Legislature(2021 - 2022)ADAMS 519
03/17/2022 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB135 | |
| HB273 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 135 | TELECONFERENCED | |
| += | HB 273 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 17, 2022
9:06 a.m.
9:06:23 AM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 9:06 a.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair (via teleconference)
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Sara Rasmussen (via teleconference)
Representative Steve Thompson
Representative Adam Wool
MEMBERS ABSENT
Representative Dan Ortiz, Vice-Chair
ALSO PRESENT
Sean Clifton, Policy and Program Specialist, Division of
Oil and Gas, Department of Natural Resources;
Representative Andi Story, Sponsor; Alexei Painter,
Director, Legislative Finance Division; Ariel Svetlik,
Staff, Representative Andi Story.
PRESENT VIA TELECONFERENCE
David Lepain, Director, Division of Geological &
Geophysical Surveys, Department of Natural Resources; Chris
Reitan, Superintendent Craig City School District; Jim
Anderson, Chief Financial Officer, Anchorage School
District; Heidi Teshner, Director, Finance and Support
Services, Department of Education and Early Development.
SUMMARY
HB 135 GEOTHERMAL RESOURCES
HB 135 was HEARD and HELD in committee for
further consideration.
HB 273 INCREASE BASE STUDENT ALLOC. INFLATION
HB 273 was HEARD and HELD in committee for
further consideration.
Co-Chair Foster reviewed the meeting agenda.
HOUSE BILL NO. 135
"An Act relating to geothermal resources; relating to
the definition of 'geothermal resources'; and
providing for an effective date."
9:07:26 AM
Co-Chair Foster indicated the committee had heard a portion
of the presentation on HB 135 in the prior week. The
presenter would continue with his presentation.
9:07:59 AM
SEAN CLIFTON, POLICY AND PROGRAM SPECIALIST, DIVISION OF
OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, continued
with his PowerPoint presentation, "HB 135 Geothermal
Resources: House Finance Committee," dated March 9, 2022
(copy on file). He wanted to clarify some items on slide 9
of the presentation. The slide read as follows:
New language added: A prospecting license or lease is
not required under this section to explore for,
develop, or use geothermal resources if the geothermal
resource is intended for domestic, noncommercial, or
small-scale industrial use.
? This explicitly excludes private geothermal users
from a requirement to apply for a license or lease.
Mr. Clifton clarified that it was not that the department
did not want to regulate small-scale users, but that the
department aimed to address the commercial users so that it
could properly manage natural resources as the [state]
constitution mandated. The department also hoped to reap
some royalties to gain revenue for the state.
9:09:29 AM
Mr. Clifton moved to slide 10. The slide showed some
examples of different styles of ground source heat projects
for residential use. All of the styles on the slide could
effectively heat small buildings with fairly low heat.
Representative Wool asked if the department was just
considering basic heat pumps that use heat from the earth.
He wondered if heat pumps were considered geothermal power.
Mr. Clifton explained that even though there were small-
scale users that might be receiving heat from the earth
through mechanisms like heat pumps, they would not be
generating power through a turbine. There was no mechanism
for the state to exact royalties in these situations, which
is why the department was not trying to regular small-scale
users. He clarified that there may be other regulations
enacted from entities such as the Department of
Environmental Conservation or the Department of Fish and
Game, but the Division of Oil and Gas was not involved.
9:12:55 AM
Representative Wool brought up Chena Hot Springs in
Fairbanks as an example of geothermal heat. Through the use
of the hot water, there was a small and low temperature
power generation. He wondered if it was considered an
example of a commercial system.
Mr. Clifton replied that Chena Hot Springs was a good
example of a power generating system that was using a more
modern understanding of how geothermal systems could be
utilized for power. However, Chena was not a state
resource, and the Department of Natural Resources (DNR)
could not regulate it. Also, Chena was not selling power
which would not trigger the department to get involved.
9:14:39 AM
Mr. Clifton turned to slide 11 and indicated that the bill
would eliminate the preferential rights division. The
current statute granted preferential rights to a surface
owner to apply for a geothermal prospecting permit once
notice was received of an existing application. He stated
that this was potentially problematic. If a commercial
developer wanted to build a multi-million-dollar power
generating system and part of the application covered a
surface owner's area, the statute as it was currently
written could be interpreted to allow for the surface owner
to invoke their preferential right, take the permit, and
resell it back to the original applicant.
Mr. Clifton continued on slide 11. He thought preferential
rights was a discouraging provision for applicants and
wanted to avoid ambiguity in statute. He also reminded
members there were existing provisions in statute that
would protect surface owners. He indicated that if the
preferred site for a project was on a surface owner's land,
the developer would typically attempt to reach a private
agreement with the owner. If an agreement could not be
reached, another site would likely be selected. For
example, private agreements were commonly sought after to
negotiate cell phone tower sites. Most of the time private
surface owners were open to reaching amicable agreements.
