Legislative finance lays out Alaska school funding formula, major revenue sources and policy levers

Juneau — Legislative Finance Division staff told the Senate Education Committee on Jan. 27 that Alaska’s school districts rely primarily on state funding and that detailed technical factors in the state’s foundation formula, plus some outside-the-formula appropriations, determine how money flows to each district.

The presentation, given by Alexi Painter and Connor Bell of the Legislative Finance Division, laid out the current composition of school district revenue and walked the committee through how the foundation formula translates student counts into district aid. Painter said “school districts’ largest source of revenues [is] from the state of Alaska, nearly $1,400,000,000, accounting for 62% of their total revenue.” He and Bell also described transportation, local, federal and other revenue streams and identified policy levers available to the legislature.

Why it matters: the formula and related statutory provisions determine how limited state dollars are distributed among urban districts, small rural districts and regional education attendance areas (REAAs) that lack local taxing authority. Small changes in multipliers or outside-the-formula appropriations can shift large sums between districts.

Painter and Bell showed a breakdown for FY25 in which the state portion of the foundation formula was described as about $1,170,000,000; required local contributions as roughly $314,000,000; and a pupil-transportation formula estimated at $77,900,000. Painter also said recent outside-the-formula appropriations totaled about $174,700,000 in the current year. Bell estimated federal E‑rate support to districts at roughly $100,000,000 but said he did not have an exact figure on hand.

Bell summarized how the formula converts the October student count into an ‘‘adjusted average daily membership’’ (AADM) that is multiplied by the base student allocation (BSA) — reported in the presentation as $5,960 — and then apportioned among payers (state, required local contribution and deductible federal impact aid). He described the major multipliers that inflate the raw student count for funding purposes: a school-size factor (to compensate small schools), a district cost factor (area-cost differentials; Anchorage = 1.0 baseline, Yukon Flats example at about 2.116), a flat special‑needs block grant (1.20 multiplier), a career-and-technical education factor (1.015) and a separate intensive special-education factor the presenters said is currently 13 times the BSA for each qualifying student.

Bell and Painter also noted several statutory and administrative features that affect funding year to year: hold-harmless provisions that phase in ADM drops of 5% or more over three years; a correspondence-student multiplier of 0.9; indirect state supports such as PERS/TERS payments above local caps and school debt reimbursement that do not always appear in district budgets but reduce districts’ net costs; and capitalization of the REAA fund (used for rural construction and major maintenance) that is statutorily linked to prior-year school debt reimbursement.

Committee members pressed for specifics. Painter said there has been a moratorium on state school-debt reimbursement since 2015 that is scheduled to sunset on July 1, 2025; when the reimbursement resumes it is expected to return at a lower rate (Painter described a likely 40–50% reimbursement rate versus earlier rates of 60–70%). Painter and Bell also discussed the federal ‘‘disparity test’’ and local‑contribution caps: Alaska’s system uses a local cap (most districts pay a minimum of 2.65 mills; the maximum optional local contribution cited was 23% of basic need under the current structure) that enables deductible federal impact aid — Painter cited an $81,000,000 deduction figure used in their analysis — and thereby affects the state share.

The presenters emphasized that the legislature has several funding levers besides changing the BSA: (1) one‑time outside-the-formula appropriations; (2) revising formula multipliers or the district cost-factor study; (3) altering the state payment toward employer retirement (TERS/PERS) above local caps; (4) changing the required local contribution or its cap. Each option redistributes funding differently and carries equity trade-offs for urban versus REAA districts, they said.

Painter and Bell noted some historical context: the current foundation formula dates to a 1998 design and has seen partial updates over time (notably phased-in district cost-factor changes around FY09–FY13). Bell said the statute requires the Department of Education to provide updated cost differentials every two years but that the department’s most recent submission was not adopted, and the legislature has not commissioned a new statewide cost study since the mid-2010s.

Committee members asked for follow-up information; Painter and Bell offered to provide more detailed district-level breakdowns (including federal impact-aid and exact E‑rate figures) and to return for additional briefing. The committee chair said staff may be invited back as the committee considers a bill or package to address public education funding.

The presentation materials shown to the committee and the staff comments highlight policy choices that would change who pays (state vs. local) and how dollars are allocated (BSA vs. multipliers vs. outside-the-formula appropriations). That analysis will inform any bill language the Senate Education Committee develops in the coming weeks.