Legislature(1999 - 2000)

04/26/2000 12:15 PM House BUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
         JOINT COMMITTEE ON LEGISLATIVE BUDGET AND AUDIT                                                                        
                         April 26, 2000                                                                                         
                           12:15 p.m.                                                                                           
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                                 
                                                                                                                                
Representative Gail Phillips, Chair                                                                                             
Representative Con Bunde                                                                                                        
Representative Eric Croft                                                                                                       
Representative Gary Davis                                                                                                       
                                                                                                                                
Senator Randy Phillips, Vice Chair                                                                                              
Senator Al Adams                                                                                                                
Senator Rick Halford                                                                                                            
Senator Gary Wilken                                                                                                             
                                                                                                                                
MEMBERS ABSENT                                                                                                                  
                                                                                                                                
Representative Gene Therriault                                                                                                  
Representative Eldon Mulder (Alternate)                                                                                         
                                                                                                                                
Senator Sean Parnell                                                                                                            
Senator Drue Pearce (Alternate)                                                                                                 
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
APPROVAL OF MINUTES                                                                                                             
MINIMUM EXPENDITURE FOR INSTRUCTION ANNUAL REPORT                                                                               
EXECUTIVE SESSION                                                                                                               
AUDIT REPORTS                                                                                                                   
OTHER COMMITTEE BUSINESS                                                                                                        
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
RICHARD CROSS, Commissioner                                                                                                     
Department of Education & Early Development                                                                                     
801 West Tenth Street, Suite 200                                                                                                
Juneau, Alaska  99801-1894                                                                                                      
POSITION STATEMENT:  Introduced and explained the Minimum                                                                       
Expenditure for Instruction Annual Report.                                                                                      
                                                                                                                                
EDDY JEANS, Manager                                                                                                             
School Finance and Facilities Section                                                                                           
Department of Education and Early Development                                                                                   
801 West Tenth Street, Suite 200                                                                                                
Juneau, Alaska  99801-1894                                                                                                      
POSITION   STATEMENT:     Answered   questions   on  the   Minimum                                                              
Expenditure for Instruction Annual Report.                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                                
                                                                                                                                
TAPE 00-5, SIDE A                                                                                                               
Number 0001                                                                                                                     
                                                                                                                                
CHAIR  GAIL PHILLIPS  called the  Joint  Committee on  Legislative                                                              
Budget and Audit  meeting to order at 12:15 p.m.   Members present                                                              
at the call  to order were Representatives Phillips,  Bunde, Croft                                                              
and Davis, and  Senators Phillips and Wilken.   Senators Adams and                                                              
Halford arrived as the meeting was in progress.                                                                                 
                                                                                                                                
APPROVAL OF MINUTES                                                                                                           
                                                                                                                                
CHAIR PHILLIPS indicated that the  first order of business was the                                                              
approval  of the  minutes from  the Legislative  Budget and  Audit                                                              
Committee meeting held on March 2, 2000.                                                                                        
                                                                                                                                
SENATOR PHILLIPS  made a  motion to approve  the minutes  from the                                                              
March 2, 2000, meeting.                                                                                                         
                                                                                                                                
CHAIR PHILLIPS  asked whether  there were  any objections.   There                                                              
being  none, the  minutes from  the  March 2,  2000, meeting  were                                                              
approved as read.                                                                                                               
                                                                                                                                
MINIMUM EXPENDITURE FOR INSTRUCTION ANNUAL REPORT                                                                             
                                                                                                                                
CHAIR PHILLIPS announced  that the next order of  business was the                                                              
Minimum  Expenditure For  Instruction Annual  Report presented  by                                                              
Commissioner Richard Cross, Karen  Rehfeld and Eddy Jeans from the                                                              
Department of Education & Early Development.                                                                                    
                                                                                                                                
RICHARD  CROSS,  Commissioner,  Department  of Education  &  Early                                                              
Development,  stated  that  they  appreciate  the  opportunity  to                                                              
discuss the  report, which  is required under  AS 14.17.520.   The                                                              
report comes  out of a requirement  of legislation to  ensure that                                                              
school   districts   are   committing  a   percentage   of   their                                                              
expenditures toward  instruction and not for other  purposes.  The                                                              
law  that was  passed had  an escalated  requirement:   the  first                                                              
year, it was 60  percent; the second year, it was  65 percent; and                                                              
in the future it will be 70 percent.                                                                                            
                                                                                                                                