9:18:37 AM
Representative Josephson asked who owned the subsurface
rights in Alaska. He mentioned ongoing disputes about
natural gas operations in the states of Pennsylvania and
New York.
Mr. Clifton replied that it depended on the title or the
patent held by the owner of the land. In most cases in
Alaska, private surface owners did not own the subsurface
or the minerals. There were some exceptions that occurred
before 1959, prior to Alaska's statehood, of homesteaders
who possessed land titles that stated they owned the land
wholly. A landowner should know who owned the title to the
subsurface based on the title documentation.
9:21:06 AM
Representative Josephson recalled the Cold Bay methane case
that he thought caused typically conservative individuals
to become conservationists. It was a concerted and
aggressive effort by the state to develop Cold Bay methane.
He asked how his fears could be assuaged that this kind of
circumstance could not arise from the bill.
Mr. Clifton was not intimately familiar with the issue
Representative Josephson was referring to. However, there
had been discussion that arose in public meetings the
department held with respect to Susitna Valley licensing
for gas development. The regulatory apparatus of the state
sought to protect the state's resources and environment.
There were multiple entities that worked to protect the
state's interests in subsurface resources. He explained
that when wells were drilled, the Alaska Oil and Gas
Conservation Commission would analyze the safety of the
well and would take note of any resources that may be
impacted by the well. There were overlapping authorities
and state agencies that were monitoring the environmental
impacts.
9:23:56 AM
Representative LeBon recalled Mr. Clifton's earlier example
of cell towers. He added that there may be zoning
limitations for cell towers. There would be a more
complicated legal arrangement involving the banks if the
desired area for the cell tower was on a commercial
property.
Mr. Clifton responded that he had a good point. The state
had to honor municipal zoning laws that might involve more
stringent requirements.
Representative LeBon added that if there was a bank loan on
the property, the bank would have to be consulted as well.
9:25:43 AM
Mr. Clifton continued to address slide 11. In the case of
the state not being able to reach an amenable agreement
with a private owner, there was regulatory guidance in
statute that dictated how a dispute would be addressed. He
added that homestead landowners were not required to report
the transfer of land. Public notice was part of the entire
process and surface owners that might be affected were
directly notified. The only exception was when a surface
owner was unreachable, which has happened, but developers
were required to prove that they had repeatedly tried to
contact the surface owner.
Representative LeBon noted that title searches would likely
have to be conducted as well.
9:28:23 AM
Representative Wool returned to the topic of Chena Hot
Springs. He asked why the state did not own the subsurface
rights to the springs.
Mr. Clifton responded that he was unsure of the ownership
of the subsurface rights at Chena Hot Springs. However, he
indicated that the state would need to own the subsurface
in order for DNR to be triggered to become involved in an
operation. If it was discovered that there was a large
geothermal system that was shared by multiple subsurface
owners, there would be a unitization process. He would
cover this topic in more detail later in the presentation
particularly regarding correlated rights.
9:30:51 AM
Mr. Clifton moved to slide 12 to address work commitments
in Section 3 of the bill. The department wanted to change
the prospecting permit in order to license and increase
terms from 2 to 5 years. The change would provide a greater
opportunity for success and ensured they were making
progress. There would be a trigger that would transform the
permit into a lease for long-term use.
9:33:26 AM
Mr. Clifton moved to Sections 7 and 8 on slide 13. He
explained that these sections were added due to
recommendations from the House Resources Committee. The
sections would add two additional steps for public notice.
When a proposal was received, a public notice would be
issued as well as a call to ensure that there were no
competing proposals. If there were competing proposals, the
lease sale model would be utilized, which has been
successful in the past. Next, a final best interest funding
would be issued, which included another opportunity for
public comment. Throughout the process, the department
would seek input from cooperating agencies.
9:34:54 AM
Representative Josephson referred to the third section on
slide 13 which stated that geothermal licenses and leases
were not surface use authorizations. The slide also stated
that licenses and leases only provided the exclusive right
to explore for and develop the subsurface resources. He
wondered how it was possible to "explore for and develop"
if there was no surface use authorization.
Mr. Clifton responded that just because the department
might issue a disposal for access to the subsurface, it did
not mean that there was an explicit authorization for the
use of the surface. There might be a variety of surface
owners and competing interests at play. A subsurface
authorization, particularly under an expiration license,
could be half a million acres. Realistically, an expiration
program would not touch every acre of the land. The plan
would be to target specific areas. The department would
review the plan and any competing interests and might issue
an authorization that did not authorize the entire plan. A
subsurface disposal did not guarantee access to the entire
surface area. The state had very important competing
surface interests.
Representative Josephson asked if the bill provided an
opportunity that might not come to fruition.
