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Prepare for huge cuts in education spending, legislative panel warns

Pat Forgey
The Alaska House Sustainable Education Task Force is calling for sharply reduced spending on schools statewide -- particularly if new oil revenues don't emerge. Loren Holmes photo

JUNEAU -- Following passage of the oil-tax cut last session, Alaska schools will have to learn to get by with less -- perhaps much less, according to a special legislative panel.

The House Sustainable Education Task Force is calling for sharply reduced spending on schools.

"In order to provide for an overall sustainable future for Alaska, current state spending levels must be reduced," the task force said. It did not say what level of reductions would be needed, but committee testimony and the task force's findings suggest that schools will have to absorb substantial cuts to reach a "sustainable" level.

School funding, from pre-kindergarten to college, makes up a huge portion of state spending, this year $2 billion out of $8.5 billion in state funds, with only a small amount coming from local, federal or other sources outside the state's general fund.

Set aside education money?

Amplifying the need for cuts, the task force called for setting aside some current revenues for the future, despite the fact that Gov. Sean Parnell's budget already calls for a deficit of $2 billion next year.

The task force said it wanted "a portion of the current revenue stream set aside to provide for future generations."

The task force was chaired by Reps. Tammie Wilson, R-North Pole, and Lynn Gattis, R-Wasilla. It also includes Rep. Charisse Millett, R-Anchorage, and five citizens appointed by House Republican leaders who screened them about their views on school funding before appointment.

The task force has met regularly around the state after being created late in the last legislative session, delving into ways to provide education with limited funds.

Many of those who supported Senate Bill 21 said they expected it to cut taxes and thus result in more oil production and more oil revenue to the state -- though most supporters acknowledged that would not happen immediately.

Fear of 'fiscal cliff'

At sometimes-contentious meetings, the task force was told that may never happen. One of those making that statement was Brad Keithley, a lawyer and oil-and-gas industry consultant who was one of two business representatives on the task force. He's been an advocate for restraining state spending and testified before the task force while also serving on it.

He told startled members that oil companies, with which he deals on a regular basis, are hesitant to make needed investments to boost Alaska oil production because of the state’s looming "fiscal cliff."

Senate Bill 21 resulted in Alaska passing its first deficit budget in years, replacing much steeper oil tax rates under the previous taxation scheme called ACES with new standards that took effect Wednesday. Current levels of state spending will rapidly consume state reserves, he said.

That scares oil companies, Keithley said, who are unwilling to make the big investments the state needs to see significant production increases because they fear substantial tax increases when the state reaches the fiscal cliff after exhausting its savings.

"Investors are looking at a reinstitution of a tax structure similar to ACES, or worse" when the fiscal cliff hits, he said.

Oil companies are sophisticated investors, he said. "They make an assessment of what is going to happen when the state hits that fiscal crisis," Keithley said.

That means that despite ballyhooed investment announcements aimed at bolstering support for Senate Bill 21, the measure is not bringing in the level of investment Alaska needs -- and won't unless the state reduces its spending. Those early announcements were aimed at quick-payout projects that will be profitable even if taxes are raised in 10 years, he said.

'No firm commitment?'

Keithley’s analysis startled fellow task force member Andrew Halcro, president of the Anchorage Chamber of Commerce and the other business representative on the committee.

"Look, I was an advocate of Senate Bill 21, that's what Senate Bill 21 was supposed to do -- to stimulate investment," said Andrew Halcro, owner of a rental car company and a Republican former state legislator.

"So even with Senate Bill 21, are you telling me that there's no firm commitment (from companies) to do the heavy lifting?" Halcro asked at an Aug. 28 meeting in Anchorage. 

"I'm telling you there isn't, because the companies are not going to make significant long-term, major investments that are predicated on long-term payouts, long-term revenue, as long as the fiscal cliff is out there," Keithley responded.

What Keithley said was needed to spur investment was for Alaska to show that it could reduce spending to a level where it could live within its means.

But Halcro objected to the harsh cuts to education and other state government functions that that would require, even if it reassured the oil companies.

"So, the companies are not going to invest because of the fiscal cliff? But they are going to invest if we basically hold government spending flat and we have substandard education system, courts, prisons, things like that?" a skeptical Halcro asked.

The task force appeared to eventually side with Keithley, voting 7-1 for the final recommendations calling for unspecified spending cuts. Halcro’s was the lone objection.

Voting for the recommendations were Wilson, Gattis and Millett, all of whom had voted for this year's $11.4 billion, deficit-spending budget. Cutting that budget by $2 billion to avoid tapping reserves would mean a cut of more than 17 percent.

The task force said that education funding should be given priority over other government programs, but still said "Alaskans shall be made aware that current education spending is not sustainable."

It made few suggestions on where cuts could be made.  Two prospects:

• Expanding boarding schools to save money on expensive-to-educate rural students;

• Shifting some costs to local governments.

And it made the perpetual recommendation that the state should "review and eliminate unnecessary regulations." Review the House Sustainable Education Task Force recommendations here.

The committee was appointed by the House of Representatives, which means that even if its recommendations are acted upon, they go only to one branch of government. In recent years, the Senate has been more supportive of school funding than the House.

Contact Pat Forgey at pat(at)alaskadispatch.com.