Legislature(1995 - 1996)

02/28/1996 09:05 AM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
          SB 244 CALCULATION OF STATE AID TO EDUCATION                        
 CHAIRMAN GREEN introduced  SB 244  as the next order of business              
 before the committee.                                                         
 Number 197                                                                    
 SHIRLEY HOLLOWAY, Commissioner of the Department of Education,                
 thanked the committee for the opportunity to discuss SB 244 with              
 the committee.  SB 244 is before the committee because Governor               
 Knowles is committed to ensuring that the school funding formula is           
 fair, equitable, accountable, and protects the partnership between            
 state, federal, and local dollars.  Secondly, SB 244 is before the            
 committee because the Federal Impact Aid Law has lowered the                  
 allowable disparity standard to 20 percent.  Commissioner Holloway            
 explained that in order for Alaska to consider the impact aid when            
 calculating the State's portion of school funding, Alaska would               
 have to meet the 20 percent federal disparity test in fiscal year             
 1996.  To meet that 20 percent federal disparity test, the                    
 department requested $1.2 million in supplemental funding, $500 per           
 instructional unit, for REAAs who are at the bottom of the                    
 disparity table.  If the disparity test is not met, Alaska would              
 face a cost of $35 million per year.  Commissioner Holloway pointed           
 out that prorating the $35 million in FY 98 would result in a                 
 deduction of $2,850 per instructional unit, otherwise the gap would           
 have to be filled with general funds.                                         
 Commissioner Holloway emphasized that the State Board of Education            
 is committed to revising the Alaska foundation program.  She noted            
 that some of the committee members had participated in a funding              
 task force which did not reach a consensus.  The task force did               
 recommend a minimalist approach to the State Board of Education and           
 encouraged the board to continue working on a more substantial                
 rewrite.  The board has a committee of the whole which is working             
 towards substantial changes to the foundation formula to be ready             
 for the next legislative session.                                             
 SB 244 is a short-term fix to the foundation formula.  SB 244                 
 addresses the disparity test by providing for the supplementary aid           
 to REAAs as well as offsetting the cost of the supplementary aid by           
 increasing the amount of impact aid deductible from REAAs from 90             
 to 95 percent.  Single site funding is also incorporated in the               
 formula under SB 244.                                                         
 Number 243                                                                    
 Commissioner Holloway pointed out that quality schools and quality            
 education is driven by the funding mechanism.  Therefore, a funding           
 strategy must be driven by a strong, well-articulated instructional           
 philosophy.  Commissioner Holloway emphasized that rewriting the              
 foundation formula is a complex task.  Commissioner Holloway said             
 that funding drives the standards approach.  She laid out the                 
 following points which create her "Four Legged Stool":                        
  * Efforts in the area of student standards and assessment of                 
    those standards should be continued and increased.                         
  * Family and parental involvement in schools should be                       
  * Standards which drive the preparation of the educators or                  
    professionals with regards to how they are licensed and                    
  * School based accreditation model is being reviewed under                   
        school standards.                                                      
 Commissioner Holloway emphasized that merely redistributing the               
 money does not address the issue of quality.  Tying quality to                
 money is important to consider.                                               
 Commissioner Holloway stated that the State Education Policy was              
 created in Alaska Statutes by the legislature.  The State Education           
 Policy says that the purpose of education is to ensure that all               
 students will succeed in their education and work, create                     
 worthwhile and satisfying lives for themselves, exemplify the best            
 values of society, and be effective in improving the character and            
 quality of the world around them.  In order for this policy to                
 become a reality, funding should be viewed in the quality                     
 framework.  In conclusion, Commissioner Holloway noted that many              
 staff members were present for other technical questions.                     
 Number 289                                                                    
 AL WEINBERG, Chair of the Single Site School District Consortium,             
 supported SB 244 for the reasons stated by Commissioner Holloway.             
 Mr. Weinberg emphasized support of the inclusion of the                       
 supplementary formula within the foundation formula which addresses           
 the adverse effects of the current formula on single site school              
 districts.  This would eliminate the need for small single site               
 schools to lobby for individual supplemental grants every year                
 which has been the practice since 1987.  The supplement accounts              
 for approximately 6-12 percent of the state aid for a single site             
 school.  Mr. Weinberg pointed out that without that supplemental              
 funding, the single site schools would face reductions in what                
 programs could be offered.                                                    
 CARL ROSE, Executive Director of the Association of Alaska School             
 Boards, supported SB 244.  He mentioned that early on the                     
 association had concerns that many were forming principle-based               
 opinions without realizing the impact of not meeting the disparity            
 standard.  Mr. Rose stated that the future of public education                
 requires a long-term approach, but in the short-term SB 244 is                
 essential.  Qualifying for impact aid in FY 98 is critical.  Mr.              
