Legislature(1995 - 1996)

04/21/1995 09:35 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
                             MINUTES                                           
                    SENATE FINANCE COMMITTEE                                   
                         APRIL 21, 1995                                        
                            9:35 A.M.                                          
  TAPES                                                                        
                                                                               
  SFC-95, #40, Side 1 (000-575)                                                
  SFC-95, #40, Side 2 (560-1000)                                               
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Senator  Rick Halford,  Co-chair,  convened  the meeting  at                 
  approximately 9:35 a.m.                                                      
                                                                               
  PRESENT                                                                      
                                                                               
  Co-chair Halford  and Senators  Phillips, Sharp,  and Rieger                 
  were  present.    Co-chair  Frank  and Senators  Donley  and                 
  Zharoff came shortly after the meeting began.                                
                                                                               
                                                                               
  Also Attending:   Joe McCormick, Executive Director  for the                 
  Commission on  Postsecondary Education; Senator  Taylor; Ken                 
  Erickson,   Legislative  Aid   to   Senator  Pearce;   Elmer                 
  Lindstrom,  Special Assistant  to  the Commissioner  of  the                 
  Department  of Health  & Social  Services; Marvene  Coggins,                 
  Legislative  Aid to Representative Toohey; and Susan Taylor,                 
  Fiscal Analyst, Legislative Finance Division.                                
                                                                               
  Teleconference:  Vernon Sales, Executive Vice President, Key                 
  Trust Co. for Alaska, Representing Alaska Banks Association,                 
  and testifying on SB 131.                                                    
                                                                               
  SUMMARY INFORMATION                                                          
                                                                               
       SJR 21 ANWR SPECIAL REVENUE FUND                                        
                                                                               
       Testimony  was  given  in  support of  SJR  21  by  Ken                 
  Erickson,                                                                    
       Legislative Aid to Senator Pearce.  SJR 21 was REPORTED                 
  OUT                                                                          
       of committee with "no recommendations"  and zero fiscal                 
  notes      from the Department of Revenue and  the Office of                 
  the Governor.                                                                
                                                                               
       SB 123 POSTSECONDARY EDUCATION PROGRAMS                                 
                                                                               
       Discussion  was  had   with  Joe  McCormick,  Executive                 
  Director for      the Commission on Postsecondary Education.                 
  It was agreed to    hold for further discussion.                             
                                                                               
       SB 131 INVESTMENTS BY FIDUCIARIES                                       
                                                                               
       Testimony was given by  Vernon Sales by teleconference.                 
                                                                               
                                                                               
  SB 131                                                                       
       was REPORTED OUT of committee with "no recommendations"                 
  with                                                                         
       a zero fiscal note from the Department of Commerce  and                 
           Economic Development.                                               
                                                                               
                                                                               
       HB 108 USE PFD'S TO RECOVER WELFARE OVERPAYMENT                         
                                                                               
       Discussion  was  had  with   Elmer  Lindstrom,  Special                 
  Assistant to                                                                 
       the Commissioner of the Department of Health  & Social                  
            Services. HB  108 was  REPORTED  OUT of  committee                 
  with three zero         fiscal notes from the  Department of                 
  Revenue, and the               Department of Health & Social                 
  Services (Public Assistance &        AFDC) with a  "do pass"                 
  by Co-chairs Halford and Frank and          Senators Rieger,                 
  Phillips, Donley and Sharp.  Senator Zharoff                                 
       signed "no recommendations".                                            
                                                                               
       SB  70 PUBLIC SCHOOL FOUNDATION PROGRAM                                 
                                                                               
       Working Draft  9-LS0652\0  was ADOPTED  and amended  to                 
  reflect       a language change on pages  4 and 14. Changing                 
  the word              percentage to "factor".  A new working                 
  draft was ordered and                                                        
       will be  brought  back to  the  committee at  the  next                 
  meeting.                                                                     
       Senator Taylor and Joe McCormick gave testimony.                        
                                                                               
                                                                               
       SENATE JOINT RESOLUTION NO. 21                                          
       Proposing amendments to  the Constitution of the  State                 
  of           Alaska  creating a special fund related to  the                 
  use of federal         mineral revenue sharing payments  due                 
  the state from certain        federal  leases on the coastal                 
  plain of the Arctic National        Wildlife Refuge.                         
                                                                               
