Legislature(1997 - 1998)
05/07/1997 09:09 AM Senate HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 142 REGIONAL EDUCATIONAL ATTENDANCE AREAS
Number 528
CHAIRMAN WILKEN announced that SB 142 was the next order of
business before the committee.
SENATOR TORGERSON , Prime Sponsor, read the following Sponsor
Statement into the record:
This legislation will (1) reduce school administration expenses by
consolidation and (2) provide equity in local funding for Alaska's
schools.
Consolidation: There are three types of school districts in
Alaska: 19 Regional Education Attendance Areas (REAAs) which serve
the unorganized borough, 18 first class city districts which are
located in the unorganized borough, and 15 borough and home rule
municipality districts. This bill would consolidate the 18 REAAs
into 16 REAAs. This bill does not affect the city districts or the
borough districts.
The estimated savings through consolidation are shown on the
attached spread sheet, entitled REAA Consolidation Savings, and
total some $1.6 million. The consolidation will conform to the
Model Borough Boundaries, as established by the Model Borough
Boundary Report(MBBR).
The Division of Legislative Audit issued a report May 11, 1992,
titled Potential for Administrative Savings from School District
Consolidation. The letter of transmittal from that report, dated
June 3, 1992, sets out one of the reasons for this bill.
"We conservatively estimate that consolidation could reduce
school administrative costs by $5.3 million. Our estimates
represent potential savings that may be generated from
economies of scale realized from the consolidation of 39
school districts and Rural Education Attendance Areas that
currently operate in the State's unorganized borough."
While this bill does not completely consolidate the districts (it
does not affect the City Districts), there are still savings to be
realized through the concept of consolidation of the REAAs.
The concept of utilizing the MBBR for these boundaries is a
familiar one, and was used by the previously mentioned Legislative
Audit Report, where they noted that REAAs were established in
response to the Alaska Supreme Court Molly Hootch decision in 1975
and stated in a foot note that "It should be noted that the factors
specified in the formation of the REAAs (transportation,
communications, language, culture, and socio-economic factors) are
similar to the factors identified in the constitution as serving a
basis for boroughs: population, geography, economy, transportation
and other factors."
The report also noted that REAAs were intended to be a transitional
form of government necessary to deliver education to the children
in the unorganized areas. As a validation of the report's use of
the MBBR for the consolidation, the report stated that:
"Since the transition of REAAs to boroughs is the next most
logical phase in Alaska's regional local government structure,
we have based our school consolidation analysis on these
projected boroughs."
Equity: Residents living in incorporated areas (borough and city
districts) are currently required to contribute for education, but
residents in the unincorporated areas (REAAs) are not.
* 92% of Alaska's population live in boroughs and are required to
pay a local contribution--they receive 79% of State foundation
formula;
* 8% of the population pay no taxes and receive 21% of the state's
foundation formula.
The Borough and City school districts are required to provide local
contributions for the operation of the schools and so have taxing
authority. The REAAs do not provide local contributions nor do
they have taxing authority. This bill will remedy that inequity,
by requiring a local contribution from the REAAs, through the
authority of the Legislature via this bill. The estimated local
contribution is shown on the attached spread sheets REAA Local
Contribution.
As required by the bill, the state assessor performs the functions
necessary to collect the taxes levied under this bill. The
Department of Community and Regional Affairs shall then develop a
proposed method of levying and collecting the taxes, and prepare
draft legislation for submittal to the Legislature by January 1,
2000.
Number 570
Senator Torgerson noted the following technical changes. He
directed the committee to page 2, line 4 where "January 1, 1999"
should read "January 1, 2000" and on line 19 "January 1, 2000"
should read "January 1, 1999". Senator Torgerson said that the
approximate value in the REAAs has already been determined by the
state assessor who has a fiscal note for about $300,000. That
$300,000 would allow the state assessor to do a more defendable
appraisal using each area as a block. Then the Department of
Community & Regional Affairs would hold meetings to determine which
taxing method would be appropriate. Senator Torgerson emphasized
that the same taxing methods, laws, and regulations available to
the organized boroughs and cities would also be available to the
current REAAs. Therefore, it would not necessarily be a property
tax. There are four boroughs that do not have a property tax.
