Legislature(2019 - 2020)ADAMS ROOM 519
05/11/2019 09:00 AM FINANCE
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CS FOR SENATE BILL NO. 74(FIN) "An Act relating to funding for Internet services for school districts; and providing for an effective date." 10:27:28 AM Co-Chair Wilson reported the companion bill HB 75 had been heard previously and public testimony had been taken. MARIDON BOARIO, STAFF, SENATOR LYMAN HOFFMAN, , discussed the sponsor statement for SB 74 (copy on file): SB 74 increases the broadband requirement for schools from 10 megabits per second (Mbps) to 25 Mbps of download speed and provides funding to help schools reach the 25 Mbps through the School Broadband Assistance Grant (BAG). Districts that qualify for discounted rate for internet services under the Federal Universal Services Program are eligible. The Universal Service Administrative Company, Schools and Libraries Program, commonly known as "E-rate," provides discounts of up to 90 percent to help eligible schools and libraries in the United States obtain affordable telecommunications and internet access. The School BAG was established in 2014 and created to assist schools to reach internet download speeds of 10 Mbps. Currently the grant funds may be used to cover eligible costs incurred by the school districts for schools that have less than 10 Mbps each fiscal year. Since 2014 new and improved technologies and increases to internet services have allowed for more and faster delivery of internet services. Because the cost of internet in some rural districts has decreased, the annual internet costs have fallen below the 2014 benchmark established by state law. To allow school districts to utilize these advances, SB 74 will increase the minimum requirement of Mbps from 10 to 25 which will increase the amount of Broadband Assistance Grants (BAG) that the state can pay to school districts. In 2019, 80 schools in 20 school districts will benefit from the school BAG awards. The funding leverages federal E-rate funds at approximately 8:1. The program allows for leverage for up to 9:1 based on a formula for free and reduced lunch calculation by district. Thank you for your consideration of SB 74 to help bring improved broadband services to rural Alaska and improve service for schools across the state. I urge your support of this legislation to provide Alaskan students, classrooms and teachers and all educators better access to the digital world. 10:30:25 AM Ms. Boario indicated that the state BAG (Broadband Access Grant)program was designed to help schools cover their share of the E-rate costs of approximately 20 percent. The legislature implemented the program to increase internet speeds by helping school districts cover their broadband expenses after the federal E-rate subsidy was applied. She added that the program was voluntary, and the grants were awarded in August each year. She noted that the grant could serve up to 170 schools in 30 school districts totaling over 20 thousand students. Co-Chair Wilson asked for an explanation of the changes in the Senate Finance Committee Substitute version. Ms. Boario explained that a question arose about whether the increased funding for the grant program would impact the disparity test for the federal impact aid. In addition, the funding was not distributed equally across the districts which could affect the disparity test. Co-Chair Wilson asked what districts were included in the disparity test. Ms. Boario replied that because the funding was different due to the higher broadband costs in some districts; districts paying more received higher federal subsidy and BAG grant awards, which could affect the disparity test. The districts did not receive equal funding. Co-Chair Wilson asked Ms. Boario to cite where in the bill the changes were made. Ms. Boario answered that on page 1, line 10, Section 2 and page 2, line 6, Section 3 additional conditional effect language was inserted as follows: Sec. 2. The uncodified law of the State of Alaska is amended by adding a new section to read: CONDITIONAL EFFECT; NOTIFICATION. (a) Section 1 of this Act takes effect 13 only if, on or before January 1, 2020, the Department of Education and Early Development has received certification from the United States Department of Education that E-rate funding under the federal universal services program may be excluded from the federal 1 disparity test 2 under 34 C.F.R. 222.160-169, as amended. Sec. 3. If, under sec. 2 of this Act, sec. 1 of this Act takes effect, it takes effect the day after the date the commissioner of education and early development receives certification from the United States Department of Education. Co-Chair Wilson asked how long it took to get the certification and whether it was requested in the past. Ms. Boario answered that it had never been request for the E- rate program. However, she was aware that the