Legislature(2017 - 2018)CAPITOL 106

03/30/2018 08:00 AM EDUCATION

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Audio Topic
08:02:09 AM Start
08:02:50 AM HB406
08:28:18 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
-- Testimony <Public/Invited> --
         HB 406-SCHOOL FUNDING FOR CONSOLIDATED SCHOOLS                                                                     
8:02:50 AM                                                                                                                    
CHAIR DRUMMOND  announced that the  only order of  business would                                                               
be HOUSE  BILL NO. 406,  "An Act  relating to the  calculation of                                                               
state  aid   for  schools  that  consolidate;   relating  to  the                                                               
determination  of  the  number  of schools  in  a  district;  and                                                               
providing for an effective date."                                                                                               
8:03:14 AM                                                                                                                    
GEORGE  ASCOTT, Staff,  Representative Harriet  Drummond, advised                                                               
that the House Education Standing  Committee introduced HB 406 as                                                               
a companion bill to SB 216,  a Senate Finance Committee bill.  He                                                               
explained that  this legislation will fix  an unforeseen obstacle                                                               
to school  districts that  wish to  consolidate due  to shrinking                                                               
enrollment which  results in a  problematic sudden drop  in state                                                               
funding.  Currently, he offered,  under the school size factor of                                                               
the  foundation formula,  school  districts  receive money  based                                                               
upon the number of students enrolled  per school.  Schools with a                                                               
higher density  of population receive  less funding  because they                                                               
can  operate  more efficiently  and,  he  pointed out,  temporary                                                               
additional  costs are  incurred when  consolidating and  changing                                                               
the number  of people, transportation, curriculum,  staffing, and                                                               
the physical aspects of moving.   Consolidations would ultimately                                                               
save money for  schools and the state, but  an immediate decrease                                                               
in funding is problematic for  school districts.  He advised that                                                               
this  legislation  will solve  this  problem  by allowing  school                                                               
districts to adjust gradually to  the reduction in funding over a                                                               
four year  period, as  follows:   during the  first two  years of                                                               
consolidation, the school districts  will receive full funding as                                                               
if they  had not consolidated;  the third year,  school districts                                                               
will receive 66 percent of the difference between pre-                                                                          
consolidation  and post-consolidation;  the  fourth year,  school                                                               
districts will receive 33 percent  of the difference between pre-                                                               
consolidation and post-consolidation; and  the fifth year, school                                                               
districts  will  be  funded  as   intended  under  the  completed                                                               
consolidation, and will  operate from that point  on with reduced                                                               
MR.  ASOTT  related  that  this bill  would  simply  give  school                                                               
districts the  tools to  consolidate, it does  not force  them to                                                               
consolidate, he explained,  and it also addresses  a separate and                                                               
unique problem faced by the community  of Hooper Bay.  Hooper Bay                                                               
has  one single  K-12 school,  yet  for funding  purposes, it  is                                                               
calculated  to   have  two  schools   until  the   average  daily                                                               
membership  reaches   425  students,  after  which   it  will  be                                                               
considered one  single school  by the formula.   He  advised that                                                               
the  anticipated  cost of  the  Lower  Yukon School  District  is                                                               
roughly  $700,000,   even  though   their  costs   have  actually                                                               
increased  due to  higher  student numbers.    He suggested  that                                                               
other schools  that may eventually  encounter this  problem would                                                               
be helped by HB 406.                                                                                                            
8:06:07 AM                                                                                                                    
JONATHAN  KING, Staff,  Senator Natasha  von Imhof,  Alaska State                                                               
Legislature,  offered  a technical  presentation  on  how HB  406                                                               
would  work.   He  drew  attention  to  the  first slide  of  the                                                               
presentation, included  in the committee packet,  and pointed out                                                               
an  error:   AS 14.17.150(a)  should  read AS  14.17.450(a).   He                                                               
explained that  is Alaska Statute  that contains the  school size                                                               
factor adjustment.                                                                                                              
MR. KING continued, as follows:                                                                                                 
     The school  size ... adjustment,  as Mr.  Ascott noted,                                                                    
     is a  component of our state  education funding formula                                                                    
     contained in  AS 14.17.410,  and as  you can  see, this                                                                    