  Ken Erickson,  Legislative  Aid  to  Senate  President  Drue                 
  Pearce joined the committee.  He testified that SJR 21 would                 
  place before the voters of the  State of Alaska at the  next                 
  general election,  an  amendment to  the state  constitution                 
  which  would  create  the Arctic  National  Wildlife  Refuge                 
  Special Revenue Fund.  This fund  would consist of all state                 
  share royalties from any future development from the coastal                 
  plain of the Arctic National Wildlife Refuge, except for the                 
  50% share already required by the state constitution, to  be                 
  placed in the  Alaska Permanent Fund. The  state legislature                 
  could only appropriate money in  this fund for assistance or                 
  aid to a municipality under a program of state aid  to local                 
  government, established by  laws embodied in AS  29.60.100 -                 
  AS 29.60.375 or  for the support of school  construction and                 
                                                                               
                                                                               
  school  major  maintenance  programs established  by  law as                 
  currently  embodied in  AS  14.11.007 -  AS  14.11.135.   If                 
  ratified by the  citizens of  Alaska, this resolution  would                 
  create a dedicated fund.  Senator Pearce believes that it is                 
  essential that Alaskans be given the opportunity to put this                 
  mechanism  in  place   now,  before  ANWR   exploration  and                 
  development is a  reality.   When fields  are developed  and                 
  revenues are  flowing to the  General Fund, the  pressure to                 
  use the royalties  for other purposes will  be overwhelming.                 
  This new fund  will be an  important resource to help  local                 
  governments  meet  their  obligations  in  years  to   come.                 
  Municipal Assistance and State Revenue  Sharing has been cut                 
  approximately 50% in the last ten years while municipalities                 
  have   been   required   to   take    on   ever   increasing                 
  responsibilities.    This  legislation is  supported  by the                 
  Alaska Municipal League.                                                     
                                                                               
  Senator  Sharp  MOVED  to  adopt   SJR  21  with  individual                 
  recommendations  and  accompanying  fiscal  notes.   Without                 
  objection SJR 21 REPORTED OUT of committee with fiscal notes                 
  from the Office  of the Governor,  zero amount; and Dept  of                 
  Revenue  zero  amount  in  1996,  and  $2.2 in  1997.    The                 
  committee signed "no recommendation".                                        
                                                                               
                                                                               
       SENATE BILL NO. 123                                                     
       "An Act relating  to student loan programs,  interstate                 
  compacts         for postsecondary  education, and  fees for                 
  review of                           postsecondary  education                 
  institutions; and providing for an        effective date."                   
                                                                               
  Joe  McCormick, Executive  Director  for  the Commission  on                 
  Postsecondary Education testified before  the committee that                 
  SB  123  provides  three  broad  objectives for  the  Alaska                 
  Student  Loan Program: 1) to improve customer service, 2) to                 
  strengthen the financial viability of the program, and 3) to                 
  improve overall program administration.  He went through the                 
  bill, section by section.  To improve  customer service, the                 
  bill will expand the  loan limits in the program  for degree                 
  granting institutions.    The  graduate  limits,  which  are                 
  currently at $6500, would  increase to $9500 per year.   The                 
  undergraduate  limit,  which  is currently  at  $5500, would                 
  increase to $8500.  Section 3, requires that  Alaska Student                 
  Loan Funds be  only used for career education  programs that                 
  operate on a  physically sound basis, that have operated for                 
  at least two  years, and  that have entered  and executed  a                 
  program participation agreement with the college.  This will                 
  insure financial stability  of the schools participating  in                 
  the program.  Section  4 revises the borrowing maximum  term                 
  of repayment.  This will  allow for extended repayment terms                 
  for larger loan limits. Students are borrowing more and more                 
  each year. Historically, there has  been a 10-year repayment                 
  period.  We are recommending that  the period be extended to                 
                                                                               