With regard to the comments that REAAs are poor and that Indian
country or Native allotments that are not taxable, Senator
Torgerson said that he had some of those type areas in his
district.
TAPE 97-48, SIDE B
If it is not taxable in one entity then it is not in rural Alaska.
Senator Torgerson reiterated the estimated $3.1 billion in
untaxable entities, a large portion of which is oil and gas
property.
SENATOR WARD moved to adopt Senator Torgerson's suggested technical
amendments.
Page 2, line 4:
Delete "January 1, 1999"
Insert "January 1, 2000"
Page 2, line 19
Delete "January 1, 2000"
Insert "January 1, 1999"
Hearing no objection, the amendment was adopted.
SENATOR LEMAN asked if there was a map of the current REAAs and the
new REAAs as suggested. SENATOR TORGERSON said that he had a map
in his office. The Model Borough Boundary suggested that some
areas be annexed into existing areas which the Local Boundary
Commission will have to revisit.
CHAIRMAN WILKEN asked if the intent is to provide a sort of menu
from which the unorganized areas can choose how the area would
contribute to the education needs. SENATOR TORGERSON noted that he
has a list from the state assessor which lists the taxing
structures that are available. SB 142 says that the provisions of
29.45.0101 through 29.45.500 apply to the regional areas as well as
to the organized areas. Senator Torgerson said that he could
provide the committee with a list of those items that can be taxed.
Number 560
PAT POLAND , Director of the Municipal & Regional Assistance
Division, gathered from Senator Torgerson's comments that he
intends property taxation to be one of the options. Mr. Poland
stressed that a property tax in an unorganized borough is not
administratively feasible. The problems with administration would
cost more than the revenue generated from the property tax. With
regard to the Model Borough Boundaries adopted in 1995, some
circumstances have changed and it may be appropriate for SB 142 to
allow the Local Boundary Commission to revisit those boundaries.
Mr. Poland pointed out the following possible areas to be
revisited: Adak, Petersburg, and Wrangell.
GLEN MARUNDE , 35 year resident of Tok, pointed out that as stated
by Senator Torgerson the main purpose of SB 142 is to consolidate
school districts which is not mentioned in the title of the bill.
Mr. Marunde referred to Article X of the Alaska Constitution calls
for maximum local self government. In the unorganized borough,
local self government is doing quite well. Mr. Marunde discussed
the Legislature's attempts to tax the unorganized borough and end
its free ride. Whether an unorganized borough is receiving a free
ride is of considerable debate. Mr. Marunde informed the committee
that as of today, there are seven home rule cities, eight first
class cities, and 34 second class cities in the organized borough
of Alaska. Mr. Marunde said that there are many more cities in the
unorganized borough. In the unorganized borough, there are five
home rule cities, 13 first class cities, and 77 second class
cities. By far, cities in the unorganized borough out number those
in the organized borough.
Mr. Marunde stated that there are a number of flaws in SB 142. The
most serious flaw is located on page 2, lines 9-11 which says "The
state assessor shall assess the property, collect the taxes levied
under this section and deposit them in the general fund, and
perform the mandatory duties of a municipality, a board of
equalization, or a municipal official". Mr. Marunde inquired as to
the mayors and other municipal officials of the 77 second class
cities and the 13 first class cities in the unorganized borough who
also have property taxing authority as well. With the vote of the
people, second class cities can levy a five mill property tax. How
will the state assessor do his duty? SB 142 fails to deal with or
recognize the existing local governments with the taxing authority
in the unorganized borough. Mr. Marunde requested that the
committee withdraw SB 142. Mr. Marunde asked Mr. Van Sant if he
agreed with his assessment of SB 142. Mr. Marunde seemed to
believe that the amount of money to set up the tax structure seemed
low. How many people would be added to the assessor's office in
order to do the proper research and such?
