State and Federal Aid
Mark
Grand Canyon University
Public School Finance
EDA - 535
Edward Longin
March 17, 2014

State and Federal Aid
If your child were in harms way at school would you send them to school? With the most recent cuts in the Northwest Arctic Borough School District (NWABSD) this is exactly what is happening here in the NWABSD. With the elimination of full day kindergarten and the class sizes in the elementary reaching an astonishing 30 plus students per class, the students within NWABSD are most definitely being put in harms way each day they attend school. At the Middle and high school level we are losing the alternative learning program that has helped eliminate high school dropouts and brought up our graduation rate by ten percent over the last ten years. Here at NWABSD we are not looking to regress! We need more funding and we need it now. In the enclosed text you will find a proposal from NWABSD on how more funding can be generated in our district and keep NWABSD students striving in the future. The money shall be allocated equitably throughout the district.
In the state of Alaska state and federal aid combine for around eighty percent of the funding each district receives. The rest of the funding comes from local contribution, special revenue, and other. The Alaska Native Claims Settlement Act (ANCSA) was signed into law in December of 1971. Part of this act protects all native lands from paying property taxes. That is where the local contribution comes into effect for funding of our districts. Northwest Arctic Borough School District receives their local contribution from the Northwest Borough (NWB). This money is a result of Red Dog Mine annual payment for their mining of lead and zinc within the region. The money NWABSD receives is essentially paid back to the NWB for rent of the land and building being used by the school district. Due to the fact of the ANCSA act and the payment the borough receives from Red Dog, getting more funding through property tax, income tax, and sales tax for NWABSD is not going to happen anytime in the near future. The proposal being submitted to the local legislation is we use sumptuary tax, the “Sin Tax” to help fund our school district. Sin tax, “is used for taxes on activities that are considered socially undesirable”. ("Sin Tax," 2014, p. 1) Recently in the Region two liquor stores have been opened up and running full time. One package store is found in Kotzebue and the other is found n the village of Kiana. Each village within the region voted on allowing alcohol in their village or not. Kotzebue and Kiana both passed the bill in 2010 and opened up stores in 2011 for business. Locals in each vilage are controlled on how much alcohol they can purchase a day, so both villages are considered damp. All other villages in the region are considered dry for now. Upon opening in 2011 the Kotzebue Liquor Store were averaging sales of around $8,000 – $12,000 a day. This is roughly between $2-3 million dollars in extra revenue for Kotzebue. With about a three hundred percent mark up, by the time the alcohol is shipped from Anchorage to Alaska, the city of Kotzebue profits should easily be around $750,000. Sales tax in Kotzeube is currently 6%. The sales tax on alcohol is also 6%. I am proposing we raise the sale tax on alcohol to 8% with the other 2% going toward funding education. In the city of Kotzebue this would generate an extra $40,000 – $60,000 alone. With Kiana’s liquor store adding another $20,000 -$30,000. This money would be used to help alleviate the financial crisis happening in the NWABSD. Especially in the elementary schools where class sizes are reaching insurmountable sizes and more staff and support will be needed.
At the middle and high school level NWABSD will develop a school within a school to replace the alternative learning program being cut due to finances. The school within a school is where teachers in the middle and high school teach across the boards. Middle school teachers will teach high school students who are at risk when their students go to their elective classes. Mainly the core (math, english, social studies, and science) teachers will be part of this program. Elective teachers will also play a role in this program. This program will help students who have not passed, or are struggling in everyday classes to get caught up and pass the high school exit exam. Classes will be smaller and will be directed toward the students in these classes to accommodate their needs. This program will not cost the district any extra money and will help keep students on track to graduate and be productive citizens.
Over the next 5-10yrs it is projected that liquor stores will be operating in more than half of the villages in the region. With the 2% education tax we could see up to $300,000 in funding for our district. It is important this money is allocated equitably throughout the district. Just because your village does not have a liquor store does not mean you will not receive any the money from the alcohol tax. Equalization is an important aspect of an effective taxation system. One process for providing equality to a tax system is the district power equalization (DPE). District power equalization is a matching grant formula that makes each percentage point of tax rate levied on the market value of local property produces the same revenue, independent of the actual tax. (Feldstein, 1984, p. 1) The concept of DPE will allow the villages with no liquor store the power to obtain as much money per student as the villages that due possess a liquor store.
There are many characteristics of an effective tax system. There are several listed by Brimley, Verstegen, and Garfield (2012) and they include the following: First of all, a good tax system must tax everyone in society, be coordinated, and balanced since either directly or indirectly everyone in district benefits from the amenities provided by taxes. Secondly, financially taxpayers should not be burdened by the taxes they paid. This means that taxes need to be gradual in nature so that the people who can afford the most tax will pay the most tax. Third, between the three levels of government taxes should not be duplicated. Fourth, tax erosion should be eliminated or very little at best. Every person and business should pay taxes without bias. Finally, taxes should be up front, easy to understand, and pay. Taxpayers need to where their money is going and understand why they are being taxed. Levying a sumptuary tax is going to be the most affordable and reasonable tax for funding the NWABSD. Liquor stores are going to continue to be established in the region and not being able to enforce a property tax due to the ANCSA Act. A sumptuary tax will be the most efficient tax and will be available the fastest. With District Power Equalization put in place, each student within the region will be allocated equitably. People in the region will need to be aware of the new tax and the reason behind the added tax to alcohol sales. Without proper funding and an acceptable taxation structure, schools will not be able to give the students of NWABSD the proper services the will need to graduate students and be productive citizens.

References
Feldstein, M. (1984). Public Education: Reply. Retrieved from eds.a.ebscohost.com.library.gcu.edu
Sin Tax. (2014). Retrieved from http://en.wikipedia.org/wiki/Sin_tax
Brimley, V., Verstegen, D,. & Garfield, R. (2012). Financing Education in a Climate of Change. (11th ed.). Upper Saddle River: Allyn & Bacon. Retrieved from http://gcumedia.com/digital-resources/pearson/2012/financing-education-in-a climate-of –change_ebook_11e.php