                                                                               
  15 years.  The  grace period of 12-months, has  been reduced                 
  to 6-months, with a minimum of $50 repayment per month.  The                 
  time period,  whereby  a loan  goes into  default, has  been                 
  expanded  from  120 days  to 180  days,  this will  allow an                 
  additional 2 months to  work with the borrower before  going                 
  into default.   Section 16,  21 and 27,  would provide  that                 
  families who have  a need  to borrow from  both the  Alaskan                 
  Student Loan Program,  and the Alaska Family  Education Loan                 
  Program, may  do so.   Under current  law, participation  in                 
  both programs  is not  allowed. Mr.  McCormick said that  to                 
  obtain  the second  objective  of increasing  the  financial                 
  viability of the program, it  is recommended that: 1)  there                 
  is  an  appropriate  interest  rate  assessment  during  the                 
  qualifying  deferment period.  Loan  deferment for  military                 
  service or returning to school allows for a no-interest time                 
  frame.    The bill  proposes  eliminating the  interest free                 
  loans. Section 14 would  allow the commission to set  a loan                 
  origination fee in a range of 0% to 5%, as an offset against                 
  losses due to death, disability, default, and/or bankruptcy.                 
  Section 17  would  prohibit  incarcerated  individuals  from                 
  receiving  Alaska  Student  Loans.   Section  18  would give                 
  delinquent  student   loans  a  priority,  second  to  child                 
  support, in a wage garnishment proceeding.  These provisions                 
  would increase the  financial viability of the  loan program                 
  overall.  Lastly, there are technical amendments eliminating                 
  costly  and  unnecessary mailings  to  borrowers.   It would                 
  require that illegally obtained loans be paid in full and on                 
  demand.  It would remove an arbitrary cap on the loan volume                 
  from one year to the next.  The goal is to insure  that this                 
  loan program is financially solvent, now and  in the future,                 
  so that Alaskan's  can participate in  this program when  it                 
  comes  time for  them  to pursue  postsecondary  educational                 
  opportunities.                                                               
                                                                               
  Senator Sharp asked how the loans are tracked for repayment?                 
  Mr. McCormick stated that it is easier for the commission to                 
  track  dollar amounts opposed to  the number of years, since                 
  many students have interruptions in the educational process.                 
  He said that the Family  Education Loan (FEL) program  would                 
  share the same dollar cap that the Alaska Student Loan (ASL)                 
  program would  have.  The  combined cap is  $158,000 because                 
  the  parent  would  be  borrowing  under  the  FEL  program.                 
  Section 21 refers  to the  Teachers Scholarship Loan  (TSL),                 
  which is not part of the  ASL or the FEL.  It is  a separate                 
  loan.    Senator Sharp  stated  that  he is  not  willing to                 
  provide for bigger  loan debts  and longer payback  periods.                 
  Mr.  McCormick  responded  that  the  University  of  Alaska                 
  represents 70% of the  borrowing.  The $5500 loan  limit has                 
  been set in loss since 14 years ago.  In that 14 year period                 
  the university  has increased its  tuition by over  250%, so                 
  there have been increases for  a period of time in 14  years                 
  in what it costs the student to  go to school, but there has                 
  been  no adjustment  to  the loan  limits  during that  same                 
  period of time.   Senator  Sharp said that  Alaska has  more                 
                                                                               
                                                                               
  students, and if  there is more money loaned, the multiplier                 
  creates a tremendous impact on the revolving fund.                           
                                                                               
  Senator Rieger asked  about the  trigger for an  institution                 
  whose default  rate is over  150%.  Mr.  McCormick responded                 
  that the program's  default rate  as of June  30, 1994,  was                 
  19.6%.   If the  default rate  went above  30%, it  would be                 
  triggered.  Senator Rieger asked  what sorts of institutions                 
  are exceeding 30%  default rates?   Mr. Mccormick  responded                 
  that   the   short-term   programs   that   offer   training                 
  opportunities  of less  than  9 months  in  length have  the                 
  higher default rates.  Those  default rates range from  26%-                 
  50%.                                                                         
  Senator Rieger  stated his biggest  objection is from  1% to                 
  5%.   Mr. McCormick responded that 5% was a middle ground of                 
  the  maximum  of 8%.   He  said  that the  system  would not                 
  tolerate more  than 5%. The  important point  that is  being                 
  made, is that a range is  being set.  The bill does  not say                 
  that every  year a 5% fee will  be charged, but rather, that                 
  an assessed fee will be between 0%-5% depending on the level                 
  of death, disability, and default experience of the program.                 
  As the  default rate is brought down,  the origination could                 
  be brought  down from 5%.   The rate  will be 5%  within the                 
  first few years because the losses to the loan fund have not                 
  been  offset  in the  past.  Over  time, as  the  losses are                 
  recovered, the origination fee will go down.                                 
                                                                               