Mr. Clifton responded that it could be interpreted in that
way and he would not argue the point. He noted that part of
the purpose of the subsurface disposals was to grant an
exclusive right to prevent other entities from encroaching
on an existing operation. It was in some ways still a
property right. The department did not want inefficient or
damaging development of the state's resources.
9:38:40 AM
Representative LeBon indicated that the final bullet on
slide 13 also caught his attention. The bullet stated that
surface use authorizations required public notice and
direct notice to any affected surface owners. He referred
to slide 11 and read from it as follows:
? If the Commissioner concurs, developer posts a bond
to compensate landowner for any impacts and work
progresses.
Representative LeBon shared his understanding that the
slide suggested that property could be seized if the owner
was not reachable. He had experience with not being able to
find property owners to obtain permission. He asked if
there was a scenario in which the commissioner could permit
projects to take place on a private property owner's land.
Mr. Clifton indicated that the scenario could happen
hypothetically, but it was unlikely. Typically, private
property was a small amount of acreage, though he
understood that some people owned large swaths of land. He
explained that there would usually be opportunity to access
subsurface resources without needing to interfere with an
unreachable surface owner's land. The issue had come up in
public testimony for the Susitna Valley exploration
license. In this situation, agriculture would be affected
and community members were concerned with the notion of a
road being placed across their fields. The state would work
to avoid damaging the surface of a land and would exhaust
every alternative. He presumed there were other solutions
and damaging private owners' properties would not be
required.
Representative LeBon noted that there were large parcels of
land that belong to the state for agricultural purposes.
The state patent for agricultural land would not include
this purpose. He wondered whether the agricultural patent
would prevent commercial development on state land.
Mr. Clifton had not heard of a competing interest and
assured him that the state had the resources to evaluate
such a situation. The department would not move swiftly or
recklessly.
9:43:10 AM
Mr. Clifton continued to address slide 13. The two new
steps in the public notice process proposed by the House
Resource Committee read as follows:
? NEW The exploration license is issued
? NEW The license is extended or converted to a lease
Mr. Clifton emphasized that there was ample opportunity for
surface owners to become aware of a situation that might
affect their land before surface authorizations were
issued.
Mr. Clifton turned the presentation over to his co-
presenter.
9:44:29 AM
DAVID LEPAIN, DIRECTOR, DIVISION OF GEOLOGICAL &
GEOPHYSICAL SURVEYS, DEPARTMENT OF NATURAL RESOURCES (via
teleconference), advanced to slide 14 addressing Section 12
of the bill. He read the slide:
AS 41.06.060(4) is amended to read: (4) "geothermal
fluid" means liquids, brines, water, gases, or and
steam naturally or artificially present in a
geothermal system; "geothermal fluid" does not include
oil, hydrocarbon gases, or other hydrocarbon
substances
? Aligns with modernized definition for geothermal
resources.
? Not limited by temperature because current
technology enables development of cooler geothermal
systems.
? Distinguishes geothermal fluids from hydrocarbon
resources.
9:45:53 AM
Representative Carpenter asked if the definition included
bodies of water that lay on the surface such as rivers,
lakes, or the ocean.
Mr. Lepain deferred to Mr. Clifton.
Mr. Clifton responded that he did not think it included
surface water bodies. If there were a case where a surface
pool or hot spring was present, it likely would not be used
to drive a power generating turbine. The pool would be
noted, but the hottest source would be found through
drilling and testing. This would produce hotter geothermal
fluids from the heart of the resource to obtain the best
resource rather than trying to capitalize on the surface
pooling.
Representative Carpenter suggested that heat was not the
only source of energy that may be valuable. He mentioned
tidal energy as a potential geothermal fluid source that
could also be tapped and monetized. The state tapped wind,
which he considered to be a fluid, and monetized the
energy. He thought there was a difference between
extracting oil from the ground and monetizing the oil and
extracting heat from the ground and monetizing the heat. He
wondered who would own the heat. He was struggling to see
reasoning behind the differing approaches between fossil
fuel extraction and royalties and naturally occurring
resource extraction such as geothermal fluids.
Mr. Clifton confirmed Representative Carpenter was correct
that air was a fluid. If it could be interpreted broadly,
wind turbines could be brought into the conversation.
However, he did not think the broad interpretation would
hold weight in court nor would the interpretation be
acceptable by DNR. He was unsure of how tidal generation
turbines were permitted and could not speak to the example
specifically.
9:51:11 AM
Mr. Lepain advanced to slide 15 which showed a new
definition of geothermal resources in Sections 9 and 13 of
the bill. He read from the slide:
"Geothermal resources" means the natural heat of the
earth; the energy, in whatever form, below the surface
of the earth present in, resulting from, or created
by, or which may be extracted from, such natural heat;
and all minerals in solution or other products
obtained from naturally heated fluids, brines,
associated gases, and steam, in whatever form, found
below the surface of the earth; but excluding oil,
hydrocarbon gases, or other hydrocarbon substances.
