Legislature(1997 - 1998)
04/29/1998 01:50 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
April 29, 1998
1:50 P.M.
TAPE HFC 98 - 134, Side 1.
TAPE HFC 98 - 134, Side 2.
TAPE HFC 98 - 135, Side 1.
TAPE HFC 98 - 135, Side 2.
CALL TO ORDER
Co-Chair Therriault called the House Finance Committee
meeting to order at 1:50 P.M.
PRESENT
Co-Chair Hanley Representative Kelly
Co-Chair Therriault Representative Kohring
Representative J. Davies Representative Martin
Representative G. Davis Representative Moses
Representative Foster Representative Mulder
Representative Grussendorf
ALSO PRESENT
Avrum Gross, Attorney, North Slope Borough, Juneau; Deborah
Vogt, Deputy Commissioner, Department of Revenue; Eddy
Jeans, Manager, School Finance Section, Education Support
Services, Department of Education; Rick Cross, Deputy
Commissioner, Department of Education; Kristie Tibbles,
Staff, Senator Drue Pearce.
TESTIFIED VIA TELECONFERENCE:
Steve Van Sant, State Assessor, Anchorage; John Eng,
Associated General Contractors, Anchorage; Tom Brooks,
Chief Engineer, Alaska Railroad Corporation, Anchorage;
Bill Hupprich, Associate General Counsel, Alaska Railroad
Corporation, Anchorage; Bill Sheffield, President, Alaska
Railroad Corporation, Anchorage.
SUMMARY
SB 36 An Act relating to transportation of public
school students; relating to school construction
grants; relating to the public school foundation
program and to local aid for education; and
providing for an effective date.
SB 36 was HELD in Committee for further
consideration.
SB 285 An Act relating to state procurement practices.
SB 285 was HELD in Committee for further
consideration.
SENATE BILL NO. 285
"An Act relating to state procurement practices."
KRISTIE TIBBLES, STAFF, SENATOR DRUE PEARCE, explained that
when highway improvements are needed, a project is designed,
a request for bids is advertised, and a construction
contract is then competitively awarded by the Department of
Transportation and Public Facilities (DOT&PF). When the
highway that needs the work involves the Alaska Railroad,
the work involving the Railroad property is not included in
that bid. When such a situation occurs, the Department
negotiates a force-account contract with the Alaska
Railroad. That arrangement reduces the amount of work which
the private industry can participate in and keeps the
Department public fund expenditure from going through a
competitive bid arrangement.
Ms. Tibbles reported that SB 285 would reintroduce
competition for construction of DOT&PF highway projects
which involve the Alaska Railroad. SB 285 will establish a
fair and effective manner by which to award construction
contracts for those projects and will require the Alaska
Railroad Corporation to utilize a competitive bidding
process, openly advertised when managing projects.
JOHN ENG, (TESTIFIED VIA TELECONFERENCE), ASSOCIATED GENERAL
CONTRACTORS, ANCHORAGE, testified in support of the bill
before the Committee. He stated that taxpayer dollars
should be used for improvements to other properties included
in the bidding process. He urged passage of the
legislation.
Representative G. Davis inquired if the bill had been
created to address a specific problem. Mr. Eng replied that
in recent years, the Department of Transportation has
negotiated account contracts with the Alaska Railroad,
project paid for with tax dollars. Consequently, general
contractors have not had the opportunity to bid on that
work. The Alaska Railroad could participate by working for
contractors that bid on those projects. The Railroad would
not be able to bid or sign a contract on a force-account
contract.
Representative G. Davis questioned the legal authority of
those people working within the Alaska Railroad right-of-
way. Mr. Eng replied that the right-of-way is property
which belongs to the Alaska Railroad, and that DOT&PF works
together with them to address highway improvements which
occur within that area.
Representative J. Davies asked if there would be a problem
separating the roadwork from the signaling and control work.
Mr. Eng replied that would not create a problem.
TOM BROOKS, (TESTIFIED VIA TELECONFERENCE), CHIEF ENGINEER,
ALASKA RAILROAD CORPORATION, ANCHORAGE, commented that in
the existing system, DOT&PF treats the Alaska Railroad as a
utility. If one of their projects impacts the Alaska
Railroad, they come to the Railroad to provide funding
needed to accommodate the changes required.
