Legislature grapples with stubborn deficit; differences narrow on school funding

The Senate continues its work on the operating budget in an effort to get a balanced budget without needing to borrow from reserves in the Constitutional Budget Reserve, or CBR.

Senate Minority Leader Sen. Mike Shower, R-Wasilla, credited the Senate Finance Committee for its efforts to trim a budget received from the state House.

But there is still a deficit, and the math is tough, Shower said. His comments came in a briefing by the Senate Minority last week.

“The House sent over an operating budget with $6.13 billion in revenues; an operating budget of $4.8 billion; a budget for ‘statewide’ (non-agency) operations of $4.8 billion; a capital budget (for construction) of $186 million and $950 million for the Permanent Fund Dividend,” which with a ’75-25’ split of the Permanent Fund’s annual payment to support the budget, works out to a $1,400 dividend paid to citizens.

A balanced budget is legally required of the Legislature, but the House spending plan is still short of balancing by $237 million, Shower said. What isn’t included in the House budget is the impact on revenues of recent declines in oil prices, which will add another $250 million to the deficit. Collective bargain contract changes with state employees must also be included, and that may add another $100 million, Shower said.

In the latest Senate version of the operating budget spending is stripped to the bare bones. Almost all additions made by the House and the governor have been cut, but there is still a deficit as oil prices continue to decline.

Senate leaders are still opposing a draw on the CBR and feel te budget must balance without one, so this is still a work in progress. The Senate budget includes a $1,400 Permanent Fund Dividend that is in the House budget. Many legislators support a $1,000 PFD to make more program funds available, but the PFD could be lower, too.

Meanwhile, the biggest topic in the Legislature continues to be education funding. The latest moves on school financing actually show move toward the middle debate over funding.

A Senate proposal passed the Senate Monday, April 28, with a $700 Base Student Allocation, or BSA, which is down from $1,000 in a bill passed earlier by the House and vetoed by Gov. Mike Dunleavy. The governor has meanwhile proposed a $560 BSA in the bill he introduced after vetoing HB 69 which had the $1,000 figure.

Senate Finance cochairs Sens. Lyman Hoffman, D-Bethel, and Bert Stedman, R-Sitka, are still pushing to reduce the BSA toward $680 in their efforts to balance the budget, however. Expectations are that $680 may be the final number.

What is significant is that the governor would put the $580 in the BSA formula, so that it is recurring, and not as one-time funding outside the formula as he has previously allowwed. This is important because has not proposed putting more money in the formula. The governor is also insisting that policy changes be part of the bill and the Senate has gone back and forth on this, at first stripping policy chnges out but then putting some of these back into its proposal.

Some of what the governor wants is in the bill passed by the Senate Monday, but not all. The governor wants bonus incentives for schools for lower-grade reading improvements, for example, which is not in the Senate bill. He also wants “open enrollment,” between school districts and not just within school districts, which is in the Senate bill.

On this, critics cite logistic problems and uncertainties it may create but from a practical standpoint it’s considered likely that very few students would actually transfer between districts. It would also mainly affect the Anchorage and Mat-Su districts, it is thought.

The charter school application process was previously a concern for school districts but differences here seem to be worked out in the latest bill.

However, there is still a gap between the $580 BSA the governor proposes and the $700 BSA in the bill that has passed the Senate, and this remains a challenge. A $700 BSA would add $200 million to the budget, according to estimates.

As for the policy issues, there do not appear to be things that can’t be resolved. But with just weeks left in the 2025 legislative session politics could intervene, and some yet-unknown upset could derail things.

There is also an adjustment for correspondence study funding in both the governor’s and the Senate proposals. Correspondence study is now funded slightly below that for traditional schools. The proposal is to make them even. There is still no requirement for correspondence students to participate in annual learning assessments, however, which students in traditional schools must do. A number of correspondence students voluntarily do the assessments and these typically score well, but it is only a minority of those enrolled.

But even if a BSA deal is brokered there’s still a fear that the governor may do a line-item veto in the budget of money to pay for it. This would likely come well after the budget is passed and legislators have left town, however, so there is little they could do about it. People will just have to trust the governor.