     factor  ... has  a curve  to it.   It's  got those  up-                                                                    
     slopes on  the left-hand  side and  a downslope  on the                                                                    
     right-hand side.   And what our  school funding formula                                                                    
     does  is it  tells our  districts to  take the  average                                                                    
     daily  membership, in  other words  the  number of  ...                                                                    
     counted  students ...  during  the measurement  period,                                                                    
     and, ...  in part,  to multiply them  by the  points on                                                                    
     this curve  where they lie  depending on  the students.                                                                    
     And so,  what you can see  is that ... if  you have 200                                                                    
     students, ...  you go up  from 200 down on  the bottom,                                                                    
     you follow  that up  to the  curve, you  end up  with a                                                                    
     multiplier of  1.4.  If  you have 1,000  students, your                                                                    
     multiplier is  about 1.   And so, as Mr.  Ascott noted,                                                                    
     this is  to adjust  for the  fact that  smaller schools                                                                    
     tend to be  less efficient - in terms of  a per student                                                                    
     basis,  in  terms  of  costs  -  than  larger  schools.                                                                    
     However,  while this  encourages  us  to build  smaller                                                                    
     schools  and  to  provide   more  funding  for  smaller                                                                    
     schools, it also  has the inverse effect  which is that                                                                    
     the larger schools, they receive less funding.                                                                             
8:08:40 AM                                                                                                                    
MR. KING  turned to slide  2, titled  "Effect of the  School Size                                                               
Factor  on  Consolidation,  Example  1," which  read  as  follows                                                               
[original punctuation provided]:                                                                                                
     If you  flip the page from  slide 1 to slide  2, I will                                                                    
     give you  an example of  what this  means if you  are a                                                                    
     school  district   of  1  to  consolidate.     So,  the                                                                    
     distribution  here,   a  blue  dot,  is   actually  the                                                                    
     distribution  of  a  school  in  the  Anchorage  School                                                                    
     District.  And, their  school size factor as determined                                                                    
     by state statute in AS  14.17.450(a), and you'll see on                                                                    
     this slide, two  green dots ... that have  next to them                                                                    
     1.06755 and 1.05798.  So, let  us presume that we are a                                                                    
     school district and we have  these two schools with 755                                                                    
     ADM and 798 ADM, with  1.06 and 1.05 represents their -                                                                    
     - the school  size factor applied in formula.   And, we                                                                    
     want  to  put this  together,  and  just say  that  the                                                                    
     building --  the building housing the  798 students has                                                                    
     capacity to  take on those  755 students.   We're going                                                                    
     to create  a combined school  that is now equal  to the                                                                    
     red dot on  the right, which says 0.95;  1,553, that is                                                                    
     the combined  school.   And you can  see that  our cost                                                                    
     factor per student  has shifted from 1.05  to 1.06 down                                                                    
     to  0.95.    Well,  for   the  district,  this  has  an                                                                    
     immediate fiscal  impact when  combined, or  a previous                                                                    
     combination, the  state aid for those  schools is equal                                                                    
     to about  $11.8 million a year  excluding any intensive                                                                    
     student factor  that's a separate  part of  the funding                                                                    
     formula.   But  when we  consolidate those  two schools                                                                    
     because of the change in  the school factor dropping to                                                                    
     0.95, that state aid drops  down to $10.6 million.  So,                                                                    
     that's a  ten percent or  $1.2 million drop  in funding                                                                    
     from consolidation.                                                                                                        
8:10:52 AM                                                                                                                    
     In addition, in this  case, because the Municipality of                                                                    
     Anchorage provides the maximum  allowed under state law                                                                    
     for  local  state aid,  the  district  would also  lose                                                                    
     $0.27 million  in local  -- in  a local  funding match.                                                                    
     So  the  loss  in  terms  of  funding  for  the  school                                                                    
     district is  almost $1.5 million,  $1.47 million.   So,                                                                    
     for   the  school   district,  as   they  think   about                                                                    
     consolidating   these  schools,   they   have  to   ask                                                                    
