Legislature(1995 - 1996)
04/13/1996 02:55 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 70
An Act relating to the public school foundation
program; and providing for an effective date.
Co-chairman Halford directed that SB 70 be brought on for
discussion. Senator Randy Phillips MOVED for adoption of a
work draft CSSB 70 (9-LS0652\W, Ford, 4/12/96). SENATOR
ROBIN TAYLOR came forward to speak to the bill. He
explained that an earlier draft contained a mandatory mill
equivalency paid by each community for its school system
before the district received state funding for additional
education needs. The rate was set at 5 mills. That has
been adjusted to 4.5 mills. In doing that, a major
percentage of communities statewide are "dropped off because
they're all paying more than that."
The Senator directed attention to a spread sheet (copy on
file in the original Senate Finance Committee file for SB
70) and cited Anchorage, Fairbanks, Juneau, and MatSu as
examples of areas that would receive increased funding while
a $9 million reduction in state general funds is effected.
This occurs due to a shifting of funds from communities that
can readily afford to pay the full cost of eduction from the
existing tax base. Funds that, in the past, have flowed to
these communities would no longer be needed and would be
available for distribution to communities that have taxed
themselves over and above the mill rate, to provide basic
education. The theory behind the legislation is "share the
pain equally across the state."
Senator Taylor next referenced the existing cap on the
formula and noted that many tax-based communities are at cap
and may exceed it this year.
The work draft formula is driven by need to provide for a
final solution to the problem of equitable distribution.
The draft formula changes existing statutes and brings the
state into compliance with federal law.
A further provision deducts 100 percent of the eligible
federal impact aid from basic need in determining the amount
of state aid. Senator Taylor referenced indications from
districts that 100 percent provides no incentive to complete
paperwork for PL 874 moneys. He suggested the committee
might wish to "give them a fudge factor of a couple percent
just for filling out the paperwork."
Directing attention to Section 3 of the draft, Senator
Taylor explained that before the state would be required to
contribute educational costs to a community, the locality is
mandated to contribute the 4.5 mill minimum. If 4.5
generates more moneys than the community is spending on
education, the excess flows to the state fund for
distribution to communities taxing themselves at a higher
rate. Communities are allowed to contribute up to 2.5 mills
of additional local support above the mandatory 4.5.
Contribution beyond the mandatory level qualifies a
community to receive supplemental or excess moneys. Many
communities are now taxing over 6 mills. Section 4
establishes the pool for excess funds generated by the 4.5
mills.
Section 5 changes the number of students required to
establish a funding community from 8 to 10.
Section 6 reduces the "trigger" on the hold harmless
provision from the current 10 percent decrease in
instructional unit to a 5 percent decrease. That only comes
into effect in situations of declining enrollments.
Section 7 cleans up the formula for determining unit count.
It reflects the 8 to 10 student change made in Section 5.
Section 8 contains a single-site fix to cure the ongoing
problem.
Section 10 removes gifted and talented children from the
special education funding formula. Senator Taylor cited
abuses of the formula whereby certain districts have
distorted numbers to gain additional funds. The new formula
contains a limit of 4.5 percent of a school district's
enrollment.
Section 11 relates to bilingual education. Senator Taylor
cited abuses in this area as well. Reductions are included
in the formula established for provision of the
instructional unit count per bilingual student. Reduction
is 50 percent.
Section 14 changes the date at which student counts occur.
The historic deadline has been October 15. That date has
been moved to November 20. Section 15 provides flexibility
in allowing districts to determine when they wish to conduct
the count (sometime between October 15 and November 20).
Section 16 contains a "mini-hold harmless" provision which
gives the commissioner discretion to allow a school district
caught between Sections 14 and 15 to show good cause why the
district should not be adversely impacted by the manner in
which the count was conducted.
Section 17 allows for promulgation of regulations.
Sections 18 and 19 provide effective dates.
Senator Taylor acknowledged that the proposed bill reflects
a legislative mandate forcing localities to prioritize and
dedicate a portion of the tax base to education. It
requires every community to dedicate 4.5 mills. The state
will then "match the rest." He further remarked:
If 4.5 mills happens to generate $40 some million
dollars out of the North Slope, and they only need
$15 or $20 for education, then those poorer
districts, in this state, that aren't that wealthy
ought to have the benefit of those funds so that
their kids will also receive a decent education.
The purpose of the legislation is to avoid the equity
problem being forced upon Alaska by the federal government's
formula.
Discussion followed between Senator Rieger and Senator
Taylor concerning how numbers set forth on the spread sheet
were calculated and what they include.
Senator Rieger requested further explanation of Section 16.
Senator Taylor said it was included "only for purposes of
providing a transition for the change in time period in
which you count students." Senator Rieger noted that his
reading of the language indicates that in any given year
(1999 was used as an example) a district could opt to report
membership numbers from the earlier year (1998). Senator
Taylor concurred in that understanding, saying that the
district could "fall back to the previous year, but only if
you have good cause for doing so." Senator Rieger advised
that it amounts to a "100 percent hold harmless for a year
on top of the 5 percent hold harmless . . . . elsewhere in
the bill." Senator Taylor deferred further comment to staff
from the Dept. of Education.