  Senator Rieger spoke  to the 30% default issue, stating that                 
  to raise the  interest for the  new student because the  old                 
  loan was not repaid  by the preceding student does  not seem                 
  fair.  Mr. McCormick stated that he does not support the use                 
  of a default rate as a criterion to determine whether or not                 
  a school participates in the loan program.  The default rate                 
  experience  reflects a  combination of occurrences  with the                 
  students who  attended those programs.  There may be  a good                 
  school  with a good  program, but high  unemployment in that                 
  particular field of  study. Upon graduation, if  the student                 
  is not  able to find  employment, naturally, the  payback is                 
  put   off.     He   supports   raising  the   standards  for                 
  participation of schools,  before allowing participation  in                 
  Alaska Student Loans.   For example, the provisions in  this                 
  bill that say they should be physically sound, and that they                 
  should have operated  for at  least two years,  are ways  to                 
  avoid the bad experiences that this  loan program has had in                 
  the past.  He is confident that such action is more positive                 
  than an arbitrary default rate.                                              
                                                                               
  There  was  discussion  on a  Pete  Marwick  study regarding                 
  outsourcing.                                                                 
  Mr. McCormick  stated than in administering the size of this                 
  loan program, along with the distance from the mainstream of                 
  the student loan industry, it isn't  feasible.  He noted his                 
  concerns in outsourcing to a servicer in another area within                 
  the United States, it may be, 1) risky, 2) may not be doable                 
                                                                               
                                                                               
  (not  from  this end,  but from  the  host end)  because the                 
  system may  not be  adjustable to  accommodate a  very small                 
  loan program which is  located a long way from  their market                 
  area.  It  is for these  reasons that it  is being done  in-                 
  house.                                                                       
                                                                               
  Senator  Sharp  did  not  want  the  bill to  move  out,  he                 
  questions  the amendment,  which  he did  not  have time  to                 
  analyze.   He asked for clarification regarding the loan and                 
  if  the  student  is  out-of-state  versus  in-state.    Mr.                 
  Mccormick responded that the program could be  out-of-state,                 
  and the student  is physically present  in this state.   For                 
  example,   there  are  programs  available  to  students  on                 
  military  bases  in Fairbanks  and  in Anchorage  offered by                 
  Wayland Baptist University.  That is  a program that is out-                 
  of-state, but the student is physically present in the state                 
  of Alaska. He also stated that there are  programs available                 
  outside  the  state  of Alaska.  The  program  excludes non-                 
  residents.   Alaskan students can  go to school anywhere and                 
  receive the Alaska Student Loan.                                             
                                                                               
  Senator Zharoff asked  how this  would effect existing  loan                 
  programs  with  an effective  date  of  July 1,  1995.   Mr.                 
  McCormick responded that it will  effect those funds not yet                 
  disbursed, but on prior loans there would be no effect.  For                 
  those students who have borrowed money and are in repayment,                 
  as their loans go into deferment,  there will be no interest                 
  added.  By changing this law  to read, "interest on the loan                 
  during deferments," it would have  no impact on prior loans,                 
  only loans made  on or after  July 1, 1995.   The promissory                 
  notes and their preexisting conditions must be honored.                      
                                                                               
  Senator Zharoff referred to total disability.  Mr. McCormick                 
  noted that for those students who  do not medically meet the                 
  definition of total disability, they will not be exempt from                 
  making payments on the  loans taken out after July  1, 1995.                 
  For those  who are  50% disabled  and have  taken out  their                 
  loans prior to July 1, 1995,  they would qualify for medical                 
  deferments.   It  is  felt  that this  is  a  misuse of  the                 
  program,  and  Mr.  McCormick  indicated  that it  would  be                 
  advantageous to discontinue this deferment.                                  
                                                                               