     themselves  the question,  are we  going  to save  more                                                                    
     than $1.47  million -- are  we going to save  more than                                                                    
     $1.5  million.    If  we're   not,  then  the  accurate                                                                    
     consolidation is a  net loss in terms of  funding.  So,                                                                    
     for school  districts they  can maximize  their funding                                                                    
     by  maintaining  these smaller  unconsolidated  schools                                                                    
     even -- so,  we're creating a disincentive  for them to                                                                    
     put  those schools  together if  that makes  sense for,                                                                    
     you know, full financial and  other reasons.  There are                                                                    
     benefits to consolidating schools.   Right now we have,                                                                    
     you know, special topic teachers  that transit back and                                                                    
     forth   between  schools,   there  is   lost  time   in                                                                    
     productivity  in that  transition.   In addition,  with                                                                    
     some  smaller  schools,  they might  be  operating  one                                                                    
     language  at one  school and  one  language in  another                                                                    
     school and by putting them  together we could offer the                                                                    
     two languages at both schools, just as an example.                                                                         
     So, there's a calculus that  is going on here where the                                                                    
     current  funding  can  create  a  situation  where  the                                                                    
     school    is   disincentivized    to   even    consider                                                                    
8:12:39 AM                                                                                                                    
MR. KING turned to slide 3, "Consolidation Example 2," and                                                                      
continued his presentation.  Slide 3 read as follows [original                                                                  
punctuation provided]:                                                                                                          
     So, moving on to slide 3,  this is -- this is an actual                                                                    
     example  provided by  calculator --  from a  calculator                                                                    
     that the Anchorage School District  provided to us that                                                                    
     we then modified.                                                                                                          
     And  so, this  is an  elementary school  example.   So,                                                                    
     you'll see lines 1 through 6,  in that grey bar, are in                                                                    
     a  school district,  say a  school district  had say  5                                                                    
     elementary schools between 320  and 375 students.  And,                                                                    
     then you'll see  lines 7 through 12 are when  we get to                                                                    
     a post-consolidation  where we've  taken 5  schools and                                                                    
     we've reduced  them to 4.   So, if you just  go all the                                                                    
     way  to the  right where  it  says "Total"  on lines  1                                                                    
     through 6.   You can  see we start with  1,720 students                                                                    
     and we  walk our  way going  through the  line, through                                                                    
     the different  elements of our school  funding formula,                                                                    
     until we get to line 6  where you'll see a total on the                                                                    
     right of $15,069,525.  That  is the amount of state aid                                                                    
     for these  5 elementary schools in  a pre-consolidation                                                                    
     mode.    If  a  school   district  were  to  decide  to                                                                    
     consolidate them into  4 schools, we would  end up with                                                                    
     funding of  $14.4 million.   And,  that's line  12, all                                                                    
     the way over to the right  where it says, "Total."  You                                                                    
     drop  down to  line 15,  the  smaller grey  box in  the                                                                    
     bottom   left-hand  corner,   you'll  see   that  under                                                                    
     consolidation,   the   school  district   loses   about                                                                    
     $650,000  in  state  funding,  then  it  loses  another                                                                    
     $150,000 in  local funding, and  a small amount  in the                                                                    
     Quality Schools Grant.   So, the total  loss in funding                                                                    
     is $798,000.                                                                                                               
8:14:42 AM                                                                                                                    
     Now, of course there is  saving involved there in terms                                                                    
     of,  you  know, the  fiscal  plans  and not  having  to                                                                    
     operate  the  fiscal plans,  you  would  need one  less                                                                    
     principal in  this case.   And, it turns out  that when                                                                    
     you go  through those calculations, that  the amount of                                                                    
     saving of closing  that school are less  than that loss                                                                    
     of $647,000.                                                                                                               
     In addition,  because you are  going to have  to change                                                                    