Department of Transportation and Public Facilities (DOT) funds were exempted from the disparity test. HEIDI TESHNER, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, OFFICE OF MANAGEMENT AND BUDGET, answered that the certification waiver requested from the United States (US) Department of Education asked if the E-rate funding that districts received could be moved to a special revenue fund or removed completely from the calculation for the disparity test. Co-Chair Wilson asked how long the waiver process would take. Ms. Teshner hoped that the certification would be issued in several weeks. Co-Chair Wilson spoke to the BAG awards for 2019. She observed that the grants were mostly awarded to rural schools. She asked whether most urban schools paid for their own internet. 10:34:40 AM Ms. Boario answered yes "conditionally." Primarily rural schools were affected due to the high cost of internet and urban schools were able to obtain high speed internet much cheaper than in rural areas and the grants applied to schools only receiving 10 Mbps. Technically the grants applied to all schools, but some schools were ineligible due to better connectivity. Co-Chair Wilson had never known her school district to not want money. She knew Fairbanks had problems with its internet service at times and could not perform testing in all schools on the same day. She asked for clarification regarding eligibility for the grant. Ms. Boario replied that the e-rate funding federal subsidy was utilized by all schools in Alaska. The BAG grant only provided additional funding to schools that qualified to help increase their speeds to 25 Mbps. Co- Chair Wilson wondered why the fiscal note was $7 million. She determined that the $7 million would be added to the $1 million and cover a number of years. Ms. Boario affirmed her statement. 10:37:38 AM Co-Chair Wilson stated that she misspoke. She reported that the BAG grant covered 172 schools which increased the megabit threshold for each School from 10 megabits to 25 megabits per second and continue paying the $7 million amount for years to come. Ms. Boario affirmed her statement. She acknowledged that it was a grant program, but costs were expected to decline over the years as the coverage increased. Co-Chair Wilson had heard from prior testimony that most of the areas had more than one provider. She did not believe the information was accurate. She wanted to know what private company would be receiving $7 million of state funds. Co-Chair Wilson wanted the committee to understand that the state was paying an additional $7 million each year with passage of the bill. She was interested in information regarding the competition that existed among internet providers for the $7 million. 10:40:10 AM CHRISTINE O'CONNER, EXECUTIVE DIRECTOR, ALASKA TELECOM ASSOCIATION, answered that there was a minimum of two providers in every area according to a survey of the association's members. There was a satellite provider that covered the entire state and was very active in bidding on e-rate contracts. In addition, all locations had existing landline providers that bid on fixed broadband services. She stressed that the e-rate rules required that all landline providers bid on E-rate RFPs. In many areas there were three or four providers. She offered the example of vigorous competition among 4 providers in Nome for bidding to provide E-rate service, which drove down the rates. She noted a 37 percent decrease in broadband rates for schools. The competition created new partnerships amongst the providers and e-rate rules encouraged schools to bid together as consortiums. She reported that the factors happened within the last few years and were driving rates down. However, gaps in service still existed due to the need for and more infrastructure. Co-Chair Wilson asked for more information. She had not seen a drop in internet costs for schools. She wanted to better understand the competition. Representative Carpenter asked how the FY 19 10 mbps program numbers predicted the FY 21 25 mbps numbers. Ms. Teshner answered that the note used the average FY 19 BAG grant in order to determine a cost if all 172 schools applied for the grant. She mentioned that the average was the best data the department had to approximate the cost to raise speeds from 10 mbps to 25 mbps. Representative Carpenter referred to the following language in the fiscal note analysis: This $1,487.5 will need to be funded in all of the out years, in order to pay for 0-10mbps internet coverage in tandem with current fiscal note that covers 10-25mbps. The entire program will continue as one application for up to 25mbps. Representative Carpenter wondered whether the actual total was $8.6 million versus $7.1 million, which was not reflected in the fiscal note. Ms. Teshner replied in the affirmative. Co-Chair Wilson asked why FY 20 did not show the over $1 million currently awarded