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Matthew D. Berman, Professor of Economics Institute of Social and Economic Research University of Alaska Anchorage


Teresa Hull, Research Associate Institute of Social and Economic Research University of Alaska Anchorage


G. Williamson McDiarmid, Director Institute of Social and Economic Research University of Alaska Anchorage




Alaska public elementary and secondary schools spent $1.294 billion during the 1996–1997 school year (FY1997), including all operating and capital expenditures, and debt service. This is the latest year for which complete financial statistics are available. With an average daily membership (ADM) in all public schools of 126,400 students, this computes to about $10,200 per student. Operating expenditures of Alaska's 53 local school districts totaled $1,080.5 million to educate 124,545 students in FY1997, or $8,675 per ADM. In addition, the state of Alaska operates a boarding school—the Mount Edgecumbe high school—and a centralized state correspondence program for rural students, which cost an additional $8.6 million.


Alaska’s Public School Foundation Program, the basic education support program, distributes about one–half of all funds for public elementary and secondary education in the state. The legislature has made numerous revisions to the program since its creation in 1970. Many of the amendments have had significant effects on the relative amount of funds received by particular districts. The formula in place during the 1996–1997 school year dates to a 1987 revision. In 1998, the legislature made significant changes to the program that took effect in FY1999. 




Funding in 1998–1999: $654.1 million.


Percentage of Total State Aid: Not available.


Nature of Program: Foundation.


Allocation Units: The Alaska legislature made major changes to the foundation program effective July 1, 1998 (1998 ALASKA SESS. LAWS, Ch. 83). The new formula allocates funds based on Adjusted Average Daily Membership (AADM). 


Local Fiscal Capacity: The foundation program takes into consideration two measures of local wealth. The first is based on an equalized assessed real and personal property valuation. The second is the district's PL 81–874 grant. The second measure appropriately addresses local fiscal capacity in a state in which a majority of the land is federally owned.


How the Formula Operates: Alaska's foundation program attempts to provide each school district with enough funds to meet a definition of basic educational need, if other sources of funding are not sufficient. In addition to providing at least some assistance to each district, the state is the education financier of last resort. Basic educational need is essentially the dollar amount which the state determines is sufficient to provide the Alaska schoolchild with acceptable educational services wherever he or she lives. The idea of need goes far beyond simply a level of state aid appropriated to all districts. Education equity based on need means that each district receives enough units per pupil, given the size of its schools and its program mix, and that its level of funding is adjusted adequately to reflect a geographic cost differential relative to Anchorage.


In 1998, the Alaska legislature passed Senate Bill 36 (SB36) making major changes to the foundation program effective for the 1998–1999 school year. The primary intent of the change was to provide tax relief to large urban school districts during a period in which the legislature was also reducing state revenue sharing with local governments. Anchorage, Fairbanks, and Juneau received about 5% more revenue under the new formula, while most school districts serving smaller communities received less.


SB36 law defined basic educational need as the product of the base instructional unit value, the number of units, and the area cost differential: 


Basic Need = (Base Amount) x (Size–adjusted ADM) x (District Cost Factor) x (Special Needs Factor) + 5*(Intensive Services Count) + 0.8*(Correspondence Count)


SB36 replaced a formula that allocated additional funds for special, vocational, and bilingual education with a simple 20% proportional increment for all school districts that file a Special Needs Services plan with the state Department of Education, regardless of actual special education needs. In addition, however, the new formula awards funds for students receiving intensive special education (under an established individual education plan), and for correspondence students. These increments are not adjusted for district cost factors or school size.


Another factor in the new formula (SB36) that determines basic need is the district cost factor. These cost factors, or differentials, scale basic need upward by a percentage representing the cost of running the same school in different areas of the state relative to Anchorage. Because rural districts also contain most of the small sites, the regional cost indexes interact with the formulas to adjust ADM (new formula). The potential confusion created by this overlapping intent is increased by the fact that the area cost differentials currently in use do not generally coincide with estimates of actual cost of education differentials in these communities. 