He continued, that work is generally done with a railroad
work force, however, from time to time, there has been a
request from the Department to pursue a construction
contract. When that work is done, the Railroad employees
100% Alaskans. He continued, if the work were bid, there
are a limited number of qualified contractors in the State.
Mr. Brooks emphasized that if the work were competitively
bid, there is no guarantee that it would stay in Alaska.
Mr. Brooks stressed that there is valid concern when
addressing the safety of the trains. He added, if the bill
is separated, it is important that signaling and flag
protection continues to be part of the Alaska Railroad
effort. He reiterated that the signaling work is a
specialty contract situation and that railroad flag
protection is a matter of safety.
BILL HUPPRICH, (TESTIFIED VIA TELECONFERENCE), ASSOCIATE
GENERAL COUNSEL, ALASKA RAILROAD CORPORATION, ANCHORAGE,
remarked that if the proposed legislation is enacted, it
could cause problems in Union agreements by restricting the
Railroads authority to contract or subcontract out the work.
He warned that the legislation could place the Alaska
Railroad in the middle of a Department project. If the work
were not done with railroad people, it would be best to have
the Department contract directly with the bidder, which
would solve the Union contract problem.
Mr. Hupprich advised that the Alaska Railroad is opposed to
passage of the bill. He spoke to Amendment #1. [Copy on
File]. He recommended that if the legislation is to pass
that "construction work" must exclude signal work and rail
flagging.
Mr. Hupprich pointed out that Amendment #1 proposes to amend
Section 1.36.30.015(a), on the fifth line, placing a period
after "Public Facilities" and deleting the remainder of the
underlined portion of the amendment. Co-Chair Therriault
clarified that if the money were coming from the Department,
they would then be the ones handling the entire project.
BILL SHEFFIELD, (TESTIFIED VIA TELECONFERENCE), PRESIDENT,
ALASKA RAILROAD CORPORATION, ANCHORAGE, reiterated that the
concern with the legislation is a matter of safety,
particularly, signaling and flagging. Governor Sheffield
explained that the Alaska Railroad Corporation is a
specialist in railroad construction and that most DOT&PF
jobs are done from standard plans, generally not charging
for the engineering and/or site inspection. He reiterated
that the Alaska Railroad is in opposition to the
legislation.
In response to a concern by Representative Foster, Mr.
Brooks explained that the Alaska Railroad occasionally
receives grant money from the federal government that passes
through DOT&PF. The intent is that funding not be a part of
the proposed legislation.
Representative G. Davis asked if DOT&PF would have the legal
authority to dictate control of the project. Governor
Sheffield replied that the Alaska Railroad does have control
of its own right-of-way where it crosses a highway belonging
to the Department. If the Department is to improve the road
or reconstruction is done, there must be coordination of the
project so that it is done safely.
Representative Martin suggested that DOT&PF could be a
better facilitator of cooperation. Governor Sheffield
reiterated the need that the Alaska Railroad is in charge of
the signalization.
Co-Chair Hanley advised that his preference is to allow the
competitive bidding process, then whom ever meets the
qualifications and the lowest bid should be able to do the
work. He asked if that language was included would there
continue to be a Union contract problem for the Alaska
Railroad. Mr. Hupprich replied it could work if the
language of the amendment was deleted.
Co-Chair Hanley asked if the Department bids out the job
through an open competitive process, the Railroad then bids
as one of the contractors, would there continue to be a
problem. Mr. Hupprich replied there wouldn't and that the
Alaska Railroad could support that language.
SB 285 was HELD in Committee for further consideration.
SENATE BILL NO. 36
"An Act relating to transportation of public school
students; relating to school construction grants;
relating to the public school foundation program and to
local aid for education; and providing for an effective
date."
DEBORAH VOGT, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
advised that the answers to Co-Chair Therriault's questions
were addressed in a letter from the Department dated
4/29/98. [Copy on File]. She added that in the members
packet was a spreadsheet illustrating the ASSESSED VALUES
and TAX RATES (taken from the Alaska Taxable). [Copy on
File].
Ms. Vogt commented that the Department of Revenue's primary
responsibility is carried out in the Oil and Gas Audit
Division located in Anchorage. The responsibility of that
agency is to access the property that is taxed under AS
43.66. The State carries out those assessments and
announces the values to the various municipalities; the
municipalities or the taxpayers can appeal those assessments
to the review board.