to grants. Ms. Teshner answered that when the department was told to only report the costs necessary for the speed increase from 10mbps to 25mbps and the $1.4 million figure was included in the analysis to show that amount was needed to continue the 0 mbps to 10 mbps program as well. Co-Chair Wilson thought the entire amount should be reflected in the FY 20 cost. She reported that before the change from 10 mbps to 25 mbps the school districts were asked to show how they were able to fund the 25 mbps increase. She asked why the grant was increased if the school districts demonstrated they were able to fund the increase. Ms. Teshner answered that the fiscal note was an estimate. Co-Chair Wilson restated her question. She clarified her question and asked why the grants would be necessary. Ms. Teshner answered that the program was voluntary and based on a baseline number and if costs went below the baseline level the school district would no longer qualify because the overall cost would decrease. She deferred to Patience Frederickson, from the Division of Library, Archives, and Museums who ran the program for further clarification. 10:48:13 AM Co-Chair Wilson was not blaming any school district for getting funds. She pondered why the grants amounted to up to $8 million when many districts could pay for internet service. PATIENCE FREDERICKSON, DIRECTOR, ALASKA DIVISION OF LIBRARIES, ARCHIVES, AND MUSEUMS, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, responded that the E-rate application asks the school to certify that they can repay the remaining portion of the bill. Therefore, school districts only applied for the E-rate if they know the BAG grant was available. The districts could not apply for 25 mbps in the current year because the bill did not exist during the application period. Districts would be able to apply for 25 mbps during the next application period knowing that the BAG grant was available to pay for the remainder of the E-rate. She reiterated that the certification was not on the state application, it was on the federal application. Co-Chair Wilson surmised that all the bill was essentially doing was securing E-rate BAG grant funding in the outyears. Ms. Frederickson answered in the affirmative. She furthered that the program had been designed to increase levels of internet speeds. Co-Chair Wilson wondered why the legislature would not just increase the Base Student Allocation (BSA). 10:51:13 AM Ms. Frederickson replied that she was not conversant on the BSA program. She suspected the reason was because it included the federal E-rate funding. She detailed that the genesis of the BAG program came out of the OWL (Online With Libraries) program, which helped libraries achieve a certain speed of internet to enable them to participate in a video conference network. The idea behind the OWL program was to combine E-rate, library, and grant funding to increase the internet speeds. The BAG program was based on OWL. Co-Chair Wilson remarked that the OWL funding was appropriated in all school districts. She asked whether she was correct. Ms. Frederickson answered in the negative. The OWL program video conference network was available in every public library, but the subsidy went to approximately 20 public libraries. Co-Chair Wilson requested the list of libraries involved in OWL. Vice-Chair Johnston remembered that the Nome bidding war happened because it was cheaper to provide the higher speed 25 mbps than the lower speed internet. She asked for confirmation. 10:53:46 AM Ms. O'Conner answered that she was unfamiliar with the details but thought Ms. Fredericksons recounting made sense. She acknowledged that Nome had relatively good connectivity and multiple providers. Relatively large bandwidth was purchased "in bulk" and 10 mbps was a very small amount. Vice-Chair Johnston considered the fiscal note and improved technology. She thought the scenario could be repeated in the rest of the state with improved satellite technology and as competition increased. She deduced that the fiscal note was currently high, but it could decrease with improved technology in the future. Ms. O'Conner agreed with her conclusion. She indicated that multiple projects were coming online in the near future in Alaska. Every company was taking advantage of newly stabilized federal funding for increased connectivity. She noted that the lower orbit satellite technology was untested and was not imminent. 