Legislature(2017 - 2018)HOUSE FINANCE 519

01/25/2018 09:00 AM FINANCE

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                  HOUSE FINANCE COMMITTEE                                                                                       
                     January 25, 2018                                                                                           
                         9:02 a.m.                                                                                              
9:02:56 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 9:02 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Representative Paul Seaton,  Sponsor; Arnold Liebelt, Staff,                                                                    
Representative   Paul  Seaton;   Alexei  Painter,   Analyst,                                                                    
Legislative Finance Division;  Amy Lujan, Alaska Association                                                                    
of School  Business Officials; Mark  Miller, Superintendent,                                                                    
Juneau  School  District,  Juneau;  Lisa  Parady,  Executive                                                                    
Director,  Alaska Council  of School  Administrators; Kathie                                                                    
Wasserman,  Executive  Director,  Alaska  Municipal  League;                                                                    
Representative Justin Parish, Sponsor.                                                                                          
PRESENT VIA TELECONFERENCE                                                                                                    
David  Piazza,   Superintendent,  Southwest   Region  School                                                                    
District,  Dillingham;  Sean  Dusek,  Superintendent,  Kenai                                                                    
Peninsula    School   District,    Kenai;   Deena    Bishop,                                                                    
Superintendent, Anchorage School  District, Anchorage; David                                                                    
Nees, Alaska  Policy Forum, Anchorage; John  Kelly, District                                                                    
9  Member, State  Board of  Education, Homer;  Kelly Cooper,                                                                    
Self, Homer.                                                                                                                    
HB 213    PUBLIC SCHOOL TRUST FUND                                                                                              
          HB 213 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 287    APPROP: EDUCATION/STUDENT TRANSPORTATION                                                                              
          HB 287 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
Co-Chair Foster reviewed the meeting agenda.                                                                                    
HOUSE BILL NO. 287                                                                                                            
     "An Act making appropriations  for public education and                                                                    
     transportation   of  students;   making  appropriations                                                                    
     under art.  IX, sec.  17(c), Constitution of  the State                                                                    
     of  Alaska,  from  the  constitutional  budget  reserve                                                                    
     fund; and providing for an effective date."                                                                                
9:04:12 AM                                                                                                                    
REPRESENTATIVE  PAUL SEATON,  SPONSOR, explained  the bill's                                                                    
intent  was  to  complete  an   education  budget  prior  to                                                                    
completion  of the  remainder of  the  operating budget.  He                                                                    
explained the idea  for the bill had come  from a convention                                                                    
of school superintendents  in Seward. He shared  that he had                                                                    
been invited  to serve on a  panel at the convention  as the                                                                    
co-chair of the House  Finance Committee responsible for the                                                                    
operating budget. Additional  attendees had included Senator                                                                    
Peter   Micciche    and   Representative    Mike   Chenault.                                                                    
Superintendents   had  communicated   the  inefficiency   of                                                                    
developing two or  more budgets. He pointed  to problems and                                                                    
delay experienced  by the districts  the previous  year [due                                                                    
to the delayed  passage of a budget by  the legislature]. He                                                                    
detailed that  the schools had  to give  termination notices                                                                    
to all  nontenured teachers by May  15. Subsequently, almost                                                                    
every  district lost  good teachers  because they  took jobs                                                                    
elsewhere due to employment uncertainty.                                                                                        
Co-Chair   Seaton   elaborated  that   superintendents   had                                                                    
requested  a solution  to the  problem. He  had communicated                                                                    
that like  the previous year,  the House Majority  would not                                                                    
cut  basic education.  He elaborated  that Senator  Micciche                                                                    
had  also  communicated  that  the   Senate  would  not  cut                                                                    
education in  the current year. Representative  Chenault had                                                                    
remarked that  the state  could choose  to pass  every state                                                                    
agency  budget  separately  as some  other  states  did.  He                                                                    
elaborated  that  Representative  Chenault  understood  that                                                                    
would be  a very difficult process.  Consequently, there had                                                                    
been  discussion  about  providing  early  funding  for  the                                                                    
agency that needed it because  the state required in statute                                                                    
that people get terminations from their contracts.                                                                              
Co-Chair  Seaton  furthered that  once  it  was evident  the                                                                    
House Majority and  Minority and Senate were  aligned he had                                                                    
considered how  to accomplish the early  funding; the result                                                                    
was HB  287. The bill  would early fund basic  education; it                                                                    
used  the governor's  proposed funding  level, which  he had                                                                    
taken from the  previous year's budget. The  bill would fund                                                                    
all basic  education that would require  any teacher layoffs                                                                    
including   the  Base   Student   Allocation  (BSA),   pupil                                                                    
transportation,   and   boarding  schools   (Mt.   Edgecumbe                                                                    
9:08:40 AM                                                                                                                    
ARNOLD LIEBELT, STAFF,  REPRESENTATIVE PAUL SEATON, provided                                                                    
a  PowerPoint  presentation  titled "HB  287  Education  and                                                                    
Pupil    Transportation:    An   Early    and    Stand-Alone                                                                    
Appropriation Bill"  dated January 25, 2018  (copy on file).                                                                    
The  legislation  was  an   appropriation  bill,  which  was                                                                    
different from  other bills. The  bill carved  out education                                                                    
going  to   school  districts  through  the   Department  of                                                                    
Education  and Early  Development  (DEED)  from the  regular                                                                    