Ms. Vogt explained that the Department began a regulation
process on AS 43.56 last summer. Both taxpayers and
municipalities are in the process of identifying what
general subject areas will be addressed.
The methodologies used by the municipalities under AS 43.56
have been the subject of a great deal of interest over the
years. In the end, everyone who has looked at the
methodology, has returned to that methodology established
twenty years ago. By now there is twenty years of
continuous and consistent construction of those statutes.
She emphasized that the Department at this time, has found
no reason to again review those determinations.
Co-Chair Therriault noted that Ms. Vogt's letter had made
reference to the 1989 Senate Select Advisory Committee on
Municipal Taxation of Oil and Gas Properties. Ms. Vogt
replied that this was a "blue ribbon commission", members
which had been chosen to review these issues and make
recommendations to the Legislature.
Co-Chair Therriault made reference to the two methodologies
which in the past has allowed the municipalities to move
from one method to the other, converting the tax to a mill
rate. He noted that this had not been proposed in statute
anywhere. Statute states that an area is to access one of
the two methods. Ms. Vogt replied that the statutory base
from which that issue had been established in AS 29.45.100,
clarifies that all limitations do not apply for bonded
indebtedness.
Co-Chair Therriault replied that was for bonded indebtedness
and that the way it is being applied is impacting
justification to remove all limitations. Ms. Vogt explained
that the limitations on the operating budgets are
implemented by the boroughs, whereas, the limitations on
bonded indebtedness to the operating budget applies to the
225%, which then determines a mill rate cap established by
statute, multiplied by 30 mills, times the 225% limit which
gives a dollar amount (30 mills applied against that tax
base). The bonded indebtedness establishes the bonded
indebtedness for all properties in the municipality.
In response to a handout distributed, Representative J.
Davies questioned if Co-Chair Therriault was insinuating
that an illegal formula was being used. [Copy on File].
Co-Chair Therriault stated that he had received the handout
from the Ketchikan City and Borough group without properly
checking it before releasing it. [Copy on File].
Representative Martin asked if a ceiling had been set. Ms.
Vogt replied that the Court established that ceiling in the
North Slope Borough versus the Sohio case in 1978. There
was language in statute stipulating that the Statute of
Limitation did not apply to bonded indebtedness. The State
argued that the limitations were waived only when the bonds
were in jeopardy of default. The Supreme Court responded
that the limitations are removed in all cases of bonded
indebtedness.
Representative Martin asked to what degree the State was
morally obligated to school bonding indebtedness. Ms. Vogt
could not answer that question nor speak to the motivation.
Co-Chair Therriault inquired, when using method C and
arriving at a dollar amount, and then returning back to
method B and assessing against the tax base, would that
artificially keep a millage rate on the local property,
unusually low. Ms. Vogt noted that the conversion of the
mill rate from the smaller property base to the larger rate
is a cosmetic difference, and that it would arrive at the
same result. The issue raised by Representative Therriault
is how the 225% property tax base gets built. All the
property is prorated and reduced to form the cap. Ms. Vogt
disagreed with Representative Therriault's characterization
that they convert to method B; she understood that they use
method C for the operating budget and that there is no
limitation on bonding indebtedness.
Co-Chair Therriault questioned that portion. The Department
must appropriate that part of the oil and gas properties
which are subject to taxation, while apportioning the local
owned property. He advised that there is not a statutory
directive to do that. Ms. Vogt remarked that this is the
issue which has been questioned over the years. She
suggested that perhaps the Department of Revenue should
physically designate pieces of property within the 225%
limit. The proportioned pro rata reduction is the only way
that mandates could be applied.
Co-Chair Hanley inquired the combined North Slope Borough
mill rate. Ms. Vogt stated that the total mill rate was
18.51%. The handout chart indicates how the mill rate is
established.
(Tape Change HFC 98- 134, Side 2).
Co-Chair Hanley questioned if the 225% cap was the total
dollar amount. Ms. Vogt replied that 27 mills would be
applied to the 225% portion for the operating budget. Co-
Chair Hanley inquired the mill rate calculated on the total
budget in order to arrive at the bond debt service rate.
Ms. Vogt replied that the debt service rate would be the
13.39. The chart indicates how the mill rate for the
smaller tax base on the 225% limit is converted for the mill
rate for the purpose of the property tax bills.