10:55:57 AM Ms. Frederickson concurred with Ms. O'Conner's assessment and noted she had experienced lower costs with the BAG program. She pointed out that in the program's early years the average BAG grant was $30 thousand and fell to $17,000 within 5 years. She determined that as the cost of internet decreased to get to 10 mbps the mathematical formula to qualify remained at the 2014 benchmark and districts fell out of the program due to decreased costs; in FY 19 awards declined from 119 to 80. Co-Chair Wilson pondered whether the funds belonged in the BSA as an ongoing cost. Representative Carpenter noted that the federal government's standard was 100 mbps. He deemed that 100 mbps was currently cost prohibitive in Alaska. He imagined that once districts obtained 25 mbps there would be later discussions about increasing the speed to 50 mbps and higher. He asked if currently low earth orbit satellites were over Alaska. Ms. O'Conner answered in the negative. Representative Carpenter recounted that in previous testimony a school district testifier had been unaware of what the cost had been to increase from 10 mbps to 25 mbps. He inquired how it was known that the program would cost $7.1 million. Ms. Frederickson answered that the fiscal note was estimated from current costs. She observed that the problem was the competitive bid process for the e-rate application. 10:59:10 AM Representative Carpenter understood the process of how it was purchased but "we don't put a bid in to find out if we can afford it." Ms. Frederickson replied that the process was confidential, and she did not have access to the information. Co-Chair Wilson asked whether the information was confidential to the school districts. She commented that the school districts were queried about the costs and one response was received. She hoped the districts knew how much their portion of the E-rate costs would be when applying for the BAG grant program since it was a separate process from the federal E-rate program. Ms. Frederickson responded that with passage of SB 74 she would establish new benchmarks based on what the school districts were paying in January 2020. Subsequently, the school BAG program schools would never pay more than what they were paying in January 2020. The costs would be frozen the districts would rely on the BAG program for the remainder of costs. She acknowledged that she was not answering the question correctly. 11:00:46 AM Representative Carpenter interposed an analogy to illustrate the question. He exemplified a business that wanted to increase its bandwidth from 10 mbps to 25 mbps. The business would go to a provider for a quote to know if it had the money available to pay for the increase. He declared that the state had the opposite process and paid over $8 million without knowing the actual costs. He characterized the process as "backwards." He contended that a district should know what the increased service would cost. He wanted to know what the actual cost was but discerned that the costs were unknown. Ms. Frederickson agreed that the costs were unknown. She restated that the cost was based on the current program "and some cocktail napkin figures" and noted that "it was the best they could come up with." Ms. Boario understood the statements and questions by Representative Carpenter. She explained that the confusion sprang from receiving federal funding first. She thought that knowing how the E-rate contracts went to bid might provide more clarity. Co-Chair Wilson stated that her issue was why the BSA did not cover the costs. Additionally, the federal e-rate program required to know whether the districts could cover the remaining costs. It was her understanding the school districts had the money for the increased bandwidth and they relied on the BAG program to cover the remaining costs. Ms. Boario clarified that it was rural school districts that could not cover the costs on their own. Co- Chair Wilson cited prior districts' testimony that they could cover the costs. In addition, she was unaware that the costs were ongoing each year. 11:05:03 AM Representative Josephson asked for clarity regarding the proprietary information. Ms. Frederickson answered that when the school districts utilize the E-rate computer they enter each school and the amount of broadband service desired for each school. The internet service providers submitted the bids for each school, which was the proprietary information the state did not have. They could not tease out the information that answered what the actual costs were. She added that in the first year of the program they had received $5 million from the legislature and only $3.5 million had been used. Co-Chair Wilson requested that the sponsor provide further information regarding the committees questions. Representative Josephson asked whether Regional Educational Attendance Area (REAA) schools absorbed internet costs through the BSA or if they dropped out of the BAG program. Ms. Frederickson replied in the affirmative, but asked members to bear in mind that if a district chose not to apply it was because the competition had driven cost down. Co-Chair Wilson recognized the many questions and concerns about the bill. She asked members to keep an eye on the schedule for future hearings. CSSB 74(FIN) was HEARD and HELD in committee for further consideration.