Modern definition for geothermal resources.
? Not limited by temperature because current
technology enables development of cooler geothermal
systems.
? Ensures all the State's mineral estate resources are
captured in definition.
? Same definition being applied to both DNR & AOGCC
statutes.
Mr. Lepain elaborated that this specifically pertained to
heated fluid in the subsurface.
9:52:53 AM
Representative Carpenter thought the state was missing a
portion of geothermal resources if the state was only
looking underground. He was struggling to find a
connection.
Mr. Lepain replied that he believed it was a matter of
definition, and that he was defining geothermal resources
to be a subsurface resource. He noted that Mr. Clifton
mentioned that heat pumps in private homes that pull heat
from the air were technically considered geothermal energy
but were not regulated under the bill. He reiterated that
he thought the issue came down to the definition of
geothermal resources.
Representative Carpenter agreed that a line had to be drawn
somewhere.
Mr. Clifton drew attention to the fact that the natural
heat of the earth and the surface of the earth were
contained within the definition of geothermal resources. He
clarified that the subsurface estate was the only element
that applied to the statutes.
9:55:27 AM
Representative Wool asked if there was a temperature
trigger.
Mr. Clifton deferred to Mr. Lepain.
Mr. Lepain replied that the modernized definition
explicitly removed a temperature cutoff due to the
technology advancements in the last 15 to 20 years. Due to
these advancements, it was possible to pull heat from
relatively low temperature subsurface fluids or soil on a
small scale. The question of whether commercial power could
be generated using this method was unclear to him. The
temperature-based provision had been removed specifically
because of technology advancements, and therefore
restricting it to a particular temperature would be a
mistake.
Representative Wool was aware of a project in Juneau that
was going to run a loop through the ocean and use the
ambient heat of the ocean to produce power. He was thinking
of situations involving the private individual.
Mr. Lepain advanced to slide 16 and referenced the fiscal
impact note [control code svNTz] by the Department of
Natural Resources. He commented that Alaska had significant
geothermal energy potential around the state. At most
geothermal sites, the state had relatively little
information and the sites had not been studied thoroughly.
Some sites had been studied significantly, but the
department did not have enough information to decide which
sites had potential to be a significant geothermal energy
source. As presently constituted, the Division of
Geological & Geophysical Surveys (DGGS) did not have enough
staff to appropriately grow its knowledge of potential
resources.
10:00:18 AM
Mr. Lepain explained that the fiscal note would add a new
Geologist 3 position within DGGS's Energy Resources Section
in Fairbanks. The addition of the position would help re-
start the division's geothermal program. The position would
coordinate with agencies and industry to publish new
geologic data to further the development of Alaska's
geothermal energy resources. He read the list of
responsibilities of the new geologist from slide 16:
This will enable DGGS to restart its geothermal
program. The new geologist would:
• Coordinate with agencies and industry to publish
new geologic data to further development of
Alaska's geothermal energy resources
• Maintain and update geologic data on Alaska's
geothermal systems in a geothermal database
• Attract federal funds to characterize Alaska's
geothermal systems and resources
• Monitor developments in geothermal systems
technology
• Conduct geologic investigations of Alaska's
geothermal systems
• Publish geologic maps, reports and data on Alaska
geothermal systems
• Advise DNR and other state agencies on the
state's geothermal resources
• Support the Department's geothermal leasing
program
• Support and supply information to explorers and
developers of Alaska's geothermal resources
• Support and advise DNR Commissioner's Office and
Governor's Office on geothermal policy
Mr. Clifton emphasized that the purpose of the position was
to grow knowledge of Alaska's geothermal resource potential
through hard data. This would inform the decision on
whether to develop a specific site.
Co-Chair Foster indicated that there were two fiscal notes
total. He asked Mr. Clifton to review the other fiscal note
by DNR.
Mr. Clifton reviewed the zero fiscal note [control code
pRsYR] by the Division of Oil and Gas within DNR. He
emphasized that it had zero fiscal impact and would not
cause any additional burdens to the division.
10:04:17 AM
Representative Wool noted that the fiscal note mentioned
that the bill would double the acreage limit for geothermal
projects from 51,200 to 100,000 acres. He asked if 50,000
acres was considered small.
Mr. Clifton was not certain and did not know the conversion
of acreage to square miles. However, he commented that
geothermal systems tend to cover much larger areas than
were perhaps conceived when the laws were first written.
Granting the security of a larger area made much more sense
for developers. It also adhered to the way in which other
states had been updating their laws.
10:05:49 AM
Representative Josephson noted that he had spent time at a
family ranch which was 300 acres. He thought the lease
would cover scores of properties and many miles.
Mr. Clifton indicated the maximum was being increased to
100,000 acres. He stated that 640 acres was one square
mile, which he thought might be a good frame of reference.
