02/02/2011 08:00 AM Senate EDUCATION
| Audio | Topic |
|---|---|
| Start | |
| SB1 | |
| SB43 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 43 | TELECONFERENCED | |
| = | SB 1 | ||
ALASKA STATE LEGISLATURE
SENATE EDUCATION STANDING COMMITTEE
February 2, 2011
8:00 a.m.
MEMBERS PRESENT
Senator Kevin Meyer, Co-Chair
Senator Joe Thomas, Co-Chair
Senator Bettye Davis, Vice Chair
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Cathy Giessel
COMMITTEE CALENDAR
SENATE BILL NO. 1
"An Act requiring the state Board of Education and Early
Development to provide an annual report to the legislature."
- MOVED CSSB 1(EDC) OUT OF COMMITTEE
SENATE BILL NO. 43
"An Act renaming the Alaska performance scholarship and relating
to the scholarship and tax credits applicable to contributions
to the scholarship; establishing the Alaska performance
scholarship investment fund and the Alaska performance
scholarship award fund and relating to the funds; making
conforming amendments; and providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 1
SHORT TITLE: BD OF ED./EARLY DEVELOPMENT ANNUAL REPORT
SPONSOR(s): SENATOR(s) DAVIS
01/19/11 (S) PREFILE RELEASED 1/7/11
01/19/11 (S) READ THE FIRST TIME - REFERRALS
01/19/11 (S) EDC, FIN
01/31/11 (S) EDC AT 8:00 AM BELTZ 105 (TSBldg)
01/31/11 (S) Heard & Held
01/31/11 (S) MINUTE(EDC)
02/02/11 (S) EDC AT 8:00 AM BELTZ 105 (TSBldg)
BILL: SB 43
SHORT TITLE: ALASKA PERFORMANCE SCHOLARSHIPS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/19/11 (S) READ THE FIRST TIME - REFERRALS
01/19/11 (S) EDC, FIN
02/02/11 (S) EDC AT 8:00 AM BELTZ 105 (TSBldg)
WITNESS REGISTER
DIANE BARRANS, Executive Director
Alaska Commission on Postsecondary Education
Department of Education and Early Development (DEED)
Juneau, Alaska
POSITION STATEMENT: Gave an overview of SB 43.
JERRY BURNETT, Deputy Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions related to the fiscal
note for SB 43.
JOHANNA BALES, Deputy Director
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions on the education tax
credit for SB 43.
ACTION NARRATIVE
8:00:47 AM
CO-CHAIR KEVIN MEYER called the Senate Education Standing
Committee meeting to order at 8:00 a.m. Present at the call to
order were Senators Stevens, French, Davis, Co-Chair Thomas, and
Co-Chair Meyer.
SB 1-BD OF ED./EARLY DEVELOPMENT ANNUAL REPORT
8:01:26 AM
CO-CHAIR MEYER announced the consideration of SB 1 and asked for
a motion to adopt the amendment discussed in the previous
committee meeting.
8:02:08 AM
CO-CHAIR THOMAS moved to adopt Amendment 1.
AMENDMENT 1
27-LS000\A.1
OFFERED IN THE SENATE BY SENATOR DAVIS
TO: SB 1
Page 1, line 6, following "present":
Insert "in person"
CO-CHAIR MEYER objected for the purposes of discussion.
CO-CHAIR MEYER noted that Amendment 1 inserts two words, "in
person", into the bill.
CO-CHAIR MEYER removed his objection. Finding no further
objection, Amendment 1 was adopted.
8:03:17 AM
SENATOR FRENCH asked what the difference is between the report
the bill is demanding and the overviews that the legislature
already receive from each department at the beginning of each
session.
SENATOR DAVIS answered that this would be a report from the
Board of Education, rather than the Department of Education and
Early Development (DEED).
SENATOR STEVENS said that he thinks this is a great idea. The
committee deals with the commissioner and DEED a lot, but it is
good to have the opportunity to have one face-to-face meeting
with the board each year.
