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The Alaska Department of Education and Early Development is appealing a federal decision that could cost the state $80 million – and potentially undermine equitable funding among Alaska schools.
Federal impact aid is at the center of a dispute between the state and the federal government. It’s money that makes up for lost revenue from land that can’t be taxed, like federal, military or Alaska Native-owned land.
The state can normally use a portion of that money as part of its contribution to school districts – as long as it can prove it’s funding education equitably. That’s done through a disparity test.
The state failed that test earlier this year because the U.S. Department of Education rejected the state’s attempt to exclude funding that districts set aside for transportation from the test calculations. That means the state can’t use $80 million in federal impact aid to offset part of its obligation to school districts.
But it’s appealing that decision. In its appeal, the state argues that the federal department was wrong to count transportation funding in its test calculations. The state also asked to retake the test if the appeal fails.
Bonnie Graham, one of the attorneys representing DEED in the appeal, said in an email that it’s difficult to tell how long the case will take this early in the process, and could not comment on “potential outcomes of the pending appeal at this point.”
The federal department said in an email it will review information from the state and hopes to resolve the issue.
Financially, there are a few ways the appeal could play out. The simplest is if the appeal is successful. In that case, the state could continue to use federal dollars as part of its contribution to school districts.
But if the appeal fails, things get more complicated. Districts that qualify for impact aid would still receive that money on top of what they get from the state. And the state would need to make up for an $80 million gap in its funding.
Alexei Painter is the director of the state’s Legislative Finance Division. Part of his role is to understand how the decision would affect the state’s budget.
“If we fail the test under the Legislature’s budget, the state costs would go up by $80 million and then those districts would also get that $80 million,” he said. “So essentially districts as a whole would get about $80 million more.”
But some individual districts would get less, he said.
Painter said that’s because the Legislature sets aside an open-ended amount of money for education funding. It’s basically however much is needed to meet the state’s statutory obligation to districts. He says in this case, districts get whatever the state owes them, plus the federal funds.
But Gov. Mike Dunleavy vetoed more than $50 million in education funding earlier this summer. If state legislators uphold the veto, Painter says that changes education funding from something open-ended to a fixed amount of money. The state would still need to make up the $80 million dollars, but it would have to do so by cutting education funding across the board.
“There’s only a fixed pot of money,” Painter said. “Raising the amount the state owes by $80 million means that all districts will essentially see their amount of aid reduce.”
The finance division estimates the state would have to reduce funding equal to an additional $319 cut to the state’s per-student allocation. That, along with the governor’s veto, would leave districts with only a $181 increase to the base student allocation this fiscal year.
That doesn’t mean that all districts would lose money. The division’s estimates show some districts, like the Fairbanks North Star Borough School District and Bering Strait School District, would receive enough federal impact aid that they receive more money overall – up to millions of dollars more.
Other districts like Anchorage and Kodiak would receive some impact aid, but it isn’t enough to offset the reduced state funding.
And for the 15 districts that don’t receive any impact aid, it would mean less state funding with no federal funds to fall back on. The Juneau School District is one of those districts. It could lose more than $2.5 million without any federal funding to make up for the loss.
Juneau School District Superintendent Frank Hauser said it’s hard to figure out how things will shape up.
“It’s so difficult to even try to speculate as we’re going through and trying to figure out what could happen, because none of these situations are good for the students,” he said.
Hauser said he’s more concerned about other funding uncertainties that have cropped up in recent months. On top of Dunleavy’s education funding veto, DEED is proposing a regulation change that would further limit local contributions from municipalities to school districts.
On the federal side, the U.S Department of Education blocked millions in grants for migrant education, English language learners and more to the state.
Hauser says the district could lose more than $8 million from those actions.
The appeal process still has to play out. And the state has been successful in a similar appeal before – it successfully appealed a failed test in 2022.
But at that time, Painter said the state didn’t find out until the end of the fiscal year. He said a similar timeline and a failed result could make things difficult for the state and districts. For example, districts that would receive more money may not have enough time to spend it, and may have more money in savings than state law allows.
In the meantime, Painter said the state is distributing funds to school districts as if it hasn’t failed the test.
Correction: This story has been updated to reflect that school districts will potentially be impacted by a failed appeal, not states.