In response to a request for a summary of changes between
the current draft and earlier versions of the bill, Senator
Taylor noted:
1. A drop from a mandated 5 mill equivalency to 4.5.
2. The 50 percent reduction in bilingual
3. Establishment of 4.5 percent of total district ADM
as the amount eligible for gifted programs.
Senator Zharoff asked how the legislation would work in
areas with no tax base. Senator Taylor noted that those
areas are presently receiving PL 874 moneys. Those moneys
are contributed by the federal government in lieu of taxes.
Under the proposed bill, those districts would contribute
"that full amount of their PL 874" moneys as their local
contribution and "still share in exactly the same dollar
revenues that they were getting before." If a community has
a tax base but elects not to tax it, the proposed bill "may
very well require them to impose a 4.5 percent tax."
EDDY JEANS, Project Assistant, School Foundation, School
Finance, Dept. of Education, came before committee. He
explained that the proposed formula computes a statewide
average assessed value per student. For REAAs, the
statewide average has been adjusted by 2.5 mills. That 2.5
mills is then multiplied by the ADM to determine the state
share to REAAs. For a city/borough district, there is an
additional computation whereby the district's individual
assessed value per student is compared to the statewide
average. That produces a proportion that is applied to the
statewide average per student and multiplied by the
district's ADM to determine the local share. The state
share is computed based on the statewide average times the
ADM.
Operation of the above formulas (per distributed spread
sheets) was discussed using both communities with and
without tax bases as examples. Further review of existing
district funding compared to the new formula followed.
Senator Taylor noted legislative need to address area cost
differentials in the future.
Co-chairman Frank expressed concern regarding potential for
additional state expenditures driven by increased local
contributions. Mr. Jeans said that would not happen since
the state share is based on the average of the statewide
value per student. Mr. Jeans directed attention to a spread
sheet dealing with local effort requirements and
supplemental equalization funding. He voiced his reading of
the bill to be that the additional 2.5 mills above the 4.5
is required. The 2.5 mills is based on the statewide
average. Further discussion followed using Anchorage as an
example.
In response to a further question from Co-chairman Frank,
Mr. Jeans explained that the proposed bill would result in
two formulae working together within the umbrella of the
foundation formula. One reflects basic foundation aid
computed on instructional units, times area cost
differential, times the unit value of 61. From that the
state would subtract 4.5 mills of required local
contribution and 100 percent of impact aid funds to arrive
at the basic state allocation. The supplemental
equalization formula would then be applied to determine
additional state aid. Co-chairman Frank voiced his
understanding that greater contribution by a local
government would not "cost the state more on a per share
basis." Senator Taylor concurred in that understanding,
saying: "A local government cannot drive more money out of
the state by spending more." Mr. Jeans noted that the
existing formula cap of 23 percent of basic need remains in
effect.
Further review of spread sheets followed using numbers for
the Juneau-Douglas School District as an example. Senator
Taylor noted that the bill would result in "a significant
tax reduction for almost every major community in the
state." The Governor's legislation "gives more money to the
people who weren't taxing themselves." The Senator stressed
that the proposed formula change would "take care of the
inequality problem for a lot of years to come . . . ."
Co-chairman Frank noted general discussion of the impact to
the state treasury resulting from application of the
proposed bill to the North Slope. He referenced existing
tax caps under state law and asked how they impact the North
Slope Borough and oil and gas property taxes. Senator
Taylor said discussions indicated impact of "about $29
million over and above local effort right now." Co-chairman
Halford voiced his understanding that the North Slope is at
the cap and would have to cut its budget in half.
Further discussion followed regarding the statutory cap as
well as bonded indebtedness. Senator Taylor remarked:
Whatever percentage of their 30 mills that they are
currently dedicating to paying off that huge bond debt
they've got up there . . . shouldn't qualify as a
portion of the total 30 mill cap so as to prevent them
from having the revenues to pay for their own
education.
Additional discussion of North Slope taxes and state oil and
gas taxes followed.
END: SFC-96, #78, Side 1
BEGIN: SFC-96, #78, Side 2
Co-chairman Halford quoted from a May, 1995, Dept. of
Revenue analysis of the 5 mill version of the bill:
The state revenue loss based on 43.56 (the offset) for
the North Slope Borough would have been $34,321,249.
However, the Borough is already at the 30 mill
limitation provided for in Title 29. Since no
additional property tax revenue is available, the
Borough operating budget must be reduced over 50% to
cover the additional educational funding.
[The foregoing analysis was set forth on a May 3, 1995,
fiscal note for SB 70 from the Dept. of Revenue.]
Discussion of the differential between mills applied to
bonded indebtedness and general operations followed.