operating  budget.  The  bill was  written  like  any  other                                                                    
appropriations  bill. Section  1  was  the numbers  section,                                                                    
which  appropriated  the  funds for  boarding  home  grants,                                                                    
youth  in detention,  special schools,  the Mount  Edgecumbe                                                                    
boarding    school,   Mount    Edgecumbe   facilities    and                                                                    
maintenance, and  part of the foundation  program. Section 2                                                                    
of  the   bill  identified  funding  for   DEED.  Section  3                                                                    
identified the  funding sources and  amounts. Section  4 was                                                                    
the  language section,  which pertained  to the  use of  the                                                                    
Constitutional  Budget Reserve  (CBR) at  a fixed  amount of                                                                    
$1.2 billion  and an  estimated amount  of $67  billion from                                                                    
the Statutory  Budget Reserve (SBR).  He explained  that the                                                                    
portion of the  operating budget included in  the bill would                                                                    
move  through  the  budget process  more  quickly  than  the                                                                    
operating budget.                                                                                                               
9:11:03 AM                                                                                                                    
Mr. Liebelt  moved to slide  2 and continued to  explain the                                                                    
bill. The  bill would  avoid the unnecessary  teacher layoff                                                                    
notices due to the passage  of state operating budgets after                                                                    
school districts  plan their  budgets. The  amount requested                                                                    
in  HB  287 reflected  the  same  amount in  the  governor's                                                                    
budget   request.  He   reiterated  that   the  bill   would                                                                    
appropriate a fixed amount of  $1.2 billion and an estimated                                                                    
amount from the SBR.                                                                                                            
Mr. Liebelt  turned to slide  3 showing the  allocations for                                                                    
education funding [from FY 15  to present]; HB 287 was shown                                                                    
in  the  last column  on  the  right. The  amount  requested                                                                    
matched  the  amount  requested  by  the  governor  and  was                                                                    
substantially  similar  to the  FY  18  management plan.  He                                                                    
clarified  the  bill did  not  request  a different  funding                                                                    
level but  identified a funding  source and aimed  at moving                                                                    
the education budget through the process more quickly.                                                                          
Mr. Liebelt  addressed slide 4  titled "Why use the  CBR and                                                                    
SBR?"  He  reviewed  that  education  was  required  by  the                                                                    
constitution and  was a high  priority program  supported by                                                                    
legislators. The  bill proposed the  use of the  CBR because                                                                    
it  earned a  lower  interest rate  when  compared to  other                                                                    
funds  used for  generating  revenue. He  detailed that  the                                                                    
Permanent  Fund   Earnings  Reserve  Account   (ERA)  earned                                                                    
substantially  more revenue.  Consequently, if  the ERA  was                                                                    
considered for  generating revenue for future  high priority                                                                    
programs,  it made  sense to  use  $1 billion  from the  CBR                                                                    
(leaving  a  remaining  balance exceeding  $1  billion)  and                                                                    
preserving the ERA to generate  additional revenue for state                                                                    
Mr. Liebelt communicated  that the CBR and the  ERA were the                                                                    
only  accounts with  sufficient  funding  for education  and                                                                    
pupil   transportation.  He   expounded  that   undesignated                                                                    
general  fund  (UGF)  revenue  was  estimated  at  about  $2                                                                    
billion in the  current year, which was not  sufficient as a                                                                    
fund  source. He  believed  it  was fair  to  say there  was                                                                    
recognition the CBR would need to  be used in some manner to                                                                    
pass  the budget.  The governor  had proposed  $400 million,                                                                    
which the  Legislative Finance Division  put closer  to $425                                                                    
million. If the legislature was  looking at using the CBR to                                                                    
get  a budget  passed and  if  there was  broad support  for                                                                    
funding education,  HB 287 was  a solution to doing  so. The                                                                    
bill used  a funding  source that would  be required  to get                                                                    
the  budget  through  and  made  timely  decisions  for  the                                                                    
state's school districts.                                                                                                       
Co-Chair Foster  recognized Representative Justin  Parish in                                                                    
the audience.                                                                                                                   
9:14:28 AM                                                                                                                    
Mr.  Liebelt noted  that the  next several  slides had  been                                                                    
prepared by LFD  [slides 5 through 7]. Slide 5  showed a bar                                                                    
chart depicting  end of  year savings  balances for  the CBR                                                                    
and SBR from  FY 15 to FY  19. The last column  on the right                                                                    
showed that  if the  bill passed in  its current  form, over                                                                    
$100 million  would remain  in the SBR  and over  $1 billion                                                                    
would remain in the CBR.                                                                                                        
Mr.  Liebelt advanced  to a  bar  chart on  slide 6  showing                                                                    
earnings  comparisons between  the CBR  (shown in  blue) and                                                                    
the Permanent  Fund (shown with  stripes). He  detailed that                                                                    
FY  17 earnings  were  shown  on the  left  and the  10-year                                                                    
earnings  projection was  shown  on the  right. The  10-year                                                                    
projection estimated  the CBR would earn  about 2.38 percent                                                                    
per year, while the  Permanent Fund would earn approximately                                                                    
6.5 percent  per year.  In the  long-term there  was greater                                                                    
revenue generating  capacity [by the Permanent  Fund]. In FY                                                                    
17 the  Permanent Fund had  earned 12.89 percent,  while the                                                                    
CBR had  earned 1.83 percent.  The bill proposed the  use of                                                                    
