05/04/2019 09:00 AM Senate FINANCE

SENATE BILL NO. 74                                                                                                            
                                                                                                                                
     "An Act relating to funding for Internet services for                                                                      
     school districts."                                                                                                         
                                                                                                                                
9:07:01 AM                                                                                                                    
                                                                                                                                
Co-Chair von Imhof relayed that  the committee had heard the                                                                    
bill  on  April  24,  2019.   Her  office  had  received  no                                                                    
amendments from committee  members, however, the Legislative                                                                    
Finance Division (LFD) had raised several concerns.                                                                             
                                                                                                                                
9:07:46 AM                                                                                                                    
                                                                                                                                
ALEXEI  PAINTER,  ANALYST,   LEGISLATIVE  FINANCE  DIVISION,                                                                    
discussed the  changes to  the bill.  He explained  that the                                                                    
federal disparity  test functioned to determine  whether the                                                                    
state could deduct federal impact  aid from its share of the                                                                    
foundation   formula   for   education,  which   was   worth                                                                    
approximately $80  million to  $90 million  per year  to the                                                                    
state.  He said  that  the  ability to  deduct  the aid  was                                                                    
contingent  on  passing the  disparity  test  each year.  He                                                                    
shared that  the test compared the  highest funded districts                                                                    
in the  state to the lowest  funded; the  E-rate  money from                                                                    
the federal  government was  counted in  the test,  the bill                                                                    
would greatly  increase E-rate funding in  certain districts                                                                    
already  at  the  top  of  the  test  list.  The  qualifying                                                                    
percentage for  funding was  25 percent  and passage  of the                                                                    
bill would  raise the  percentage in  those districts  to 40                                                                    
percent causing them to fail the disparity test.                                                                                
                                                                                                                                
Mr.  Painter  stated  that  a  possible  solution  had  been                                                                    
discussed  with  the  Department   of  Education  and  Early                                                                    
Development (DEED)  but was contingent on  federal approval.                                                                    
The department had requested to  exclude e-rate funding from                                                                    
inclusion  in the  disparity  test  but had  yet  to hear  a                                                                    
response  from the  federal government.  In the  interest of                                                                    
time, a  conditional effective  date had  been added  to the                                                                    
bill; the  bill would only  come into effect if  the federal                                                                    
government approved  the request to exclude  E-rate from the                                                                    
federal disparity test.                                                                                                         
                                                                                                                                
9:10:19 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  asked for  a more  definitive explanation.                                                                    
He understood the  general nature of the  disparity test but                                                                    
wanted more detail about the potential funding imbalance.                                                                       
                                                                                                                                
Mr.  Painter   detailed  that  the  disparity   test  was  a                                                                    
comparison for  school districts based on  the average daily                                                                    
membership. He furthered that based  on state funding, there                                                                    
would  not  be  a  disparity; however  local  funding  could                                                                    
potentially breach  the 23 percent  cap and raise  the total                                                                    
disparity above 25 percent. Since  E-rate funds fell outside                                                                    
of the  funding cap and  was concentrated in  few districts,                                                                    
those districts  would rise to  the top, beyond  25 percent.                                                                    
The top  school that was  the cutoff  in 2018 was  the Lower                                                                    
Kuskokwim, which  was a district  that did not have  a local                                                                    
contribution and  would normally  not be at  the top  of the                                                                    
list, but  they receive  a disproportioned amount  of E-rate                                                                    
funding. The department projection  showed that the district                                                                    
would rise  too high  to pass the  disparity test.  He noted                                                                    
the other small  districts received E-rate money  but not to                                                                    
the scale of some of the districts in Western Alaska.                                                                           
                                                                                                                                
9:12:42 AM                                                                                                                    
                                                                                                                                
Co-Chair von  Imhof asked  about the  effective date  of the                                                                    
bill  being  contingent  upon  agreement  with  the  federal                                                                    
government. She asked  whether there was a cut  off date for                                                                    
implementation of the bill.                                                                                                     
                                                                                                                                
Mr.  Painter  informed  that  there was  a  cutoff  date  of                                                                    
January 1, 2020.  The date would give districts  a chance to                                                                    
apply for FY 2021.                                                                                                              
9:13:34 AM                                                                                                                    
                                                                                                                                
JULI  LUCKY, STAFF,  SENATOR  NATASHA  VON IMHOF,  explained                                                                    
that  the changes  in the  CS  would not  change the  fiscal                                                                    
note, unless  the federal government  failed to  approve the                                                                    
states   request.   She  commented   that  there   had  been                                                                    
confusion  about the  e-rate program  at previous  meetings.                                                                    
She clarified  that the federal program  subsidized internet                                                                    
service only,  and did not  provide for  infrastructure, all                                                                    
remaining  yearly  funds  were  returned.  She  shared  that                                                                    
burden   was   shared   between  the   federal   and   state                                                                    
governments; the E-rate was the  federal program and the BAG                                                                    
Program was the  state program. The BAG  program allowed the                                                                    
state to  help districts  that could  not reach  the minimum                                                                    
number  of megabits  specified under  current law.  The bill                                                                    
would change the minimum amount  form 10 megabits per second                                                                    
to 25 megabits  per second, which would  increase the number                                                                    
of eligible schools.  She clarified that the  bill would not                                                                    
put  infrastructure  in  schools. She  reiterated  that  the                                                                    
money was  applied for annually  and was given  to districts                                                                    
on a monthly basis to pay  for service, any unused money was                                                                    
returned to the state at the end of the year.                                                                                   
                                                                                                                                
9:16:18 AM                                                                                                                    
                                                                                                                                
Co-Chair   Stedman  MOVED   to   ADOPT  proposed   committee                                                                    
substitute  for SB  74,  Work  Draft 31-LS0600\K  (Caouette,                                                                    
5/1/19). There being NO OBJECTION, it was so ordered.                                                                           
                                                                                                                                
Co-Chair  Stedman  MOVED  to  report  CSSB  74(FIN)  out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSSB 74(FIN) was REPORTED out  of committee with a "do pass"                                                                    
recommendation and with one new  fiscal impact note from the                                                                    
Department of Education and Early Development.