State Share: The foundation provides whatever portion of basic need that the law determines cannot be provided from local or federal sources. Specifically, 


State Foundation Aid = (Basic Need) – (Local Effort) – (90% Eligible PL 81–874 Funds)


Under the previous law, if school enrollment declined by more than 10% from the prior year, the reduction in funding was phased in over a four–year period. SB36 includes is a one–year transition period in FY1999, during with districts receive only 60% of any increase in funds from moving to the new formula, and are held harmless from funding decreases, provided local governments contributing the entire four mills of required local effort.


Local Share: Under current Alaska law, the state makes two deductions from calculated basic need in order to “equalize” state support provided to various districts. First, the state deducts 90% of the federal grants a district may receive under PL 81–874. This means that districts which receive large PL 81–874 grants


can support their schools at levels above the state–calculated basic need. Although PL 81–874 grants are entitlements, school districts have to apply for them. Allowing districts to keep 10% of their PL 81–874 funds encourages them to take the trouble to apply.


Second, districts with the ability to levy local taxes (borough and city districts) must contribute a minimum level of local support for education. The state deducts from the foundation award the amount which would be raised by a four mill (0.4%) tax on the full value of property in the district (two years' prior), subject to an upper limit. Through FY1998, the maximum required local effort requirement was 35% of basic need (in the preceding year); SB36 raised this ceiling to 45% of basic need. REAAs do not have the authority to collect taxes, so they are not required to contribute any local share. City and borough governments may increase their contribution above the required amount without losing any state support by up to an additional two mills on full value, or 23% of basic need, whichever is greater. The state imposes the restrictions on local effort in order to meet the federal disparity test requirement for including PL 81–874 aid in the foundation program.


Weighting Procedures: None


Aid Distribution Schedule: Foundation funds are distributed in monthly installments, as described above.


Districts off Formula: 1 district, North Slope Borough.





As part of the legislation (SB36) that revised the funding formula in 1998, the state also created the framework for an accountability system, grafting elements of the governor’s Quality Schools Initiative (QSI) onto the finance bill.  The five components of the QSI are: standards in the core academic subjects; a system of tests and assessments to measure progress toward the standards; standards for educators; partnerships among schools, parents, businesses, and communities; and standards for Quality Schools.  Content standards for the core academic subjects have been created as well as the standards for educators and Quality Schools.  


The centerpiece of the QSI is a new accountability system. This places Alaska in the company of many other states that have enacted similar accountability systems.  As has happened in Kentucky, New York, and Maryland, the legislation creates accountability categories (distinguished, successful, deficient, or “in crisis”) to which schools, beginning in 2002, will be assigned based on student test scores, graduation test scores, and attendance rates.  Schools that fall into the two lowest categories—deficient and in crisis—will be required to develop improvement plans in collaboration with their communities and the state.


The statewide assessment will be a criterion–referenced test, specifically designed to measure progress toward the state’s standards.  In addition to the statewide assessments, mandatory graduation tests come on line in 2002. The High School


Qualifying Examination (HSQE) is designed to measure student progress toward state standards in reading, writing, and mathematics.  To earn a high school diploma, students must pass the HSQE.  For up to three years after they have left high school, students can retake the parts of the examination they do not pass the first time as often as necessary to pass.  High schools will develop courses specifically to help students who have failed parts of the HSQE. Students who do not pass the examination will receive a certificate of attendance.




In addition to the stick of testing, the QSI offers school districts a carrot—the opportunity to apply for Quality School Funds of $16 per student to implement the new state standards.  Most of these funds come from federal sources.  Alaska allocated $1.7 million in state funds and $26.0 million in federal funds to implement Quality Schools programs in FY1999, a 20% increase over the previous year.

Paid for by Alaskans for Dave Donley ~ 6860 Tondi Lane, Anchorage, AK 99507

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