Ryan Hinton: Fairbanks misappropriating school aid from state

June 10, 2026 – The Fairbanks North Star Borough is misappropriating reimbursements from the State Aid for Costs of School Construction Debt program (AS 14.11.100) to defraud the State and taxpayers.

Under this program, the State approves 60% to 70% of bond debt reimbursement for school construction related projects.

Voters authorized the bonds for these approved projects, with the understanding of what the additional tax burden was, and what the State was covering. This breakdown of the additional tax burden is required, by the Statute, to be included in the proposition language.

Instead of using these reimbursement for what the State and voters intended, the Borough is stashing this money away for an undetermined or undisclosed purpose. They are using a delay in reimbursement payments to justify taxing residents for an outsized portion of the debt, and keeping the State reimbursement as additional revenue.

The State paused a portion of the reimbursement in FY17 & FY20-FY22. During this time, when the Borough received, or anticipated receiving partial payment, the burden for the State’s portion was shifted to taxpayers in the tax cap formula under Borough Code 8.04.300. In short, debt service is one of the exclusions to the tax cap, meaning the Borough can tax in addition to the cap in order to secure the necessary funds for bond debt.

Specifically, item F2 of the tax cap formula is where the taxpayers’ portion of the following year’s debt service expenditures is added to the cap. We see that in FY20, when the Borough anticipated no State aid, the entire debt service burden was added to the cap in item F2, and thus the property tax levy significantly jumped by over $10 million, in large part due to this.

The State issued partial payments in some years, and reimbursement for the missing payments. The majority of the reimbursements are now in the Debt Service Fund and amount to almost $26 million dollars. Other reimbursements remained in the General Fund, but sticking with the $26 million Debt Service fund balance for simplicity: This is reimbursement for the State’s portion of the debt service expenses that taxpayers covered.

The Borough has listed this money as “committed” in the Debt Service fund since FY23. A public records request revealed that there is no Assembly action that would be required to list these funds as “committed” in accordance with governmental accounting standards (GASB-54).

In meetings, the administration has danced around why this huge pot of money has been sitting for years, and suggested multiple possibilities for its use (again demonstrating no “committed” purpose). None of the possibilities given are taxpayer reimbursement for the outsized portion of the bond debt we already shouldered, reduction of the tax cap (which was inflated to cover the State’s portion), or relief from the remaining debt service tax burden.

Item F2 in the tax cap formula deducts State reimbursement from the amount added to the tax cap. There should be no additional tax burden for bond debt (which is what item F2 is) while the Borough is sitting on State reimbursements that the State specified for tax payer relief of bond debt, and voters were told would be used for bond debt. The Borough is not using the money for bond debt relief though. The taxpayers’ portion of the bond debt is added each year, as if we had not already covered more than our anticipated share, increasing the tax cap. If they were to use the reimbursements for the tax payer’s share, they could not justify raising the tax cap.

Again, the exclusion to the tax cap is for securing necessary payment on the debt, but the necessary payment has already been secured. An example of this is found in the FY27 approved budget. $3.1 million is added to the tax cap in item F2 of appendix D-1. None of the $26 million debt service fund balance is used for debt service expenditures.

Another way of looking at the injustice of this is: The reimbursements the Borough is sitting on now exceeds the tax payer’s portion (30%-40%) of the remaining debt. Yet, each year, the Borough adds the tax payer’s portion to the tax cap.

I suspect they came to the realization that using the reimbursement for its intended purpose would prevent them from raising the tax cap in the FY25 budget. They would have been working on that budget in FY24. If you recall, they held a special election to raise the tax cap that year. The proposition for the tax cap was already on the ballot for October, but they held a special election months earlier to raise the cap.

Various assembly members suggested the Debt Service Fund balance (which covers years of the entire debt service payment) is necessary in case the State reimbursement is disrupted again. This is either a deliberate misrepresentation, or misunderstanding. If State aid is disrupted, this is accounted for in the formula and automatically shifted to the tax payers, just as it was last time. This argument of needing a cushion for a rainy day also ignores the vast reserves the Borough has stashed in other funds. The General Fund, unassigned fund balance alone, which is sitting at $54 million, is $22 million over the Borough’s stated target, according to the most recent audit.

They also questioned what the Borough had to give up while the State revenue was interrupted, implying that difficult decisions and sacrifices were made. The audits do not bear this out. Again, in FY20, the property tax levy increased by over $10 million from the previous year, in large part to cover the State’s share of debt service that year. The Borough didn’t make cuts, but rather increased the budget from the previous year. By over budgeting for expenses and underestimating revenue, they added over $16 million to unrestricted reserves, across all funds, in FY20.

This huge positive variance from the budget, which resulted in tax dollars going into the Borough’s savings accounts, was not a one-time miss. Nor did the Borough adjust for this variance in the following years. Instead, the tax levy increased over the next couple of years. The Borough continued to consistently grow their fund balances.

According to the FY25 Audit, page 72, there was a $15 million positive variance from the final budget that year. So instead of using $10 million in reserves to balance the budget, $5 million in tax dollars were added to the reserves. That year, the Borough taxed to the cap. The cap included an additional $3.5 million for debt service expenditures while the Borough sat on $26 million in reimbursements in the Debt Service Fund.

The Borough is not using the bond debt reimbursement from the State to cover the 60%-70% of bond debt expenses the State and voters approved it for. Instead, they tax in excess of what the correct tax cap calculation should be, and are thus converting the reimbursements into additional revenue. That is theft by conversion.

The tax cap manipulation and misappropriation of bond debt reimbursement is a huge part of how the Borough grew its unrestricted reserves, across all funds, by 189% in 8 years. Their unrestricted fund balance was $57 million in FY17’s audit. By FY25, it was $165 million.

I appreciate Assemblymembers Wilson, Rotermund, LaJiness, and Armstrong for bringing or supporting amendments that would either return some of the reimbursements to taxpayers, or stop the subsidization of this massive reserve account with more tax dollars.

Unfortunately these amendments were defeated.

Opponents of returning the money to tax payers argued that it was the 11th hour and they needed more time to decide how to handle the State reimbursements. They have been sitting on the majority of reimbursements for three years. They have been ignoring the provisions of the tax cap formula that deal with reimbursements, by deducting them from the taxpayers’ share, for just as long.

They argued that it was not sustainable to give the taxpayers their money back. Increasing the tax burden in order to grow the Borough’s budget and ever increasing reserves is not sustainable for taxpayers. We are struggling with rising fuel costs, GVEA costs, and grocery prices while being taxed to feed growing Borough reserve accounts.

By far the most ironic argument against returning the money to taxpayers came from Presiding Officer Crass. He suggested that voters could somehow use this money to find other matching bonds. So…using the ill-gotten gains of this scam as seed money for the next one? This debacle with the school construction aid is exactly why this Borough should never be trusted with another bond project.

Ryan Hinton is a Fairbanks resident and taxpayer.