A bill extending the moratorium on school bond debt reimbursement is headed to the House floor after it passed from House Finance without objection Monday, April 8.

Monday’s short hearing was the second for HB 106, sponsored by House Finance Co-chair Tammie Wilson (R-North Pole).

The bill would extend until 2025 the moratorium on State reimbursement for new school construction and rehabilitation projects.  The moratorium began in 2015.

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Elwin Blackwell, school finance manager for the Department of Education & Early Development (DEED), said that when school bond debt reimbursement was established in 1970, it paid 100 percent of the costs of school construction.

Though the percentage of reimbursement was reduced in subsequent decades, a separate, lower reimbursement rate was established in 1999 to reimburse municipalities for school expansion and rehabilitation projects when the school population might not qualify for housing space.

Rep. Bart LeBon (R-Fairbanks) mentioned the conversion of the Hutchison Career Center in Fairbanks into Hutchison High School.  The new facility needed to build a gym.

“That’s a good purpose for the program,” LeBon said of the reduced reimbursement rate.

However, participation in school bond debt reimbursement — and cost to the State — has been steadily increasing since FY 2004, causing many to reevaluate the program.  Gov. Mike Dunleavy has proposed repealing it altogether.

House Finance has already voted to eliminate the State’s contribution for debt accrued prior to 2015.  Wilson and House Finance Vice-chair Jennifer Johnston (R-Anchorage) joined minority members in support of that $100 million cut in the operating budget.

“Has the legislature ever declared that it would not cover, retroactively, previously bonded projects?” Rep. Andy Josephson (D-Anchorage) asked Monday.

“Governor Walker did that,” responded Wilson.

Gov. Bill Walker vetoed $24 million from the payment in FY 2017, effectively a 21-percent reduction.

The legislature and governors consciously underfunded the program in certain years prior to FY 1992.  From FY 1992 to FY 2016, the program was 100-percent funded every year.  

Extending the moratorium on reimbursement to municipalities also reduces the amount the State is required to provide for school construction and repair in the Rural Education Attendance Area (REAA), which cannot tax or bond.

REAA funding is tied to school bond debt reimbursement through a statutory formula so that rural school funding doesn’t fall behind that of municipalities.  Therefore, the proposed $100 million cut in the FY 2020 budget corresponds to a $39 million cut to the REAA.

The Alaska Municipal League has expressed its opposition to HB 106, arguing that school bond debt reimbursement is part of the State’s constitutional obligation to provide for public education.

“If the City of Seattle needed a new school… who would fund that?” asked Josephson.  “Would it be the City of Seattle?  Would it be King County?  Would it be the State of Washington?”

DEED Facilities Manager Tim Mearig responded that Washington counties pay for the majority of school construction, but the State of Washington also pays for a portion.

Wilson told committee members that HB 106 will give time to evaluate the program while the State gets its fiscal house in order and figures out how to pay for bonds prior to 2015.

Johnston added that technology is changing the way education is delivered, so extending the moratorium is part of reevaluating education as a whole.

“Given the current political lay of the land, this bill makes sense.  But, as I noted previously, the State is going to need new revenue someday,” Josephson told colleagues.  “The moment there’s a consensus in the building for new revenue, either from industry or individuals, you need only knock on my door and I will participate.  A ten-year moratorium is a long moratorium, but given the political circumstances that we’re in, it’s a smart bill.”

HB 106 is moving quickly and is likely to pass just as quickly through the Senate.

However, floor debate on the operating budget begins Tuesday.  Passing HB 106 from committee Monday could give the bill a chance to be debated Tuesday prior to consideration of operating budget amendments.

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