Legislature(2001 - 2002)
05/18/2002 10:01 AM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
May 18, 2002
10:01 A.M.
TAPE HFC SS 02 - 2, Side A
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 10:01 A.M.
MEMBERS PRESENT
Representative Bill Williams, Co-Chair
Representative Eldon Mulder, Co-Chair
Representative Con Bunde, Vice-Chair
Representative Eric Croft
Representative Richard Foster
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Carl Moses
Representative Jim Whitaker
MEMBERS ABSENT
Representative John Davies
ALSO PRESENT
Representative Gary Stevens; Representative Brian Porter;
Representative Ethan Berkowitz; Annalee McConnell, Director,
Office of Management and Budget, Office of the Governor;
Eddy Jeans, Manger, School Finance and Facilities Section,
Department of Education and Early Development
SUMMARY
HB 2002 An Act relating to the issuance of general
obligation bonds for the purpose of paying the
cost of design, construction, and major
maintenance of educational and museum facilities;
and providing for an effective date.
CS HB 2002 (FIN) was reported out of Committee
with a "do pass" recommendation and with a fiscal
note by the House Finance Committee for the
Department of Revenue.
HB 2003 An Act relating to municipal bond reimbursement
for school construction; and providing for an
effective date.
CS HB 2003 (FIN) was reported out of Committee
with a "do pass" recommendation and with a new
zero fiscal note by the House Finance Committee
for the Department of Revenue.
#HB2002
HOUSE BILL NO. 2002
An Act relating to the issuance of general obligation
bonds for the purpose of paying the cost of design,
construction, and major maintenance of educational and
museum facilities; and providing for an effective date.
Co-Chair Mulder MOVED to ADOPT work draft version, #22-
LS1811\C, Utermohle, 5/1/02, as the version of the
legislation before the Committee. There being NO OBJECTION,
it was adopted.
Co-Chair Mulder noted that the committee substitute would
authorize a vote of the people on general obligation bonds
issued by the State of Alaska for the construction of
educational facilities.
The proposal totaling $201,166,746 dollars would provide for
eleven new schools, University of Alaska projects and a
portion of a museum expansion in Anchorage.
· The new school projects funding includes
$134,462,746 for facilities in Tuluksak, Akiak,
Akiachak, Scammon Bay, Teller, Hooper Bay, Circle,
and Naukati. Major renovations will be financed
at Sheldon Point, White Mountain and Arctic
Village.
· The University of Alaska funding in the amount of
$61,704,000 would include projects on campuses in
Fairbanks, Juneau, Homer, Valdez, Anchorage,
Kenai, Sitka, Palmer, Kotzebue, Nome, Bethel,
Dillingham, and Ketchikan.
Co-Chair Mulder advised that the bond question would be on
the November 2002 ballot. If approved by the voters,
projects could commence early in 2003.
Representative Croft asked how the legislation differed from
the $238 million dollar package previously passed from
Committee.
Co-Chair Mulder reminded Representative Croft that no action
had been taken on adopting that version.
Representative Croft asked how CS HB 2002 (FIN) differed
from that version.
Co-Chair Mulder responded that #8 was the reconstruction,
#9-#13 were the phase in, and #1-#80 were major maintenance.
Representative Croft stated that there was no major
maintenance included in the proposed version.
Co-Chair Mulder commented that the intent was to pass the
proposed version to the Senate as it is.
Representative Croft referenced the $5 million dollars for
the museums. He advised that the major difference was the
maintenance funding.
Co-Chair Mulder pointed out that the University had not
changed.
Representative Croft commented that the "package and
linkage" concerns could be addressed in HB 2003.
ANNALEE MCCONNELL, DRIECTOR, DIRECTOR, OFFICE OF MANAGEMENT
AND BUDGET, OFFICE OF THE GOVERNOR, commented that there was
a handout for HB 2003, which indicates the Senate numbers.
(Copy on File). One difference is that version, previously
passed to the Senate, was slightly different regarding
University funding.
Co-Chair Mulder interjected that the version before the
Committee is the Senate Finance version.
