03/22/2010 09:00 AM Senate FINANCE

SENATE BILL NO. 237                                                                                                           
                                                                                                                                
     "An Act extending the deadline for authorizing school                                                                      
     construction debt reimbursed by the state."                                                                                
                                                                                                                                
Co-Chair Stedman  stated that  it was  the first  hearing on                                                                    
the bill.                                                                                                                       
                                                                                                                                
Co-Chair Hoffman MOVED  to ADOPT the CS for  SB 237, labeled                                                                    
26-LS1342/S.                                                                                                                    
                                                                                                                                
Co-Chair Stedman OBJECTED.                                                                                                      
                                                                                                                                
9:27:43 AM                                                                                                                    
                                                                                                                                
JAY LIVEY,  STAFF, CO-CHAIR  HOFFMAN, explained  the changes                                                                    
in Version  S. He stated  that the purpose  of the CS  is to                                                                    
address the  way in which  state funds  are used to  pay for                                                                    
school construction.  The objectives  are to provide  a more                                                                    
predictable  method   of  funding  for  both   the  Regional                                                                    
Educational   Attendance   Areas  (REAA's)   and   municipal                                                                    
districts. He explained  that the first two  sections of the                                                                    
bill address the construction of REAA schools.                                                                                  
                                                                                                                                
Mr.  Livey  reported  that Section  1  contains  legislative                                                                    
findings  which  refer to  the  Kasayulie  vs. Alaska  court                                                                    
case. This  case was  introduced seven  or eight  years ago,                                                                    
but has  not been  finally settled. In  the case,  the judge                                                                    
noted that  the state  has a  statutory process  for funding                                                                    
municipal schools  through the debt service  program, but it                                                                    
had  no comparable  program for  funding  REAA schools.  The                                                                    
court  also  found that  this  situation  created an  unfair                                                                    
environment in  terms of money  available. The  sponsor also                                                                    
believes  that it  creates an  unfair  environment in  which                                                                    
REAA  funding planners  have considerable  uncertainty about                                                                    
funds available  and makes it  difficult to plan  for future                                                                    
construction of buildings.                                                                                                      
                                                                                                                                
9:30:00 AM                                                                                                                    
                                                                                                                                
Mr.  Livey   highlighted  Section  2  of   the  bill,  which                                                                    
addresses the above-mentioned deficiency  by creating a fund                                                                    
from which  REAA construction  dollars are  dispersed. Money                                                                    
is deposited  in the  fund according to  a formula  which is                                                                    
linked  to   the  outstanding  debt  amount   for  municipal                                                                    
schools.                                                                                                                        
                                                                                                                                
Mr. Livey  explained how the formula  works. The outstanding                                                                    
debt  amount  for  municipal  schools  represents  what  the                                                                    
state's obligation currently  is for the amount  of money to                                                                    
fund  for  new construction  in  schools.  As noted  in  the                                                                    
findings section, this  amount is about $1.2  billion and is                                                                    
expected to  remain the  same over the  next two  years. The                                                                    
findings  section also  notes that  about  $515 million  has                                                                    
been  spent in  the last  ten  years on  REAA's schools.  In                                                                    
addition, there  is a  backlog of about  ten or  eleven REAA                                                                    
schools that need  to be funded over the next  few years. He                                                                    
stated that spending amounts in  municipal schools is higher                                                                    
than the amount  spent in REAA schools by  about 28 percent.                                                                    
If  the   outstanding  debt  amount   of  $1.2   billion  is                                                                    
multiplied by  28 percent, and  that total is  multiplied by                                                                    
the  percent  of  all  REAA  students,  which  is  about  12                                                                    
percent, the result is about  $40 million per year. The bill                                                                    
proposes using this formula to fund REAA construction.                                                                          
                                                                                                                                
Mr. Livey described aspects of  the fund. The money would be                                                                    
spent from  the fund by  the Department of Education  in the                                                                    
same  manner  as they  would  decide  to fund  REAA  schools                                                                    
currently.  All  requirements  would   be  approved  by  the                                                                    
department.  The  balance  of  the  fund  would  not  exceed                                                                    
$100,000,000.                                                                                                                   
                                                                                                                                
Mr.  Livey emphasized  that the  funding would  provide some                                                                    
certainty  to   REAA  construction   planners  and   to  the                                                                    
Department of Education.                                                                                                        
                                                                                                                                
9:33:29 AM                                                                                                                    
                                                                                                                                
Mr.  Livey explained  that  the third  section  of the  bill                                                                    
addresses   municipal   districts.  Currently,   the   state                                                                    
reimburses  municipal  districts  at  70  percent  of  their                                                                    
outstanding  debt  for  school  construction;  however,  the                                                                    
statute  must  be  renewed  every   three  years.  The  bill                                                                    
proposes to  make 70  percent permanent  in order  to reduce                                                                    
funding uncertainty among district planners.                                                                                    
                                                                                                                                
9:34:16 AM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman  shared information  as  to  how the  bill                                                                    
would  address three  of the  backlogged  school within  the                                                                    
$344 million  backlog of eleven  schools. He hoped  that the                                                                    
remaining  eight schools  could be  addressed over  the next                                                                    
two years. He  noted that $40 million is  the minimum amount                                                                    
and the legislature can provide more funding if it desires.                                                                     
                                                                                                                                