the CBR in  order to preserve the earning  capacity of other                                                                    
high earning funds.                                                                                                             
9:16:08 AM                                                                                                                    
Mr. Liebelt  turned to slide  7 and discussed the  effect of                                                                    
earnings rate on $1.2 billion.  A bar chart showed a 10-year                                                                    
projection comparing the CBR and  Permanent Fund starting at                                                                    
the requested  $1.2 billion  in year  1. The  Permanent Fund                                                                    
would earn $650  million (at a 6.5  percent return) compared                                                                    
to  the CBR's  projected return  of $238  million (at  a 2.3                                                                    
percent return). He  noted the figures were  a forecast only                                                                    
and the  actual performance  in some of  the years  would be                                                                    
much higher or  lower, primarily for the  Permanent Fund. He                                                                    
added that  the CBR figures would  be more stable as  it was                                                                    
designed  to  be  much  more  liquid to  serve  as  a  shock                                                                    
absorber for the state operating budget.                                                                                        
Mr.  Liebelt  addressed  slide 8  titled  "Late  Passage  of                                                                    
Operating  Budget."   The  bill   aimed  to   avoid  funding                                                                    
uncertainty  caused  in  previous  years  by  budgets  being                                                                    
passed late  in the  year. He explained  funding uncertainty                                                                    
could  be very  energy  intensive and  emotional for  school                                                                    
districts and  superintendents trying  to put  their budgets                                                                    
together in  a timely manner and  trying to hold off  on the                                                                    
issuance  of  layoff  notices  for  tenured  and  nontenured                                                                    
teachers. He read from slide 8:                                                                                                 
     In  2015, the  state  needed to  come  back in  special                                                                    
     session  to   pass  a  second  operating   budget  that                                                                    
     included education  funding. This special  session bill                                                                    
     passed the  legislature on  June 11  and was  signed by                                                                    
     the Governor on June 29.                                                                                                   
     In 2016, the  state operating budget was  passed by the                                                                    
     legislature on  May 31  and signed  by the  governor on                                                                    
     June 28.                                                                                                                   
     Last session,  the state operating budget  did not pass                                                                    
     the Legislature  until June  22 and  was signed  by the                                                                    
     Governor on July 1.                                                                                                        
Mr. Liebelt  stated that  it was a  very difficult  time and                                                                    
there  was significant  debate on  how to  reach a  balanced                                                                    
budget.  The bill  provided a  solution to  the problem  for                                                                    
school districts.  He elaborated that districts  were trying                                                                    
to  do  their  job,  keep  their  teachers,  and  other.  He                                                                    
explained  that   if  the  legislature  could   address  the                                                                    
education  appropriation  portion  of the  budget  it  would                                                                    
better serve  school districts  and the  state in  the long-                                                                    
term. He read the remaining portion of slide 8:                                                                                 
     Funding  uncertainty forces  school districts  to draft                                                                    
     multiple   budgets.  Anticipating   low  appropriations                                                                    
     requires  districts to  give termination  notices (pink                                                                    
     slips)  to  tenured teachers  by  May  15 and  to  non-                                                                    
     tenured teachers by the last day of school.                                                                                
9:19:22 AM                                                                                                                    
Mr. Liebelt concluded the presentation on slide 9:                                                                              
     Education is one of the highest priority programs for                                                                      
     the   state   and    educators   are   shaping   future                                                                    
     HB 287 reflects the importance of education to our                                                                         
Mr.  Liebelt summarized  that  the  appropriations bill  was                                                                    
fairly straight forward and was  funded by the CBR. The goal                                                                    
was to  get the bill  through the budget process  in advance                                                                    
of the operating  budget. He added that  Alexei Painter from                                                                    
LFD was available for questions.                                                                                                
Representative  Wilson pointed  to  slide 3  and noted  that                                                                    
funding   for   Mount  Edgecumbe   increased   approximately                                                                    
$806,000  or $2,000  per  student,  whereas, the  foundation                                                                    
program funding for all other students was decreased.                                                                           
Mr. Liebelt deferred to Mr. Painter.                                                                                            
ALEXEI  PAINTER,  ANALYST,   LEGISLATIVE  FINANCE  DIVISION,                                                                    
answered  that  two  things  contributed  to  the  increase.                                                                    
First,  was the  addition  of the  Mount Edgecumbe  boarding                                                                    
school facilities maintenance  allocation, which represented                                                                    
a  structure change  from  previous  years. Previously,  the                                                                    
maintenance had been included  in the overall departmentwide                                                                    
state  facilities  maintenance   appropriation.  Second,  in                                                                    
previous   years   the   department  had   used   unbudgeted                                                                    
interagency receipts for  part of the funding  for the Mount                                                                    
Edgecumbe boarding  school allocation  to cover  federal and                                                                    
foundation funds. The  funds had not been in  the budget. He                                                                    
underscored there was no increase  in general funds to Mount                                                                    
Edgecumbe;  the  numbers  reflected  a  budget  true-up.  He                                                                    
deferred to DEED for further detail.                                                                                            
9:21:54 AM                                                                                                                    
Representative  Wilson  stated  it  was  hard  to  know  the                                                                    