  Co-chair Frank spoke  to Amendment  #1, which  is a  product                 
  produced  by  the  budget subcommittee  within  the  Dept of                 
  Education.  The WAMI program has a contractual obligation to                 
  the  University of  Washington  which requires  an increased                 
  payment for  overhead.   The commission  said they  were not                 
  able  to charge the  students who benefit  from the program,                 
  and this amendment would  allow for that. He  felt it was  a                 
  responsible approach to enable the  WAMI program to survive.                 
  Senator Frank MOVED for adoption  of the amendment.  Senator                 
  Phillips OBJECTED. He asked if Mr. McCormick had a position,                 
  which  he did not.   Senator Rieger has  an amendment to the                 
  amendment. Senator Sharp  OBJECTED.  He stated that  for the                 
                                                                               
                                                                               
  number of students  that benefit  from all the  universities                 
  compared to the  number of students that  benefit from WAMI,                 
  there  is  no comparison.   He  stated  that the  program is                 
  supporting 6-8 students and costing hundreds to thousands of                 
  dollars.  The least they can  do is absorb some of the  cost                 
  from the special  education.  Senator Frank  stated that his                 
  amendment was not intended to harm  WAMI.  There was further                 
  discussion regarding this issue.                                             
                                                                               
  It was agreed  to hold  the bill and  come back to  it at  a                 
  later time.                                                                  
                                                                               
  End    Tape #40, Side 1                                                      
  Begin  Tape #40, Side 2                                                      
                                                                               
                                                                               
       SENATE BILL NO. 131                                                     
       "An Act relating to investments by fiduciaries."                        
                                                                               
  Vernon Sales,  Executive Vice  President, Key  Trust Co  for                 
  Alaska, representing  Alaska Bankers  Association, spoke  by                 
  teleconference to the committee.  He stated that the purpose                 
  of SB  131 is to  provide more investment  opportunities for                 
  the  Alaskan consumer.    The investment  opportunities  are                 
  defined  by:  1)  expanding  on  current state  statutes  in                 
  reference   to   common  funds   by   including  the   term,                 
  "affiliate", and 2)  using new language to the state statute                 
  to specifically allow for  the use of mutual funds.   Mutual                 
  funds are investment pools that  are created to accept  sums                 
  of  money  in   various  amounts,     from  individuals   in                 
  institutions.  These  funds are  then made available  across                 
  state  lines  throughout  the   country.  Common  funds  are                 
  conceptually the same, they  accept large sums of  money but                 
  they are normally not made available across state  lines. By                 
  adding the word  affiliate into the common trust  fund code,                 
  the banks could  offer to Alaskans  the same funds that  are                 
  currently available  to customers in Washington,  Oregon and                 
  Utah.    The  proposed changes  expand  the  opportunity for                 
  investments for consumers in Alaska.                                         
                                                                               
  Senator  Sharp  asked  if  the  bank trust  fiduciaries  are                 
  allowed  to  invest trust  funds into  equity stock  at this                 
  time?   Mr. Sales responded that  State statutes would allow                 
  specifically  for common  stocks, it  does not  specifically                 
  name mutual funds.   He stated that mutual funds  spread the                 
  risks, and provide for diversification.                                      
                                                                               
  Senator Rieger  stated that his concern related  to the bill                 
  restricting other  entities being fiduciaries  and trustees.                 
  In studying the bill, it  turns out that it is nothing  more                 
  than a clean up  of financial institution trusts.   He feels                 
  it is worth passing.                                                         
                                                                               
                                                                               
  Senator  Phillips  MOVED  to adopt  SB  131  with individual                 
  recommendations.    No objections  being  heard, SB  131 was                 
  REPORTED OUT of  committee with  "no recommendations" and  a                 
  zero  fiscal  note   from  the  Dept  Commerce   &  Economic                 
  Development.                                                                 
                                                                               
                                                                               
       HOUSE BILL NO. 108                                                      
       "An Act relating to claims  on permanent fund dividends                 
  for        defaulted public assistance overpayments."                        
                                                                               
  Marveen Coggins, Legislative  Aid to Representative  Toohey,                 
  testified that  HB 108  gives the  Dept of  Health &  Social                 
  Services authority  to collect delinquent  public assistance                 
  overpayments   by   administrative    garnishment   of    an                 
  individual's permanent  fund dividend.   Frequently, persons                 
  who did receive  overpayment have agreed to repay  the debt,                 
  but  despite  repeated  request  for  payment, the  debt  is                 
  ignored.   Currently, outstanding  delinquent  debts are  in                 
  excess of one-half million dollars.  HB 108 will allow for a                 
  less  expensive,  more  expedient administrative  procedure.                 
  Recovery of the  debt would  be pursued in  the same  manner                 
  that delinquent student  loans are pursued.   The Department                 
  supports HB  108. There  are two  revenue generating  fiscal                 
  notes from the Dept of Health & Social Services and the Dept                 
  of Revenue.                                                                  
                                                                               
