Legislature(1997 - 1998)
03/03/1998 08:40 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
3 March 1998
8:40 a.m.
TAPES
SFC-98, #59, Side A
CALL TO ORDER
Senator Bert Sharp, Co-chair, convened the meeting at
approximately 8:40 a.m.
PRESENT
In addition to Co-chairman Sharp, Senators Phillips, Donley,
Torgerson and Adams were present when the meeting was
convened. Senators Parnell and Pearce arrived respectively
thereafter.
Also Attending: Senator Gary Wilken; Jim Baldwin, Assistant
Attorney General, Department of Law; Richard Cross, Deputy
Commissioner, Department of Education; Eddy Jeans, Manager,
School Finance Section, Education Support Services,
Department of Education; John Cyr, President, NEA-Alaska;
Linda Frank, Carl Rose, Ashley Reed; Eric McDowell, Senior
Partner, McDowell Group, Juneau; David Teal, Project
Manager, McDowell Group, Juneau; Dave Tonkovich, Fiscal
Analyst, Legislative Finance Division; aides to committee
members and other Legislative members.
Via Teleconference: Teleconference was "listen only" for
the cities of Anchorage, Barrow, Cordova, Delta Junction,
Fairbanks, Glennallen, Tok, Kenai, Valdez and Unalaska.
SUMMARY INFORMATION
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."
(The beginning of this tape is distorted by interference
from the teleconference equipment.)
Co-chair Sharp introduced Eric McDowell, who provided the
committee with the McDowell Group Study. He said he did not
anticipate getting to any amendments this morning. He
further advised that teleconference this morning was "listen
only". He noted the cities of Anchorage, Barrow, Cordova,
Delta Junction, Fairbanks, Glennallen, Tok, Kenai, Valdez
and Unalaska were on line.
Senator Phillips offered opening remarks and invited Eric
McDowell to join the committee. He said the McDowell Group
had provided a study of the schools within Alaska. This
report dealt with the actual cost of the schools. He said
Mr. McDowell was present to answer questions either
previously submitted or those that would be asked today
during the meeting.
Co-chair Sharp asked that Mr. McDowell identify the
questions earlier presented and answer those first.
Senator Adams thanked the co-chair and committee for
allowing him to submit questions on this study. He felt the
study did not do justice to SB 36. There had been an
increase in student population and the State therefore had
to give more money. He asked that specific questions raised
by him (contained in blue packet submitted to committee
members) be answered. These were, in particular, about the
study, information on teacher salaries and non-personal
service costs. He noted the chart on page seven and page
seventy-six. There was further concern of the number of
disclaimers included in the study. It was repeatedly stated
that the purpose of the study was to develop new adjustment
factors for size and location and not to develop a model to
allocate education aid to school districts. That means no
robbing from one school district to give to another school
district, or to perhaps tax unorganized boroughs by four
percent and move that money into urban areas. He felt that
the study was being used to reallocate funds which, along
with other proposals rolled into SB 36, would have dire and
he hoped unintended consequences in his district and most
rural Alaska. He included comments and questions from the
Northwest Arctic Borough, North Slope Borough, Lower
Kuskokwim, Southeast Island School, Skagway School District
and the SEAC Commissioner. These were contained in his memo
of 28 February 1998 to Co-chair Sharp. He felt there were
many questions and hoped they could be answered and worked
through. He noted two addendum and hoped they could be
gotten into later.
Eric McDowell was invited to join the committee. He said he
was the senior partner of the McDowell Group and the author
or the Alaska School Operating Study.
(Mr. McDowell moved to the front of the committee room and,
making use of a flip chart, commenced his testimony.)
He thanked Senator Adams for his questions and said they
were questions they had asked themselves before and during
the course of the study. He referred to the supplemental
summary of 12 February 1998 and the draft report of 31
January 1998. A final report was due by the end of the
week.
It was important to recognize what the study was limited to.
School operating costs rather than deferred maintenance,
capital or school buses. The assignment was to look at the
actual cost of operating schools, the influence of size and
of geographic location and then to suggest an allocation
based on those costs. They were not involved in any
complication of local shares or Federal funding. He briefly
reviewed previous school cost studies done in 1981; then in
1988 a household cost of living study.