He explained that this was specific to the expiration
licenses, which were not permanent. Even if the state
issued a license for 100,000 acres, that would not
necessarily mean that a lease would also be granted at the
end of the license's term. The details of the lease that
might be issued long-term would be dictated by the
resources that had been demonstrated to be located at the
site. In a situation where all 100,000 acres were issued a
lease, all of the acreage would not necessarily be
utilized. The subsurface area might be impacted more than
the surface area, and it was unlikely that more than a few
acres on the surface would be impacted.
10:09:02 AM
Co-Chair Foster referenced the other fiscal note by DNR
that added the position that was previously discussed. The
fiscal note had a control code of svNTz.
Mr. Lepain deferred to Mr. Clifton, as he did not have a
clear copy of the fiscal note.
Mr. Clifton addressed the fiscal note which added a
position of a geologist. The impact of the note was
$150,000.
Mr. Clifton appreciated the opportunity to present the
bill. He was happy to answer any follow-up questions.
HB 135 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster would take a brief at ease.
10:11:52 AM
AT EASE
10:15:02 AM
RECONVENED
Co-Chair Foster indicated the committee would be hearing
HB 273.
HOUSE BILL NO. 273
"An Act relating to education; increasing the base
student allocation; and providing for an effective
date."
10:15:48 AM
REPRESENTATIVE ANDI STORY, SPONSOR, thanked the committee
for hearing the bill. She provided a PowerPoint
presentation titled "HB 273: Increasing the Base Student
Allocation and Accounting for Inflation" (copy on file).
She explained that the bill would help maintain stability
in the school system to allow for districts to focus on the
more substantial work, such as educating students, rather
than focusing on the following year's budget and potential
required cuts.
10:18:09 AM
Representative Story began the presentation with slide 2.
She reminded the committee that there was a constitutional
obligation to maintain the school system. The bill proposed
inflation-proofing the Base Student Allocation (BSA), which
would help ensure strong schools and protect important
programs. She mentioned the importance of knowing future
costs when designing a budget, whether it be a personal
budget or governmental. The bill would implement a "wise
educational policy," which related to the importance of
working together.
Representative Story indicated that district budgets were
assembled in November and were often due to municipalities
in March. However, the legislative process was often not
completed before the budget due date, which meant adjusting
the budget and making the applicable reductions based on
budget numbers. The district would often plan for cuts, and
the community would have to come together and decide which
services to cut. She noted that these cuts often undermined
public confidence. Working together as policy makers was
very important. The legislature had heard from school board
members for a number of years that the ability to determine
a fixed portion of the budget was favored. She mentioned
that in order to receive federal funding, the state had to
abide by federal laws, and there were accountability plans
in place that must be followed. Every school was given a
star rating out of five, and schools were required to have
a plan to increase their star rating.
10:23:35 AM
Representative Story continued to slide 3 to discuss the
increment of inflation proofing. She explained that by
introducing inflation proofing to the BSA formula, the bill
provided fair and steady revenue that would be tied
directly to Alaska's economy. This would be done by using
the Consumer Price Index (CPI) for urban Alaska from the
United States Borough of Labor Statistics. She relayed that
Legislative Finance Division (LFD) recommended using the
CPI because it was more reflective of Alaska's economy
rather than national trends. She reminded the committee of
a study by the Institute for Social and Economic Research
(ISER) that had been shared in a previous meeting that
found, based on the CPI, that Alaska was just below average
when it came to school funding.
10:24:44 AM
Co-Chair Foster noted Co-Chair Merrick and Representative
Rasmussen were online.
Representative Wool asked if she had considered using core
inflation for the formula instead, which represented CPI
minus energy and food. He believed that it was what the
federal government used.
Representative Story responded that she had not. She
explained that the formula would be discussed in more
detail later in the presentation.
Co-Chair Foster commented that the inflation proofing would
be tied to CPI in urban Alaska. He wondered if there was a
CPI for rural Alaska.
Representative Story indicated that LFD had recommended
using CPI, and the term "urban Alaska" related simply to
the name. She differed to Alexei Painter from LFD to
explain the choice in more detail.
Co-Chair Foster asked if there was a rural CPI for Alaska.
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
responded that urban Alaska reflected Anchorage
specifically, and that there was not a rural CPI or a CPI
calculated for other communities in Alaska. There had been
studies that looked at those costs, such as the
aforementioned study by ISER, but there was not a formal
CPI.
Representative Story thought that was why Dr. Dayna DeFeo
from ISER had adjusted for Anchorage and adjusted for other
economic cost factors in the formula. The adjustment
acknowledged the cost of doing business in more rural
communities.
ARIEL SVETLIK, STAFF, REPRESENTATIVE ANDI STORY, explained
how inflation was used to calculate BSA for a fiscal year.