difference  between federal  and UGF  funds included  in the                                                                    
Mr. Painter replied  there were no UGF funds  going to Mount                                                                    
Edgecumbe  in the  governor's budget  or HB  287. There  had                                                                    
been  some funds  included in  FY  17 and  before, but  that                                                                    
portion had been  switched to the Public  School Trust Fund;                                                                    
however, that amount was unchanged  between FY 18 and FY 19.                                                                    
The  difference was  interagency  receipts  of $250,000  and                                                                    
federal funds  of $250,000. He  believed he was  missing one                                                                    
other non-GF fund source for the remaining balance.                                                                             
Representative Wilson  expressed confusion about  a decrease                                                                    
in the formula for the  rest of the schools (excluding Mount                                                                    
Edgecumbe). She  asked for the  breakdown via  email showing                                                                    
what  the schools  thought they  were going  to receive  and                                                                    
what  they did  not  receive  to see  whether  there was  an                                                                    
increase or  merely a difference  in the funding.  She asked                                                                    
for  the  student  count statewide  for  the  previous  year                                                                    
compared to the current year.                                                                                                   
Mr. Painter responded that the  average daily membership for                                                                    
non-correspondence students in FY 19  was 16,814. He did not                                                                    
have the  FY 18  numbers on  hand, but  the figure  had been                                                                    
slightly higher;  therefore, DEED was anticipating  a slight                                                                    
decline  between FY  18  and FY  19. He  noted  there was  a                                                                    
larger decline between FY 17 and FY 18.                                                                                         
9:24:25 AM                                                                                                                    
Vice-Chair Gara  remarked that in  2015 the  legislature had                                                                    
passed a bill  including BSA funds plus $43  million in one-                                                                    
time separate funds  that had been distributed  as BSA money                                                                    
(shown in green in the bar  reflecting FY 15 on slide 3). He                                                                    
detailed that two $50 BSA increases  had been added in FY 16                                                                    
and FY 17.  He asked if the  loss of the $43  million [in FY                                                                    
16 and FY 17] and  the addition of approximately $30 million                                                                    
accounted for the slight decrease [shown on slide 3].                                                                           
Mr. Painter answered  in the affirmative. He  pointed to the                                                                    
green  portion  of the  bar  in  FY  15 reflecting  the  $43                                                                    
million  figure allocated  outside the  formula funding.  He                                                                    
detailed it  reflected the amount after  a supplemental took                                                                    
out the amounts for FY 16 and  FY 17. The increases in FY 16                                                                    
and  FY 17  went  up  about $30  million  in the  foundation                                                                    
program, which  then declined  slightly in  subsequent years                                                                    
based on student count.  The BSA in FY 17, FY  18, and FY 19                                                                    
was the same.                                                                                                                   
Representative Pruitt  stated there had been  discussions in                                                                    
the past  about using the  CBR as  a checking account  - the                                                                    
money could  be utilized  as long as  it was  replenished by                                                                    
the end of the year. The  bill would reduce the account from                                                                    
$2.2 billion to about $1  billion. He remarked the committee                                                                    
had  been recently  told  by the  Office  of Management  and                                                                    
Budget  or  the Department  of  Revenue  that a  $1  billion                                                                    
balance was their  limit. He asked if there  was the ability                                                                    
to use the Permanent Fund  as a checking account scenario if                                                                    
the CBR was reduced below a recommended limit.                                                                                  
Mr.  Painter replied  that he  was  not the  best person  to                                                                    
answer,  but $1  billion was  the recommended  threshold for                                                                    
the CBR  to maintain cashflow.  He explained that  in future                                                                    
years  it would  be possible  to use  the percent  of market                                                                    
value (POMV) as part of the  funding if there was a draw. He                                                                    
did not know the specifics. He  added that no draws had been                                                                    
authorized to  date; therefore, how  the process  would work                                                                    
was not currently known.                                                                                                        
9:27:11 AM                                                                                                                    
Representative Pruitt stated that  if the expectation was to                                                                    
pull  $1.2 billion  from  the CBR  and  the legislature  had                                                                    
heard  the  need  for  the  current  year  was  around  $425                                                                    
million, the  account held  about three  times the  draw. He                                                                    
asked if the  expectation was to change the  amount from the                                                                    
governor's  budget  and  use  some sort  of  POMV  from  the                                                                    
Permanent  Fund  through  the budget.  He  wondered  if  the                                                                    
intent  was to  lower the  draw from  the Permanent  Fund by                                                                    
$800  million  or draw  the  full  POMV  amount out  in  the                                                                    
budget. He  believed it  would mean  funding would  be about                                                                    
$800 million more than necessary for the current year.                                                                          
Co-Chair  Seaton responded  that the  idea was  to recognize                                                                    
the need to  maintain $1 billion in the CBR.  A pot of money                                                                    
needed to  be available  if the education  budget was  to be                                                                    
passed early.  There was basically  no money in  the General                                                                    
Fund  at the  end of  the year.  The CBR  contained a  known                                                                    
amount  of  money  to  fund the  education  portion  of  the                                                                    
budget. The  expectation was there  would be a  similar POMV                                                                    
draw from  the budget  reserve to  fund the  overall budget.                                                                    
The legislature would decide where  it chose to access funds                                                                    