Co-Chair Hanley asked if the North Slope Borough had passed
an ordinance on the mill rate assessment. Ms. Vogt stated
that they do pass an ordinance, although, she had not seen
it. The figure indicated in the handout refers to the
ordinance passed in that area and sets out the manner in
which the entire mill rate is built.
Co-Chair Therriault asked if the Department had adopted
regulations incorporating the methodology as recommended in
the 1978 memo from the Department of Revenue. Ms. Vogt
stated it had not been done to date, although, there is a
regulation project in the makings at this time and that a
task force group was currently looking at those issues.
Co-Chair Therriault commented that this concern is so "big"
and complicated, the Legislature, to date has chosen not to
address these concerns. He acknowledged this was not the
fault of the North Slope, suggesting that perhaps the tax
paid by private citizens was low due to the methodology
being used. Co-Chair Therriault believed that the residents
of the North Slope Borough would be more mindful of their
total debt if they were paying the proper mill rate,
pointing out the impact to the State Treasury.
Ms. Vogt responded that the 1978 North Slope Borough versus
Sohio lawsuit had a tremendous impact. Unless that Court
decision was reversed, it would be difficult to change what
is currently happening. Co-Chair Therriault argued that any
Court decision was subject to interpretation. He did not
agree that the interpretation of the Court decision was to
remove the limitations on everything. The oil and gas
taxation mechanism was created separately and was to be
treated separately so that a percentage of the wealth of
those properties could flow to the general fund in order to
be distributed across the State. He recommended those funds
could be distributed to help pay for K-12 education.
Co-Chair Hanley asked if Ms. Vogt had read the Ketchikan
analysis. Ms. Vogt commented that she had seen a part of it
and that there were a couple of differences between the way
Ketchikan reads the status quo and the way the Department
understands it to be. The first difference is a question of
whether the North Slope Borough (NSB) versus Sohio case did
restrict bonded indebtedness taxation to the 225% limit.
That language makes it clear that the limitations do not
apply, but it does not appeal the power to tax.
Co-Chair Therriault noted that the tax case implied that for
the bonded indebtedness portion of their budget, a
municipality could go above the limit, but would not be able
to do so for the operating budget. Ms. Vogt agreed. She
understood that the Ketchikan representative was saying that
the Court allowed bonded indebtedness to go beyond a rate
and amount but not on the tax base. An additional concern
resulting from that testimony was the idea that Ketchikan
was interpreting the current practice as evidence that the
municipality had chosen method B. Ms. Vogt disagreed,
noting that they had chosen and continue to use the 225%.
Co-Chair Hanley asked if the House Finance Committee passed
a resolution or sent a letter to the Department requesting
that the Department address this concern in a different
manner, would the Legislature be guaranteed that would
happen. Ms. Vogt replied that 20 years of a statute of
continuous and consistent action carries a fair amount of
weight, although, if the Legislature passed a statute, then
the Department would adhere to that change.
In response to Representative Mulder's accusation of the lie
being lived by North Slope Borough for the past 20 years,
Ms. Vogt cautioned that this was a statutory area which has
not been clear to everyone, neither the Department of Law,
the Department of Revenue nor the North Slope Borough.
Representative J. Davies pointed out that the Legislature
took a close look at the concern when it formed the 1989
Select Committee; that group provided a blessing of the
status quo.
Co-Chair Therriault referenced a memo from Tamara Cook
regarding the municipally taxation of oil and gas production
and pipeline property. [Copy on File]. In that memo, she
made reference to the portion of the statute which stated
that the Department might designate a portion of the tax
base against which the local tax may be applied. Co-Chair
Therriault emphasized that proration of personal property is
not correct. Ms. Vogt acknowledged that this is the issue
which has been in conflict and that methodology has been
publicly scrutinized and brought to the attention of the
Legislature.
Representative Foster requested that the Department of Law
come before the Committee to respond to legal concerns
regarding the North Slope Borough accusations. He strongly
protested materials distributed in members packets. Co-
Chair Therriault cited that what was requested was
clarification of how the statute should be applied.
AVRUM GROSS, ATTORNEY, REPRESENTING THE NORTH SLOPE BOROUGH,
JUNEAU, spoke to the taxation of oil and gas property as
pertaining to the context within SB 36. He insinuated that
this is an issue of "life and death" for the North Slope
Borough. Mr. Gross stressed that there has been no
illegality and no impropriety. The North Slope Borough and
the State of Alaska have followed rigorously the statutes
which have been passed by the Legislature.
