House Finance considers multi-year school funding averaging bill

The Alaska House Finance Committee heard testimony Monday on a bill that would fundamentally change how the state funds public schools, using multi-year enrollment averaging to give districts earlier budget certainty amid a national teacher shortage.

House Bill 261 would allow school districts to know their student count numbers by July 1 instead of waiting until October, when teacher and staff contracts have already been set for the year. The bill uses a three-year enrollment average, a practice common in 26 other states, to smooth budget volatility caused by fluctuating student numbers.

Representative Andi Story, who introduced the bill, said the current system sets districts up for failure by asking them to improve student achievement while creating uncertainty in the budget process. The bill would let districts offer teacher contracts earlier, when the rest of the nation is recruiting.

"This bill provides stability, supports accountability, and allows communities to really focus on student achievement and again retain their teacher and staff," Story said.

The fiscal note projects costs approaching $1 billion from 2027 to 2032. Representative Jamie Allard questioned whether that money could be better spent directly on programs that keep students in brick-and-mortar schools.

"We're looking at almost in, from 2027 to 2032, which is about 5 years exception, year or two. That's almost a billion dollars," Allard said.

Story explained that 35 percent of Alaska districts are currently in hold harmless status, meaning they receive funding based on previous enrollment even as student numbers decline. The bill would grandfather those districts into the new averaging system once their hold harmless period ends. Story noted that multi-year averaging is commonly referred to as a declining enrollment adjustment and is used by districts across the country to manage reductions while still providing for a system of education.

"What this bill does is it lets them finish out their hold harmless status and then it grandfathers them into, they just would smooth into the averaging," Story said.

The bill includes a provision for districts experiencing sudden growth. If enrollment increases by 5 percent or more in a current year, the Department of Education and Early Development would allow the district to use that higher count for staffing purposes.

Public testimony strongly supported the measure. Lon Garrison, executive director of the Association of Alaska School Boards, said the bill makes an important structural improvement by providing greater predictability in the budgeting process.

"School boards are required to adopt budgets and make staffing decisions months before they have certainty about their revenue," Garrison said. "This bill helps to reduce that instability."

Nicole Herbert, chief financial officer for the Juneau School District, said the current system forces districts to spend months analyzing enrollment data and building projections that invite debate rather than provide certainty. Two years ago, Juneau went through school consolidation partly driven by projections that did not align with actual enrollment.

"House Bill 261 provides a more stable and predictable approach," Herbert said. "Right now, as we prepare for FY 2027, we won't know our actual state revenue until January of 2026. Under House Bill 261, we would have known that number a full year earlier."

Katie Parrott, president of the Alaska Association of School Business Officials, addressed concerns about declining enrollment. She said the formula is meant to provide for all needs of the system, not just direct instruction, and that districts face increasing costs even as enrollment declines.

"When there's a general enrollment decrease, that amount also decreases, and even more so when the BSA is flat," Parrott said, referring to the base student allocation. "There's some things in the system that need to be addressed in terms of realigning our formula funding with the cost of doing business."

Andy DeGraw, chief financial officer for the Fairbanks North Star Borough School District, said his district has cut $30 million to $40 million over the past eight years due to declining enrollment driven by lower birth rates and outmigration. The bill would have provided a softer landing for those reductions.

"HB 261 would have provided us a significant soft landing or glide path, so to speak, to where we'd be able to reduce, make reductions to vital programs and supports for students in a more meaningful, thoughtful, and organized way," DeGraw said.

A committee member raised questions about the fiscal note, asking for modeling that accounts for districts coming off hold harmless status and incorporates historic enrollment trends rather than using a snapshot in time.

Story said she would work with the Department of Education to provide additional modeling information. She emphasized that regardless of what the models show, the current education budget process timeline is flawed and needs to be fixed.

"We have a flawed budget, education budget process," Story said. "And that's not going to change with whatever modeling I come up with. We still need to correct our timelines."

Co-Chair Neal Foster did not set an amendment deadline for the bill, saying the committee would allow more time for due diligence on the modeling questions. The committee will continue work on the measure at a future hearing.