to balance  the budget. The  draw would allow the  POMV done                                                                    
at the lower rate that  the Permanent Fund had identified as                                                                    
sustainable  at  6.5 percent  instead  of  6.95 percent.  He                                                                    
noted  the  Alaska  Permanent Fund  Corporation  (APFC)  had                                                                    
recently adopted the 6.5 percent projected rate of return.                                                                      
9:30:18 AM                                                                                                                    
Representative Pruitt  thought he had heard  Co-Chair Seaton                                                                    
state the  expectation that the  legislature would  not draw                                                                    
more  than  what was  necessary  to  complete the  remaining                                                                    
budget if the bill was  passed. He surmised the $800 million                                                                    
cushion in  the ERA would not  be drawn and would  earn more                                                                    
Co-Chair  Seaton  clarified  there  always had  to  be  some                                                                    
headroom  in the  budget whether  it  came from  the CBR  or                                                                    
another fund source. The bill  did not use headroom from the                                                                    
CBR; it would  fund the education budget  (as required) with                                                                    
a fixed amount [from the CBR]  of $1.2 billion. The CBR draw                                                                    
would  not provide  any headroom  for the  remainder of  the                                                                    
budget.  He   elaborated  that  the  budget   would  require                                                                    
headroom  for supplementals  otherwise  it  would require  a                                                                    
special session to handle any  supplemental items for things                                                                    
like wildfires. He explained that  CBR draws in the past had                                                                    
always included  some headroom to  pay the bills  if needed.                                                                    
He did not anticipate taking  the budget and zeroing it out,                                                                    
because if there was any  money needed exceeding that amount                                                                    
it would  not be available. He  did not intend to  draw more                                                                    
than necessary  for the  budget and  headroom. The  idea was                                                                    
not  to draw  the 5.25  percent, but  4.5 percent  [from the                                                                    
Permanent  Fund]  because  the  education  budget  would  be                                                                    
funded with the CBR.                                                                                                            
Representative Pruitt surmised it  sounded like the need for                                                                    
the bill had  arisen from the legislature's  failure to meet                                                                    
a  budget deadline  at the  end of  session. He  underscored                                                                    
that  the  legislature  was  currently  only  11  days  into                                                                    
session. He noted that the  bill only applied to the current                                                                    
year.  He  wondered  if  the   bill  implied  there  was  an                                                                    
expectation that  the legislature  would not  accomplish its                                                                    
work within  the 90-day  session or  by May  15 or  31 (when                                                                    
pink slips  had to  be disseminated). He  questioned whether                                                                    
the bill  was planning  for failure. He  anticipated getting                                                                    
finished within  90 days,  which was  plenty of  time before                                                                    
the pink  slip date  of May 15  for nontenured  teachers. He                                                                    
explained the  pink slip  date had  been moved  to May  15 a                                                                    
couple of  years earlier  to take some  of the  pressure off                                                                    
the  local  communities  (the  previous  date  had  been  in                                                                    
9:34:10 AM                                                                                                                    
Co-Chair  Seaton  answered that  there  was  a bill  in  the                                                                    
Senate looking at telling the  next legislatures what to do.                                                                    
He explained  HB 287  aimed to  accomplish early  funding of                                                                    
education.  He speculated  there  would be  amendments to  a                                                                    
bill  currently in  the Senate  and perhaps  from the  House                                                                    
Finance Committee. He stated it  was necessary to figure out                                                                    
what to  do in the  future, but he did  not want to  put off                                                                    
addressing the  current year.  The only  way to  address the                                                                    
issue  in the  current year  was  to pass  an early  funding                                                                    
bill.  The only  other appropriation  the legislature  could                                                                    
use  for education  funding was  from the  ERA, which  was a                                                                    
high earning account and he  did not believe the legislature                                                                    
wanted  to do.  He believed  the legislature  was trying  to                                                                    
avoid ad  hoc draws from the  ERA. He continued that  HB 287                                                                    
would  take funds  from the  CBR as  the sole  pot of  money                                                                    
available to fund  education. He noted there  would be other                                                                    
decisions  the legislature  had  to make.  He  had met  with                                                                    
Representative Mike Chenault and  Senator Peter Micciche and                                                                    
there had  been general  agreement to  move forward  with an                                                                    
early funding  bill. The CBR  was the only available  pot of                                                                    
money without  deciding on an ad  hoc draw from the  ERA. He                                                                    
reasoned if there  was consensus among the  House and Senate                                                                    
and  their  caucuses, he  believed  it  was possible  to  go                                                                    
forward and accomplish the goal of early education funding.                                                                     
Co-Chair Foster  recognized Representative  Harriet Drummond                                                                    
in the audience.                                                                                                                
Vice-Chair Gara  reported he had  initially wondered  if the                                                                    
bill  could  be  funded  with  general  funds;  however,  he                                                                    
understood from LFD  that until action was taken  to fix the                                                                    
deficit, any general  fund money went out to  pay bills from                                                                    
FY  18. There  was no  general  fund balance  to early  fund                                                                    
education.  The only  two options  to  early fund  education                                                                    
were the CBR or ERA. He did not want to use the ERA.                                                                            
Co-Chair Foster  provided the House Finance  Committee email                                                                    
address for public testimony.                                                                                                   
9:38:43 AM                                                                                                                    