  Elmer Lindstrom,  Special Assistant  to the Commissioner  of                 
  the Dept of Health &  Social Services joined the  committee.                 
  He stated that over  time, the amount of money  generated by                 
  the program would decline.   The first amount is  reflective                 
  of backlogged claims that this bill  would allow the Dept to                 
  collect.  He stated  that amount of individuals  effected in                 
  FY 96 is 75.  AFDC claims from 60 to 90 in 2001.   There are                 
  12,000 families receiving public assistance in Alaska.                       
                                                                               
  Senator  Sharp  asked  if  the   permanent  funds  would  be                 
  subsidizing the  Dept  of Health  &  Social Services.    Mr.                 
  Lindstrom assured  the committee that this bill  is the same                 
  as any other garnishment  situation.  It is the  individuals                 
  dividend that is  garnished, not  taken off the  top of  the                 
  pool of funds  available for  dividends, as is  the case  of                 
  those that are indicated on the dividend check stub.                         
                                                                               
  Senator  Rieger  questioned  why  this  bill  is  necessary,                 
  because the  existing law  sounds as  though it  covers this                 
  situation.  Mr.  Lindstrom responded  that with the  federal                 
  tie-in with AFDC, it requires specific statutory authority.                  
                                                                               
  Senator Sharp MOVED HB 108 with  individual recommendations.                 
  Without objections HB 108 was REPORTED OUT of committee with                 
  a "do pass" recommendation and three  fiscal notes.  Dept of                 
  Revenue,  zero; Dept of Health & Social Services, zero, $3.4                 
                                                                               
                                                                               
  revenue; and Dept  of Health & Social Services (AFDC), zero,                 
  $16.4 revenue.                                                               
                                                                               
                                                                               
       SENATE BILL NO. 70                                                      
       "An  Act  relating  to  the  public  school  foundation                 
  program; and      providing for an effective date."                          
                                                                               
  Senator  Taylor  was  asked  to  join  the  committee.    He                 
  acknowledged the help and assistance  he received by Dr. Nat                 
  Cole, for his  help in  writing the last  revision into  the                 
  foundation formula.   His expertise  was invaluable in  this                 
  effort.   He  also  thanked Linda  Snow  at the  Legislative                 
  Finance Division for the excellent job  she did and the hard                 
  work administered,  in  developing the  earlier  drafts  and                 
  spread sheets needed to explain this proposal.  He expressed                 
  the appreciation and complete cooperation of Duane                           
  Guiley, Director,  School Finance, and especially  his staff                 
  member, Eddy Jeans.  He  testified that the proposal revises                 
  the  foundation funding formula  in an  attempt to  create a                 
  more equitable  plan based on a community's  ability to pay.                 
  Those school districts with a tax base  are asked to come to                 
  the table  on an equal  basis.   The plan  requires a  local                 
  contribution of the equivalent of a 5 mill tax levy.   Where                 
  such  a levy would generate more  than the school district's                 
  basic  need, the excess  is recaptured to  be distributed in                 
  the form of supplemental equalization  aid around the state.                 
  Our regional education  attendance areas  which have no  tax                 
  base, to  speak of, would be required to  put up 100% of any                 
  eligible federal impact aid, as  their local contribution in                 
  lieu of taxes.   The key to this proposal is the addition to                 
  the foundation  formula of  a supplemental  equalization aid                 
  provision.    The  plan requires  school  districts  to fund                 
  additional  contributions,  using the  formula based  on 2.5                 
  mills and calculated  on the district's average  daily pupil                 
  membership,  and  the  property  evaluations  of all  school                 
  districts  in   the  state.     In  return  for   the  local                 
  contribution, the  state would provide  matching money based                 
  on a  calculation also  using average  daily membership  and                 
  property  values.   Communities  that  already make  a local                 
  contribution, equal to that required  by this plan, will see                 
  an increase in  state aid from what we are calling the power                 
  equalizer.   Those communities  which would  be required  to                 
  increase  their   local  effort,  would  be   rewarded  with                 
  additional   matching   dollars   from    the   supplemental                 
  equalization plan.  By way  of example, Juneau's FY-96 local                 
  contribution  is budgeted at  $12.8 million.   That is $12.8                 
  million more than the local contribution required under this                 
  proposal.  Juneau would see an  increase in state funding of                 
  $1.3 million under  this plan.  Anchorage's  estimated local                 
  contribution for FY-96  is $74.6  million under the  current                 
  law.  This plan  before the committee would require  a local                 
  contribution  of  just under  $79  million.   That  is  a $4                 
                                                                               