COMMISSIONER CROSS  explained that the department has  been in the                                                              
process,   over  the   last  two   years,   of  implementing   the                                                              
requirement; they are strong advocates  of the requirement.  There                                                              
was a  good deal  of cynicism,  when the  legislation was  passed,                                                              
[because of  a perception]  that the  mechanism was overly  simple                                                              
and would  not work, but the  department did not share  that view.                                                              
The department  is in support of  any mechanism that  drives money                                                              
toward instruction and away from  other costs in the districts, to                                                              
seriously get  on with the task  of getting the  test implemented.                                                              
They used,  as a  basis for  getting started,  the McDowell  study                                                              
that was  used to  develop SB 36,  which is  now the current  law.                                                              
One of  the primary issues  in the McDowell  study was  that there                                                              
was an inconsistency in data reported  from one school district to                                                              
the next.   It was suggested  that the department submit  a report                                                              
to, among other things, improve the  quality [and] the consistency                                                              
of the data reported by districts.                                                                                              
                                                                                                                                
COMMISSIONER CROSS  noted that in  the McDowell study  the author,                                                              
David  Teal, coined  the phrase  "friendly  audit cop."   What  he                                                              
believes was  meant by that,  especially the "friendly"  part, was                                                              
that the McDowell group noticed a  wide inconsistency in data, had                                                              
a  broad   experience  in  working   with  data,  and   knew  that                                                              
cooperation was the best way to get  clean data.  For instance, in                                                              
an  aggressive audit  situation the  type of  resistance that  can                                                              
occur  could  make  it  take years  to  get  the  data  collected.                                                              
Although they  suggested that the  department have  auditors begin                                                              
aggressively looking  at and comparing  data between  districts in                                                              
cleaning  it up, they  also suggested  that it  would require  the                                                              
cooperation of districts to make that happen.                                                                                   
                                                                                                                                
COMMISSIONER CROSS reported that  the first order of business they                                                              
had  to   deal  with   was  what   expenditures  should   go  into                                                              
instruction.   They  worked  with  the bill  sponsor  to make  the                                                              
preliminary Board  of Education  regulation regarding  which parts                                                              
of the current chart of accounts  should be considered as parts of                                                              
the   instructional  component,   knowing  that   they  would   be                                                              
continuously  working to clean  up the  data and eventually  would                                                              
move to a new chart of accounts that  would require a higher level                                                              
of consistency between  districts.  The current  chart of accounts                                                              
was not put together  with these type of tests in  mind.  In other                                                              
words, it is a chart that allowed  broad latitude in districts and                                                              
allowed them to  make some broad decisions regarding  placement of                                                              
certain  expenditures,  which  is  one  of the  reasons  that  the                                                              
McDowell  group  had  so  much trouble  making  comparisons.    He                                                              
explained that they  need to move to a new chart  of accounts that                                                              
has the  philosophy of  consistency behind  it; they believe  they                                                              
will have that chart together by the 2002 review cycle.                                                                         
                                                                                                                                
COMMISSIONER CROSS noted that the  first year they implemented it,                                                              
the legislation  passed and was  effective June 30,  and districts                                                              
were  already  in the  process  of  submitting their  budgets  and                                                              
audits.  Therefore, the first year  they ran some broad tests that                                                              
primarily focused  on central  administrative expenditures.   This                                                              
year they made a  broader set of tests.  They  were concerned when                                                              
they  saw  that  there  had  been   some  significant  changes  in                                                              
reporting from the prior year; in  other words, with what they saw                                                              
as no apparent  change in the way  of doing business, there  was a                                                              
significant [change]  in the way that expenditures  were reported.                                                              
On  that basis,  they  rejected 35  school  district budgets  this                                                              
year.  They sent a letter asking  for further information in order                                                              
to make  a judgment  as to  why those  expenditures had  occurred.                                                              
Retrospectively,  they  admit  that  it was  a  pretty  aggressive                                                              
letter, and  it created quite a fir  storm.  He thinks  that their                                                              
intent was a correct one, but perhaps  their approach needed to be                                                              
softened; the final fallout has ended up being very positive.                                                                   
                                                                                                                                
COMMISSIONER  CROSS  further  explained  that two  audit  firms  -                                                              
Mikunda Cottrell &  Company and Altman Rogers &  Company - [audit]                                                              
most of the  school districts in  the state; they had  advised the                                                              
districts  to  be pretty  tough  in  terms  of responding  to  the                                                              
letter.  He said  that he met with the principal  partners of both                                                              
firms and explained  that the purpose  was to be able to  give the                                                              
legislature and the  people of Alaska a good way  of comparing how                                                              
one district  was spending relative  to the others.   Although the                                                              
approach was  a little aggressive -  and in the future  they would                                                              
do it differently  - their purpose  was serious, and they  do want                                                              
consistent data.   The firms agreed that it was  important to have                                                              
consistent  data, and  they agreed  that they  could help them  do                                                              
that.   In other words, the  approach recommended by  the McDowell                                                              
group, a cooperative  approach, would be the most  successful.  He                                                              
indicated that  they have met  with the school  business officials                                                              
since that meeting  and explained why they did what  they did, and                                                              
asked for  their help in the  future; the earnest response  was an                                                              
offer to help in the future.                                                                                                    
                                                                                                                                