8:04:40 AM
CO-CHAIR THOMAS moved to report SB 1( ), version A, as amended,
from the committee with individual recommendations and attached
fiscal note(s). There being no objections, CSSB 1(EDC) moved
from the Senate Education Standing Committee.
8:05:06 AM
At ease from 8:05 a.m. to 8:06 a.m.
SB 43-ALASKA PERFORMANCE SCHOLARSHIPS
8:06:58 AM
CO-CHAIR MEYER announced the consideration of SB 43. He said the
committee will hear an overview of the bill from the
administration. Ultimately, he said, he thinks the committee
will want to incorporate a lot of the thoughts and ideas that
the Joint Legislative Higher Education Scholarship Funding Task
Force developed into this bill. Next week the task force will
deliver an overview and recommendations.
8:08:30 AM
DIANE BARRANS, Executive Director, Alaska Commission on
Postsecondary Education (ACPE), Department of Education and
Early Development (DEED), thanked the co-chairs for taking up SB
43 so quickly. She explained that, as the committee is aware, in
the previous year the legislature passed SB 221 [during the 26th
Legislature], which put into place a programmatic framework for
Alaska's first merit-based scholarship program. She offered to
walk the committee through either a sectional analysis or
briefly describe what the bill does.
SENATOR FRENCH said it would help him to get a sectional
analysis.
CO-CHAIR MEYER concurred.
MS. BARRANS said Section 1 of SB 43 amends the name of the
scholarship program. She explained that subsequent to the
legislature changing the name to the "Merit Scholarship Program"
ACPE was notified by the National Scholarship Organization that
the name "Merit Scholarship" was trademarked. Rather than enter
into a legal battle over the name, the administration proposed
to rename it the "Alaska Performance Scholarship" (APS).
Sections 1-6 (pages 1-4) reflect these conforming changes.
Section 7 changed the existing scholarship statutes. She
explained that it creates an Alaska Performance Scholarship
Award Fund, consisting of appropriations from the investment
fund, which are referenced subsequently in the bill. The moneys
in this fund are specifically for scholarship awards and are
non-lapsing. She explained that the hope is once an
appropriation is made to that fund it could be retained in the
event that there were fluctuations in the number of applicants
from year to year.
Section 8 was another renaming and conforming change to the
scholarship.
Section 9 was the establishment of an investment fund. She noted
that this approach is similar to what the governor proposed last
year. She recapped for the committee that, last year, the
legislature focused on the structure of the scholarship and
deferred decisions on the funding mechanism. This section also
describes the powers and duties of the commissioner of DEED and
allows the commissioner to report on the condition and
investment performance of the fund. It also includes definitions
of "commissioner" and "fund."
Section 10 expanded the eligibility for the Alaska education tax
credit, specifically against the corporate income tax.
Section 11 discussed a sunset scheduled to occur for certain tax
credits and the ceiling for this credit. It also insured that
donations made under this provision would still qualify for the
tax credit post-sunset.
Section 12 included a change in the definition section. She
explained that because the term "program" has been excised from
the relevant statutes, the definition was no longer necessary.
Section 13 included transition language and renamed the
performance scholarship.
Section 14 instructed the reviser of statutes to change the
titles in order to conform to the name change.
Section 15 included transition language for the authorized
entities to promulgate regulations in the event that it is
necessary to carry out the changes in the bill.
Sections 16-18 included the effective dates. She noted that the
effective dates take place either immediately or on July 1,
2011; except in reference to section 11.
8:15:26 AM
CO-CHAIR MEYER explained that there will be an overview of the
framework of the scholarship on Friday. He explained that this
bill includes amendments that the administration wants done to
this framework and the committee may still adjust some of this
framework, based on the activities of the task force. She noted
that one area the committee will focus, in particular, is the
needs-based scholarship component of the program, which was not
addressed in the "skeleton of the bill," passed last year. He
asked if Ms. Barrans wanted to see this included in SB 43.
MS. BARRANS answered that she believes the programs work well
independently. She explained that there is added complexity in
blending the existing needs-based program [the AlaskAdvantage
Program] with a new program which deals with such a specific
population of individuals.