Number 478
JERRY JERNIGAN , Tok resident, informed the committee that he had a
sincere interest in the welfare of Tok as well as Alaska. Mr.
Jernigan asked if it was a sound policy to remove money from
circulation in the local communities to place the money in the
general fund, thus removing the control of those funds from that
community? Local taxes should stay under the control of the
community and the local improvement projects. Mr. Jernigan
questioned the cost effectiveness of such a tax program. Mr.
Jernigan suggested that the constitution be followed; the state
shall fund education. One alternative is the Educational Endowment
Program. Mr. Jernigan said that Tok has a population that is not
large enough to support many activities such as those found in the
larger cities of Fairbanks and Anchorage. Due to the large cost of
construction and operation of the businesses in Tok, the businesses
would receive the brunt of the tax program and in many cases from
the gross profit. Mr. Jernigan pointed out that the tax would not
be passed on to the customers because those folks shop in Fairbanks
and Anchorage also. The businesses in the area would be severely
handicapped by such a tax.
CHAIRMAN WILKEN inquired as to the taxes that are paid in Tok.
JERRY JERNIGAN said that there are no taxes in Tok. The residents
of Tok do a lot of shopping in other communities which supports
those other communities.
CHAIRMAN WILKEN asked Mr. Jernigan if he believed that the people
of Tok should participate in the education of their children
financially. JERRY JERNIGAN believed that there is a reason for
the Alaska Constitution saying that Alaska should finance that
education. Mr. Jernigan reiterated the need to review other
alternatives such as the Education Endowment Fund.
CHAIRMAN WILKEN asked how Mr. Jernigan believed the residents of
Tok should participate in the education of their children. JERRY
JERNIGAN did not have an answer at the time.
Number 437
PAUL SMITH , Tok resident, informed the committee that he owns his
own business in Tok. With regard to the notion that communities
such as Tok have a free ride, Mr. Smith said that he created jobs
in Tok, and throughout the state. Mr. Smith noted that he has
developed two motels and the lumber for those came from Anchorage
and Fairbanks. If the idea is to tax, Mr. Smith suggested that a
statewide sales tax be imposed or perhaps an Education Endowment.
CHAIRMAN WILKEN informed Mr. Smith that he owned a business in
Fairbanks on which he paid over $10,000 per year on his property to
support education. Chairman Wilken asked Mr. Smith how that
compared with what he paid. PAUL SMITH said that as Chairman
Wilken knew, no taxes are paid in Tok. CHAIRMAN WILKEN recognized
that everyone pays business taxes.
PATRICIA HUTCHINSON , Tok resident, informed the committee that she
was an active volunteer of the Tok community. Ms. Hutchinson
opposed SB 142 and echoed previous comments regarding how well the
REAA is already working. If a tax is necessary to pay for schools
it should be levied, but it should be a just tax. SB 142 only
addresses taking money out of an already depressed area. Ms.
Hutchinson wondered if the committee knew what it is like to live
in the Bush. Ms. Hutchinson restated the previous comments
relating that Bush residents help support the economy of the larger
cities. Ms. Hutchinson asked the committee to vote against SB 142
which will be a hardship on the school system in Tok and will not
bring in funding to the schools. SB 142 will hurt a lot of poor
people, including senior citizens.
SENATOR TORGERSON clarified that senior citizens are exempt from
taxation up to $150,000 on the senior citizen's property. This is
a statewide exemption.
CHAIRMAN WILKEN asked Ms. Hutchinson if she owned a home in Tok.
