Alaska legislators concluded their session last month and passed a budget that included a one-time increase in education funding of about $680 per student. That budget has yet to be signed by Gov. Mike Dunleavy, who could decrease the amount like he did last year.
That uncertainty has left school districts like Ketchikan’s to make drastic cuts to staffing and activities while they wait to find out how much state funding they’ll receive. Sen. Bert Stedman, who co-chairs the Senate Finance Committee, plays a key role in determining the state’s budget and said he expects Gov. Dunleavy to approve the full school funding amount.
The Sitka Republican represents a wide swath of Southeast, including Ketchikan. He spoke with KRBD’s Michael Fanelli while in town May 29.
Listen:
This interview has been lightly edited for length and clarity.
Michael Fanelli: So looking back on this session, from my perspective from Ketchikan, it seemed like the biggest issue was around education funding. And I know you got that big bipartisan bill through early in the session with the intent of having schools know where they stood on education funding early on in the year, so they wouldn’t end up where they did this year, not knowing how much funding they’d have. So I wonder if you can just reflect on that process. Were you caught off guard by Governor Dunleavy’s veto of that bill?
Bert Stedman: No, not at all. The Senate’s been focusing on 680, $680 BSA increase for two years now. So when we started this year, we had that in the previous budget 680. And my duty this year was, I was in charge of the operating budget in the Senate. So I included that on day one, and planned an entire budget with that in it, 680, which is about, almost $175 million dollars increase. And then I have communication with the superintendents on the likelihood of that materializing. So, it turned out to be highly likely the 680 is going to stick and not be vetoed. I’d be very surprised if it’s going to be vetoed at all.
As far as when the timing is, it’s just the way the structure is. The effect of the appropriation is when the governor signs it, and that takes effect July 1. I recognize the timing issue of, that superintendents have, notification due to their contracts with their employees, but that just comes with the territory. There’s little likelihood that that’s going to change. But hopefully, other superintendents are getting information from their elected officials on where they think the BSA will land for the year so they can plan their budgets.
Michael Fanelli: Yeah, just listening to the conversations at the School Board level, there was a lot of reluctance to presume that a certain amount of funding was coming. And I think to this day, the budget that they’re assuming is assuming no increase in the BSA amount, because I mean, they saw what the governor did last year, cutting it in half. And how could you be certain that the money was coming until it’s on the table, right?
Bert Stedman: Only certainty is death and taxes. But there’s a reasonable expectation of the ending dollar amount. It wasn’t going to be the base, the statutory BSA number, in other words, a zero increase. He wasn’t going to cut it $345 from last year, that would be an actual reduction. He could, and he would risk, most likely, more pressure on a veto override.
Michael Fanelli: Do you think there’s any better outlook of getting a permanent BSA increase passed next session?
Bert Stedman: So when you refer to permanent, that’s a statutory number. I would say yes, the 680 is pretty much the floor, from what I can see. So there’s no reason not to change the statutory formula to, in effect, absorb that 680. I would be surprised if we reduced it at all from that next year.
Michael Fanelli: Yeah, when the governor was asked about why he didn’t support that original bill, he said things like, he wanted to see overall education reform before that permanent BSA increase happened —
Bert Stedman: Benchmarks, performance benchmarks, he wants a list of other things.
Michael Fanelli: When it comes to salaries, he talks about bonuses.
Bert Stedman: I don’t tie all that stuff together, personally. That’s the governor, right. I mean, he has a different role than I do. So looking at it from the budget perspective, it was pretty clear to me that the BSA needed to be moved several years ago. And I think if you go back and look at some of the discussions here, probably could go back maybe even as far as four years. So this pressure has been slowly building. And we just need to deal with it. The Senate was steadfast on 680, it didn’t matter if there was the veto votes to override it or not. That was the number in the budget. I put it in in January and built all the remaining budget components with that included on the operating budget.
In my opinion, we should just change the BSA and move on. We got other things to work on. We have to raise our algebra scores and our math scores and our reading scores and we have housing issues and transportation issues with education. We have lots of things that we can spend some time on versus just squabbling about a formula in a statute. We need to move on and work on some of these other issues.
Housing is a big, big issue across the state. Particularly in Western Alaska, but even in Southeast it’s a big issue. Bring in an entry level teacher and have them try to afford housing and have them ever hope to own their own home, it’s questionable.
Michael Fanelli: Is there anything that the state can do to help the housing issue?