The bill averaged three previous calendar years of
inflation against the fiscal year used in Alaska as
recommended by LFD. This smoothed out significant jumps and
drops in inflation. She pointed out there was a gap year
added into the formula which would allow school communities
to know their allocation ahead of time. This would help the
schools craft their budgets and better meet student needs.
She addressed slide 4 which showed inflation in Alaska over
the last decade. The chart was sourced from LFD. She
pointed out that the headings included both calendar years
(CY) and fiscal years (FY) and that the CPI data was
provided by the Department of Labor and related only to
Anchorage. Any price fluctuation in Anchorage would move
out to other locations, and the BSA formula would help to
adjust for the needs of other communities.
10:29:40 AM
Representative Wool asked Ms. Svetlik to explain the CPI
data in more detail.
Ms. Svetlik deferred to Mr. Painter.
10:30:16 AM
Mr. Painter explained that CPI calculation had an index
year, which was set at 100. He believed the number was set
during the 1980s. The CPI was calculated as an increase to
the index and represented the full index going back to the
reference year.
10:30:45 AM
Representative Wool asked for more information on when the
index year was set.
Mr. Painter did not remember the exact year, but it was in
the 1980s.
Representative Wool shared his understanding that if the
CPI was at 220, that would mean that it was a little more
than double the price it was when it was initiated
considering that 100 was the index. He asked if LFD ever
used core inflation or just CPI.
Mr. Painter indicated that CPI was used because it was the
most easily found and available number. He thought it would
be a policy call if the legislature wanted to pull
additional costs. During the last district cost study in
2005, costs specific to the school district were studied
and a new index was formed based on those costs. He noted
that would be more time consuming, but it was a policy
decision.
10:32:16 AM
Ms. Svetlik pointed to the numbers in the side bars on
slide 4. She explained that the numbers referred to what
the percentage of growth would be per fiscal year based on
the preceding calendar years. For FY 22, the increase would
be 1.11 percent, which resulted from averaging CY 18
through CY 20. The idea was to make these numbers available
prior to the finalization of the following year's budget.
Ms. Svetlik advanced to slide 5 and relayed that the
example on the slide related to FY 23. The reason she was
using FY 23 was because the numbers were currently
available in order to make accurate projections. If the
legislature were to increase the BSA, there would be a $66
increase in the BSA. She reiterated that by averaging 3
years together, the formula would smooth out significant
swings and dips in inflation.
10:35:05 AM
Representative Story addressed slide 6 which highlighted
that school funding was a fundamental statewide economic
issue. She surmised that the best way to attract new
residents, build a skilled workforce, and maintain a strong
economy was ensure the quality of schools in the area. It
was a way to provide a solid base and a way of providing
some stability. She indicated there was invited testimony.
Co-Chair Foster asked if the bill had been heard by the
House Education Committee. He wondered if she had heard
from rural schools about the Anchorage CPI being used. He
noted the costs in rural Alaska were higher. He asked if
$66 per student would be enough for rural schools and
whether rural schools thought the formula would work for
them.
Representative Story reminded the committee that the $66
BSA increase would be adjusted for school size and the
applicable multipliers.
10:38:58 AM
Representative Carpenter referred to slide 4. He averaged
the 3 years together, which were the percentages
highlighted in yellow on the slide. He calculted it was a
1.58 or 1.6 percent average inflation over the 3 years. He
suggested that 6 out of the 10 years were less than what
the average was, and in only 3 out of the 10 years was
there inflation that was greater than the average. He
wondered what the bill's goal was. He thought if the state
was covering cost increases and fluctuations from year to
year, then it would be looking at a cost adjustment every
year that would reflect the inflation change for every
year. He drew attention to CY 20 [FY 22] on the slide and
pointed out that the CPI percent change was negative. In a
year like CY 20, an increase would not be needed. He
wondered why the legislature would not just raise the
budget.
Representative Story responded that she averaged 3 years of
data for the purpose of preventing large swings. She noted
that the invited testifiers later in the meeting would
attest to the importance of an average. Also, she wanted to
leave room for the legislature to adjust the BSA to allow
for other targeted funding for things like investment in
reading programs. These adjustments were reflective of the
Alaska economy rather than the national economy. She was
not trying to solve all of the problems with education
funding, but she was simply acknowledging that there were
fixed costs, and the costs could rise.
10:42:58 AM
Representative Carpenter agreed that costs increased due to
inflation. He was trying to explain that the rising costs
for inflation were sometimes less than a single percentage
point, as seen on slide 4 from CY 15 to CY 17. However, the
budget would be increased by an average of 1.5 percent for
CY 15 through CY 17 because there was a desire to grow the
budget as opposed to covering the cost increase in a given
year.
Representative Story deferred to Ms. Svetlik because she
understood that Ms. Svetlik did the math on the slide.
Ms. Svetlik clarified that LFD did the math on the slide.