CO-CHAIR MEYER asked if she would like to see the two programs
tied together or kept separate.
MS. BARRANS replied that in states where there is a blend in the
two programs and a downturn in state funding has occurred, she
has observed that the merit-based program is cut first in order
to keep the needs-based program alive. She explained that the
policy objectives of the two programs are so distinct that
blending the two together would have its drawbacks. She said the
commission is not promoting that blend at this time.
CO-CHAIR MEYER said the tax credit passed last year had a three-
year sunset. He asked if the committee should address this.
MS. BARRANS replied that she would defer those questions to the
Department of Revenue's deputy commissioner, Jerry Burnett. She
noted that the only tax type that would apply under SB 43 would
be the corporate income tax.
She continued that while the program structure was put into
place with SB 221, there was a fiscal note adopted with the bill
which reflected the startup and continuation funding from the
state general fund. The governor, in offering this piece of
legislation, is seeking to advance a discussion on the funding
structure. She explained that the governor strongly believes
that the scholarship is a commitment to Alaska's students and
establishing long-term, self-sufficient funding is critical. She
said that the administration believes that full capitalization
of the APS Award fund this year is the preferred step. Each of
the funding ideas has both merits and challenges; however, there
are two specific elements that the administration strongly urges
be included. First, that the capacity of the funding stream is
sufficient to meet the scholarship commitments to the recipients
once they have received the initial award. Second, that money
once appropriated to the fund is made to be non-lapsing.
8:22:52 AM
SENATOR FRENCH asked for confirmation that the committee is
going to get an overview of SB 221 on Friday. He asked Ms.
Barrans what appropriations for the scholarship fund are in the
governor's budget this year.
MS. BARRANS answered that the governor requested $8.2 million
for the commission's budget. She explained that this number was
drawn from the fiscal note for SB 221.
SENATOR FRENCH asked if this amount would be sufficient to fund
the first cohort of students for one or four years.
MS. BARRANS replied one year.
SENATOR FRENCH asked if this amount must then be multiplied by
four in order to fund for four years.
MS. BARRANS replied no; not specifically. She explained that in
developing the fiscal note the commission also looked at the
rate of attrition. ACPE estimated that by year four, with four
full classes of scholarship recipients, the annual cost would be
$20 million.
SENATOR FRENCH asked for confirmation that the governor proposed
$8 million.
MS. BARRANS replied that this amount is in ACPE's operating
budget and expected to be expended in a year.
SENATOR FRENCH said he has heard that governor believes a long
term funding stream is critical and full capitalization is the
preferred method. He asked whether the governor proposed a $400
million appropriation to capitalize on this program.
MS. BARRANS answered that this is the number that has been
discussed. However, rather than submitting a fiscal note for
that amount, the administration submitted an indeterminate
fiscal note. She explained that this way, depending on the
approach the legislature decides upon, the fiscal note could be
adapted.
SENATOR FRENCH said that the answer to his question is the
governor did not propose a $400 million appropriation.
MS. BARRANS replied yes.
8:26:05 AM
SENATOR STEVENS noted that the governor introduced a merit-based
scholarship, yet both the House and Senate felt it was important
to have a needs-based component. He said he understands that it
is easier if the needs-based and merit-based programs are not
blended, however, the legislature would be quite upset if the
merit-based bill was the only bill signed. He said the committee
need to know what the administration's position is with regard
to including a needs-based program.
MS. BARRANS replied that it should be noted that in the
governor's FY2012 request is a GF [general fund] appropriation
of $1.1 million for the AlaskAdvantage Education Grant. She
asked for clarification he is suggesting the fund be used for
both programs, rather than one.
SENATOR STEVENS replied that it is something that needs to
consider. He agreed that blending the two might become too
complex.
CO-CHAIR MEYER said last year the committee tried to blend the
two programs and the fiscal note went from $20 million to $40
million. He said that to get a bill passed through the
legislature the programs need to be tied together somewhat. He
asked for confirmation that the name change was a copyright
infringement.
MS. BARRANS answered yes.
