House Tackles Costs In Education Funding

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Created on Monday, 10 March 2025 15:31

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By JAMES BROOKS Alaska Beacon

The Alaska House of Representatives today began debating a bill that would provide a big boost to K-12 public school funding.

When legislators begin talking, they’ll likely devote much of their attention to the cost of that bill: almost $275 million per year.

That’s a big price tag, especially since the state is already running a budget deficit. 

When the education debate ends this week, the budget debate is likely to absorb lawmakers’ attention. Right now, here’s where things stand.

Alaska’s revenue picture

Lawmakers are working on the budget for the state’s 2026 fiscal year, which begins July 1 and runs through June 30, 2026. 

Under an estimate released last fall, the Alaska Department of Revenue expects the state to earn $6.2 billion in “undesignated general funds” during the FY26 fiscal year. 

That’s the state’s general-purpose budget, what’s left over after program-specific fees and federal funding are removed. 

More than half of that money — $3.8 billion altogether — will come from the Alaska Permanent Fund, the state’s No. 1 source of money for services and the Permanent Fund dividend. Oil revenue, as well as

other taxes and sources of money, is expected to generate just $2.4 billion.

A new estimate is scheduled for release on Thursday, but right now, the FY26 numbers aren’t expected to change very much.

Governor’s budget and legislators’ plans

In December, Gov. Mike Dunleavy proposed spending $7.7 billion during FY26, creating a deficit of $1.5 billion, with the extra cost to be covered by spending from savings. The biggest single item in the governor’s budget was $2.5 billion for a Permanent Fund dividend of about $3,800 per recipient.

Members of the majority caucuses of both the Alaska Senate and House have rejected that plan. Senate President Gary Stevens, R-Kodiak, has said that he and his colleagues are unwilling to spend from savings. Members of the House majority are emphasizing services instead of the dividend.

If House lawmakers pass the latest version of the new education bill and lower the dividend to about $1,420 per recipient — an amount also being considered by members of the Senate Finance Committee — the expected deficit drops to about $462 million, according to figures published by the Legislative Finance Division, the Legislature’s nonpartisan analysis division.

Members of the Senate Finance Committee have been considering an alternative of their own, with an education increase about two-thirds the size of the one on the House floor this week.

That would create a deficit of about $400 million, according to a preliminary estimate given to the Senate Finance Committee on Feb. 19.

How will they pay for it?

If Stevens’ position holds, and lawmakers are unwilling to spend from savings to balance the budget, they have few options available.

The size of the deficit means that lawmakers almost certainly cannot close the gap by cutting services. A $400 million deficit is larger than the budget for the University of Alaska or the Alaska Department of Corrections. Health funding and education funding — the largest sections of the budget — are rising, not falling, and every other section of the budget is too small to make a substantive difference.

If they do address the deficit through cuts, lawmakers are more likely to turn to the Permanent Fund dividend.

A $1,000 Permanent Fund dividend, plus the House’s proposed education increase, results in a deficit of about $200 million, according to a scenario presented Thursday to the House Finance Committee.

Eliminating the deficit entirely would require reducing the dividend to about $736 per recipient, according to another scenario. 

Significant numbers of lawmakers say that’s unacceptably low. Cutting the Permanent Fund dividend has the same effect as a regressive tax: It takes the same amount of money away from a millionaire and a 6-month-old baby. 

Some legislators have suggested that increased oil and gas production, boosted by the Trump administration, could result in more state revenue. But when it comes to the short term, that’s wrong.

New oil and gas projects take years to reach development, and under Alaska’s current oil tax system, the state actually loses revenue when new oil projects are drilled because companies are allowed to write off their construction expenses from their tax payments. 

In the long run, tax proceeds will exceed those writeoffs, but in the short term, projects like the Willow development will cost the state hundreds of millions of dollars in lost revenue.

Because of those factors, there’s growing interest in two major tax changes. Sen. Robert Yundt, R-Wasilla, has introduced a bill that would change the way the state handles taxes on privately held companies.

The change would fall most heavily on Hilcorp, the privately held oil company that controls slightly less than half of Prudhoe Bay, and is expected to generate $186 million in FY26 for the state treasury.

In addition, the Senate Rules Committee — headed by Sen. Bill Wielechowski, D-Anchorage — has proposed reducing a per-barrel oil tax credit that oil producers receive. If enacted, that reduction is expected to generate about $400 million per year.

Another deficit complicates factors

Combined, those two bills would generate enough revenue to close the deficit in the budget scenario created by an education-funding boost and a $1,400 Permanent Fund dividend.

But lawmakers also face a second problem. In the current fiscal year — the one that ends June 30 — the state is also running a deficit. 

According to numbers presented to the House Finance Committee on Thursday, the FY25 deficit is expected to be about $165 million. The new revenue forecast expected this week will likely cut that figure down, but it won’t erase it entirely.

In his December budget proposal, the governor proposed spending from savings to eliminate the immediate deficit, but it isn’t clear whether lawmakers will come up with an alternative.

In the coming months, they will have to figure out how to cover that deficit as well as the one for FY26.

Long-term problems also lurk

In addition to the short-term problems posed by the budget, Alaska lawmakers are beginning to address a long-term problem with the state’s spending from the Permanent Fund.

Since 2018, when legislators and then-Gov. Bill Walker set up a regular transfer from the Permanent Fund to the state treasury, withdrawals from the fund have exceeded deposits.

Currently, the withdrawals are coming from one part of the fund, known as the earnings reserve, but that account is running low on money and may be exhausted by the end of the decade.

To avoid that problem, state senators are examining a constitutional amendment that would eliminate the earnings reserve and allow the treasury to withdraw money from the resulting single account. In exchange, withdrawals would be permanently capped.

The downside is that if enacted, the amendment would turn a short-term problem into a long-term one: Alaska would still be spending more from the Permanent Fund than it earns.

Right now, the treasury takes a rolling average of 5% of the fund’s value each year. Reducing that amount would solve the long-term issue but leave legislators right back where they started, with an immediate short-term deficit. 

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https://alaskabeacon.com/james-brooks

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