Uncertainty Remains Regarding Forward Funding

Posted on

“Fine Tuning” Episode 3

Lea Filippi, Sedor, Wendlandt, Evans & Filippi, LLC

We continue our Commentary series “fine tuning” by noting that the Legislature has tried to do some “fine tuning” as it relates to the timing of funding for Alaska’s school districts, but until state revenues stabilize school districts will still need to deal with substantial uncertainty while trying to dial in their own budgets for next fiscal year.  

In August, the Alaska Supreme Court issued its full written decision in State of Alaska v. State of Alaska, which finally resolved a lawsuit between two branches of government. That case had been of particular interest to lawyers in part because of the unusual posture of the case which involved the Alaska Legislative Council, acting on behalf of the state legislature, suing Governor Dunleavy and others executive branch leadership for failure to execute a budget as written. The court’s August 2022 decision resolving that case should be of equal interest school boards and educators because in resolving the dispute between the other two branches of government, the court as the third branch ruled that a bill passed by the Alaska Legislature in 2018 to forward-fund education by appropriating money for both FY19 and FY20 was unconstitutional.

What happened?

A Legislative strategy of “forward-funding” developed to resolve a specific and on-going problem which school districts had been annually experiencing. The Legislature had typically passed the State’s operating budget in late spring which gave Alaska’s school districts “little notice of how to budget for the upcoming school year.” The budgets were then subject to the governor’s veto. Uncertainty as to funding amounts had caused school districts to draft multiple iterations of their budget and anticipation of potential low funding amounts had forced districts to nonretain teachers each spring before the State budget was done.

In 2018, sponsors in the Legislature introduced HB 287 which appropriated funds for public education for the next two consecutive fiscal years (FY19 and FY20). HB 287 had been introduced with the intention that its passage early in the session, separately from the regular operating budget, could prevent school districts from having to nonretain teachers due to uncertainty.

The Legislature did not pass HB 287 until May 2018. Some provisions of HB 287 in its final form took effect July 1, 2018, but the appropriations for FY20 were given an effective date of July 1, 2019, more than a year after HB 287’s passage. In passing HB 287, the Legislature did not appropriate funds from FY19 general revenue funds to cover education spending in both FY19 and FY20. Instead, HB 287 had “in effect appropriated public education funds from two successive years’ general fund revenues to be spent in those two successive fiscal years.” Then-Governor Walker signed HB 287 into law after receiving an attorney general’s opinion that forward-funding could be lawful because it would bind a future legislature who could always amend, re-appropriate or repeal the future appropriations.

Governor Dunleavy was elected in November 2018. Governor Dunleavy’s initial budget largely adopted his predecessor’s numbers (including the forward-funded appropriations for FY20) and also proposed forward funding FY21. An amended budget which he submitted two months later sought to reduce the appropriations and repeal the forward-funded provisions. A new Attorney General’s opinion had concluded that the Legislature’s attempts to forward fund educational expenditures violated the Alaska Constitution provision prohibiting dedicated revenues and the Governor’s constitutional veto rights.

The Legislature did not make a new education appropriation for FY20, instead relying on the previous year’s forward funding and made another forward funded appropriation for FY21, which Governor Dunleavy asserts was unlawful. The Legislature and Governor negotiated a stipulation to ensure public schools were funded for FY20. Then the Legislative Council filed a complaint with the courts asserting that the Governor should have executed the forward funded appropriations for FY20 and submitted a stipulated order which the superior court immediately signed so that school funding would continue until the litigation was resolved. The superior court ruled against the Governor, who then appealed to the Alaska Supreme Court.

While that case was still pending, time marched on. In June 2022, the Legislature passed a budget which provided foundation funding and pupil transportation funding for FY23 based on the statutory formula. The operating budget that was passed this summer also included an appropriation forwarding funding foundation and public transportation programs for FY24. However, the forward funding for FY24 was specifically contingent upon available revenue in FY23.

In August 2022, the court ruled that the Alaska Legislature may not set multi-year budgets for public education and other state agencies unless it provides up-front funding. The Alaska Legislature can set asides funds from a current budget cycle to be spent in future years for Alaska’s school districts, but not appropriate general fund revenues from future years to be spent in a particular way in those years.

What’s next?

Consistent with the judicial decision and the terms of the operating budget passed this summer, the foundation and transportation funding for FY24 included in the budget passed this year depends upon whether state revenues in FY23 are sufficient to cover FY24.

Oil prices are lower now than they were when the operating budget was passed in June and have been trending at levels which would not provide sufficient state revenues to pre-fund education spending for FY24.

As a practical matter, this means that school districts are back in the position of having to try to read tea leaves and develop their own FY24 budgets without the certainty that the Legislature’s most recent attempt at forward funding was intended to provide. 

Practice Pointers

Together with our review of the court’s decision and its likely future impacts, we offer each month some “Practice Pointers,” or practical suggestions for school board members and administrators to consider. Please consider:

  1. Because the forward funding for FY24 provided by this year’s operating budget is contingent on adequacy of state revenue in FY23, districts can look at economic indicators like changes in oil pricing and state revenue forecasts to make some educated guesses about whether state revenue will be sufficient for the forward funding of FY24 to occur.
  2. School districts should continue the practice of developing back up fiscal back up plans unless and until there is actual certainty regarding state appropriations for each fiscal year.

More from Sedor, Wendlandt, Evans & Filippi, LLC:

, , , , ,