The Alaska Department of Education and Early Development, or DEED, failed a federal test that saves the state millions of dollars. It is not yet clear why the state failed, but the state will now be on the hook for more than $80 million if it can’t appeal the decision.
Alaska school districts receive money from the federal government called federal impact aid. That’s money that makes up for lost revenue from land that can’t be taxed, like federal, military or Alaska Native-owned land.
If the state passes a test to show that it’s funding education equitably, called a disparity test, it can put a lot of that impact aid toward its own contribution to school districts. But a letter sent by the federal Department of Education last week says the state failed the disparity test this year.
Alexei Painter is the director of the state’s Legislative Finance Division. He said Alaska is the only state that still uses the disparity test, and it’s getting harder to pass.
“The increasing difficulties with passing the test is a lot, because education funding has gotten more complicated over the last five or 10 years,” he said.
Painter says the state isn’t required to take the test. School districts that qualify for the federal money will get it regardless of the results. DEED estimates Alaska districts will receive more than $110 million in impact aid for the next fiscal year.
But the test allows the state to put federal money toward it’s own contribution to education funding – basically saving the state millions of dollars each year.
Failing the test forces the state to pay those funds itself in its obligation to schools. But there are other calculations the state’s education department can make to pass the test after requesting a hearing. If it continues to fail the test, the state could owe districts more than $80.8 million this year.
Painter said the way the budget is structured means that the money would automatically be appropriated for schools, but he says there isn’t enough money budgeted for that.
This isn’t new for DEED. The state also initially failed the test in fiscal year 2022. But it’s allowed to request a hearing with the federal government to figure out a way to pass the test. Painter said the state was able to change how it accounts for transportation funding to pass the test last time.
“I would expect them to do something similar where they hold a hearing and then ultimately resubmit a test,” he said. “Hopefully they can find a way to reconfigure and pass.”
DEED officials didn’t respond to questions about its plans to address the failed test.
The test is really complicated. But basically, the state passes if the funding gap between school districts is less than 25% – after getting rid of the top and bottom 5% of funded districts.
The test also doesn’t include all of the state’s education funding in its calculations.
State education funding can largely be split up into two pools. The first is foundational funding – that’s money that goes to school districts’ operating funds, paying for things like teacher salaries, curriculum and anything else needed to run schools.
The second pool is state transportation money – that’s money that goes to school districts to provide transportation for students.
In the disparity test, DEED can exclude state student transportation funds. That’s because it qualifies for adjustments that account for significant differences in spending across the state for transportation.
But that’s not the only money many school districts spend on transportation. Some districts, like the Kenai Peninsula Borough School District, use operating funds for transportation as well. Painter said DEED changed its calculations this year and tried to take those extra transportation funds out of the test calculations.
“Under the way that they had submitted the test in prior years, they would have failed,” Painter said. “So it was an attempt to try to pass by submitting the numbers differently, and so the federal government rejected that attempt.”
DEED has 60 days from the day the letter was sent to appeal the decision and make different calculations for the test.