She explained that the 1.5 percent average was for CY 18
through CY 22. Representative Carpenter was talking about
CY 15 through CY 17. She agreed that the average that would
come from CY 15 through CY 17 would be much smaller. In
FY20 [CY18], there would only be about 0.5 percent increase
of the BSA even though there was a 3 percent increase in
CPI. There was a slight lag in the rate of growth as
compared to the rate of inflation because she was used real
number to make projections rather than making up the
numbers. It was not a perfect system, and the sponsor was
open to other suggestions. However, budget growth was not
always necessarily a 1.5 percent average as that average
reflected only 3 years of data. She suggested that he could
ask LFD to create a projection for all of the years for
extended clarity.
10:45:02 AM
Representative Carpenter thanked Ms. Svetlik for the
correction. He did not mean to imply that the average would
be 1.5 percent for all years and understood that it
represented a 3-year average. He was using it as a
demonstration that the bill would grow the BSA by an
arbitrary percent that would not necessarily relate to the
cost increase for that particular year. Instead, it
represented a cost increase over multiple years. If in the
2 previous years the legislature had already spent the
money, then budgeted costs may not be covered in the cost
increase. He suggested that a conversation should be had to
discuss a different mechanism to cover the costs.
Representative Story appreciated the comments. She had
talked to districts that reported that the large 4.88
percent CPI increase [in CY 21/FY 23] would be spread out
and help the prior years as well. It was what the chief
financial officers thought would work best as a predictable
number. She hoped the committee would get to the invited
testifiers in the present meeting.
10:46:49 AM
CHRIS REITAN, SUPERINTENDENT CRAIG CITY SCHOOL DISTRICT
(via teleconference), spoke in support of HB 273. He
indicated that the bill would provide the mechanism for the
State of Alaska to help address the annual inflation costs
that Kindergarten through grade 12 schools endure for
education. The BSA had not been addressed by the
legislature since 2017. It was necessary to address the
increasing fixed costs that were imbedded in school budgets
that reduced the amount of funds that could be dedicated to
classroom instruction and to improved educational content.
He relayed that medical insurance was one of the most
expensive fixed costs within school budgets, and it
increased annually. It accounted for more than 12.5 percent
of the Craig City School District's budget. Heating fuel
oil had increased more than 25 percent since 2015, which
represented an increase that occurred prior to the current
oil increases. Since FY 21, heating oil costs had increased
by 64 percent. Freight had increased by 6 percent [since FY
21]. He noted that these were only a few examples of fixed
cost increases to which school districts must respond. He
thought that HB 273 provided a consistent and reliable
mechanism for the state to invest in the educational needs
of children. He thanked members for the opportunity to
testify in support of the bill.
10:49:40 AM
Representative Josephson asked Mr. Reitan to restate some
of the figures he had mentioned.
10:50:21 AM
JIM ANDERSON, CHIEF FINANCIAL OFFICER, ANCHORAGE SCHOOL
DISTRICT (via teleconference), spoke in support of HB 273.
He referred to a graph titled, "ASD School Funding since
2017," which he had provided to the committee (copy on
file). He hoped the visual would show how the "fiscal
cliff" would affect Anchorage specifically, and why the
fiscal cliff existed. He pointed out the red line at the
top of the chart, which reflected the BSA's inflationary
increase based on Anchorage's CPI from FY 17 through FY 22.
He noted that the rates from January of FY 22 through
January of FY 24 were estimates based on a 2 percent steady
inflation rate, but it was likely that FY 22 might be
significantly higher than estimated.
Mr. Anderson continued by explaining that the grey, light
blue, and gold bars showed BSA equivalent funds that helped
offset structural deficits over the last several years. The
Anchorage School District (ASD) had an applied fund balance
for two years as well as federal relief money to maximize
educational opportunities for the past five years. He
indicated that FY 22 and FY 23 relied heavily on federal
Elementary and Secondary School Emergency Relief Funds
(ESSER), however there were not enough federal funds
remaining to account for the structural deficit in FY 24.
The inflationary costs for ASD had averaged around $10
million to $12 million dollars per year for the last 6 or 7
years. He explained that while one-time funds were helpful,
those funds hid the structural deficit of more than $40
million.
Mr. Anderson noted the district's liability insurance had
increased by 100 percent in the last few years due to
nationwide challenges. It had cost Anchorage $21,000 per
school district employee per year to cover medical
benefits. He compared this number to Seattle, Washington,
which was $12,000 per year and Atlanta, Georgia, which was
$11,000 per year. The red line on the graph showed gaps
between the one-time funding that had been used by the
district. Since 2017, the district implemented several
measures to reduce the rate of increase for medical
insurance costs. He emphasized that this did not reduce
costs, but simply reduced the rate at which the costs
increased. He explained that the inception of the Alaska
Middle College School had a low overhead and cost the
district about $10,000 per student. He compared this cost
to the district's 8 brick and mortar high schools which
cost an average of $13,000 to $18,000 per student,
depending on the other forms of money that were dedicated
to those schools. The Alaska Middle College School helped
increase revenue as well as reduce costs for over 200
students.