Chairman Wilken informed everyone that he pays almost $2,000 in
taxes on his home in Fairbanks. PATRICIA HUTCHINSON said that she
had a log house and she does not pay taxes on it. Ms. Hutchinson
stated that she would be willing to pay taxes on her house, however
there are many in Tok who are not able to pay taxes. CHAIRMAN
WILKEN asked if Ms. Hutchinson would accept a tax other than a
property tax. PATRICIA HUTCHINSON said that a property tax is not
really being described either.
Number 339
ROGER JACOBSON , Tok resident, understood the need to pay for
education, but Mr. Jacobson opposed property taxes. Mr. Jacobson
suggested that the financing of education should be done through a
statewide sales tax which could apply to the sale of real estate as
well as portable items. The statewide sales tax could result in a
lower property tax for those currently paying a property tax. Mr.
Jacobson stated that those in the Bush have true ownership of the
land. What kind of county is it when a person's home can be
foreclosed upon through no fault of his/her own? Mr. Jacobson did
not believe that Alaska had to follow the course of the Lower 48
with regard to property taxes. Mr. Jacobson wanted all Alaskans to
experience true home ownership and if hard times come, the person's
home should not be taken by the city, the borough, the state or the
federal government for unpaid taxes. This is in contrast to the
home owners choice to place a lien on his or her home and the bank
can foreclose. The unorganized borough is one of the last places
where people truly own their homes. Will the Last Frontier be
destroyed?
CHAIRMAN WILKEN announced that time was running short and two bills
remained on the committee agenda. Chairman Wilken announced that
the committee would not get to SB 182.
SENATOR WARD interjected that SB 182 would be heard and moved out
today.
CHAIRMAN WILKEN restated that SB 182 would not be heard today, but
that he intended to meet tomorrow or Friday.
SENATOR WARD interjected that SB 182 would be reported out of
committee today.
CHAIRMAN WILKEN announced that the testimony on SB 142 would
continue.
CARL ROSE , Executive Director of the Alaska Association of School
Boards, opposed SB 142. Mr. Rose disagreed with some of the cost
savings projected by the 1992 study. With the issue of taxation,
there has been no mention of PL874 money and how that is
redistributed through the foundation to provide statewide
equalization. For quite some time that impact aid was viewed "in
lieu of local taxation." Mr. Rose was concerned with the notion
that the issue of taxation is not as of much concern as the
consolidation of local autonomy. Mr. Rose directed the committee
to Section 2, line 4 of SB 142 which is of concern. The
identification of the property, the survey and title, the
assessment and value, and the collection of the tax are of concern.
That is an expensive endeavor. Mr. Rose posed the following
option. The state assessor could review the schedules that involve
averaging. The assessor can take the communities that have tax
value and assess that tax value which is then divided by the
population which results in an average of per capita wealth. Mr.
Rose said that he would like to work on the issue of taxation, but
Mr. Rose believed that he was always reacting to a proposal.
With regard to the issue of the model boundaries and the first
class cities, Mr. Rose informed the committee that the City of
Skagway contributes about 52 percent to the local contribution for
schools. What happens to that first class municipality under the
new borough? Many other areas experience the same. Mr. Rose said
that he was not opposed to paying his fair share, but how will the
first and second class municipalities be addressed. If there is an
equitable way to extract taxes for the purpose of paying for
education, that should be reviewed. One option is the Educational
Endowment.
Mr. Rose was concerned with the purpose of consolidation. Mr. Rose
did not see the reformation of the REAAs saving the cost as
projected. The issue is of consolidation and local autonomy
collapsing. Mr. Rose stated that in most of the school districts
with local control, the school board is the locally elected
officials who represent the community. To consolidate will take
the decision-making elsewhere; the local schools will face
government off-site. In closing, Mr. Rose requested that the
association be allowed to work on this bill because not much
progress has been made due to the lack of opportunity.
