Understanding Measure 2: Dealing with K-12 education protection, funding
North Dakota's oil reserves have been helping support K-12 education for decades.
The Foundation Aid Stabilization Fund was created to help ensure that schools would always have a financial cushion.
On Nov. 8, North Dakotans will vote on Measure 2, which would amend the state's constitution to allow lawmakers to spend part of that fund on "education-related purposes whenever the balance exceeds 15 percent of the general fund appropriation for state aid to school districts for the most recently completed biennium," according to the constitutional measure's language.
Between 1987 and 1991, Gov. George Sinner cut the state budget — which meant cuts to the schools' budgets as well, said Sen. Rich Wardner, North Dakota's Senate majority leader.
Wardner, working as a Dickinson educator at the time, said he saw firsthand the damage these cuts inflicted on the schools as some staff members were laid off.
"It was devastating," he said. "And that's when we said, as legislators going forward, that that was not going to happen again."
In 1994, the state's lawmakers set up the Foundation Aid Stabilization Fund to collect 10 percent of revenue from the oil extraction tax. The principal of this fund may only be used to offset school budget cuts to ensure that K-12 education was always protected—no matter the financial status of the state—but only the governor can order its use.
In 2007, the fund began to grow because of the increase in oil production. The oil extraction tax was at 6.5 percent at the time, Wardner said. As of Sept. 1, there was about $570 million in the fund, according to the state's treasurer website. About $121 million was used to offset budget cuts this year—something the state government has rarely had to do, he said.
The state's K-12 education budget is currently a little more than $1.8 billion, Wardner said. Measure 2 would allow lawmakers to spend money from that fund on "education-related purposes" so long as 15 percent of K-12's budget remains in the fund.
"That is much more than we need to take care of any shortfall in the future," he said. "It's a stranded asset, and we can't use it, and we've got some good uses for it, such as the low-interest loan construction fund for schools, and this particular biennium we are going to need it to continue to keep K-12 funding whole."
The North Dakota School Boards Association opposes the measure, fearing the vagueness of the text and that the Legislature will deplete K-12's safety net.
"I don't know what percent might be needed in the future if there's a budget shortfall," said Jon Martinson, executive director of the association. "What I do know is that the fund was established for that purpose and I think that it should remain for that purpose for K-12 education. It's our savings account."
Martinson said he would prefer that the measure require a higher percentage to be left in the savings account and that the text stipulate lawmakers use to remaining money for K-12 related purposes, rather than education in general.
Instead he worries the Legislature is going to spend the fund's money to help compensate for the budget shortfall.
The Legislature already passed a bill, Senate Bill 2039, that would earmark $400 million from the Foundation Aid Stabilization Fund for school construction and higher-education scholarships, but only if Measure 2 passes, Martinson said.
The Legislature could amend this law and change where the money is being spent, he noted, but the point is that lawmakers already have a plan to spend some of the fund's money.
"Right now this Foundation Aid Stabilization Fund is a safety net for K-12 education to be used in tough times," he said. "However, if this bill passes that will result in transforming the Foundation Aid Stabilization Fund from a safety net to ongoing funding by the Legislature, it's no longer a safety net. They will continue to use all the funds beyond the 15 percent that's required (to remain in the fund)."
However, some lawmakers, including Senate Minority Leader Mac Schneider of Grand Forks, only voted to put Measure 2 on the ballot because SB 2039 appropriated the money.
Schneider said SB 2039 will turn part of the Foundation Aid Stabilization Fund into a scholarship endowment fund and another part into a school construction assistance fund while continuing to serve as a safety net for K-12 education, something he supports.
"How do you take that one-time harvest of natural resource revenue and make it a critical investment in your people?" he said. "You create a scholarship endowment, the returns on which you'll fund access to higher education for North Dakota's best and brightest."
But he also voiced his concerns that some lawmakers may begin to use the fund as an ongoing source of funding rather than as a safety net as it was originally intended.
"I think it got to be oversized during the oil boom," he said. "I think a great use for the surplus is to make these critical investments but turning to the Foundation Aid Stabilization Fund as an ongoing funding source. I think that would be absolutely the wrong move because that would leave schools without a cushion."
But Wardner said he is not worried about the Legislature misusing the funds.
"Every legislator has a K-12 school district that they represent, and all of the legislators understand that that's what it's for, K-12," he said. "I guess I am not worried about that, even into the future, because K-12 is the poster child when it comes to funding in North Dakota. Legislators want good quality K-12 schools and they're not going to spend it on something else."
A separate 10 percent of the revenue from the oil extraction tax also goes into the Common Schools Trust Fund, which had nearly $3.4 billion in it as of March 31, according to the state's treasurer website. The interest from that trust fund is used to help fund K-12, but will not be affected by Measure 2, Wardner said.
The measure unanimously passed the Senate and passed the House 68 to 21. SB 2039 passed both chambers unanimously.
Ultimately, Schneider said he hopes the Legislature can fund K-12 education without needing to dip into the Foundation Aid Stabilization Fund again.
"Measure 2, for me, is taking just a small fraction of our oil revenue and making it a critical investment in education and our people," Schneider said. "I think it's one of the most important things that we should look at as a policy goal."