He noted that for some districts the size factor was more
important. These districts paid their teachers
substantially, even though there was a low cost of living.
Another district, with the highest cost of living in the
State, paid twenty percent less than Anchorage. However,
they had one aide per seven children. That was a choice
they made. In order to avoid rewarding overspenders and
penalizing those who had been frugal, they indicated the
real difference in instruction is in size and there was lots
of compensation for that.
They also researched salaries in all other fields, going
through some 230,000 state employment records, twenty-five
sample occupations from engineers to secretaries and did not
find any actual cost differential paid and the answer was
no. If anything, it was in the reverse. Other states
surveyed tended to pay less in rural than in urban, but
Alaska was different because our rural was remote and costs
were higher. Even though the costs are higher in Senator
Adams' district as related to property and household, but it
is not known to operate school districts. The Federal
government does pay an "Alaska differential" but it does not
pay one for being in Nome as opposed to Anchorage. They
concluded that no one had severe recruitment and retention
problems. Smaller districts had teachers that averaged nine
years experience; larger districts had teachers that
averaged twelve years of experience. He further explained
that there was not a lot of relationship between costs in
areas and what people were actually getting paid there.
They decided the salary should be the same because everyone
else pays the same or less in the rest of the economy with
the sole exception being State government employees because
they get the old loaf of bread differential. That was the
basis for their recommendation there. However, it is only a
blanket recommendation.
In reviewing all the numbers such as teachers' salaries,
cost of oil, etcetera did not make a whole lot of
difference. He explained the curve in compensating the
schools for size. He felt that their study was more
favourable to smaller schools that the only size factor
system. He explained non personal services (NPS) and how
they were different from personnel costs. They felt that
whatever it was costing the schools they must be spending.
But how the monies were spent was left up to the individual
school districts. This study told exactly where cost really
were. He said there should be a transitional period for
districts that may get less funding.
At the conclusion of his presentation he offered to answer
questions from committee members.
Senator Phillips asked about the how and where of the data
that was used. Mr. McDowell said the information was
gathered from the Department of Education. They took each
district's report, crunched in every number and then making
use of three different methods of NPS costs they came up
with their recommendations.
Senator Adams referred to page one of the study and asked
where the data was obtained from and how did it compare to
the existing formula? The second question was that school
size had an enormous influence on operating costs per
students. On page thirty-four, using the efficiency curve,
what was the basis used for providing the same front-loading
for small schools and large schools alike?
Mr. McDowell asked that Mr. David Teal, Project Manager,
McDowell Group assist in the response to these two
questions. Mr. McDowell reiterated that all school
districts have to report annually to the Department of
Education and it was from these reports they obtained their
information. They were able to come up with average figures
using these reports.
Senator Torgerson requested Mr. McDowell to walk the
committee through the calculation used for small, medium and
large schools. Senator Adams also asked Mr. McDowell to
explain data used showing the small and large schools would
not be hurt so much, but the middle schools would be hurt as
shown on his chart.
Mr. McDowell deferred to Mr. Teal for this response.
David Teal, Project Manager, McDowell Group responded. He
said the lines on the chart could not be compared because
one was a funding community concept, which was the current
law, and the new one operated under school concept. He said
a funding community would always be at least as large as the
school and could even be much larger. However, it would
never be smaller. Therefore, the position of the lines on
the chart did not necessarily indicate hurt and help. He
explained a school of 71 and how it would be converted
running it through the formula they used. There may be
certain points as regards to the chart that one would be
better or worse off than under the current formula, but
precisely where those points were was hard to tell. It was
true that every school, even the large ones, get front-
loaded. They get the benefit of being small and climbing up
the curve. He noted that the only way one could avoid a
loss of funding as schools got additional students was to
front load every school.
Senator Adams asked if it could be guaranteed that they
would not lose any money, community versus a school concept,
considering three buildings in a community.
Mr. McDowell responded and explained how the adjusted
student count would work. Senator Phillips referred to the
Skagway school system. Mr. McDowell said that with all the
students in one building they would still be on the same
basis as before. They would not benefit from multiple
schools. Previously, districts were penalized for having
multiple schools under one funded community. Now, it was on
the same basis as everyone else regardless of the school
size.
Senator Torgerson commented on three schools of two hundred
students as compared to one school of six hundred students.