Co-Chair Stedman WITHDREW his  objection to adopting the CS.                                                                    
There being NO further OBJECTION, it was so ordered.                                                                            
                                                                                                                                
Co-Chair  Stedman  suggested  that the  sponsor  define  the                                                                    
rural attendance area.                                                                                                          
                                                                                                                                
9:35:55 AM                                                                                                                    
                                                                                                                                
SENATOR KEVIN MEYER, sponsor, related  that the bill started                                                                    
out  as  a  simple  extension  of  the  current  70/30  debt                                                                    
reimbursement  program. The  bill is  normally extended  for                                                                    
two  or three  years at  a time  and an  attempt is  made to                                                                    
incorporate rural schools with  construction needs. The bill                                                                    
formulizes  a process  already  in place  and  puts it  into                                                                    
statute. He voiced support for  the new CS and the suggested                                                                    
changes.                                                                                                                        
                                                                                                                                
Co-Chair  Stedman  asked  where  in the  state  schools  are                                                                    
needed.   Senator Meyer could  only speak for  the Anchorage                                                                    
schools, where  there is  a backlog  of requests.  The 70/30                                                                    
program is in place for  all municipal and urban schools and                                                                    
is available every year.                                                                                                        
                                                                                                                                
9:38:47 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman spoke  of the  needs  in Southeast  Alaska                                                                    
being "kids and jobs".                                                                                                          
                                                                                                                                
Senator  Huggins  discussed  the   need  in  MatSu  for  4-6                                                                    
backlogged schools.                                                                                                             
                                                                                                                                
9:39:25 AM                                                                                                                    
                                                                                                                                
Co-Chair    Hoffman    spoke     of    conversations    with                                                                    
superintendents in  Anchorage and  Fairbanks and  hoped that                                                                    
they were looking favorably at  the legislation. He hoped to                                                                    
assuage  concerns  over  construction  of  urban  and  rural                                                                    
schools.                                                                                                                        
                                                                                                                                
Co-Chair Stedman  noted one fiscal note  from the Department                                                                    
of  Education   showing  the  cost  of   debt  reimbursement                                                                    
starting in FY 2013 at $3,700,000.                                                                                              
                                                                                                                                
9:40:42 AM                                                                                                                    
                                                                                                                                
ANDREA STORY,  JUNEAU SCHOOL  BOARD, spoke  in favor  of the                                                                    
bill on behalf of the Board.  She reported that the bill has                                                                    
been very  successful in helping  with major  maintenance in                                                                    
Juneau. She spoke of efforts  of the school district to keep                                                                    
up  on  building  construction and  maintenance  needs.  She                                                                    
pointed out  that Alaska Association  of School  Boards also                                                                    
supports the  legislation. She hoped  to see both  urban and                                                                    
rural schools  flourish because schools  are the  centers of                                                                    
communities.                                                                                                                    
                                                                                                                                
9:42:12 AM                                                                                                                    
                                                                                                                                
EDDY  JEANS,  DIRECTOR,   SCHOOL  FINANCES  AND  FACILITIES,                                                                    
DEPARTMENT OF  EDUCATION AND  EARLY DEVELOPMENT,  offered to                                                                    
answer  questions. When  asked  by Co-Chair  Stedman if  the                                                                    
department  supported   the  bill,  he  reported   that  the                                                                    
department is neutral on the bill.                                                                                              
                                                                                                                                
Senator  Olson  asked  what   changes  in  construction  are                                                                    
expected as  a result  of the bill.  Mr. Jeans  related that                                                                    
with  the inclusion  of the  amendment, a  request from  the                                                                    
administration would  be forthcoming on an  annual basis for                                                                    
at least  one school construction project.  The legislature,                                                                    
over  the   past  ten   years,  has   funded  a   number  of                                                                    
construction   projects   in   rural  Alaska.   He   thought                                                                    
construction and  major maintenance  needs around  the state                                                                    
have been  addressed fairly  well the  last ten  years, much                                                                    
better than the ten years prior.                                                                                                
                                                                                                                                
Senator  Olson inquired  if the  Kasayulie  vs. Alaska  case                                                                    
would have an effect on  the state's actions. Mr. Jeans said                                                                    
that  was difficult  to  answer because  the  case has  been                                                                    
dormant  for   a  number  of   years,  partly   because  the                                                                    
legislature has provided funding for rural schools.                                                                             
                                                                                                                                
9:44:43 AM                                                                                                                    
                                                                                                                                
Co-Chair Hoffman  agreed that the legislature  has addressed                                                                    
rural  school needs;  however,  the  administration has  not                                                                    
supported rural school construction  for the past ten years.                                                                    
Every  single  year  the administration  has  requested  the                                                                    
money needed to pay bond indebtedness and the legislature                                                                       
has funded it.                                                                                                                  
                                                                                                                                
Co-Chair Stedman requested information  on what was spent in                                                                    
rural  and non-rural  areas on  school  construction in  the                                                                    
past   20  years.   Mr.  Jeans   offered  to   provide  that                                                                    
information.                                                                                                                    
                                                                                                                                
SB 237 was heard and HELD in Committee for further                                                                              
consideration.