Mr. Anderson indicated that the district had built a
relationship with the Lower Yukon School District's (LYSD)
Kusilvak Career Academy, which benefited students from both
districts. The LYSD allowed ASD students to take courses
and get certifications for a quarter of a school year at a
time. It opened up many slots for ASD students, so both
districts benefited from the relationship. The reality was
the school district had been hiding a growing structural
deficit and there had to be measures taken in order to move
forward and allow the district to enact multi-year plans.
It typically took at least 3 years to see changes in
student outcomes from a new program. The first year
involved training school district employees, the second
year was when students started to get consistent
instruction through the new program, and the third year was
generally when improvement could be seen. When only one
year of money was provided, it did not allow for the
implementation of three-year programs because it was too
uncertain. He hoped Alaska would implement an inflation-
proof BSA so that districts could implement multi-year
strategies for improved student outcomes. He concluded that
HB 273 and HB 272 would help accomplish the necessary first
steps.
10:57:59 AM
HEIDI TESHNER, DIRECTOR, FINANCE AND SUPPORT SERVICES,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT (via
teleconference), reviewed the two fiscal notes for HB 273
by the Department of Education and Early Development. The
first was a zero fiscal note with the control code vICxU.
The fiscal note was for informational purposes only and
showed a general fund transfer to the Public Education Fund
(PEF).
Ms. Teshner reviewed the second fiscal note, also by the
Department of Education and Early Development, which had
the control code RIhvb. The fiscal note used the CPI for
urban Alaska as prepared by the United State Department of
Labor for 2019 through 2021 and arrived at an average
percentage difference of 1.72 percent. The average
percentage difference was applied to the BSA for FY 23 and
totaled $5,930, which resulted in a CPI of $6,032. Using
the FY 23 projected average daily membership counts and the
CPI adjusted BSA of $6,032, the new estimated total state
entitlement would increase by approximately $26.1 million.
The effective date of this bill would be July 1, 2024 in FY
25. She added that the third page of the fiscal note showed
the projected fiscal breakdown by school district.
Representative Story noted there were a couple of other
handouts in member packets.
Ms. Svetlik indicated that LFD had provided a theoretical
fiscal note for the committee's review, titled, "K-12
Foundation Formula BSA Adjusted for Inflation - 3 Year
Average" (copy on file). She explained that the handout
showed what the growth would look like if HB 273 were to be
combined with HB 272. She noted that it was an incremental
increase, and that the chart showed the projected ways in
which the increments would grow.
11:02:00 AM
Representative Wool shared his understanding that HB 273
added an inflation formula using CPI and 3 previous years'
averages. He compared this to HB 272, which he thought
proposed an adjustment to the BSA starting in 2017 and
using a similar formula. He asked if his understanding was
correct.
Representative Story suggested that he refer to the packet
for HB 272 (copy on file) which showed how the numbers were
determined. She explained that she did not go back to 2017.
She started in FY 20, which included around $30 million
that was outside of the formula. However, this was vetoed
by the governor, so the $30 million was inserted back into
the formula when doing the calculations. The increments
showed about a $30 million increase when inflation
proofing. The $30 million being inserted back into the
formula allowed for inflation proofing for FY 21 and FY 22.
She explained that that is how the $232 BSA increase
projection came about. Then, three years were averaged to
arrive at the $14 million projected increment for the FY 24
BSA with inflation. The chart showed a minus inflation year
as well, which meant that there was a $71 million
cumulative increase. She hoped to forward fund education
within the formula by $57 million. The bills complimented
one another and gave an idea of what it might look like to
inflation proof. It was important to note that some members
wanted to see certain programs funded, and by doing a
modest adjustment it left room for strategic funding for
the programs in which members might be particularly
invested. She thought it was important to think about
educational policy and how the bodies affect one another.
Co-Chair Foster thanked the presenters and reviewed the
agenda for the afternoon. He reminded members of the
amendment deadline for the operating budget.
HB 273 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
11:06:58 AM
The meeting was adjourned at 11:06 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 272 & HB 273 Public Testimony Rec'd by 031422.pdf |
HFIN 3/17/2022 9:00:00 AM |
HB 272 HB 273 |
| HB 273 Theoretical Fiscal Note.pdf |
HFIN 3/17/2022 9:00:00 AM |
HB 273 |
| HB 272 HB 273 Public Testimony Rec'd by 031622.pdf |
HFIN 3/17/2022 9:00:00 AM |
HB 272 HB 273 |
| HB 273 Public Testimony incl Ktkn Resolution Rec'd by 031722.pdf |
HFIN 3/17/2022 9:00:00 AM |
HB 273 |