Review of Alaska’s School Funding Formula

Prepared for the Alaska State Legislature in 2015

In early 2015, APA was commissioned by the Alaska State Legislature to conduct a comprehensive review of the structure of the state’s school funding system. APA was not tasked with examining the adequacy of the state’s funding formula, meaning the levels of funding deemed necessary to ensure that all students could meet state standards. Rather, the study team was asked to examine the current structure of the formula, considering both funding practices in other states and Alaska’s unique state context. APA was not asked to evaluate, or make recommendations regarding, the specific figures used in the formula, such as the School Size Adjustment (SSA) or the District Cost Factor (DCF). Instead, the study team was tasked with evaluating, more broadly, whether it makes sense to use a size adjustment or a district cost adjustment within Alaska’s system. This report does not assess whether the actual adjustment figures are correct.

The study found that Alaska’s formula successfully includes key adjustments, such as for school size, high-cost districts, special and intensive needs, vocational education, correspondence programs, transportation, and capital expenses, and is generally transparent and flexible. Still, it has flaws: abrupt funding “cliffs” for enrollment changes, an overly high threshold before districts receive aid when enrollment declines, insufficient alignment between student needs and funding, significant disparities in local revenue contributions, and long-term fiscal risks tied to oil-dependent revenues. To strengthen the system, the report recommends revising formula components (e.g., smoothing cliff effects, updating cost factors, tailoring special needs funding), improving local equity, and reducing reliance on oil revenues by diversifying state funding sources.