Number 192
SENATOR TORGERSON appreciated Mr. Rose's comments. With regard to
the lack of opportunity to work on SB 142, Senator Torgerson noted
that he had similar legislation last year when the comments about
the lack of opportunity of involvement was mentioned as well. The
Association of Alaska School Boards has had ample time to work on
this issue and this is merely an excuse. Similar legislation was
introduced as a mandatory borough bill before Senator Torgerson was
a member of the Legislature and the same excuse was used then.
With regard to the PL874 money, that money was considered to be
local contribution; however the decrease of about $10 million in
PL874 has not been discussed. Senator Torgerson pointed out that
his district does not even receive PL874 funds any longer.
Senator Torgerson said that he had a problem with the 1992 study as
well. The study projected $5.2 million in savings while Senator
Torgerson projects a savings of $17.1 million. Currently, four
boroughs use this method of taxation of assessing and averaging a
block and it has held up in court. The Northwest Arctic Borough,
Denali Borough and the Lake & Peninsula utilize this method; this
is not a new concept.
CARL ROSE pointed out that the boroughs Senator Torgerson mentioned
have some property or resource value. Many of the REAAs that are
to be consolidated do not have that luxury. Mr. Rose reiterated
that he would like to work on SB 142, but he always seems to be
reacting.
Number 150
AL WEINBERG , representing Kashunamiut School District and the
Single Site School District Consortium, expressed concern with the
elimination of a few of the school districts. SB 142 undermines
local control. With respect to the LB&A report, that report found
that consolidation does not necessarily produce administrative cost
savings. The report reviewed the only district that had recently
consolidated, the Aleutians East Borough. The borough found some
administrative cost savings in the first year which did not
continue in the following years. The administrative savings of
$5.2 million from a statewide consolidation was a much broader
consolidation plan than SB 142. Mr. Weinberg said that
intuitively, one believes that administrative costs are smaller as
a percentage in larger entities. Often that is not the case. Mr.
Weinberg informed the committee that in 1986, the State of
Washington LB&A did a study of school districts in that state in
order to determine the percentage of administrative costs as a
percentage of the district's budget. The study reviewed a group of
large, medium and small school districts. The State of Washington
LB&A found that the largest school district in the state had the
highest percentage of administrative costs and one of the smaller
districts had the lowest percentage of administrative costs.
Consolidation does not necessarily reduce administrative costs.
With regard to taxation, Mr. Weinberg believed that tax payer
equity is a notable goal which SB 142 does not necessarily achieve.
Furthermore, Mr. Weinberg did not believe that tax payer equity
existed now either. Mr. Weinberg recognized that four boroughs do
not levy property tax as such, but of the many first class city
school districts - all do not levy property tax either. One of the
options that both boroughs and first class cities have is to
provide in kind service to the school district in lieu of the local
contribution requirement. There is a governmental entity in all of
those cases that could provide those services. In REAAs, there is
no areawide governmental entity that could provide in kind services
in lieu of local contribution. Mr. Weinberg pointed out that the
current required local contribution for city and borough school
districts is equivalent to a 4 mill levy, while SB 142 provides for
a 4.5 mill levy.
Number 087
EDDY JEANS , School Finance Manager for DOE, informed the committee
that currently there are 19 REAAs. The department's analysis of
SB 142 has determined that at a minimum, three of the REAAs would
consolidate into the existing REAAs: Alaska Gateway would
consolidate into Delta/Greely, Yupit School District into the Lower
Kuskokwim, and Kashunamiut School District into Lower Yukon. The
fiscal note from the department deals strictly with the foundation
program. The foundation program does not have a component that
provides additional funding for administrative costs. Therefore,
any realized administrative cost savings as a result of SB 142
would be an administrative cost savings at the local level for the
school district.
CHAIRMAN WILKEN asked if there were any questions. Hearing none,
Chairman Wilken inquired of the wishes of the committee.
SENATOR WARD moved to report SB 142 out of committee with
individual recommendations and accompanying fiscal notes. Without
objection, it was so ordered.
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