AT EASE                                                                                                                         
9:39:35 AM                                                                                                                    
DAVID  PIAZZA,   SUPERINTENDENT,  SOUTHWEST   REGION  SCHOOL                                                                    
DISTRICT, DILLINGHAM (via  teleconference), spoke in support                                                                    
of the bill.  School districts needed to know  the budget in                                                                    
order to finalize their own  budgets in the spring. He noted                                                                    
that although  the Southwest Region School  District did not                                                                    
send  out  pink  slips  to  employees  the  past  year,  the                                                                    
district  hesitated on  making  early  hiring decisions.  He                                                                    
spoke to  vacancies in the  district that had  remained into                                                                    
the  summer.  The pool  of  candidates  had still  contained                                                                    
quality  individuals,  but  the  number  of  candidates  was                                                                    
limited. The district supported  measures by the legislature                                                                    
to  secure  funding  early to  help  public  school  systems                                                                    
including  DEED and  local schools  to plan  effectively and                                                                    
efficiently. He reiterated support for the bill.                                                                                
9:41:46 AM                                                                                                                    
SEAN DUSEK, SUPERINTENDENT,  KENAI PENINSULA SCHOOL DISTRICT                                                                    
(via teleconference), KENAI, testified  in strong support of                                                                    
the  legislation.  He  underscored  the  importance  of  the                                                                    
discussion  on a  fiscal plan,  but it  had resulted  in the                                                                    
late  passage of  the operating  budget. By  statute, school                                                                    
districts were required to make  staffing decisions no later                                                                    
than mid-May.  HeHe stressed there was  a disconnect between                                                                    
school  related   statute  and  recent   legislative  budget                                                                    
development  practice. It  had forced  districts to  lay off                                                                    
staff or delay  hiring staff. The district had  to make many                                                                    
difficult decisions  over the past  few years due  to fiscal                                                                    
problems. The bill provided certainty  for districts to work                                                                    
with  local  communities through  the  budget  process in  a                                                                    
timely manner. He  supported the budget process  in a timely                                                                    
manner that would  allow the hire of  qualified teachers. He                                                                    
noted  that   additional  items   needed  to   be  addressed                                                                    
including  funding  for  the  Public  Employees'  Retirement                                                                    
System (PERS) and Teachers'  Retirement System (TRS), school                                                                    
bond debt reimbursement, and healthcare.  He stressed that a                                                                    
full funding package would allow districts to plan.                                                                             
9:44:11 AM                                                                                                                    
DEENA  BISHOP,  SUPERINTENDENT, ANCHORAGE  SCHOOL  DISTRICT,                                                                    
ANCHORAGE  (via teleconference),  spoke  in  support of  the                                                                    
legislation.  Early  funding  would help  avoid  unnecessary                                                                    
layoff notices.  The statutory  deadline for  teacher layoff                                                                    
notices was May 15 for tenured  teachers and the last day of                                                                    
school for nontenured teachers.  During the past legislative                                                                    
session,  state  budget  negotiations   had  gone  past  the                                                                    
aforementioned  statutory deadline.  The  district had  been                                                                    
forced  to  issue  layoff  notices  to  223  teachers.  Some                                                                    
legislators  at the  time  had been  calling for  a  3 to  5                                                                    
percent cut  to K-12  education. The  risk for  the district                                                                    
had been too high to  avoid issuing the layoff notices. Most                                                                    
of the notices had been  recalled, but there was significant                                                                    
loss of morale. She  appreciated the committee's support for                                                                    
public education. The bill would  take the guess work out of                                                                    
the school districts' budget process.                                                                                           
9:46:01 AM                                                                                                                    
DAVID   NEES,   ALASKA    POLICY   FORUM,   ANCHORAGE   (via                                                                    
teleconference),  stated that  the bill  solved part  of the                                                                    
problem, but  it created  a problem as  well. He  stated the                                                                    
bill  would  fund  everything  in  the  education  including                                                                    
superintendents.  The bill  aimed  to solve  the problem  of                                                                    
sending  pink  slips  to teachers.  He  believed  the  early                                                                    
funding would  probably solve  the problem,  but it  did not                                                                    
directly address it.  He stated the bill did  not state that                                                                    
the legislature would  fund teachers early in  order for the                                                                    
districts  to decide  when they  wanted  to do  the rest  of                                                                    
their budget. He stressed the  need to provide and designate                                                                    
a  specific  funding level  for  teachers.  He explained  it                                                                    
meant teachers could be retained  and would not receive pink                                                                    
slips.  He suggested  passing  the  specific funds  annually                                                                    
prior to  the end  of the 90-day  session. He  believed that                                                                    
the  block  grant  education  system  was  the  problem.  He                                                                    
explained pulling  the teacher funding component  out with a                                                                    
separate block  grant, perhaps including  transportation, it                                                                    
would  result in  a good  system.  He stated  that the  bill                                                                    
would solve  the problem,  but it  created a  precedent that                                                                    
could include other  agencies in the future.  He cited early                                                                    
funding  for state  troopers as  an example.  He recommended                                                                    
funding teachers early.                                                                                                         
9:49:03 AM                                                                                                                    
Co-Chair Foster recognized Representative  Chris Tuck in the                                                                    
