The House Finance Committee heard a bill Monday, April 1, that would extend the moratorium on school bond debt reimbursement.
The school bond debt reimbursement program reimburses municipalities for some costs of school construction and repair.
Since FY 1978, the State has gradually reduced the amount of State contribution under AS 14.11.100. According to one section of the statute, the State currently shoulders half of the costs of school construction and repair, dropping to 40 percent in FY 2021, subject to appropriation.
However, the legislature passed a bill (SB 64) in 2015 that established a moratorium on school bond debt reimbursement for new projects until July 1, 2020.
Gov. Mike Dunleavy sat on Senate Finance when the committee sponsored SB 64. He voted for its passage.
In a letter to the House Finance Committee, Unalaska Mayor Frank Kelty said the school bond debt reimbursement statute is a promise, without which municipal voters will be more likely to reject bond packages that pay for school construction.
“The Governor has repeatedly promised to restore ‘trust in government.’ It is disingenuous that one of his first steps toward doing so is by breaking a promise the State made to those voters and to those local governments,” Kelty wrote. “Balancing the State’s budget on the backs of local governments does not restore trust in government. In fact, taxpayers and voters will clearly feel like their trust has been violated.”
Instead of a full repeal of school bond debt reimbursement, HB 106, sponsored by House Finance Co-chair Tammie Wilson (R-North Pole), would extend the existing moratorium until July 1, 2025.
“It would extend the payments of the debt we currently have,” Department of Education & Early Development (DEED) Administrative Services Director Heidi Teshner said of HB 106. “Current costs of the program would continue, so there’d be no additional costs because no new debt projects would be coming online until 2026.”
During the moratorium, municipalities have paid 100 percent of the cost of new school construction projects.
“For the past five years, no municipality has been able to take out a bond with the understanding that the State would pay. They can put out the bonds, but now everyone knows it’s the community’s responsibility,” Wilson added. “It would be unfair to Alaskans, in my opinion, to put more bonds out there and then to discuss why we’re not paying them.”
The version of the operating budget the House Finance Committee adopted Friday includes $100 million for school bond debt reimbursement.
Wilson clarified that the $100 million is to pay bond debt incurred before the moratorium began in 2015. HB 106 only prohibits the State from paying a portion of municipal debt on new projects begun since 2015.
Northwest Arctic Borough Mayor Lucy Nelson was not mollified by the clarification.
“The State of Alaska is responsible for funding schools, made a prior commitment to reimburse a portion of school bond debt, and local governments have relied on that commitment in good faith,” Nelson testified. “Our borough has no new revenue source to make up this huge reduction.”
“You have new needs that have come about since 2015, but my understanding is, when the moratorium began, surely the whole world was on notice that they may be subject to taking care of their own bonds in full. Was that your understanding, or am I missing something?” Rep. Andy Josephson (D-Anchorage) asked her. “After 2015, there surely couldn’t be any expectation at all, even if the need was there.”
“We feel that the State is responsible for funding schools, and we hold to that,” Nelson responded.
Nils Andreassen, executive director of the Alaska Municipal League (AML), agreed with Nelson.
“AML believes that the constitution is clear that it is the State’s responsibility to establish and maintain a system of public schools, and in this case, we believe that this extends to construction of those schools,” Andreassen said. “Our fear is that extending the moratorium will result in minimal investment into major construction and maintenance as districts wait another five years before being able to address current concerns. We know that deferred maintenance is currently a challenge, and extending the moratorium may compound that challenge.”
Cutting school bond debt reimbursement automatically reduces the amount of money the State can provide for school construction and repair in the Rural Education Attendance Area (REAA), the part of the state that doesn’t have the authority to tax or pass its own bond packages.
Wilson and Rep. Bart LeBon (R-Fairbanks) noted that bond packages submitted to municipal voters for approval clearly indicate that any involvement from the State is- that key phrase- “subject to appropriation.” Communities are ultimately on the hook for the entire debt.
“They must have to believe that there’s the risk that the community’s going to be paying for this school, and the State isn’t going to be in a position to help reimburse those costs,” LeBon said.
LeBon acknowledged that the moratorium would likely increase municipalities’ borrowing costs.
Josephson said HB 106 is the result of the legislature’s inability to adopt new taxes.
“I’m likely to support this bill, but I want it clear that I do it with sadness because I think there’s been a lack of resolve since 2015 to have a comprehensive fiscal plan,” he said.
“By us extending the moratorium, we’re not extending deferred maintenance needs. We’re not extending deferred construction needs,” said Rep. Dan Ortiz (I-Ketchikan). “There’s real growth in the Mat-Su area right now of population, which indicates a need for schools. By us extending the moratorium, we’re not helping the overall ability for our need to provide for adequate education and facilities for our children of Alaska.”
Ortiz also said he would reluctantly support HB 106.
Wilson held the bill in committee.
House Finance will hold a hearing on the capital budget Tuesday and begin consideration of operating budget amendments on Wednesday.