     school   size   boundaries,    boundaries   for   those                                                                    
     individual schools to determine  the home districts for                                                                    
     students, you're  also going to have  to add additional                                                                    
     busing because  you are going  to be  creating slightly                                                                    
     larger districts.  And that  eats into those savings as                                                                    
     well.    (Audio difficulties)  walk  all  the way  down                                                                    
     through  this  is  that  the  district  ends  up  in  a                                                                    
     position of  losing about $500,000  through the  act of                                                                    
     consolidation.   So, this is an  immediate disincentive                                                                    
     for school districts even consider consolidation.                                                                          
8:15:56 AM                                                                                                                    
MR. King turned to slides 4-7, "Expected State Savings Example                                                                  
2, Continued," [which include year's 1-4 calculations] and                                                                      
continued his presentation as follows:                                                                                          
     So, on  slide 4, we  walk through what this  looks like                                                                    
     in an  aggregate fashion  if HB  406 and  the companion                                                                    
     bill were  to pass.   So, take  the example that  is on                                                                    
     the prior  page, a  district with a  cost factor  of 1,                                                                    
     which  is   the  Anchorage  district,   consolidates  5                                                                    
     schools  with 1,720  students into  4  schools.   Total                                                                    
     state   aid,   pre-consolidation  excluding   intensive                                                                    
     services factor, it is $15.07  million a year.  And you                                                                    
     can see  that on the prior  slide in line 6.   They are                                                                    
     getting $15 million a year.                                                                                                
     So,  under  HB  406,  if  you were  to  allow  them  to                                                                    
     consolidate, in the first two  years they would receive                                                                    
     $15.7  million.   So, instead  of immediately  stepping                                                                    
     down from  $15.07 million to  the $14.42  million, they                                                                    
     would  stay  at $15.07  million  for  those two  years.                                                                    
     Allowing the school district time  to figure out how to                                                                    
     generate  the best  efficiencies  within those  schools                                                                    
     and make this work for them.                                                                                               
     In years  3,4, and  5, the state  aid adjusts  in equal                                                                    
     increments until  it reaches  that natural  level, that                                                                    
     is the  level underneath  the existing  funding formula                                                                    
     of $14.42  million for  those 1,720  students.   So, in                                                                    
     years  3, we  end up  with $14.85  million which  is 66                                                                    
     percent  of  the  distance or  the  difference  between                                                                    
     $15.07 million and $14.42 million.   The state treasury                                                                    
     then begins to save that $220,000 in that year.                                                                            
     In  year 4,  as we  stepped out  to 33  percent of  the                                                                    
     difference  between  the  pre-  and  post-consolidation                                                                    
     numbers,   the  state   receives  $430,000   or  spends                                                                    
     $430,000 less.   And  in year 5,  it (indisc.)  back to                                                                    
     the existing funding formula and  the state treasury is                                                                    
     spending $0.65 million.   So that is  the technical way                                                                    
     in which this would step down.                                                                                             
     Slides 5,  6, and 7,  are highly -- much  more detailed                                                                    
     examples.  It's the exact  same example of what we were                                                                    
     doing before  with the  5 schools  going to  4 schools.                                                                    
     But this allows you to  see exactly how the math works,                                                                    
     where the numbers would be  pulled from, the bill line,                                                                    
     and  how that  calculation  would work  out.   And,  it                                                                    
     shows  empirically that  our funding  pre-consolidation                                                                    
     and  post-consolidation  match  one another,  which  is                                                                    
     intent of the bill.                                                                                                        
8:19:48 AM                                                                                                                    
DEENA BISHOP,  Superintendent, Anchorage School  District, shared                                                               
that  HB  406 is  a  "win-win"  for the  state,  as  well as  the                                                               
Municipality of  Anchorage and its  education.  There is  not any                                                               
more money  to be  gained by HB  406, as its  intent is  to allow                                                               
school  districts  time to  consolidate  given  the many  aspects                                                               