 Rose said that the association supported the bill, especially the             
 single site portion.  Many of the small school districts depend               
 upon the single site and the supplemental appropriations it                   
 Number 334                                                                    
 SENATOR SALO asked Mr. Rose what he felt was the main problem with            
 the current funding formula.                                                  
 CARL ROSE said that the formula was inadequate.  The way education            
 is delivered in Alaska is dollar driven.  Most school boards view             
 funding in terms of increments, $55,000 to $60,000 which is the               
 cost of a teacher with benefits.  Education means teachers; there             
 is a tremendous need for more teachers.  Mr. Rose pointed out that            
 many of the unfunded mandates drain off the money received to                 
 provide education which is obtained through regular instructional             
 dollars generated through K-12.  Regular instructional dollars are            
 spent on transportation, augment special education, etc.                      
 Practically every mandate without a fiscal note from the department           
 has a fiscal note at the local level.  Increased demands regarding            
 responsibility and accountability at the local level increases the            
 cost of local school districts which is not identified by the                 
 department.  Funding at the local level is inadequate in order to             
 maintain a quality education.  Many of the school districts have              
 reduced to bare minimums which is effecting the quality of                    
 education at the local level.                                                 
 SENATOR SALO asked if Mr. Rose was referring to the $61,000 unit as           
 being inadequate.  CARL ROSE replied yes.                                     
 Number 365                                                                    
 WILLIE ANDERSON, NEA-Alaska, supported SB 244.  Sections 1-3 are              
 short-term solutions.  The long-term solution is to rewrite the               
 instructional unit value in order to deal with the current                    
 disparity in Alaska.  Section 4, the single site provision, deals             
 with the long-term solution.  He urged the passage of SB 244 to the           
 Senate Finance committee.  Mr. Anderson reiterated that without               
 passing this supplemental funding, Alaska would face costs in                 
 excess of $35 million.  SB 244 addresses a necessity which is                 
 SENATOR SALO asked Mr. Anderson what he felt was the main problem             
 with the existing foundation formula.  WILLIE ANDERSON explained              
 that when the formula was passed in 1986, the $60,000 per                     
 instructional unit was adequate at that time.  Since FY 87,                   
 inflation has eroded the dollar value of that instructional unit.             
 The legislature has not set an appropriate pace to increase the               
 instructional unit in order to accommodate those increased                    
 inflationary costs.  Mr. Anderson pointed out that school districts           
 have had to supplement that with local funding and cutting                    
 programs.  In short, the instructional unit is too low to meet the            
 current needs in Alaska.                                                      
 Number 412                                                                    
 EDDY JEANS, Division of School Finance for DOE, began his review of           
 the sectional analysis.  Section 1 of SB 244 would increase the               
 deductible impact aid for REAA school districts from 90 to 95                 
 CHAIRMAN GREEN requested that Mr. Jeans review what that impact               
 EDDY JEANS explained that the state's share of the foundation                 
 program would be reduced by approximately $1,018,348.  Section 2 of           
 SB 244 would allocate $500 per instructional unit to all REAAs                
 which would return funds to the REAAs without instructional units             
 attached to those funds.  Therefore, the value of the instructional           
 unit for REAAs would be increased.                                            
 CHAIRMAN GREEN asked if per adjusted unit referred to per                     
 instructional unit.  EDDY JEANS clarified that per adjusted unit              
 referred to all the instructional units (K-12 instructional units,            
 special education, bilingual vocational education) adjusted by                
 their area cost differentials.                                                
 CHAIRMAN GREEN asked if there was information illustrating the net            
 difference.  EDDY JEANS directed Chairman Green to the sheet                  
 attached to the fiscal note which specifies the effects of Section            
 1 and Section 2.  The general fund cost is projected to increase              
 about $223,827.                                                               
 Number 435                                                                    
 EDDY JEANS continued with the sectional analysis.  Section 3 of               
 SB 244 is a technical amendment to reference the instructional unit           
 tables for elementary and secondary students.  CHAIRMAN GREEN asked           
 why that would be necessary.  EDDY JEANS explained that Section 3             
 would amend the current reference which breaks out the allocation             
 of instructional units for K-12.  Currently, the foundation formula           
 has two sections under AS 14.17.041.  One of those sections is the            
 combined table for K-12 and the second section splits elementary              
 and secondary tables for instructional units.  This merely combines           
 those into a single reference under AS 14.17.041.  In response to             
 Chairman Green, Mr. Jeans stated that this change has no financial            
 Mr. Jeans pointed out that Section 4 of SB 244 places the single              
 site table into the foundation formula as a permanent solution.               