He noted there was a substantial amount of adjustment
recognizing the inefficiencies of the smaller schools versus
the larger school. Mr. McDowell concurred.
Senator Torgerson referred to the single site schools. Mr.
McDowell indicated that the single site school was beyond
the scope of their study.
Mr. Teal said they treated the single site schools the same
as any other school.
(Tape #59, Side A switched to Side B at log #590.)
Mr. Teal continued in response to a question from Senator
Adams as to why rural schools lost. He said it was not
related to the size factor. He and the superintendents
were surprised at how close size conversion was. The real
issue, he felt, was the change from funding community count
to school count. They were asked to allocate a fixed amount
of basic need, which was influenced by the size factor, size
and location adjustments. The real driver was the amount of
money appropriated per unit per student. It was not the
size factor but the way the students were counted.
Senator Adams asked Mr. Teal to explain how to get a higher
student count. Every Alaska student was entitled to get an
education.
Mr. McDowell responded saying the NPS count was critically
important in this issue. The important thing was that
districts with a high NPS count did the best job of
accounting. He said the way to get a higher student count
was to make sure they were getting credit for expenditures
under NPS because the multiplier was four times as high.
For example, he noted housing, which was an NPS cost.
Senator Torgerson noted that his office had criticized Mr.
McDowell for not visiting school sites. He asked if his
report or their numbers would have changed had they actually
visited the school sites? Mr. McDowell said he would have
liked to visit all the sites. However, they had several
conversations with a number of superintendents in addition
to four experts working on their team. He felt they had
enough information and were not doing things in ignorance of
the school systems.
Senator Phillips asked that the four experts be identified.
Mr. McDowell said they were: Andy Warwick, Bob Weinstein,
Jim Paul and Tom Freeman. Their job was to look at the
financial reports.
Senator Donley referred to the State Constitution, Article
7, section 1 and asked if there was any other section that
applied to the duty of the State to provide education? Mr.
Adams indicated that he would have to look at the lawsuit
filed by Mat-Su vs. State of Alaska. The current formula
was found to be constitutionally correct.
Senator Donley felt that Senator Adams overstated his case.
He said the Constitution only required that it be
established by general law a system of public schools open
to all children of the State. The system would also
frequently require local contributions. That meant the
State was not the only one responsible for providing
education. Local people also assist in providing education
for their children. Senator Adams said he concurred with
that statement. He reminded the committee that the North
Slope provided the second highest local contribution in the
State. Therefore, everything should not be taken away from
them and then try to steal from the balance of that, also.
But he asked, how was area cost differential calculated in
the study so the committee could understand it.
Mr. McDowell said he would like to refer to the old area
cost differential. The way the costs were incurred was the
basis. The other difference was that in the old formula the
area cost differential was applied to everything across the
board. However, this study says that is not the way the
costs are incurred. The differential they applied was only
to the portion being spent on NPS statewide. For instance,
in the Kenai district, the area cost differential was no
longer based on the price of a loaf of bread, but rather on
the per student cost being spent on the students in the NPS
category.
Senator Torgerson said the criticism regarding the area cost
differential under the old study. However, in the draft
report, there was a conflict noted that his district was
having a difficult time understanding. He asked
specifically about a 1.249 figure that was not reflected in
the bill. That figure was 1.004 and Senator Torgerson
wanted this explained on record.
Mr. McDowell asked Mr. Teal to respond because he thought it
involved the sites factor. Mr. Teal explained the numbers
and said even though they were different they gave the same
result. This work was done in consultation with the
Legislative Budget and Audit committee. They felt if they
separated the figures out they could get more information
and be able to see the difference in administrative and NPS
services. He referred to their report of 12 February 1998.
They were then asked to work with Senator Gary Wilken to put
together a simple bill. There was no way, however, to call
the system simple. He explained it to the superintendent in
Kenai and felt it was understood.
Mr. McDowell further explained that included in the draft
and the summary there were three reports: draft, summary
and final. In the draft there were three cost factors:
instructional, administration and NPS. After investigating
these three factors, they found those three cost factors
were wildly different in their behaviour based on school
size and district size. That is why it was recommended to
separate them. The second level in the summary, for
simplicity, was instructional (based on size) and then they
combined administration and NPS and came up with the area
cost differential. The third level, which will be in the
final, was down to one number, called district cost
differential. Their recommendation was to continue to track
data by these three factors so better decisions could be
made on what the proper allocations for each district should
be.