Mr. Gross pointed out that the presentation given by the
representatives from Ketchikan was confusing and misleading.
He advised that he had been involved with this issue since
its inception in 1973, during a Special Legislative Session
which settled the litigation between the oil companies and
the State over the pipeline. Part of that Special Session
addressed the taxation of the pipeline and related property.
Taxation focused on a number of things, one of which was the
taxation of oil and gas property used in the development of
oil.
Mr. Gross continued, at that time, the State imposed a 20-
mill tax on all pipeline property. The issue arose
regarding what that would do to municipal taxation.
Municipalities were granted the right to tax oil and gas
property that was located within their boundaries. Their
power to tax was limited by statute. Mr. Gross pointed out
that this was the only limitation that is found on taxation
of real property or property of this nature in the State.
In the case of oil and gas, the State imposed some
limitations. The limitations that were imposed are found in
the municipal code. Those limitations are two-fold.
? The first is the total amount of tax, which the
borough can impose, which could make for a low
mill rate.
? The second limitation is what has created
confusion in the House Finance Committee. It does
not limit the amount of tax imposed, but instead,
limits the value of property upon which the tax is
imposed. That is determined by taking the total
assessed valuation of all real property in the
State, divide it by the number of residents in the
State, which provides an averaged accessed value
per resident. That figure is multiplied by 225%,
and then multiply that amount by # of people in
the municipality. Then we would have the assessed
value in the municipality upon which a property
tax maybe assessed. If that value were higher
than the assessed value of all the property in the
municipality, there would be a problem.
Mr. Gross continued, the problem comes when the property
value in the municipality is greater than the amount
produced in the formula. He questioned what is done in
order to reduce the assessed value to limit on which you
impose a tax. There are two options:
? Reduce the oil and gas property down
proportionately, or
? Reduce all the property down proportionately.
Mr. Gross continued, the Statute which Mr. Bullock,
Ketchikan Borough, is concerned about specifies that a
municipality may level and collect a tax on the full and
true value of that portion of taxable property as assessed
by the Department of Revenue and does not exceed the
accessed valuation produced by the 225% figure. The only
property, which gets reduced, is the oil and gas property.
Everyone else pays taxes at the full and true value.
Mr. Gross noted that the Department of Revenue analyzed
this, noting that it was only one statute, which is part of
a total code which authorizes municipalities to tax oil and
gas property. Mr. Gross pointed out that there are two
other statutes. That statute does not indicate what should
be done if the value of all the property exceeds the
maximum. There is another statute, AS 43.56.10 010(c),
which indicates what exercise should be undertaken. That
statute states that if the total value of the accessed
property exceeds the 225% limit, the Department of Revenue
shall designate the portion of that tax base against which
the local tax may be applied. When referring to a portion
of the tax base, they were referring to the entire tax base.
They were speaking about a proportionate reduction of the
entire tax base.
At that time, the Attorney General also looked at the
general statute AS 43.56, which required municipalities to
tax oil and gas property at the same rate as all other
property. If only the oil and gas property is reduced, and
the value of other things was not proportionately reduced,
the effective tax rate would not be the same. The purpose
of the Legislature was to insist upon a proportioned
reduction of all taxes under the 225% tax limit.
Mr. Gross advised that the legislation is not clear.
Someone had to make an opinion and that opinion was issued
in 1978. In 1985, the issue was surfaced again by Mr.
Bullock when he worked for the Department of Revenue. At
that time, the Attorney General looked at the statutes and
concluded that the method used by the North Slope Borough
was acceptable and reasonable. It had been authorized and
directed by the State. In 1989, the Select Committee
comprised of members from the former Commissioner of the
Department of Revenue and the former Commissioner of the
Department of Community and Regional Affairs was created and
the Legislature was once again made aware of the situation.
Mr. Gross spoke to the second issue pertaining to bonds.
For all municipalities in the State of Alaska, there are no
limits on the ability to tax for bonds. There is a general
30-mill limitation on municipal taxation. That limitation
falls by the wayside when talking about bonds. The
Legislature, when it adopted these two limits, put in a
separate statute which stated that these limits do not apply
to the payment of bonds. The issue arose in the Sohio case
and the Supreme Court stated it was all bonds. There is no
limitation on the ability of the Borough to tax to pay
bonds.