Co-Chair Mulder MOVED to report CS HB 2002 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HB 2002 (FIN) was reported out of Committee with a "do
pass" recommendation and with a fiscal note by the House
Finance Committee for the Department of Revenue.
HOUSE BILL NO. 2003
An Act relating to municipal bond reimbursement for
school construction; and providing for an effective
date.
Co-Chair Mulder MOVED to ADOPT the working draft #22-
LS1801\C, Ford, 5/17/02. There being NO OBJECTION, it was
adopted.
ANNALEE MCCONNELL, DRIECTOR, DIRECTOR, OFFICE OF MANAGEMENT
AND BUDGET, OFFICE OF THE GOVERNOR, requested that Mr. Jeans
of the Department of Education & Early Development speak to
the handout.
EDDY JEANS, MANGER, SCHOOL FINANCE AND FACILITIES SECTION,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, highlighted
the handout. (Copy on File).
· Existing Debt Reimbursement
· Bonds already approved
Anchorage $5.6
Juneau $3.3
Fairbanks $3.2
Representative Croft asked if that was the amount that the
State would pay each year to the municipalities, who have
borrowed to build schools.
Mr. Jeans responded that was the "condensed" version. The
State reimburses and then they make their actual payments.
Representative Croft questioned if the State should expect
to pay out in a range between $80-$100 million dollars a
year over the next ten years.
Mr. Jeans clarified that the list across the top of the page
is what is currently authorized, anticipating no change to
the current statute. It would be $56 million dollars in
FY03, $58 million in FY04, $56 million in FY05, $56 million
in FY06, $58 million in FY07, $53 million in FY08, $46
million in FY09, $46 million in FY10, and $45 million
dollars in FY11.
Representative Croft noted that the State should anticipate
paying between $45-$60 million dollars each year for the
next ten years and that would be the urban portion.
Mr. Jeans agreed that was correct.
Co-Chair Mulder interjected that that the "extended"
authorizations had been extended in exchange for giving cash
to the rural schools.
Mr. Jeans explained that through those mechanisms, there
were allocations for the rural schools.
Co-Chair Mulder emphasized that the legislation was not a
"benefit" to the urban schools or the rural schools. The
rural schools would be paid one time.
Representative Croft requested clarification of what is paid
each year for the urban school debt reimbursement and the
average of the last ten years paid to the rural schools.
Co-Chair Mulder pointed out that during the last ten years,
over $500 million dollars has been given to the rural
schools and $700 million dollars for the urban schools.
Mr. Jeans interjected that he did have a schedule which the
Department prepared indicating FY94 through FY03. The
average in that time period was approximately $49 million
grant funding dollars, which sometimes includes municipal
school districts. Using the debt reimbursement program, the
average is approximately $87 million dollars annually.
Mr. Jeans pointed out that the debt reimbursement program
operates like a home mortgage. What is authorized in the
debt reimbursement is the principle amount of the project,
however, what is actually reimbursed is the principle and
interest at 70% over a 20-year period. Mr. Jeans emphasized
that the two programs are very different.
Representative Hudson pointed out that historically, the
State has authorized 98% of rural construction. Usually
through the grant programs, it is about 70%, making the
communities responsible for the additional 30%.
Mr. Jeans explained that through the grant program, there is
a tiered scale for participating level shares. The Rural
Education Attendance Area (REAA) paid 98% of their funding
and received a 2% local match. The scale also goes down,
based on municipality's property wealth per child. Some
municipalities only contribute a 5% contribution. The
difference between the two programs is that the debt
reimbursement is a fixed amount, 70% State funding and 30%
local funding, or whatever the ratio was at the time that
the legislation was passed.
Representative Hudson commented that the system has been
fair and balanced. In urban areas, the municipalities have
had to be prepared to float the mechanism.
Co-Chair Mulder asked if only the urban areas were included
in the existing debt reimbursement.
Mr. Jeans replied that the debt reimbursement program was
established for municipalities that have bonding capacity.
Co-Chair Mulder interjected that the rural schools had been
included in that.