                                                                               
  million increase. However, that increased local contribution                 
  would generate  an  additional $10  million in  supplemental                 
  state  aid.    The  spreadsheets  are  based on  the  latest                 
  property  evaluation  numbers  available  to  the  Dept   of                 
  Education.  Spreadsheets  use the current $61.0  unit value.                 
  The comparisons are  based on estimates for  FY-96 under the                 
  existing law and under this  plan.  The bottom line is  that                 
  the contribution of  state and local resources  available to                 
  education under this plan would  exceed that available under                 
  current  law  by  $27 million.    By  requiring  the 5  mill                 
  equivalency and 100%  of eligible federal match,  as a local                 
  contribution, combined with  other elements  of SB 70,  this                 
  plan would  actually reduce state spending by  more than $35                 
  million, while increasing the number of dollars available to                 
  education statewide.                                                         
                                                                               
  Senator  Phillips MOVED to adopt CSSB  70, version "O" dated                 
  4/19/95.                                                                     
                                                                               
  Senator Rieger asked  to make a  motion to amend the  motion                 
  that was before the committee.   There was debate as to  the                 
  amendment.                                                                   
                                                                               
  OBJECTION  was removed  and  the CS  working  draft "O"  was                 
  ADOPTED.                                                                     
                                                                               
  Senator Taylor noted  a technical change  on page 4 and  14,                 
  replacing the word, "percentage" to "factor".                                
                                                                               
  Co-chair  Halford  asked where  the  funds are  coming from?                 
  Senator Taylor  explained that  the spreadsheets  reveal the                 
  funds coming  from two  districts: North  Slope Borough  and                 
  Valdez.   Both of which  have been  blessed with a  tax base                 
  that is extraordinary compared to any other community in the                 
  state.    The  amendment is  saying  that  those communities                 
  should pay the same level of taxation that each of the other                 
  communities in the state are contributing towards education.                 
                                                                               
                                                                               
  Senator   Taylor   reflected   that   presently  there   are                 
  communities that  contribute less  to  the school  districts                 
  than others. When  averaging daily membership (total  number                 
  of children attending school) and  dividing that number into                 
  the tax  base  of  each  community, the  results  show  that                 
  Anchorage is much  lower than Juneau, Ketchikan  and several                 
  other communities, that  have a  greater level of  community                 
  tax base.  When  those communities say they are  paying high                 
  taxes, they are right.                                                       
                                                                               
  Joe  McCormick,  Executive  Director for  the  Commission on                 
  Postsecondary  Education  made  reference to the spreadsheet                 
  fax  dated  4/20/95.    The  spreadsheets  show  the  actual                 
  comparison  of what  would  occur under  this proposal.   It                 
  covers every district.   The  first two pages  on the  right                 
                                                                               
                                                                               
  hand  column labeled  "E"(existing law  -combined  state and                 
  local  resources)  and   on  page  3  and   4,  it  answers:                 
  supplemental equalization aid; basic foundation aid based on                 
  a $61.0 unit; and  the combination thereof; what the  5 mill                 
  requirement would  generate from  each community;  the local                 
  share  that  would   be  required  to   obtain  supplemental                 
  equalization aid; the capture column,"K",  and what would be                 
  required locally,  over and  above what  is currently  being                 
  contributed for communities  to meet the requirement  of the                 
  bill.    The figures  shown  indicate those  communities not                 
  currently contributing what would be contributed under  this                 
  bill.    Communities   zeroed  out  are  either   REAA's  or                 
  communities  that  already  contribute  more than  required.                 
  Pages  5  and  6,  indicate  the  additional  local  revenue                 
  required to meet 5 mills and local share.  He indicated that                 
  there were not many communities in  this category that would                 
  have to put in more money,  but in each case, that increased                 
  local  contribution  generates  additional supplemental  aid                 
  with the exception of the two communities of the North Slope                 
  Borough and Valdez.                                                          
                                                                               