 The department felt that now is the time to move single sites into            
 the table as a permanent solution.                                            
 CHAIRMAN GREEN asked why that was not done previously.  JIM ELLIOT            
 stated that Dr. Nat Cole, an architect of the current program, had            
 said that the costs of the program had been underestimated.                   
 Number 467                                                                    
 SENATOR SALO believed that SB 244 is necessary and is a good                  
 temporary solution.  In order to adequately address the needs of              
 education in Alaska, more money placed on the unit value is                   
 necessary.  If $1,000 per unit was added for all schools in Alaska,           
 what would that cost Alaska?  EDDY JEANS said that it would cost              
 approximately $13 million.                                                    
 SENATOR SALO commented that in her time in the Legislature, she had           
 seen $13 million spent in areas far less important than education.            
 More could be done for education with a $1,000 increase on the unit           
 value.  She asked if disparity would be skewed if in addition to              
 this, an equal $1,000 was placed on the unit value.  EDDY JEANS               
 said that increasing the unit value would not adversely effect                
 disparity, but this fix is necessary in order to raise the lower              
 end of the school districts in the disparity computation.                     
 SENATOR SALO agreed that this was needed in order to temporarily              
 solve the problem.  She favored increasing the instructional unit             
 by $1,000.                                                                    
 Number 493                                                                    
 SENATOR LEMAN said that he heard Mr. Jeans refer to 12,700                    
 statewide total units on the chart, but the chart says 12,309; is             
 there an adjustment somewhere?  EDDY JEANS said that he was                   
 referring to                                                                  
 FY 97.  He believed that the committee may not have that                      
 information and he offered to provide that information.                       
 EDDY JEANS began a review of the briefing paper.  He informed the             
 committee that Alaska receives approximately $70 million in impact            
 aid funds of which $30 to $35 million is recognized in the                    
 foundation formula annually.  In FY 96, $35 million will be                   
 recognized and FY 97 is projected to recognize $30 million.  Mr.              
 Jeans explained that the Impact Aid Law was reauthorized in 1994              
 which lowered the disparity standard from 25 to 20 percent.  The              
 reauthorization also changed the year in which the disparity                  
 standard was measured to two years prior.  Before the                         
 reauthorization, disparity was measured at the end of the year.               
 Now the disparity must be measured for consideration in two years.            
 Therefore, in order for the department to continue to deduct impact           
 aid for FY 98 the 20 percent disparity must be met in FY 96.  Mr.             
 Jeans noted that the department has forwarded a supplemental                  
 request of $1.2 million, $500 per instructional unit to REAAs, in             
 order to meet the disparity for FY 96.  SB 244 would place that               
 allocation in law which would buy time while the foundation formula           
 is being rewritten.  SB 244 would take effect in FY 97 and would              
 have the same basic allocation.  Mr. Jeans projected that the 20              
 percent disparity would be met in FY 97 and Alaska would be                   
 eligible for impact aid in FY 99.                                             
 Number 526                                                                    
 CHAIRMAN GREEN asked if enough time had passed, since the                     
 reauthorization in 1994, in order to find anyone to be                        
 noncompliant.  EDDY JEANS said that reauthorization set the                   
 disparity standard at 25 percent which has always been met.  In               
 FY 98, the standard decreases to 20 percent.                                  
 CHAIRMAN GREEN asked if use of the disparity standard was                     
 widespread when the standard was 25 percent; were people found to             
 be noncompliant and removed from receiving impact aid?  EDDY JEANS            
 informed Chairman Green that only three states consider impact aid            
 in their foundation formula.  Mr. Jeans explained that states apply           
 to consider impact aid in their formulas and fall in and out of               
 CHAIRMAN GREEN asked if there was a penalty for noncompliance.                
 EDDY JEANS stated that the penalty would be that the impact aid               
 could not be considered in the foundation formula which would                 
 create a $30 to $35 million gap.  That gap would require proration            
 of the instructional unit value or a supplemental legislative                 
 appropriation.  CHAIRMAN GREEN asked if the money still comes.                
 Where does the money go?  EDDY JEANS replied yes.  Mr. Jeans                  
 explained that the school districts apply for the impact aid and              
 receive it directly.  All but two school districts in Alaska,                 
 Skagway and Pelican, receive impact aid funds.                                