Mr. Jeans clarified that he makes the distinction between
municipal school districts and the REAA's. The Department
of Education & Early Development has a clear definition of
the role between urban versus rural.
Co-Chair Mulder argued that there are rural schools that are
receiving debt reimbursement.
Ms. McConnell interjected that the opposite was also true
and that there have been urban schools funded through
grants.
Representative Croft inquired if there was a statement
available of what HB 2003 would accomplish.
Co-Chair Mulder responded that there is no linkage in HB
2003 other than that debt reimbursement would not pass
unless the general obligation (G.O.) bonds pass.
Representative Croft asked if the Kasalli case had been
addressed in the proposed legislation.
Co-Chair Mulder replied that case had been addressed in HB
2002 with the G.O. bonds. That was the only linkage he was
willing to consider.
Representative Croft asked if in the future, there would be
some relationship between how much was built in the
municipalities versus in the REAA's. He commented that it
would not matter if it were 4 or 5 years, since there was no
linkage. He asked what the other aspects of the bill were.
Co-Chair Mulder explained that the two major differences
were:
· Allowing the organized boroughs to bond for public
facilities for schools with the limited time of
three years; and
· Allows areas to receive 70% reimbursement if they
work with the Department of Education & Early
Development list.
Mr. Jeans clarified that under HB 2003, the municipalities
that have a population more than 1,000 would not be placed
on the Department's list but the debt projects would still
be under the Department's review if they want to get the 70%
reimbursement. The legislation would provide that for
municipalities with more than 1,000 resident population on
the Department's Capital Improvement Project (CIP) list.
Co-Chair Mulder added that the legislation allows for a
percentage of local contribution.
Mr. Jeans explained that in the rural areas, it amounts to
2% and in the smaller municipalities it would amount to 5%.
Co-Chair Mulder asked if during FY02, would any not be at
2%.
Mr. Jeans stated not on the current list.
Co-Chair Mulder pointed out that the urban areas would pay
for 30%-40% of their contribution while and the rural
schools would pay only 2%.
Ms. McConnell requested to outline benefits of the large
districts and how they differ from the current system. Some
of the larger districts have had difficultly with projects
they are interested in. She provided examples of the Eagle
River and Juneau Douglas High School. In those two places,
the district would like to size their school for a "time
out" into the future, knowing that their student population
will be growing. However, the amount of the school projects
will not fit with what is currently allowed within the
statute. In those situations, the State pays the
reimbursement on the portion that would be eligible through
statute and the community is then free to pay the additional
amount.
Ms. McConnell pointed out that the advantage is that they no
longer would be placed on the priority list, and would then
be eligible to receive reimbursement as a percentage of the
entire project. She referenced Page 8, Line 28, under
existing statute, $77.8 million dollars authorized for
existing projects and $14.571 million dollars provided for
school districts. The legislative process was intended to
establish how much could be available.
She pointed out that Anchorage was provided $78 million
dollars worth of projects. When Anchorage went out for the
bonds in April, they submitted under that provision; and
now, Fairbanks will be going out to vote in October through
a different provision. Given the date change listed on Page
8, Line 26, and in the event that Fairbanks does not receive
voter approval, that district would like to receive an
extension. At present time, each school district is allowed
to go out for a certain amount of bond money and then the
State provides for the debt reimbursement.
Co-Chair Mulder questioned how the Administration proposed
to pay for the obligations associated with the rural
schools.
Ms. McConnell replied that under the linkage proposal, it is
assumed it could be addressed though cash or a certificate
of participation (COP) mechanism.
Vice-Chair Bunde asked if there had been a statewide, per
capita capital cost per student determination made.
Mr. Jeans advised that the Department had not yet done an
analysis under that format.
Ms. McConnell requested an opportunity to explain the
linkage concern. She noted that the issue had never been
discussed on the House side.
Co-Chair Williams interrupted Ms. McConnell, pointing out
that "linkage" was not included in the House version. He
stated that it was his intent that the House Finance
Committee creates a version as close to the original one
passed from this Committee.