JOHN  KELLY, DISTRICT  9 MEMBER,  STATE BOARD  OF EDUCATION,                                                                    
HOMER  (via   teleconference),  spoke  in  support   of  the                                                                    
legislation. The  bill would assist  the school  district in                                                                    
retaining  talented staff  and  teachers. Additionally,  the                                                                    
bill  would  help  protect   the  district's  investment  in                                                                    
professional  development   resources.  He   understood  the                                                                    
current fiscal environment and was  willing to make the most                                                                    
of the funding  proposal with the certainty  of securing its                                                                    
budget in time to reduce the  number of pink slips it had to                                                                    
pass out in the spring.                                                                                                         
9:50:24 AM                                                                                                                    
KELLY  COOPER, SELF,  HOMER (via  teleconference), spoke  in                                                                    
support of the  bill. She relayed that the  entire state was                                                                    
painfully aware of  the fiscal issues the  state was facing.                                                                    
She appreciated that  legislators understood education could                                                                    
not sustain additional cuts. The  future of the state relied                                                                    
on  the success  of current  students.  As a  member of  the                                                                    
Kenai  Peninsula Borough  Assembly, school  district funding                                                                    
was the largest  portion of their budget.  She explained the                                                                    
difficulty  of working  off  of  different budget  scenarios                                                                    
when  developing  the  district's  budget.  She  planned  to                                                                    
sponsor  a resolution  from the  borough in  support of  the                                                                    
legislation  at an  upcoming  meeting.  Forward funding  the                                                                    
education budget  was critical to all  school districts. She                                                                    
spoke to the benefits of  early funding. She asked committee                                                                    
members to think  about what would happen if  they could not                                                                    
determine their family budgets.                                                                                                 
9:52:42 AM                                                                                                                    
AMY LUJAN, ALASKA ASSOCIATION  OF SCHOOL BUSINESS OFFICIALS,                                                                    
spoke  in strong  support  of the  bill's  intent for  early                                                                    
funding of education. The association  was asking for timely                                                                    
funding for education to  ensure sound financial management.                                                                    
She   spoke  to   the  nationwide   teacher  shortage.   She                                                                    
emphasized the  difficulty of  recruiting teachers  when the                                                                    
budget was  not known  until the last  minute. Additionally,                                                                    
implementing  a class  curriculum  took  advanced work.  She                                                                    
asked members  to imagine  flying teachers  in for  the last                                                                    
minute with no time for  training. She stated it was setting                                                                    
up for failure. The situation  was impacting the ability for                                                                    
quality  education. She  referenced prior  testimony by  Mr.                                                                    
Nees and  stressed it was  not possible to fund  one portion                                                                    
of a  budget - it  would not  really solve a  problem. Never                                                                    
before had the legislature  directed funding to districts in                                                                    
that way.  She did  not believe  the solution  was workable.                                                                    
She spoke in support of the legislation.                                                                                        
9:56:29 AM                                                                                                                    
Vice-Chair Gara asked if somewhere  around 10,000 pink slips                                                                    
went out if funding was not provided in a timely manner.                                                                        
Ms. Lujan replied that she  did not know. She elaborated the                                                                    
number  depended  on  the financial  picture  in  individual                                                                    
districts  (e.g.  tenured  versus nontenured  positions  and                                                                    
other). She  noted there were  certainly that  many teachers                                                                    
that the pink  slips could impact. The  uncertainty was also                                                                    
detrimental to morale.                                                                                                          
Representative Ortiz referenced  Ms. Lujan's testimony about                                                                    
a lack of  time for teacher recruitment. He  asked about the                                                                    
number of unfilled positions in the current year.                                                                               
Ms. Lujan  answered that  she did  not track  those specific                                                                    
statistics, but she  believed Dr. Lisa Parady  or DEED would                                                                    
have the information. She heard  the unfilled positions were                                                                    
in the hundreds at the beginning of the school year.                                                                            
9:58:07 AM                                                                                                                    
MARK   MILLER,  SUPERINTENDENT,   JUNEAU  SCHOOL   DISTRICT,                                                                    
JUNEAU,  testified in  favor of  the  bill. He  communicated                                                                    
that flat  funding in recent  years had caused  the district                                                                    
to budget on  a razor-thin margin. There was  no wiggle room                                                                    
in the  district's budget. The  district's end  fund balance                                                                    
was less than one half of  1 percent of its total budget. If                                                                    
he had to keep the schools  open for two more days, he would                                                                    
not  have  money  for  payroll.   The  amount  the  district                                                                    
received from  the state determined  the amount  it received                                                                    
from the  city because it was  funded to the cap.  Until the                                                                    
district knew what it would  get from the legislature it did                                                                    
not know  what it would get  from the city and  it still had                                                                    
to  have  a  budget  done in  March.  There  were  statutory                                                                    
requirements to  pink slip  tenured teachers  by May  15. He                                                                    
stated  that part  of the  issue depended  on the  amount of                                                                    
money the  district received in  the budget and  whether the                                                                    
cut reached the threshold. He noted  that in May he had been                                                                    
told that  the district  would have  to cut  its non-tenured                                                                    
