The City of Dillingham and the Lake and Peninsula Borough government are two of 17 Alaska municipalities and school districts that are trying to close budget shortfalls after the state cut its payments for school construction and renovation projects by roughly 25-30% this year.
The payments are part of the state's School Bond Debt Reimbursement Program, which started in the 1970s. Local governments borrowed money to pay for new or improved school facilities, and the state committed to help repay the debt over time.
The proposed reduction to the bond reimbursement program originated in the Senate Finance Committee last session. Bristol Bay Representative and House Speaker Bryce Edgmon says the Legislature had to cut costs for several projects to balance the budget and avoid dipping into the state's savings account, the Constitutional Budget Reserve.
The cost for the state to fully fund projects under the program would have been roughly $47 million a year. The reduction cut roughly $12 million of that.
"When you start looking at the finances of a small, first-class community like the city of Dillingham, that reduction is quite meaningful to their bottom line," Edgmon said. "I would also point out it signifies how tight the budget really is getting down in Juneau, with costs increasing at every turn."
'A huge chunk of money' from Dillingham's budget
In 2015, the Alaska Legislature paused funding of new projects for 10 years, a moratorium that expired on July 1. But the state kept paying for pre-moratorium debt, like for a $15 million bond Dillingham voters approved in 2008 to pay for repairs to Dillingham school facilities.
"The state said, 'Listen, we'll help support you, you go out and get the bond. We are going to reimburse you for 70% of that bond,'" said Anita Fuller, finance director for the City of Dillingham.
Fuller said that in normal years, the city paid the remaining 30%, primarily with local tax revenue. But this year, the state cut its help with the debt by $231,000, roughly 30% of its commitment to Dillingham's schools.
"That's a huge chunk of money because that's $231,000 that we just lost," Fuller said. "Somebody's paying that school bond. If the state's not, then that means we are."
All 17 districts and municipalities in the program face the same roughly 30% cut. In the Lake and Peninsula Borough, district officials say that amounts to a roughly $250,000 cut — about 8.5% of the borough's total education budget for the year.
Lake and Peninsula Borough officials say they will have to shift money from other commitments or drain their reserves to close the gap.
Meanwhile, Dillingham's city council introduced a revised budget at a special meeting earlier this month to make up for the lost funding.
Various departments are facing cuts, though Fuller says they can't all be attributed to the loss in bond reimbursement because there were other budget changes to account for.
But she says the cut pulls from the finite amount of money available for all departments.
"All of that money comes from our general fund," Fuller said. "So money that was going in there to help us with the library or the senior center or the school, all that comes from our general fund."
Other changes to the budget include a $200,000 increase to the estimated FY26 income tax revenue and a $111,000 annual lease-to-own payment for a new grader.
Fuller said the librarian and senior center director positions were consolidated into one position, and the two full-time staff members at the senior center have been reduced to part-time.
After the moratorium, questions about the program remain
This isn't the first time lawmakers have shorted the reimbursement program. In 2019, the governor cut the program and left districts to shoulder the majority of the debt payment from 2020 through 2022. Then, in 2023, they back-paid districts and municipalities for those three years.
Edgmon says that it is possible that will happen with this reduction as well. He says funding next year and possible retroactive payments depend on state revenue, especially the price of oil. Alaska's oil prices are currently lower than what lawmakers budgeted for.
"That makes me a little nervous in terms of what our budget situation is going to look like next year," said Edgmon. "My hope is next year we can come back and fully fund the bond debt reimbursement program and really maintain our commitment to municipalities and school districts."
The reduction in funding coincides with the expiration of the 10-year moratorium on the program. Organizations have been calling for the state to lift the moratorium and reopen the bond debt reimbursement program for years.
"There's this pent-up need for money to build school infrastructure or repair school infrastructure that hasn't been addressed since the moratorium," said Carole Triem, government affairs manager for the Alaska Municipal League.
On the other hand, Triem said the fluctuation in state funding makes the program risky for communities.
"It's hard for them to say, 'I feel confident that if we go out and bond for a new school building or fixing a school building, that the state will honor its obligation to repay that debt,'" she said.
But Triem said the need may be great enough for districts to take that risk.
Copyright 2025 KDLG 670AM