AML Municipal Matters

We’ve been following discussions of school maintenance challenges, and lack of funding to address, with interest. These articles in particular seemed extremely pertinent.

• ‘Serious condition of dilapidation’: Alaska lawmakers show renewed interest in school maintenance funding
• Rural schools in Alaska are crumbling. The state is the likely culprit.

To contribute to this conversation and the decisions ahead, AML would offer the following.

School Construction and Major Maintenance

What does it mean for the State to be constitutionally obligated to maintain a system of public education? How does it relate to responsibilities to maintain the physical assets that public education occurs in? Who pays?

DEED released its annual report the Legislature, documenting School Capital Project Funding. It concludes that:

• The REAA and Small Municipal School District funding has been particularly important. This may be because it is statutorily required to be funded, and is tied to the State’s reimbursement of school bond debt. The longer the school bond debt reimbursement program is in place, and as those debts are paid off, the less funding will be available to this fund.
• One observed outcome of the moratorium is an increase in applications to the grant program, particularly from the larger districts, vying for legislative funding on the school construction and major maintenance grant lists.
• The annual amount necessary for the state to maintain its system of public education is $353 million, to meet capital renewal and deferred maintenance of Alaska’s schools. The average annual amount appropriated over 15 years has been $122.7 million, just over a third of what would be prudent fiscal stewardship of these assets.

REAAs are entirely reliant on the state. State law delegates its authority to that of local school boards to carry out its obligations. When it comes to construction and maintenance, though, their powers limit them to recommending to the department the needs of their district. Importantly, they are not able to tax nor bond, which means that any construction or maintenance activities comes out of their base student allocation, or they go without. Submissions to DEED each year as part of the school construction and major maintenance (above $50,000) grant program are funded at about 14% on average. State law does require districts to “provide custodial services and routine maintenance of school buildings and facilities” (AS 14.08.111), again, coming out of their base student allocation.

It’s pretty important that “the ownership of land and buildings used in relation to regional educational attendance area schools shall remain vested in the state (AS 14.08.151). Interestingly, these assets aren’t recorded in the annual presentation of deferred maintenance needs. The dependency that this creates is a good answer to the opening questions – it is the State’s responsibility. Where it does not meet it, schools are left to deteriorate or improvements come at the expense of educational attainment.

The schools in municipal school districts, on the other hand, are owned by the city or borough, which have bonding capacity and a tax base, as well as the ability to make improvements outside formula funding. There are many instances where this may not be effectively captured in reporting data, since the expenditures occur outside the formula or state grant programs. It’s likely that local governments are increasingly filling the gap, or more precisely, that local taxpayers are filling the gap.

Schools may submit applications to the available construction and maintenance grant funds established by the state to meet school needs. There is a local match required, which for REAAs the 2% is likely to come from what would otherwise be used for educational purposes. These submissions can cost thousands of dollars to produce, and must be accompanied by a six-year plan, and a preventative maintenance plan and documentation of adherence thereto. If awarded, the State transfers funds to a special treasury account where it continues to benefit from the interest earned while local governments or REAAs submit requests for reimbursement, requiring them to have sufficient cash reserves to make the initial payment.

It is worth noting that there is also an REAA and small municipal school district construction and maintenance fund, which is used alongside the rest of the grant program to fund projects specifically for these types of districts. It is worth evaluating the fund balance of any of these accounts, and each year the legislature must appropriate funds to capitalize them in order to make the necessary grants, or not. For instance, the “fund” for REAAs and small municipal school districts is capped at $70 million. To what extent is this based at all on DEED’s recommended 3% of replacement value to be available each year?

There has been a school bond debt reimbursement program moratorium in place since 2015, which has reduced the tools available to the state and local governments for addressing needs, shifting more of the burden for construction and maintenance to state grant programs. In the absence of a tool like bonds, which are voter approved to meet the needs of districts and reimbursement shared equitably with the state, it is likely that improvements are deferred and costs likely to increase as conditions worsen. Interestingly, this statute has been amended 32 times since 1970, as the state works to get it right.

What is not present in this report is how much local taxpayers have contributed. Sometimes the analysis for the Legislature is so focused on what the State is obligated to provide for, or spent, that we lose track of the totals, and who else is contributing beyond the state. We can try to do the math: $552 million at 70% by the state, and $170 million at 60% by the state, means 30% and 40% by local taxpayers. To support the state’s obligation to maintain a system of public education, taxpayers in Anchorage, Fairbanks, Haines, Juneau, Kenai, Ketchikan, Kodiak, Lake and Pen, Mat Su, North Slope, Valdez, and Cordova contributed $239 million and $113 million, or $350 million in local sales and property taxes.

Where does this leave us? Well, we likely still have work to do to unpack local budgets to know how much more is spent to address these issues. AML has argued in the past for reworking the current structure to continue the practice of appropriately vetting priority projects, but bringing all the tools to the table, from grants and bonds to local cost-share. When it comes to bonds, it makes more sense for the State to bond and get reimbursed, in some ways, so that who is reimbursed isn’t left to the State’s fiscal condition, but clearly we need to rework this prior to the moratorium expiring or being extended. We’ve also suggested a Base Facilities Allocation, so that deferred maintenance and asset management can occur independent of State grants or bonds, and that these issues are addressed without compromising the BSA or coming at the expense of educational attainment.

This isn’t a new problem, but is perennial, and how to pay for it pervasive. This review comes again at a time when the state is facing a challenging budget, and ultimately a revenue shortfall that impedes progress. On the other side of it comes a real opportunity to be proud of Alaska’s system of public education, and the facilities within which it is delivered.