 Number 549                                                                    
 SENATOR SALO indicated that the benefit would be uneven.  EDDY                
 JEANS agreed.  The school districts receiving a lot of impact aid             
 funds would tend to receive a windfall if the unit value were                 
 prorated.  The larger municipalities, who contain the majority of             
 the instructional units, would be penalized the most by the                   
 proration of the unit value.  Mr. Jeans specified that he was                 
 speaking in general terms.                                                    
 SENATOR MILLER surmised that those districts receiving the most if            
 nothing changed would be the rural areas.  The rural areas would              
 receive the bulk of the money because of the nontaxable lands.                
 EDDY JEANS agreed that would be correct for the districts receiving           
 the bulk of the impact aid funds.                                             
 SENATOR SALO asked if Mr. Jeans was assuming that if the formula              
 was not fixed and Alaska lost the ability to deduct the impact aid,           
 Alaska would prorate the unit rather than the state providing the             
 $35 million.  EDDY JEANS said that he was not assuming either,                
 these are the options if the department is not allowed to consider            
 the impact aid.                                                               
 Number 570                                                                    
 SENATOR MILLER asked what the overall effect on the disparity test            
 would be if this portion did not pass and the money was redirected.           
 EDDY JEANS pointed out that the driving force here is the                     
 consideration of the impact aid funds.  If impact aid funds are               
 eliminated from the current formula, the federal disparity test               
 does not have to be met; however, one could assume that Alaska                
 would be in court over equity in funding due to the wide variances.           
 CHAIRMAN GREEN directed Mr. Jeans to page 3 of 3 in the "Disparity            
 TAPE 96-14, SIDE B                                                            
 CHAIRMAN GREEN asked Mr. Jeans to explain why there are several               
 districts that are above the top end.  EDDY JEANS explained that              
 the impact disparity standard allows the exclusion of the top five            
 richest districts, the top five percent, as well the bottom five              
 percent.  That is based on the method of allocating funds which is            
 the instructional unit method in Alaska.  Therefore, the top five             
 percent of instructional units is excluded.  Mr. Jeans informed the           
 committee that the foundation program has a provision for those               
 districts with extremely high property wells:  North Slope, Valdez,           
 and Unalaska.  Such districts are allowed to go beyond the 23                 
 percent limitation of basic need.                                             
 Number 578                                                                    
 SENATOR SALO asked if those districts would be limited to the four            
 mill.  EDDY JEANS stated that those three districts' required local           
 effort is 35 percent of the basic need from the prior fiscal year.            
 Additionally, those districts are allowed to contribute the                   
 equivalent of a 2 mill tax levy.  There is a limitation on their              
 local contribution.                                                           
 Mr. Jeans pointed out that the other districts at the top of the              
 chart, on page 2 of 2, are single site school districts that have             
 been receiving supplemental appropriations outside of the                     
 foundation formula as well as contributing at or very near their              
 local cap.  Those districts are Hoonah, Hydaburg, Wrangell,                   
 Skagway, Unalaska, and Kake.  Mr. Jeans specified that there are no           
 instructional units attached to the supplemental appropriations               
 which increases the unit value and therefore, those districts are             
 at the high end.  Assuming SB 244 passes and the single site table            
 is moved into the foundation formula, some of these single site               
 districts will fall below the high indicator because instructional            
 units would then be attached to the funds being allocated.                    
 In response to Senator Salo, Mr. Jeans named Kake and Skagway as              
 districts that would fall in the middle section once their dollars            
 are attached to the foundation formula.  Once the instructional               
 units are added to those districts, the value of their                        
 instructional unit would be less than Juneau.  The disparity would            
 probably not be changed, but more districts would be within the               
 Number 541                                                                    
 CHAIRMAN GREEN asked if a single site district could receive                  
 funding from one of the other 64 categories and continue to qualify           
 for single site funding.  EDDY JEANS clarified that the disparity             
 test is run on all revenues received by school districts in the               
 school operating fund.  Therefore, the disparity test would include           
 all revenues reported by the school districts in their operating              
 fund which would include single sites.                                        
 SENATOR SALO said that Unalaska looks to be a district that is not            
 suffering.  Why is Unalaska on the single site list?  EDDY JEANS              
 noted that when providing supplemental aid to a group of districts            
 requiring additional aid, sometimes districts that do not need                
 additional funds are included.  Those districts are included                  
 because they meet the criteria set for single sites which seems to            
 be the case with Unalaska.  Mr. Jeans informed the committee that             
 the single site school districts have an ADM range of 1-900.  The             
 Unalaska school district has about 360 ADM.                                   