SENATOR DAVIS asked if she could expand on the copyright
infringement.
MS. BARRANS reminded the committee that in the governor's
original bill the scholarship was labeled the "Governors
Performance Scholarship", which the legislature changed to the
"Alaska Merit Scholarship". This name change put them at risk of
infringing on the "National Merit Scholarship".
CO-CHAIR THOMAS said he understands that within the first group
of students there will be individuals who drop out during their
first year. However, he would anticipate by the second year
there would be more individuals entering the program than
leaving the program, he explained.
MS. BARRANS clarified that the commission expects to see
attrition in the first class that continues through. She
explained that the commission does expect to see some growth in
the freshman cohort, but it does not know exactly what to
expect. She reminded the committee that the commission bench-
marked this program with the program in Wyoming.
CO-CHAIR THOMAS asked if that was why ACPE came up with $20
million and when, the needs-based component was factored in, it
added $10-20 million more.
MS. BARRANS answered yes; but there was a specific formula built
in to adding the needs-based program. She noted that the needs-
based component was solely for individuals who otherwise
qualified for the merit-based scholarship. She added that one of
the other issues of debate that arose was adding this additional
funding for some students.
CO-CHAIR THOMAS added that the response to non-traditional
students has remained the same last year.
SENATOR FRENCH asked Ms. Barrans if the commission would meet as
a body to award these scholarships one at a time, or in mass.
MS. BARRANS answered that the commission has been working very
closely with DEED and the financial aid community to develop
what will hopefully be a very efficient application and
dispersal process. She said that the commission is simply using
the Free Application for Federal Student Aid (FAFSA) as the
application for either the APS or the education grant. At the
same time, they are getting a "data download" from DEED of all
Alaska high school graduates and the school districts will
provide students' eligibility status. This allows students to go
online to see what program(s) they qualify for. Funds will then
be electronically dispersed directly to the institution on
behalf of the students.
SENATOR FRENCH asked if, for example, there are 1,000 qualifying
students and only enough money to pay for 500 students, how the
commission will deal with this imbalance.
MS. BARRANS answered that the statute specifies that awards will
be made pro rata in the event of a short-funding.
SENATOR FRENCH asked for clarification on whether every student
who qualifies will get something, up to the maximum award. He
said the individual scholarship awards could be very small if
the program is not funded.
MS. BARRANS replied yes; the minimum award is $500.
CO-CHAIR MEYER inquired about the two fiscal notes included with
SB 43, one of which is indeterminate and the other for $115,000.
8:37:52 AM
JERRY BURNETT, Deputy Commissioner, Department of Revenue, said
the fiscal note for $115,000 could be an indeterminate fiscal
note, but it was prepared as if there was a $400 million
deposit. He explained that it represents a management cost on
the investment fund of approximately 2.8 basis points.
CO-CHAIR MEYER asked if this could easily be changed.
MR. BURNETT answered that it could be an indeterminate and would
vary a little depending on the fund.
SENATOR STEVENS asked Mr. Burnett to clarify page 5 [lines 17-
21].
MR. BURNETT answered that every year when the Department of
Revenue sets the asset allocations it looks at the capital
market assumptions, past history, and an assumed rate of
inflation. The department then invests with an asset allocation
which would produce five percent, plus inflation.
SENATOR STEVENS asked what the repercussions are if this return
is not achieved.
MR. BURNETT replied that with this type of management fund,
which has a payout of five percent of the fund balance, any
extra percentage earnings would remain in the fund. During a
year that has a subpar performance, five percent would still be
paid and the funds would be reduced that year. However, over
time, it should be possible to achieve a five percent rate of
return and the fund should grow by the amount approximately
equal to inflation.
SENATOR STEVENS asked if the point of this investment "is to
smooth things out so that you can count on so much money going
into scholarships."
MR. BURNETT answered yes. It gives a fairly even payout over
time and allows the fund to build. He explained that other funds
that the department manages, for example the Public School Fund,
have a payout based on realized earnings and does not consider
capital gain. The income stream can be highly variable from that
type of fund. He explained that the type of investment suggested
for the scholarship fund is fairly common. The lower the payout
is in early years, the more the fund will grow; however, in
order to achieve something that is even over time, a percent
return rate should be used.