  Co-chair Halford  asked how  the recapture  works.   Senator                 
  Taylor  responded  that   the  when   the  money  has   been                 
  transferred into the state fund, through the power equalizer                 
  formula, the state fund then redistributes  the money.  That                 
  is  where  those monies  come from  that  are matched.   For                 
  example, when Anchorage puts forth  $4 million of additional                 
  local funds, they will receive $10 million.                                  
                                                                               
  Mr. McCormick stated that there is  a fiscal analysis of the                 
  impact of this legislation in the form of a spreadsheet.  He                 
  stated that it refers  to draft "M" on the  spreadsheet, but                 
  it actually refers  to draft "O". Co-chair  Halford inquired                 
  to the amount  the state currently contributes  to education                 
  in the communities that will be  seeing a reduction in state                 
  aid, such as  Valdez and the  North Slope Borough?   Senator                 
  Taylor responded that  the North  Slope Borough receives  $9                 
  million for basic  education.   North Slope contributes  35%                 
  and the state contributes  $3 million over that for  a total                 
  of $12 million.  North Slope spends over this amount, and he                 
  indicated that  it was in the $20  million range.  With this                 
  plan, they would not be receiving as much from the state.                    
                                                                               
  Mr. McCormick  noted that there  is a provision  requiring a                 
  contribution  of   100%  of  eligible  federal   impact  aid                 
  (currently  it  is   90%)  as  against  the  basic  cost  of                 
  education.  The  reason for the 90% used in the past, was to                 
  provide an incentive for the district doing the paperwork.                   
                                                                               
  Co-chair Halford inquired  as to  the mechanism drawing  the                 
  money back  into the formula  from communities who  have the                 
  huge oil investments? Mr. McCormick responded that Section 1                 
  of the bill states that the public school foundation account                 
  is  established.   It  adds,  "municipal contributions  made                 
                                                                               
                                                                               
  under AS 14.17.025(i)", and on page 2  of the bill, it gives                 
  the  formula  for  the 5  mill  equivalency.    That is  the                 
  mechanism which  requires the municipality to  actually send                 
  the check.  There are alternatives to that requirement.  The                 
  state could  allow a  year for  transition  and forgive  the                 
  requirement, but  that the  state will  not fund  them, they                 
  would be  endorsing their  educational system.   That  alone                 
  would be  dropped back to a $60.0  funding level.  This will                 
  still generate income over and above what is currently being                 
  spent on education in all the  other tax paying districts in                 
  the state because  the amount  has been saved  that was  not                 
  sent out to the districts who can afford it.  The funds then                 
  would be redistributed throughout the state.  Senator Taylor                 
  did express that it is a circle against state revenue.                       
                                                                               
  Senator Taylor noted that the State  of California was faced                 
  with a similar problem several years  back.  They were faced                 
  with a  differential between  rich and  poor tax  districts.                 
  This led to  the Sonoma Case.  In Alaska, we  had a  similar                 
  case, whereby  Mat-Su Borough  sued the  state 3  years ago.                 
  Every time funding  is short,  there are disparities  within                 
  the state.   He has concerns  that the state will  lock into                 
  two years of flat funding, which  he says is happening right                 
  now. If  one of the  districts brings forth a  suit like the                 
  Sonoma suit, and we are ordered by the courts to go back and                 
  adjust the formula, in an  even more disproportionate amount                 
  than it is now,  it could be disastrous.   By adopting  this                 
  formula, it should  prevent a situation like the Sonoma Case                 
  from happening.                                                              
                                                                               
  Senator Phillips MOVED  to adopt the change  of "percentage"                 
  to factor on  page 4, lines  14 and 16,  and on page  14. No                 
  objection being  heard the  amendment was  ADOPTED into  the                 
  working draft.                                                               
                                                                               
  ADJOURNED                                                                    
                                                                               
  The meeting was adjourned at approximately 11:00 a.m.                        
                                                                               

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