Bert Stedman: Yes, one of the things we did this year in the budget. It’s a new pilot program, there’s $4 million that goes to (Alaska Housing Finance Corporation), and they will act as the referee. And they will allocate that money as needed between the University’s land division, DNR, Department of Natural Resources and their lands, and (the Alaska Mental Health Trust) and their lands, on their subdivisions.
Say the university has some land and they want to do a subdivision. Say it costs $2 million to put the road, water, and power in. And they won’t do it because they’re not gonna make any money, because the cost of putting the utilities in consumes all your sales of your land. So they can go to Alaska Housing and say they get a million dollars from Alaska housing, now they only have a million dollars invested in the subdivision. Then the return rate goes up, right? Then they want to go subdivide it and do the development because they’re making money. And then the question is, how does Alaska Housing get a couple pennies back so they can do another project? And that would be, the property then would go on the tax rolls. And part of the property tax, maybe half of it for ten years, or all of it for five years or whatever would go back to Alaska Housing.
Michael Fanelli: How would you say that this session went for your district at large? Were there any notable capital projects that you got approved for this region?
Bert Stedman: Well, let’s just back up a little bit. So when we look at the last several years, we had no district projects to speak of. They were all just state, mostly state projects, off of major maintenance lists and state agency issues, and so on and so forth, because the budgets were so tight. This year, we had the opportunity with the revenues in oil prices that we had some funds for individual legislative districts that we can move around. So there was, gosh, I don’t know, $3.6 million I think in the Senate district I had to sprinkle around. So we put some money in the ball field here for bleachers, some $700,000.
Michael Fanelli: The new Walker Field, is that what you’re talking about?
Bert Stedman: Yes. And then the building, that veteran’s building that burned down.
Michael Fanelli: Oh, the Legion.
Bert Stedman: Yeah, the American Legion building, we just drove by that. So the American Legion was kind of high on the list along with the ballfield. The Legion mainly because it was arson, and they burnt the building down and that needs to get replaced. That was pretty much an insult to all our veterans. And then I’ve been trying to help with that ball field for years. Since we built the one in Sitka, we were gonna get the one built here. And then we ran into budget constraints from deficits, and then COVID, and so on, and so forth. So we finally got to the point where I could help a little bit and the community had already moved forward. And so I had to get on the bandwagon or get left behind. So I want to see the build out of the covered bleachers and participate in that field. So those are the two bigger things in district, that’re small in the scheme of a lot of things, but they make a big impact on our community.
Another issue we’re working on, the Railbelt from basically Kenai up to Fairbanks needs to have their major infrastructure upgraded on their Intertie. Well, they need votes, right? And that’s coming next year, we’re working on a bond package to facilitate that. So we’re looking at trying to build some of our electrical generation and distribution in this district out and attach it to and network it with their desire to move their Intertie forward. So we’re looking at another turbine, in the SEAPA grid, along with plugging into cruise ships. So we’ll be working on that. Also, I need to have some conversations with City Hall on the local electric utility to see if we can help there with some of the maintenance issues there.
Michael Fanelli: The Ketchikan electric utility?
Bert Stedman: Yes. So when the Railbelt is on board for a big, almost billion dollar infrastructure upgrade, they need votes. Well, I need projects. So therein lies the art of the deal, right? And the next couple years, we have a really good opportunity to move our electrical infrastructure forward with both generation and distribution, recognizing the recent news of the utility here in Ketchikan having some challenges. I think that’s momentarily. We’ll work through that issue. And we are in a unique position in Southeast that we have renewable hydro, and we should continue to expand that and minimize our reliance on diesel generation as much as absolutely possible. And I’m looking forward to trying to get another turbine in line between here and Petersburg on the SEAPA grid.
Michael Fanelli: A hydro turbine?
Bert Stedman: Mhm.
Michael Fanelli: I should follow up on that, because you mentioned our electric utility and grid situation here. Do you think that’s something that the state could potentially help with?
Bert Stedman: I’m gonna meet with City Hall this fall and kind of go through some of that issue with them when we look at electrifying the cruise ships and some more grid expansion between Metlakatla and Kake, which would include Ketchikan, Petersburg, and Wrangell up the corridor. And have that dialogue to see what the state can possibly do to assist in that. Clearly, if we’re going to put more generation on the system and more load, we gotta have the rest of it not blow apart in the meantime. So there’s always something to do! That’s a new challenge for us, but we’ll work through it and we’ve fixed other things before and we’ll fix this one too.
