schools will come at the expense of the Permanent Fund dividend.
“The state of Alaska is probably facing its largest fiscal problem … in 30 years,” said Bethel Sen. Lyman Hoffman, chair of the Senate Finance Committee, on Feb. 11. Hoffman has been a legislator since 1987.
Under the governor’s proposed budget, the dividend is the largest single expenditure in the state spending plan.
House Bill 69, the leading proposal to boost state funding for local school districts, would cost an estimated $320 million next year in its present form — roughly a 5% addition to the state general fund operating budget.
That increase is necessary, lawmakers said Feb. 11, because school funding hasn’t kept up with inflation.
The state’s oil revenue, however, is expected to be flat or down next year, due to stable prices and tax reductions owed to oil companies as they invest and drill more on the North Slope.
Legislative budget analysts forecast that legislators are facing a budget deficit for the fiscal year that starts July 1.
Thus far this year, legislators have not gathered around any tax increases that would be needed to pay for the education boost or fill any sizable hole in the budget even without an increase in state aid for schools.
“Certainly, what they’re proposing is not something the state can afford,” House Minority Leader Mia Costello, an Anchorage Republican, said of the education funding increase supported by House Democrats.
Speaking to reporters on Feb. 11, Senate President Gary Stevens, a Kodiak Republican, said Senate leaders aren’t planning any kind of statewide income tax or sales tax.
Hours before, Rep. Andy Josephson, D-Anchorage and chair of the operating budget in the House Finance Committee, told reporters that the 21 members of the House majority caucus “haven’t really sat down and gotten really into what we would find acceptable” in terms of any new tax revenues to balance state spending.
Gov. Mike Dunleavy has been adamantly opposed to even small tax changes during the first six years of his term, having vetoed bills that would tax e-cigarettes and car rentals through online platforms such as Turo.
“I think the 21 of us don’t want to just chase and pursue things that simply aren’t going to happen,” Josephson said of the likelihood of another gubernatorial veto.
If taxes are off the table, that leaves budget cuts as the likely solution to the pending budgetary tug of war. The Permanent Fund dividend, which was the largest item in last year’s state budget other than K-12 school funding, is the biggest target for balancing state spending.
Josephson said the stress on the dividend won’t just come from education — it’ll also come from the desire to pay for maintenance on state buildings and other facilities.
As debates on the budget progress through the spring, it’s possible that some tax measures could gain momentum.
The governor’s proposed budget includes no new revenues, a Permanent Fund dividend of around $3,800 — more than double last year’s payment — and drawing down more than half of the state’s budget reserve to plug the $1.5 billion gap in his spending plan.
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