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A House Finance Committee amendment to its proposed Fiscal Year 2020 budget to stop school construction bond debt reimbursement may end up costing the Kodiak Island Borough a hefty sum.

The committee on Wednesday voted 7-4 to eliminate the long-standing program, which has helped municipalities and school districts by paying the lion’s share of the costs for school construction bonds. The decision could save the state at least $99 million for school construction bond debt and $39.3 million for the state’s Regional Educational Attendance Area, which includes schools in an unorganized borough.

According to Borough Manager Michael Powers, that could cost the borough an additional $5.26 million for FY2020 on its current school construction bond obligations. Alaska reimburses up to 70 percent of all bonds related to new school construction.

“The total bonded indebted payments next year are $7.73 million,” Powers said by email on Thursday.

Powers said that could amount to a property mill tax increase of about four mills. School bond debt is exempted from the tax revenue cap approved by voters in October.

The borough’s current property areawide mill rate is set at 10.75, or 1.075 percent.  The areawide mill rate generates revenue for general government spending, education support, school bond debt and renewal and replacement efforts. 

A mill is equal to $1 for every $1,000 of assessed value on a property. A $250,000 home in Kodiak currently generates about $2,687 in property taxes; should the mill rate go up by 4 mills, it would mean an additional $1,000 in property taxes for such a home.

The City of Kodiak and service areas have additional mill rates on top of the borough’s. The city mill rate is two mills, resulting in a total of 12.75, or 1.275 percent. A home valued at $250,000 is taxed at about $3,187. Should an areawide mill rate increase occur, taxes could go up on such a home to $4,187.

Borough Mayor Dan Rohrer expressed his disappointment Thursday.

“I am disappointed by the House Finance Committee’s decision to not follow through with its commitment toward local bond debt reimbursement,” Rohrer said. 

The borough is still in the middle of its budgeting process, and the Assembly must approve its budget by June 10. Rohrer said the new mill rate for FY 2020 will be set when the borough budget is adopted.

According to Rohrer, the borough’s total school debt obligation stands at $96.5 million, including bonds for the Kodiak High School renovation project and districtwide maintenance and repairs.

Voters approved Proposition 1 in 2009, which allowed the borough to issue $76.3 million in revenue bonds for the Kodiak High School renovation project. It was completed in 2015.  

An additional $10.2 million in bonds was passed by voters in 2014 to pay districtwide maintenance. Rohrer said other bonds have been issued over the years to pay for other needs. Should no new bonds be issued, the borough is scheduled to pay everything by 2036.

Kodiak Island Superintendent Larry LeDoux also said Wednesday’s vote on the amendment was disappointing.

“It was sort of sad to see that amendment pass (in the committee), but it’s not over yet,” LeDoux said Thursday. 

He noted that nothing in the state budget has been finalized.

“It’s a real dynamic budget and there are so many things affected by the budget, not just schools,” LeDoux said, adding that he expects compromises to be made before the budget is finally adopted.

The House committee’s Wednesday amendment follows a recommendation in Gov. Mike Dunleavy’s proposed budget that eliminates all reimbursements for school bonds issued before 2015. 

Rep. Ben Carpenter (R-Nikiski) made the recommendation to vote on the amendment, noting the state either needs to cut Permanent Fund Dividend payouts or state programs. 

Carpenter added that the state should live within its fiscal means so it can encourage the growth of private industry.

“We must resist the urge to add more spending to the governor’s budget because we would be doing the wrong thing for our long-term fiscal health,” Carpenter said.

Rep. Dan Ortiz (I-Ketchikan) argued the burden should not be shifted to local municipalities. 

“I think to suffer this hit with the likely passage of a continued moratorium is pain beyond which we should not inflict,” said Ortiz in opposing the amendment. “It would be a significant impact on all of the school districts and communities throughout the state of Alaska.”

The Legislature in 2015 placed a moratorium on paying for any debt incurred between Jan. 1, 2015, to July 1, 2020. Last year, they reduced payments by 25 percent. An amendment was approved by the House FInance Committee to extend that moratorium to 2025.

The House Finance Committee last week recommended a preliminary budget alternative that removed Dunleavy’s recommendation to drastically reduce state funding to state K-12 education. 

That budget also recommended funding school debt reimbursement. However, Wednesday’s amendment reversed that. The finance committee will continue to discuss amendments to the overall state budget.

However, LeDoux noted that legislative amendments can still be changed or removed once the budget goes to the full House for a final vote.

Powers noted that the budget still also needs to go through the Senate for discussion and deliberation. 

“Let’s see  what the Senate does,” Powers said.

The decision did not sit well with Nils Andreassen, executive director for Alaska Municipal League, an organization that represents the interests of Alaska’s local governments in matters of state and federal decision making.

“Instead of reducing the size of state government, the governor — and now House Finance — have shifted state obligations to others,” Andreassen stated in a Wednesday news release. 

“Moreover, they have prioritized some obligations over others, and prioritized some regions of the State over communities for whom cuts mean closed for business.”

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