Mr. Gross advised that if were changed, it would be fatal to
the North Slope Borough. In reliance upon what the State
has told it to do, the North Slope Borough has issued bonds
and has created an operating budget. If that were changed
now, it would shift an inordinate chunk of the obligation to
support the local government on the people who own other
than oil and gas property in that area. In some cases, that
burden would be very high and as a result the budget of that
area would have to be radically cut. Lots of people would
be unemployed. The bond situation would be worse and would
affect more than the people that live in that area. The
North Slope Borough bonds would go into default. There
would be no way the residents could pay for basic public
service bonds and they would have to assume new obligations
for bonds.
Mr. Gross asked members to consider what would happen to the
financial structure of the North Slope Borough and what
would occur to the bond rating of the State, if bonds,
issued under one tax structure, and all of a sudden, the
Legislature changed the tax structure before the bonds were
paid. There would be no tax structure for the bonds. He
stressed that this issue is for real. In 1989, the State
Assessor claimed that this could happen if the bonds went
into default.
Mr. Gross reiterated that the North Slope Borough has done
exactly what the State of Alaska has told it to do during
all of the last Administrations. There has been a
consistent interpretation for the past twenty years, and
that these people have made a "good faith" interpretation of
what they consider to be the law.
In conclusion, Mr. Gross commented that the North Slope
Borough only uses the 225% for its operating budget. It
taxes on full and true value for bonds. There are two ways
of taxing, one for operating and one for bonds. The Borough
shows the tax bill to the residents as if it took the 225%
figure and blew it up to true value with a corresponding
mill rate reduction.
(Tape Change HFC 98- 135, Side 1).
In response to a concern of Representative Therriault, Mr.
Gross replied that if the State's statutes require that oil
and gas property in a borough be assessed at the same
millage rate as all other property, and that property is
reduced by 50%, the millage rate would effectively be
reduced in half. Mr. Gross emphasized that this would not
be fair.
Co-Chair Therriault advised that language in Title 43,
states that the municipality may levy and collect a tax
under a rate of taxation that applies to other property
taxes of the municipality. Mr. Gross remarked that was a
statute which was somewhat confusing to interpret. The
Attorney General at that time looked to other provisions in
the code to try to find guidance in how to do this. Co-
Chair Therriault advised that the Legislative Majority
attorney suggested that could not be done. Mr. Gross
acknowledged that twenty years ago, no one knew how this
would turn out. And now twenty years later, Mr. Gross
suggested that a court of law probably would not change the
situation. He emphasized that the Legislature should not
change the status quo because such action will devastate the
North Slope Borough.
Co-Chair Hanley and Mr. Gross discussed SB 36 and how the
tax and millage rate would affect full and true value. Mr.
Gross noted that he was only present to address the oil and
gas property tax issues. He understood that SB 36 spoke to
taxable value. He pointed out that the assessor had assumed
that it would be applied on the 225% assessed rate because
the Borough uses the 225% figure for operating expenses,
which includes schools. The assumption was that the bonded
indebtedness would use full and true value.
Co-Chair Hanley noted that in order to make a policy call,
the Legislature needs to know what it will cost to fund the
bill. The impact to North Slope Borough will differ
depending on the interpretation.
In response to Representative Martin's comment, Mr. Gross
explained that there are written opinions which explain what
the interpretation of the statute is. He pointed out that
what keeps arising is the same issue brought forward by Mr.
Bullock and that in each case that concern has been struck
down.
Representative J. Davies pointed out that the Department of
Education has never assumed a position. They accepted the
value which was provided by the assessor and deferred the
decision of which value choice was to be used.
Co-Chair Hanley inquired how the 4 mills would be applied
and how that would impact SB 36.
STEVE VAN SANT, (TESTIFIED VIA TELECONFERENCE), STATE
ASSESSOR, ANCHORAGE, stated that the official full value
given to the NSB would be the $12 billion. Co-Chair Hanley
reiterated that the 4 mills would be on the full value. He
voiced concern that the current Administration seems to be
arguing two different opinions concurrently. Mr. Gross
pointed out that there are two different statutes being
addressed. One allows the NSB to tax and the other is the
contribution that local municipalities have made for school
funding. He understood that the assessor would use taxable
value. He thought that the taxable value for the operating
budget was limited by the 225% which is the $2 billion. The
taxable value for bonded repayment was not so limited, so it
would be taxed at full and true value. Mr. Gross believed
that both of those made sense.