COMMISSIONER  CROSS noted  that  the other  issue  is whether  the                                                              
principal of  a school should  be considered to  be a part  of the                                                              
instructional component.   He pointed  out that when the  bill and                                                              
the concept  were being considered,  nearly every district  in the                                                              
state  told  them  that  they should  be  testifying  against  the                                                              
concept.  He  noted that they refused  to testify against  it.  To                                                              
testify that they  are not in support of something  that is trying                                                              
to drive dollars into instruction  is not something they could, in                                                              
good faith, do.                                                                                                                 
                                                                                                                                
COMMISSIONER CROSS  said he believes that the  districts have come                                                              
a long way  over the last two  years.  They are trying  to improve                                                              
the quality  of their data  and to comply  with the intent  of the                                                              
legislation.    They  came  so  far as  to  begin  to  talk  about                                                              
particular  areas that  they  thought should  be  included in  the                                                              
instruction.   In the initial  regulation, "building  supervision"                                                              
was  not included  as  the instructional  component.   The  school                                                              
districts, unanimously,  advocated for and told them  that all the                                                              
research   in  the   country   points  out   that   "instructional                                                              
supervision"  is  one  of  the most  important  components  of  an                                                              
effective school.                                                                                                               
                                                                                                                                
COMMISSIONER  CROSS  explained  that   the  daily  supervision  of                                                              
teachers  has   to  be,   and  is,  an   important  part   of  the                                                              
instructional  component.  One  inconsistency they  saw in  the 35                                                              
budgets  they rejected  was that  school  districts were  shifting                                                              
their building  supervision from a principal, who  could supervise                                                              
teachers, to a  head teacher, who could not; therefore,  the daily                                                              
supervision of  teachers was going  away, particularly  in smaller                                                              
schools.   They saw it  as a bad trend,  one they wanted  to stop.                                                              
They did  not want  districts to  continue to replace  B-certified                                                              
principals with  people in  the same bargaining  unit as  the head                                                              
teachers who were not required to have B-certification.                                                                         
                                                                                                                                
COMMISSIONER  CROSS  reported  that  he  had asked  the  Board  of                                                              
Education  to make a  change; in  doing so,  they made a  sweeping                                                              
change in that they included non-instructional  components because                                                              
of the way the current chart of accounts  was set up.  It is their                                                              
intent  to break  out the  chart of  accounts so  that only  those                                                              
people  involved  in  the  direct   supervision  of  teachers  are                                                              
included in the instructional component.                                                                                        
                                                                                                                                
COMMISSIONER CROSS  further pointed  out that the  school business                                                              
officials,  in the  idea of  the  "friendly audit  cop," were  the                                                              
first people to  come forward and help them do it.   It is not the                                                              
intent of the Board  of Education or himself to argue  or allow to                                                              
continue an  idea that non-instructional  costs of  schools should                                                              
be included in the instructional  component.  It is important that                                                              
the person who  is directly supervising teachers be  a part of the                                                              
instructional component.  It is for  that reason that they decided                                                              
to move forward.                                                                                                                
                                                                                                                                
Number 1122                                                                                                                     
                                                                                                                                
CHAIR PHILLIPS  indicated that  one of the  concerns is  that more                                                              
than a quarter  of the schools are still requesting  waivers.  She                                                              
pointed  out that  the chart  of  accounts is  going to  be a  big                                                              
factor, and  she expressed concern  that it will take  until 2002.                                                              
She asked if they could get it done in time for 2001.                                                                           
                                                                                                                                
COMMISSIONER  CROSS responded  that they  have approached  it from                                                              
the idea  of making steady  incremental progress, and  not jumping                                                              
too soon  and ending  up having to  retreat.   He thinks  they can                                                              
make  incremental progress  and certainly  clean up  the issue  of                                                              
where  instructional expenditures  are  reported,  insofar as  the                                                              
direct  supervision  of teachers  is  concerned.   What  they  are                                                              
trying  to  avoid  is  having  a  rolling  chart  of  accounts  or                                                              
continually updating them.                                                                                                      
                                                                                                                                
CHAIR PHILLIPS wondered  whether, if they are  fortunate enough to                                                              
get a school bond  package out this year, the new  schools will be                                                              
able to  bring their scores  up considerably based  on maintenance                                                              
and care of the facility.                                                                                                       
                                                                                                                                
COMMISSIONER CROSS  indicated that it  should be true, and  he has                                                              
told the sponsors of the legislation  that it may even be a better                                                              
tool than they  intended.  He believes it really  is making people                                                              
focus  on where  they  are spending  their  money.   As they  move                                                              
along,  people are  going  to revisit  everything  outside of  the                                                              
instructional expenditure and look for ways to decrease it.                                                                     
                                                                                                                                