CO-CHAIR MEYER referenced the education tax credit bill passed
last year that had a three-year sunset and asked if the
Department of Revenue wanted to incorporate this tax credit into
the scholarship bill and whether the sunset should be removed.
8:45:31 AM
JOHANNA BALES, Deputy Director, Tax Division, Department of
Revenue, answered that unfortunately because the education tax
credit did not take effect until 2011 the division will not be
able to determine whether the credit is working until October
2012. She said incorporating the tax credit in this bill is
something that the committee should consider.
CO-CHAIR MEYER said he thinks it is an excellent idea to have
corporations help by making contributions to the fund. He asked
if she knew of any corporations interested in participating in
the program.
MS. BALES answered that there were several interested
corporations, specifically Native corporations, which testified
last year on behalf of the increase for the education tax
credit.
MR. BURNETT commented that he received an inquiry this year from
a corporation interested in where it could put its money and
receive this type of a credit.
MS. BALES added that the credit for the contribution to the
scholarship fund is only allowed against the corporate income
tax. There are seven other tax types that have an education tax
credit. She suggested that if the committee is looking for more
investment from companies it would be wise to expand that credit
to all other tax types.
CO-CHAIR THOMAS referenced section 17 which states that the tax
credit would not take effect until January 1, 2014. He asked Ms.
Bales to clarify how this date is tied in to the sunset date.
MS. BALES answered that the education tax credit that was
increased last session has a sunset of January 1, 2014. The way
that this bill is constructed would ensure that contributions to
the education fund would remain intact after the sunset date.
MR. BURNETT explained that Section 10 adds the scholarship
contributions and Section 11 extends that to the APS.
8:49:45 AM
CO-CHAIR MEYER noted that Friday the committee will hear an
overview of the task force, which will help the committee
understand how SB 43 and SB 221 blend. He said he personally
supports this idea and hopes a scholarship can be put in place
that is both merit- and needs-based. He commented that he has
heard from some of the school districts that are unsure whether
the requirements can be met. He said it would be good to hear
from the new commissioner in regards to this issue at a future
meeting.
CO-CHAIR THOMAS noted that there has been discussion on the
Amerada HESS capital income fund for the APS. He asked if Mr.
Barratt knows the balance of this fund and the revenue it spins
off on an annual basis.
MR. BURNETT answered that he is not sure, but believes it is
roughly $435 million. He explained that the income from that
fund is being paid into the Alaska Capital Income Fund, based on
realized earnings and the balance in the capital fund itself is
around $200 million right now. He said he is not sure where it
stands on an accounting basis based on appropriations.
CO-CHAIR MEYER asked if the fund used to kick out about $30
million per year.
MR. BURNETT answered that it depends on the earnings of the
Permanent Fund and how those earnings are calculated. He
continued that in 2008 it was $32 million, 2007 it was $42
million, and in 2006 it was $36 million; in 2009 and 2010 it was
zero.
SENATOR DAVIS asked if the committee members had a copy of those
earnings.
CO-CHAIR MEYER said he will get everyone a copy. He continued
that the fund was a "pot of money" that was very attractive
because it could be used for capital projects.
MR. BURNETT replied that for a number of years the income in the
Amerada HESS Fund went back in as inflation proofing and
additions to the amount in the principal of the Permanent Fund.
CO-CHAIR MEYER said one recommendation from the task force was
to use the earnings of that fund, which is about $30 million per
year, for the scholarship program.
CO-CHAIR MEYER announced he would keep public testimony open and
held SB 43 in committee.
8:55:08 AM
There being no further business to come before the committee,
Co-Chair Meyer adjourned the meeting at 8:55 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Sectional.pdf |
SEDC 2/2/2011 8:00:00 AM |
|
| APS Summary.pdf |
SEDC 2/2/2011 8:00:00 AM |
|
| Fiscal Note 3.pdf |
SEDC 2/2/2011 8:00:00 AM |