Senator Adams referred again to the area cost differential.
He said REAA's could not support extra funding in the same
manner as boroughs and cities. He asked if the McDowell
Study locked the inequity of the area cost differential into
any future formula? Mr. McDowell said one of the biggest
questions was what about a district that does not have the
capability to generate a significant local share compared to
someone else that has plenty to chip in. By allocating what
one was really spending would that give them more? He felt
that the answer was "no". It was not the amount that was
spent but rather how it was spent.
Senator Adams asked if money was being shifted from an area
cost differential to school size? Mr. Teal said that cost
differential was higher than it used to be. He agreed that
size factor affected districts. However, he felt there was
truth in both arguments that urban says rural gets more
money and rural says urban gets more money. He could not
answer further.
Senator Adams asked, with that answer, would he work a
foundation formula utilizing this study? Mr. Teal responded
saying he did not get to vote on this matter, but said he
would ask for a higher differential. He reiterated that
rural districts do come out with higher district cost
factors. He noted there were further provisions in SB 36
that the study did not address that affect the districts in
Senator Adams' area.
Senator Adams asked if the report was slanted because of the
way the RFP was written to take in size and location rather
than the basic need of funding education throughout the
State of Alaska? Mr. Teal said he did not agree because
they were not asked to determine basic need. Rather they
were asked to reallocate basic need. This would make it
appear as though the report would take from one district and
give to another. He said they had nothing to do with the
amount of money the legislature appropriated nor do they
have anything to say about the local contributions and the
treatment of PL874 or the way in which correspondence
students and special education is funded. The RFP only told
them to look at size and location, which are only two of the
many factors that are included. It was their own look at
funding communities that caused them to propose going to
school level instead of funding community.
Senator Adams asked for a definition of what the study said
about "basic need". Mr. Teal said "basic need" was based on
mathematical or legal terms. It has nothing to do with
quality and how a student will be educated. In referring to
the formula from the Department of Education he quoted:
"Basic need equals instructional units times an area cost
differential times sixty-one thousand dollars." That has
nothing to do with the quality of education nor what it
takes to educate a student. It only has to do with how much
money is going to be appropriated. Senator Adams said
"basic need" was the amount of money needed to provide
education for all children in Alaska. He also said he
differed with some of the disclaimers in the study. He said
there was no equity or fairness.
Mr. McDowell finalized his presentation. He said he was
born, raised and educated in Haines, Alaska and had
travelled the State of Alaska extensively during the past
twenty-five years. This had been one of his most difficult
assignments because they were the first to base a suggested
allocation method on what it actually cost to operate
schools. He thanked the committee for their cooperation and
said he hoped they had been able to help take a giant step
towards a soundly based system for allocating funds for
public education.
Co-chair Sharp thanked Mr. McDowell for the group's time and
effort. He said the study was long overdue.
(10:00 a.m. - 10:10 a.m. at ease)
Co-chair Sharp gavelled the meeting back to order.
Co-chair Sharp indicated that he would entertain amendments
from members in his office no later than 3:00 p.m. today.
If the calculation of the State distribution of school funds
are changed they would ask the Department of Education to
run the new CS as amended and then begin again tomorrow
morning with the results of whatever the amendments might
be. The meeting would continue again at 4:30 p.m.
Richard Cross, Deputy Commissioner, Department of Education
was invited to join the committee. In response to a
question by Senator Phillips he said due to the complexity
of the amendments he does not know how the figures may or
may not change. They had not been asked to do a fiscal note
yet to the new CS. Co-chair Sharp said he would make any
amendments available to the department immediately after
3:00 p.m. and he would also distribute them to committee
members.
Senator Adams, noting disparity on PL874 asked for an
opportunity to seek legal testimony.
Mr. Cross thanked the co-chair and said they would make
every effort to be ready for the 4:30 p.m. meeting.
ADJOURNMENT
Co-chair Sharp recessed the committee at 10:15 a.m. until
4:30 p.m.
SFC-98 -9- 3 March 1998
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