Alaska Legislature votes to preserve savings accounts for education, ferry system

Hours before the end of the Alaska Legislature’s regular session, the state Senate voted 14-4 to approve a bill that will keep the state’s Higher Education Investment Fund and two ferry-system-related savings accounts from being automatically drained at the end of the fiscal year. The bill had already passed the state House.

The investment fund is the savings account used to pay for Alaska’s equivalent of medical school and to fund scholarships for college-bound Alaska high school students. If Gov. Mike Dunleavy signs House Bill 322 into law, both efforts will have a reliable source of funding and will not need to compete with other programs in the state budget.

The bill comes one year after a failure by the Alaska House caused the draining of the scholarship fund and dozens of other accounts. 

A clause in the Alaska Constitution requires unused funds in the state’s general fund be automatically deposited into the state Constitutional Budget Reserve at the end of the fiscal year.

Until last year, the Alaska Legislature had routinely voted to bypass that clause.

But in 2021, discontent by House Republicans over the size of the Permanent Fund dividend caused the vote to fail. In addition, some House Republicans expressed concern that maintaining the funds violated the spirit of a provision of the state constitution that prohibits funds dedicated to a special purpose.

A lawsuit by several University of Alaska students failed to overturn the result: A state judge and the Alaska Supreme Court ruled that the Dunleavy administration correctly interpreted the state constitution when it drained the funds.

The judge said future drains could be avoided if the Legislature moved the scholarship fund outside the general fund. 

If HB 322 becomes law, the Higher Education Investment Fund and funds to operate and replace ferries will be shifted to new locations outside the general fund.

In a separate action, the budget passed Wednesday by the House and Senate calls for depositing about $394 million into the higher education fund. 

That deposit takes place only if the fund is preserved.