Mr. Gross addressed the interpretation of the taxation
method. He believed that it should be clarified in SB 36
without meddling around with AS 43.56, by simply specifying
how the local contribution is to be computed.
Co-Chair Therriault asked if there had ever been a legal
opinion from the Department of Law on the interpretation of
the statute. Mr. Gross replied that in 1985, Attorney
General Gorsuch issued an opinion stating that the method
used by the North Slope Borough was reasonable.
Co-Chair Therriault asked how could the Department of
Education implement language defining a school.
RICK CROSS, DEPUTY COMMISSIONER, DEPARTMENT OF EDUCATION,
noted that the Department would define schools as
consistently as possible with the direction given. He noted
that there is a problem rebuilding all schools in the State
trying to use a similar code. Currently, schools are
distributed randomly and the definition in one community
would be quite different from the definition in another.
He acknowledged that this has been a problem for the
Department. He reiterated that there has been a struggle in
trying to create a definition which makes sense for all the
Alaskan communities and schools.
Co-Chair Therriault voiced concern in places where there is
a wall dividing a building and then calling it two schools.
He asked if the Department would allow that under the
current definition. Mr. Cross responded that could be a
problem and that the Department's ability to control and
regulate should be addressed. He advised that was not the
prevailing problem in providing a definition of school. The
current table used has problems with basic integrity.
Co-Chair Therriault theorized that a community that has
multiple, small operations which are close, could affect the
validity of the McDowell tables. Mr. Cross stated that he
had asked the McDowell Group that specific question
regarding the integrity of the table. They replied that
there was flexibility in the chart, although, it would
eventually need to be redone.
Mr. Cross pointed out that when artificial schools are
created, then the number of schools in the State is
decreased. The McDowell study assumed that there are 480
schools in the State. As the schools decrease, there is a
new redistribution. That would not provide a consistent or
even result.
Representative Martin asked what would be a fair
distribution of the resources. Mr. Cross replied that the
Governor's bill provides a fair compromise. The Department
understands that there are varying views on what is a
reasonable approach and the Department has opted not to use
the funding communities. Mr. Cross stated that it is
important to recognize that the current foundation formula
has inequities within the districts that are at the cap, and
that revenue generation potential must also be addressed.
Co-Chair Therriault requested a description of the disparity
concern.
(Tape Change HFC 98- 135, Side 2).
EDDY JEANS, MANAGER, SCHOOL FINANCE SECTION, EDUCATION
SUPPORT SERVICES, DEPARTMENT OF EDUCATION, explained that it
is important that SB 36 meet the federal disparity test.
The Department has provided a preliminary disparity test.
Disparity is based on budgeted data and is run on actual
audited local contributions and revenues. The disparity
test takes all the revenue that a school district generates
through a school operating fund, divides that by the
adjusted instructional unit as is done in the current
formula or the adjusted Average Daily Membership (ADM).
That data provides a revenue per adjusted student and that
data is then sorted high to low, eliminating the top 5%
students and then eliminating the bottom 5% students and
measuring the different between the high and the low. The
difference is divided by the low, which provides the
disparity.
Co-Chair Therriault asked if the House HESS version met the
disparity standard. Mr. Jeans replied it would. Under the
current foundation program, single site appropriation has
been made outside of the foundation formula for the past ten
years. Those single site school districts appear in the top
10% of districts and get discarded each year. These are
small allocations to those districts in terms of dollars,
which inflates dollars on a per student basis. The
disparity comes in at 23% in those cases.
Mr. Jeans continued, if the Department took the single site
table, placed that in the foundation formula as an
adjustment, there would be additional instructional units
for those districts, which would therefore reduce the
revenue per instructional unit and bring them back down.
Mr. Jeans continued, that would bring them within the 23%,
which is the limit. Because the Department receives
appropriations outside the formula, it will drive it up.
Under the current foundation statutes, municipal districts
are allowed to contribute 23% above basic needs. That is
what maintains the 25% federal disparity standard. Thus,
concluded Mr. Jeans testimony on SB 36.
SB 36 was HELD in Committee for further consideration.
ADJOURNMENT
The meeting adjourned at 4:10 P.M.
H.F.C. 15 4/29/98 p.m. .
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