Senator Taylor again questioned whether the North Slope was
utilizing a majority of its tax revenues to repay bonded
indebtedness. Co-chairman Halford stressed that the cap is
complicated, and there may be other considerations. He
suggested that the "cap may only be the cap in the
deductibility against the statewide ad valorem tax."
Senator Taylor remarked that if impact on the North Slope
would be as dramatic as indicated, perhaps phase-in
provisions would be necessary.
Additional discussion of tax applications within the North
Slope Borough followed.
A comparison of funding under current law versus the
proposed bill followed using Pelican as an example.
Senator Zharoff next inquired concerning changes in funding
for bilingual programs. Mr. Jeans said the department had
not yet had an opportunity to run numbers. He then
instructed members regarding how computations would be made.
Mr. Jeans noted that it appears rural districts would lose,
and urban districts would gain, under the proposed change.
He acknowledged that he would not be sure of that until
calculations are made. Senator Zharoff asked if the intent
was to "get away from bilingual as you get further up the
grades." Mr. Jeans voiced his understanding of intent to
not reward districts for classifying "children in a higher
weight category." A uniform funding level should be
provided for all bilingual students.
Co-chairman Halford again referenced the tax situation in
the North Slope Borough. He advised of a formula based on a
limitation on assessment. There is no limitation on tax as
it applies to debt service. The borough budget (including
debt service) for 9,000 to 12,000 people totals
approximately $225 million. Of that, $165.6 million is
slated for debt service.
Senator Zharoff asked how the proposed bill compares to
state board of education efforts to restructure the
foundation formula. JAMES ELLIOTT, Acting Director, School
Finance, Dept. of Education, noted that the board has
considered quotas on "some of the categorical weights" as
well as a "block plan." The proposed bill is radically
different.
Senator Zharoff asked if the area differential would remain
applicable under the proposed draft. Senator Taylor
responded that the bill does not deal with the differential.
It is a separate matter.
Co-chairman Frank asked if the bill solves the disparity
problem. Mr. Jeans remarked that the draft enhances
district ability to contribute local revenue by the increase
from 4 to 4.5. If districts now at cap continue to
increase, that may cause a problem is disparity. However,
the supplemental equalization provides additional revenue
outside the instructional units. That will increase the
unit value and may offset disparity.
Senator Rieger MOVED for deletion of Section 16 (the
transitional section involving the prior-year count) from
the draft. He referenced discussion indicating that the
section essentially provides a second hold harmless on top
of the 5 percent hold harmless within Section 6. Senator
Zharoff OBJECTED, advising that he was unsure what the
impact of removal might be. Co-chairman Halford called for a
show of hands. The MOTION CARRIED on a vote of 5 to 1, and
Section 16 was DELETED.
Senator Phillips MOVED that CSSB 70 (Fin) pass from
committee. Senator Zharoff OBJECTED. Senator Donley
advised that he wished to offer several amendments. He
explained that the first relates to pupil transportation
while the second relates to unhoused students. He then
formally MOVED for adoption of the AMENDMENT dealing with
transportation. Co-chairman Halford called for a show of
hands. The AMENDMENT was ADOPTED on a vote of 4 to 3. (Co-
chairman Frank and Senators Sharp and Zharoff were opposed.)
Senator Donley then MOVED for adoption of an AMENDMENT
relating to assessment of unhoused students in portable
units. The intent is that the department not count these
students as housed when it makes it assessment of where
construction needs to occur. Co-chairman Halford inquired
regarding floor discussion of the 10,000 limit. He voiced
need to count unhoused students in all locations, regardless
of the size of the district, and noted a preference for
removal of the 10,000 floor. Senator Phillips suggested
that "and the district has a population greater than 10,000"
be removed from the amendment. Co-chairman Halford raised
concern that the word "temporary" may become a major term
within regulatory definition and suggested that "temporary
relocatable facilities" might be more direct. Senator
Donley formally MOVED to insert "relocatable" and delete
language relating to district populations greater than
10,000 so that underlined language within the amendment
would read:
for purposes of this subparagraph, students are
considered unhoused if the students attend school in
temporary relocatable facilities;
Co-chairman Halford called for objections to the AMENDMENT
to the AMENDMENT. No objection having been raised, the
AMENDMENT to the AMENDMENT was ADOPTED. Co-chairman Halford
next called for a show of hands on adoption of the
AMENDMENT. The AMENDMENT was ADOPTED on a unanimous vote of
7 to 0.
Senator Randy Phillips renewed his MOTION for passage of
CSSB 70 (Fin). Senator Zharoff again raised OBJECTION. Co-
chairman Halford called for a show of hands, and CSSB 70
(FIN) was REPORTED OUT of committee with two fiscal notes
from the Dept. of Education (a $29,266.5 note for K-12
foundation and a $1,992.0 note for pupil transportation).
Co-chairman Halford and Senators Donley, Phillips, and Sharp
signed the committee report with a "do pass" recommendation.
Co-chairman Frank and Senator Rieger signed "no
recommendation." Senator Zharoff signed "do not pass."
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