teachers, which  he communicated the district  would not do.                                                                    
He stressed  that he would  not pink-slip those  teachers to                                                                    
have  them leave  for other  districts. Fortunately  no cuts                                                                    
had occurred. He believed the bill  was a good first step in                                                                    
moving in the right direction.                                                                                                  
10:00:41 AM                                                                                                                   
LISA PARADY,  EXECUTIVE DIRECTOR,  ALASKA COUNCIL  OF SCHOOL                                                                    
ADMINISTRATORS, spoke in favor of  the bill. She thanked Co-                                                                    
Chair Seaton and cosponsors for  listening to the pleas from                                                                    
the  administrators.  She  provided  information  about  the                                                                    
Alaska  Council  of  School Administrators.  She  brought  a                                                                    
handout  for  members  reflecting the  organization's  joint                                                                    
position statements.  She pointed out the  highest priority,                                                                    
which was priority funding for  education. She stressed that                                                                    
reliable, timely,  and predictable  funding for  schools was                                                                    
the  highest  priority,  which  helped  schools  make  sound                                                                    
financial management decisions  required by the legislature.                                                                    
She underscored  the importance of quality  educators, which                                                                    
could  not  be secured  without  funding.  She stressed  the                                                                    
unparalleled  national crisis  with education  staffing. She                                                                    
expounded that  an insufficient  number of  individuals were                                                                    
going into education and the  state had lost competitiveness                                                                    
in  attracting teachers  from the  Lower 48.  She emphasized                                                                    
the importance  of allowing districts time  to get contracts                                                                    
out to  retain qualified teachers  was a high  priority. The                                                                    
organization saw the  bill as a way to  provide stability to                                                                    
Ms. Parady replied to an  earlier question by Representative                                                                    
Ortiz. She reported  that in December there  had been almost                                                                    
100 special  education positions open across  the state. She                                                                    
remarked  that   the  positions   were  being   filled  with                                                                    
substitutes, which  was not what  was wanted for  the state.                                                                    
She could provide further detail later.                                                                                         
10:05:43 AM                                                                                                                   
KATHIE  WASSERMAN,  EXECUTIVE   DIRECTOR,  ALASKA  MUNICIPAL                                                                    
LEAGUE, testified in  favor of the bill.  The issue impacted                                                                    
municipalities  as well.  She stated  that the  inability to                                                                    
plan  was  a  backbreaking  issue  for  the  districts.  She                                                                    
stressed  the  importance  of  being able  to  plan  and  be                                                                    
successful.  She thought  the issue  had become  a political                                                                    
football at the end of  session, which she believed was very                                                                    
sad. She  noted that it was  not really possible to  hold on                                                                    
to teachers under the situation.  She encouraged the passage                                                                    
of the bill.                                                                                                                    
Co-Chair  Foster CLOSED  public testimony.  He relayed  that                                                                    
amendments  were due  on Monday,  January 29,  2018 by  5:00                                                                    
p.m. The bill would be heard again on Tuesday, January 30.                                                                      
HB  287  was  HEARD  and   HELD  in  committee  for  further                                                                    
10:08:42 AM                                                                                                                   
AT EASE                                                                                                                         
10:09:49 AM                                                                                                                   
HOUSE BILL NO. 213                                                                                                            
     "An Act relating to the investment, appropriation, and                                                                     
     administration of the public school trust fund."                                                                           
10:09:56 AM                                                                                                                   
REPRESENTATIVE  JUSTIN PARISH,  SPONSOR, explained  that the                                                                    
bill  would achieve  greater  efficiency  in government.  He                                                                    
detailed  it would  allow  the state  to  manage the  Public                                                                    
School  Trust  Fund in  a  way  that would  realize  greater                                                                    
earnings and would allow more  to be sustainably spun off to                                                                    
support  public education  statewide.  He characterized  the                                                                    
details  of the  bill as  a  bit esoteric.  He explained  it                                                                    
would modernize  the way  the fund was  managed. All  of the                                                                    
analyses  he had  seen had  supported the  change. The  bill                                                                    
would switch  from the  current antiquated  model to  a more                                                                    
modern  industry  standard  of  a Percent  of  Market  Value                                                                    
(POMV) draw. The  bill proposed a conservative  POMV draw of                                                                    
4.75 percent and would include a 10-year lookback.                                                                              
Co-Chair  Foster relayed  the  committee would  recess to  a                                                                    
call of the chair [note: the meeting never reconvened].                                                                         
HB  287  was  HEARD  and   HELD  in  committee  for  further                                                                    
10:12:23 AM                                                                                                                   
11:54:43 AM                                                                                                                   
The meeting was adjourned at 11:54 a.m.                                                                                         

Document Name Date/Time Subjects
HB 213 Sponsor Statement Public School Trust fund.pdf HFIN 1/25/2018 9:00:00 AM
HB 213
HB 287 Sponsor Statement.pdf HFIN 1/25/2018 9:00:00 AM
HB 287
Sectional Analysis HB 213.pdf HFIN 1/25/2018 9:00:00 AM
HB 213
HB 287 Presentation 1-25-2018.pdf HFIN 1/25/2018 9:00:00 AM
Sectional Analysis HB 213.pdf HFIN 1/25/2018 9:00:00 AM
HB 213
HB 213 Comparison 01-12-2018.pdf HFIN 1/25/2018 9:00:00 AM
HB 213
HB 213 10 years 01-23-2018.pdf HFIN 1/25/2018 9:00:00 AM
HB 213
HB 287 Letters in Support.pdf HFIN 1/25/2018 9:00:00 AM
HB 287
HB 213 DOR endowment calculations table.pdf HFIN 1/25/2018 9:00:00 AM
HB 213
HB 287 Letter in Support 1.25.16.pdf HFIN 1/25/2018 9:00:00 AM
HB 287
HB 287 JPS State Issues 2018.pdf HFIN 1/25/2018 9:00:00 AM
HB 287
HB 287 Support Document Follow up.pdf HFIN 1/25/2018 9:00:00 AM
HB 287
HB 287 Presentation 1-25-2018.pdf HFIN 1/25/2018 9:00:00 AM
HB 287