SENATOR  WILKEN requested  clarification that  in the next  school                                                              
year they  will be expecting  to have  53 school districts  on the                                                              
uniform chart of accounts.                                                                                                      
                                                                                                                                
EDDY  JEANS,  Manager,  School  Finance  and  Facilities  Section,                                                              
Department of Education and Early  Development, clarified that the                                                              
school  districts are  using the  existing chart  of accounts;  as                                                              
Commissioner Cross pointed out, the  reason for the timing is they                                                              
cannot expect school districts to  change their accounting systems                                                              
for  July 1  at this  time, but  they  do anticipate  to have  the                                                              
revised chart of accounts in place for the 2002 budget cycle.                                                                   
                                                                                                                                
SENATOR  WILKEN referred  to the  spreadsheet  on page  10 of  the                                                              
annual report.   He said  that if they  take Alaska Gateway  as an                                                              
example,  their  goal was  60  percent  and  their budget  was  62                                                              
percent.   He  wondered  if that  is the  audit  or the  Certified                                                              
Public Accountant (CPA) audit.                                                                                                  
                                                                                                                                
MR. JEANS replied that it is the CPA audit.                                                                                     
                                                                                                                                
EXECUTIVE SESSION                                                                                                             
                                                                                                                                
SENATOR PHILLIPS  made a motion,  in accordance with Title  44, to                                                              
move  to executive  session for  the purpose  of discussing  audit                                                              
reports,  which are  held confidential  by  law.   There being  no                                                              
objection, the committee went into  executive session at 1:00 p.m.                                                              
                                                                                                                                
CHAIR  PHILLIPS requested  that the  following  people attend  the                                                              
executive session:  Pat Davidson  (Legislative Auditor) and staff;                                                              
David  Teal  (Legislative  Fiscal  Analyst)  and  staff;  and  Pat                                                              
Hartley (Legislative Budget and Audit Committee Aide).                                                                          
                                                                                                                                
SENATOR PHILLIPS made  a motion to move back into  public session.                                                              
There  being  no  objection,  the committee  was  back  in  public                                                              
session at 1:32 p.m.                                                                                                            
                                                                                                                                
AUDIT REPORTS                                                                                                                 
                                                                                                                                
SENATOR  PHILLIPS  made a  motion  to  release the  following  two                                                              
special  audits  to  the  public:     DOR/Alaska  Housing  Finance                                                              
Corporation,  Financial  Analysis  (04-4608-00)  and  DHSS/DFYS  -                                                              
Follow-up Review  of Select Aspects  of Child Protection  Services                                                              
Operations  (06-4604-00).    There  being no  objection,  the  two                                                              
special audits were released to the public.                                                                                     
                                                                                                                                
OTHER COMMITTEE BUSINESS                                                                                                      
                                                                                                                                
CHAIR PHILLIPS announced  that she had requested  an audit request                                                              
for  the Alaska  Department  of Fish  &  Game (ADF&G)  mariculture                                                              
development.                                                                                                                    
                                                                                                                                
SENATOR   PHILLIPS  moved   the  audit   request  for  the   ADF&G                                                              
mariculture development and asked unanimous consent.                                                                            
                                                                                                                                
REPRESENTATIVE  CROFT  objected.   He  explained  that they  often                                                              
phrase their requests, "Check into  how much cooperation there has                                                              
been.   Check into  the reasons  for the  delay."   This audit  is                                                              
phrased,  "There  has  been  little  cooperation,  been  met  with                                                              
systematic  delays."     He  noted  that  they   are  stating  the                                                              
conclusions in the audits.                                                                                                      
                                                                                                                                
CHAIR  PHILLIPS  replied  yes, specifically,  after  a  three-year                                                              
period of time.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  CROFT  said he  thinks  they do  a  better job  of                                                              
asking for audit conclusions when  they do not try to predetermine                                                              
the  results.    He pointed  out  that  the  areas  Representative                                                              
Phillips   is asking  for are  perfectly appropriate,  but  he had                                                              
objected  to  the  way  that  she was  asking.    He  removed  his                                                              
objection to the audit.                                                                                                         
                                                                                                                                
SENATOR   HALFORD    indicated   he   somewhat    concurred   with                                                              
Representative  Croft.  He  pointed out that  it is an  area where                                                              
people want to privatize a public  resource, and it should be done                                                              
carefully.                                                                                                                      
                                                                                                                                
CHAIR PHILLIPS asked if there were any more objections.  There                                                                  
being none, the audit request was approved.                                                                                     
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
CHAIR PHILLIPS adjourned the Joint Legislative Budget and Audit                                                                 
Committee meeting at 1:35 p.m.                                                                                                  
                                                                                                                                

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