Ms. McConnell asked the place in which a discussion
regarding the linkage concept could take place.
Co-Chair Williams advised that could occur on the Senate
side through the Senate version. On the House Finance
Committee side, there will be no discussion regarding how
the linkage proposal operates.
Ms. McConnell voiced concern that there is confusion
regarding linkage details. It is difficult to conduct
important public policy discussions when there is no
opportunity to ask questions about how a proposed system
would operate.
Co-Chair Mulder argued that the House Finance Committee
members understand the linkage issue. The handout will be
discussed during the caucuses meetings.
Representative Hudson invited Ms. McConnell to submit
written information regarding the linkage proposal. He
acknowledged that he could use that information.
Co-Chair Mulder MOVED to report CS HB 2003 (FIN) out of
Committee with individual recommendations and with the new
fiscal note. Representative Croft OBJECTED.
Representative Croft commented that the fact that there
could not be a linkage discussion in the House Finance
Committee was very disturbing. What is occurring in HB 2003
would be giving all the flexibility to the urban/municipal
areas. It would not confine them to the regulations of what
the schools look like. "All of the room" has been given to
the urban areas and only a "linkage" conditional effective
date to one bond payment to the rural schools.
Additionally, no mechanism has been established to fund
rural schools in the on-going years. He claimed that the
Committee was trading an overall reform that benefits urban
Alaska for a one time, fairly big, chunk for rural Alaska.
Representative Croft stated that linkage is about fixing
both systems, which is what HB 2003 needs. That action
would exasperate the Kassali case.
Representative Croft claimed that in the case, when the
judge noticed the two different systems, he criticized that
there were two different ways of funding being done.
Linking together the two different systems must happen and
there must be some relationship between those two systems.
It is much better to have two systems that recognize the
difference with some linkage between the two.
Representative Croft stressed that the proposed bill is not
close to the bill that was in Committee at the time of
adjournment. The proposed bill is everything that an urban
center would want and nothing for rural Alaska. When that
is tied to a major construction package, it is a receipt for
disaster. HB 2003 is not fixing the system, by rather
placing a heavy rural bond structure on that system. He
warned that the urban portion was being "masked" by the
legislation.
Representative Croft addressed previous discussion regarding
the various percentages. He stated that there is no base to
provide such information. It is important to recognize that
there should be sliding scale systems on how much a local
area can pay. When funded as a unit and linked, it could be
a fair system. The correct funding mechanism was left out
of the proposed legislation.
Representative Croft stressed that HB 2003 would
institutionalize the difference and "set in stone" the
reason for the entire problem.
Representative Croft commented that he did not know what the
intended negotiating stance would be. The proposed
legislation will be a "major step backward". It does not
structurally change the way that rural schools are funded.
Co-Chair Williams noted that everyone was not supportive of
the negotiations and that it was his intent to get the bill
where it was important to be.
Co-Chair Mulder noted that he did not care if there were
bonds this year or not. He added that he would be just as
happy if HB 2002 and HB 2003 did not go forward.
Co-Chair Mulder stated that he "took exception" to the point
made by Representative Croft that HB 2003 was a "slap in the
face" to the rural areas. He asked how could $150 million
dollars for construction in rural Alaska, be a slap in the
face. He stated that the proposed system was a balanced
approach and that it is a "sweetheart deal" for the rural
areas. It will translate to between $100-$200 million
dollars of projects for the urban areas.
Co-Chair Mulder added that there were no amendments to
incorporate the linkage language. With no amendments, there
will be no discussion. The proposed bill is a fair and
balanced approach.
A roll call vote was taken on the motion.
IN FAVOR: Bunde, Foster, Harris, Hudson, Lancaster,
Whitaker, Mulder, Williams
OPPOSED: Croft, Moses
Representative J. Davies was not present for the vote.
The MOTION PASSED (8-2).
CS HB 2003 (FIN) was reported out of Committee with a "do
pass" recommendation and with a new zero fiscal note by the
House Finance Committee for the Department of Revenue.
ADJOURNMENT
The meeting was adjourned at 10:47 A.M.
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