 CHAIRMAN GREEN inquired as to how the disparity test would be                 
 impacted by increasing the required local match to 5 mill.  EDDY              
 JEANS referred her to the "Disparity Computations."  Mr. Jeans                
 explained that the 4 mill requirement is contained within the                 
 $61,000 unit value; it is basically an allocation of revenue                  
 sources.  The unit value of the $61,000 determines basic need, the            
 total money that a district should receive.  The required local               
 effort is subtracted and 90 percent of the eligible impact aid is             
 deducted in order to determine the state allocation.  Simply, this            
 is an allocation of revenues, of resources.                                   
 CHAIRMAN GREEN asked if the required local contribution is                    
 increased and the excess local is decreased, could it be calculated           
 so that Alaska does not fall out of disparity as rapidly.  EDDY               
 JEANS said that the cap could be lowered and stay within disparity.           
 The department has the authority to reduce that cap through                   
 regulations.  Many districts did not like this option.  Mr. Jeans             
 explained that this would basically reduce the local contributions            
 in some districts which would lower their cap and the amount                  
 budgeted over that local cap would be returned to the municipality.           
 Number 486                                                                    
 SENATOR SALO thought that Chairman Green was referring to                     
 increasing the local cap which would place Alaska out of disparity.           
 EDDY JEANS clarified that increasing the local cap would increase             
 disparity.  The excess local cap causes disparity.  Page 3 of 3               
 illustrates that allowing the excess local contribution of 23                 
 percent creates disparity.                                                    
 CHAIRMAN GREEN acknowledged that Mr. Jeans had utilized all the               
 possible scenarios; there is nothing else that could be utilized?             
 EDDY JEANS was unaware of any other possibilities under the current           
 CHAIRMAN GREEN requested that Mr. Jeans explain why those districts           
 receiving additional funding for special education and Indian lands           
 do not count that income when determining disparity.  EDDY JEANS              
 informed the committee that through the Impact Aid Law, school                
 districts are awarded an additional 25 percent for students                   
 residing on Indian lands and an additional 50 percent for special             
 education students.  Those additional monies are added to the base.           
 The federal law and regulations of the Impact Aid Program excludes            
 those funds from being considered.  Mr. Jeans explained that the              
 deductible amount of impact aid must be measured in the formula as            
 part of the disparity standard, not the full amount.                          
 CHAIRMAN GREEN referred to the Budgeted Earnings Investments column           
 of the preliminary disparity test.  Those districts with zeros in             
 that column, does that mean there are no funds that receive                   
 interest?  EDDY JEANS said that those districts do receive earnings           
 on investments and other local revenues which are reflected in                
 column M on page 2.  Those monies are included in the disparity               
 computation.  Mr. Jeans pointed out that when the total revenues in           
 column R is divided by the instructional unit in column S, column             
 T illustrates that the REAAs have revenues in excess of $61,000.              
 That is why the disparity problem can be corrected with the $500              
 per instructional unit allocation to the REAAs.                               
 Number 433                                                                    
 CHAIRMAN GREEN noted that some districts still show nothing in                
 column M and H.  If that were required to be calculated, would it             
 make disparity less of a problem?  EDDY JEANS reiterated that those           
 revenues are included in the disparity test.  For that reason, the            
 disparity standard of 20 percent can be met with the $500 per                 
 instructional unit.                                                           
 SENATOR SALO noticed that some districts do not have the                      
 investments that a borough would.  EDDY JEANS agreed.  Those would            
 be central treasuries.                                                        
 CHAIRMAN GREEN asked if there is a process which would illustrate             
 that the department is working toward correcting the formula, if              
 SB 244 or anything similar did not pass.  Would Alaska then be                
 exempt from this?  EDDY JEANS believed that the Impact Aid Law                
 required a substantial rewrite of the foundation formula submitted            
 to the U.S. Department of Education for their review and approval             
 before current year data could be used to compute the disparity               
 test.  The State of Alaska would also have to ensure the U.S.                 
 Secretary of Education that the monies withheld would be refunded,            
 if Alaska failed the disparity test.                                          
 SENATOR SALO believed that Alaskan schools were placed in jeopardy            
 because the instructional unit had not been increased over time to            
 account for inflation.  If SB 244 is not passed, a big mess would             
 result.  Senator Salo felt it essential to at least deal with the             
 issues in SB 244.  She indicated that Senate Finance would be the             
 appropriate place to struggle further with this bill.                         
 CHAIRMAN GREEN said that she wanted to hold SB 244 for another                
 SENATOR LEMAN indicated that he had some ideas that could be                  
 reviewed and would contact Mr. Jeans later.                                   

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