Michael Fanelli: Alrighty.
Bert Stedman: There’s one question that was asked in an earlier interview in Petersburg about the student lunch program.
Michael Fanelli: Oh, yeah.
Bert Stedman: And the way it was put together was, I thought, not as clear as it should be. Because when I listened to the story, it sounded like we, in the legislature, or in the Senate, decided we weren’t going to fund school lunches, free lunch program was eliminated. And it wasn’t eliminated at all. That’s the furthest thing from what went on.
So during COVID, the federal government came in and they had free lunch for everybody, all the kids. And the state isn’t going to backfill all the COVID money, so when the COVID money ran out, we reverted back to the standard practice on free lunch. So if you’re at 130% of the poverty rate or below, you have free lunches. And you have a reduced price if you’re between 130% and 185% of poverty. So there was an amendment on the floor of the House that would have taken funds from the Department of Corrections, which, we have to feed our prisoners, and make a free lunch program, backfill the COVID money. So when we put the budget together at the conference committee, we removed that out of the final budget.
If we want to have a discussion on having free lunch for everybody in K-12, that’s fine. We can have that through the budget process. But you don’t put an amendment on the floor of one of the bodies and take money out of another entity, leaving a hole that you just created to fund something else. You have to have a balanced budget. You don’t play those games. But if you are a low-income, or no-income family, the last thing the state’s going to do is starve our kids in school. That’s not going to happen. Because if they don’t have a good meal, breakfast and lunch, they won’t learn in school.
Michael Fanelli: I’m curious how you feel about the state of the budget. Do you think the way that the budget is working currently is sustainable into the future? I mean, do you see oil prices staying at a point that can keep us going for a while? Or will we need some other revenue source at some point?
Bert Stedman: Oh taxes? No.
Michael Fanelli: I didn’t use the “T” word.
Bert Stedman: I don’t think — at this point, we don’t need them. This budget is built on $78 (per barrel), and we’re in surplus. If the budget numbers come in, and we’re in the low 80s, there’ll be an extra dividend in a year, energy assistance dividend. In the price range we’re at with oil, we’re okay. If oil goes to 50 bucks or 60 bucks, we got a problem. It’s hard to predict what oil prices are, you know, it’s like predicting the world economy, wars, and so on and so forth. And recessions, you know they’re coming, you just don’t know when. So we’re in better shape now than we were the last several years, and we’re slowly getting better. We’re building up our savings a little bit at a time. We got about two and a half billion (dollars), roughly in our main savings account. The Permanent Fund is healthy. It’s got some challenges, but it’s not in any imminent danger of blowing up. There’s 80 billion (dollars) sitting there.
Michael Fanelli: I want to talk a little bit about the PFD. When it comes to budget stuff, I know it’s a hot topic, something people are passionate about. I think you settled on a number around $1600 or so with the energy relief right? Do you feel that you landed on a good number for this session?
Bert Stedman: Yes. The Senate’s had a position since around 2017, that we should have a 25% dividend. That’s a quarter of the 5% payout. And when we looked at the financial projections of the Permanent Fund in the state, that seemed to be a targeted number that was deliverable. It’s not in a perfect world on every scenario, but it was reasonable. And at 50% of the 5% payout, the state’s gonna go broke. It doesn’t work. You’re dealing with almost a billion dollars extra in payments. And then when the number goes even above that, to the current statutory formula, it’s about 40 years old, it’s even worse. You’d run the place out of money, literally. And that debate has kinda died down the last few years. Because even the ones, the folks that want to have a bigger dividend, realize that they can’t do it, it’s undeliverable. State can’t maintain it.
So I think a lot of the wind has come out of their sails, there’s been numerous people around the state that have got elected to office on that very platform, a big dividend. But at the end of the day, you have to run your school system, you have to have prisons, you got to have courts, you got to have a DOT for airports and roads, you got to have a Fish and Game. You’ve got all these agencies, you have to run a state and it costs money.
Michael Fanelli: But you’d like to see that that formula changed?
Bert Stedman: Yes, to 25%. We had very little debate on the dividend this year.
Michael Fanelli: Yeah it seemed like it, especially compared to previous years.
Bert Stedman: Right, because they’re realizing that we could produce a $1,360 dividend this year, and take care of a lot other issues, (like) school funding, deferred maintenance of schools, some of our road issues, even be able to help a little bit with things like with the Legion and ball field bleachers and little things like that. A few years ago, we couldn’t even do that. So we are making progress.