school  districts would  experience through  consolidation.   She                                                               
advised that the largest costs  in education are human resources,                                                               
as it should  be, and she would continue to  hire school staff to                                                               
work with  students.  The  area of savings is  in administration,                                                               
but  the school  districts  would need  an  opportunity to  scale                                                               
down.  She explained that  in Anchorage, approximately 45 percent                                                               
of its  schools were built  in the  1950s, 1960s, and  1970s, and                                                               
are   approaching  their   life  span   prior  to   having  major                                                               
maintenance  or any  kind of  reconstruction.   In the  event the                                                               
committee  was to  consider HB  406, which  strictly defines  the                                                               
operational  costs of  a school,  and then  couple that  with the                                                               
capital costs  when the bond reimbursement  program is reinstated                                                               
at  the state  level  as well  as local,  that  is an  additional                                                               
significant  savings,   particularly  to  the   Anchorage  school                                                               
districts due  to its many  older schools.   The members  of this                                                               
committee who  were school board  members remember that  for many                                                               
years there  has been the  request to find efficiencies,  to look                                                               
at schools  and neighborhoods, to  determine what could  be done,                                                               
she said.   The math just  never worked out with  the formula, it                                                               
did not  make sense,  and she related  that this  conversation is                                                               
due  to  the capital  costs  incurred  with  the need  to  reduce                                                               
schools  because  many  schools  are  up  for  major  maintenance                                                               
activity.   She remarked that this  legislation is a win  for our                                                               
state and a win for the people of Anchorage.                                                                                    
8:23:12 AM                                                                                                                    
CHAIR DRUMMOND requested a description of the capital costs.                                                                    
MS. BISHOP  responded that the  operation of the  school building                                                               
itself would need  to be scaled down, but it  would still have to                                                               
be heated until "we find out what  we could do."  Many years ago,                                                               
under  House Bill  278,  there  was an  intent  to offer  charter                                                               
schools,  or  other  entities,  to  possibly  use  former  school                                                               
buildings.   The  capital costs  would  include moving  furniture                                                               
because renovations  may be necessary,  for example, this  year a                                                               
school on base was shut down  and the children were moved to four                                                               
schools.  The school district's  savings was used to perform some                                                               
capital  improvements, such  as,  ADA  improvements for  students                                                               
with disabilities;  additional fencing;  rooms were  brought back                                                               
to life  that had been  mothballed; and simply the  capital costs                                                               
of getting classrooms ready.                                                                                                    
8:25:17 AM                                                                                                                    
JIM ANDERSON, Chief Financial  Officer, Anchorage School District                                                               
(ASD), advised  that he  was unsure  he had more  to add  to this                                                               
8:25:59 AM                                                                                                                    
MARTIN STEPETH  pointed out  that the  witnesses who  spoke today                                                               
are from  large districts.  He  noted that he comes  from a small                                                               
district, but  HB 406 could work  for that district in  a time of                                                               
transition.   For  many years,  he said,  the rural  villages and                                                               
other  villages have  been  consolidating,  and this  legislation                                                               
would also work for those villages.   He pointed out that not all                                                               
villages are  shrinking, some villages  are growing.   He advised                                                               
that out  in the  Pribilof Islands,  "I know  that the  school on                                                               
paper right now in  Saint George is shut down.   But, in a couple                                                               
of years, I know for a fact  that'll be back up and growing again                                                               
because there  will be enough  students there."   The transitions                                                               
offered  in  HB 406  would  help  give  time  and ease  into  the                                                               
transition.  He  stressed that up until a few  years ago this was                                                               
a growing state,  but not any longer, these are  real problems in                                                               
real time.                                                                                                                      
8:27:40 AM                                                                                                                    
CHAIR  DRUMMOND, after  ascertaining  no one  wished to  testify,                                                               
closed public testimony on HB 406.                                                                                              
[HB 406 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB 406 Additional Support ASD 03.29.2018.pdf HEDC 3/30/2018 8:00:00 AM
HB 406
HB 406 Support LYSD 03.29.2018.pdf HEDC 3/30/2018 8:00:00 AM
HB 406